Myanmar expects a combination of market reforms and rebound in foreign investment to underpin stronger economic growth in 2018

15 Sep 2017

A combination of market reform and a rebound in for­eign investment is expect­ed to underpin stronger growth in Myanmar’s economy this year and into 2018.

The process of opening up the economy to pri­vate sector and overseas involvement took a key step forward in mid-June, with the Ministry of Com­merce announcing fur­ther liberalisation of trade and import regulations.

Under the new rules issued in mid-June, for­eign companies are now permitted to trade and import fertilisers, seeds, pesticides, hospital equip­ment and construction materials, in accordance with the Myanmar Har­monised System com­modity code. Trade of these products was for­merly limited to domestic firms, or those working in partnership with overseas companies.

The easing of these re­strictions should help clear supply bottlenecks in the agricultural, health care and construction industries, with knock-on benefits expected for broader economic growth.

Setting the stage for investment

The new Myanmar In­vestment Law, which came into force in April, should also play a major role in supporting re­newed FDI inflows, hav­ing levelled the playing field by bringing two dis­tinct pieces of legislation for foreign and domes­tic investment under the same regulatory frame­work.

The business commu­nity is also expecting the adoption of the Compa­nies Act, which will help to regulate the local op­erating environment. Authorities are currently working to prepare the legislation for ratification before the end of the year.

In addition to making the Companies Act conform to the new Myan­mar Investment Law, the proposed amendments are seen as vastly differ­ent from the old act, and should both make it eas­ier to set-up companies and register them elec­tronically.

Other reforms bode well for the opening up of the retail sector to 100% for­eign-owned companies. The way forward was paved by the Myanmar Investment Commission’s Notification 15/2017, dated April 10, 2017. The notification allows for­eigners to participate in retailing and wholesale services, subject to the approval of the Ministry of Commerce. Judging by the Ministry of Com­merce’s actions last June, it will only be a matter of time before there is fur­ther liberalisation of trade and import regulations.

Both the Asian Develop­ment Bank and the IMF expect foreign invest­ment to accelerate, and early signs look positive: $1.85bn worth of foreign direct investment (FDI) was approved by the My­anmar Investment Com­mission in the first quarter of FY 2017/18, with June alone seeing $713.4m in ratified investment from 22 overseas companies.

In FY 2016/17 Myan­mar attracted more than $6.87bn in FDI, accord­ing to data issued by the Myanmar Investment Commission. While this figure was above the $6bn target set later in the fi­nancial year, it fell below the $8bn bar set by the Directorate of Investment and Company Adminis­tration, and was short of the $9.5bn FDI posted in FY 2015/16.

Work in progress

Widely recognised im­pediments to attracting higher levels of foreign investment in Myanmar

are related to infrastruc­ture; in particular, a lack of electricity access and underdeveloped trans­port networks.

To finance these devel­opment needs, the gov­ernment will need to look to the private sector, ac­cording to U Win Khaing, minister of construction.

“We are working to ex­pand electricity access and increase road connec­tivity. However, given our budgetary limitations, these projects can only be undertaken in partner­ship with international investors and financial in­stitutions, preferably un­der public-private part­nership models,” he told OBG.

“We must also look to increase interaction with local and international stakeholders to align the construction industry with international stand­ards and good governance practices,” he added.

Regaining

momentum

During FY 2016/17, which ended on March 1, GDP growth slowed from 7.4% to 6.4%. Much of this cooling has been attrib­uted to external factors, such as the continued im­pact of flooding between July and September 2015, and declines in global commodities prices.

However, some of the root causes have been in­ternal, including weaker construction activity in Yangon due to regulatory compliance, according to the IMF’s most recent Ar­ticle IV consultation.

The transition of power following the election of the National League for Democracy at the end of January 2016 has also slowed the pace of re­form, as the new govern­ment gets to grips with the task of reshaping the economic focus to con­solidate growth and sta­bility.

However, as legislative changes enacted over the past year begin to take ef­fect and global market conditions pick up, the country’s econo­my should gain momen­tum both this year and next.

GDP is forecast to ex­pand by 7.7% in FY 2017/18 and by 8% in FY 2018/19, according to the latest projections from the ADB.

 

(Myanmar Business Today: https://www.mmbiztoday.com/articles/myanmar-steps-reforms-entice-investors )