Myanmar's Foreign Investment Challenges
Video Transcript:
Video Transcript
As Myanmar continues to open up politically and economically, there are a lot of foreign investors looking to take the opportunity to get in on the ground floor, so to speak. However, the entry into Myanmar remains difficult, and everything from the physical infrastructure to the legal environment provides challenges for foreign investment that has dampened some of the enthusiasm of eager foreign companies.
Although there are ambitious transportation infrastructure plans throughout the country in the works with a focus on ports and special economic zones, including the Dawei Special Economic Zone and deepwater port, travel remains constrained by an outdated transportation structure.
This is exacerbated by the severe electricity shortage that plagues the country with frequent black- and brownouts. So not only do they need to revamp the transportation network, they also need to revamp the country's grid network. It's hard to do business in a country if you can't turn on the lights, and most companies that have bravely made inroads into Myanmar come in with their own power generators in tow, or in some cases look to invest in areas where there is discussion of linking up to the Thai power grid.
In addition to this lack of infrastructure, the price of land in Myanmar -- especially in the former capital and financial center of Yangon -- has skyrocketed, and in some cases rivals the prices in New York City, and that's if you can find a place. Under the current policy, a foreign company can only lease a building for a year. There is the option to build a factory or office at the foreign company's expense for longer lease terms, but foreigners cannot own the building or the land. They must still lease, and the central government sets the rental rates and retains the option to raise rents at periodic intervals.
The Myanmar government is in the process of reforming its investment laws and loosening some of the restrictions on foreign investment. However, they appear to be in no immediate rush to whet the appetite of foreign investors. Political and finance reform, with attention to the banking system, remain paramount to the central government. A cautious opening to foreign investment comes second to these objectives, with a focus on special economic zones and ports.
Despite these obstacles, there is one country in particular that has been making significant progress in Myanmar. Japan is already working on developing a special economic zone in Thilawa and is said to also be investing in the Dawei Special Economic Zone, among other projects within the country. Some Western companies such as General Electric Co. and Siemens AG are discussing subcontracts under the Japanese umbrella.
Even during Myanmar's isolation, Japan remained connected to the country through foreign aid. This good will has given them an edge as they aggressively pour money into the country via aid and new financing. Although China remains Myanmar's biggest investor, there are hints that the tides may be turning as Naypyidaw looks to diversify away from China's political and economic dominance within Myanmar. This shift has put Chinese mega-investment projects at jeopardy, with some suggestions that even the Sino-Myanmar pipeline may not reach completion.
Myanmar's strategic geopolitical location at the crossroads of South, Southeast and East Asia, coupled with Japan's desire to revamp its influence in the region both vis-a-vis China and as it seeks new offshore opportunities for its domestic industries, make the challenges of Myanmar's foreign investment acceptable within Japan's strategic calculus.
However, until the Myanmar government eases restrictions on foreign investment and addresses its critical infrastructure problems, the obstacles will remain difficult to overcome for all but some of the largest, least risk-averse companies; those that can afford to suffer some losses for the chance to become dynamic players in a country that has the potential to become the new hotspot in Southeast Asia.
