Creation of new ministry part of Myanmar’s plan to incentivise FDI

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In an attempt to reverse a recent decline in foreign investment, Myanmar has set up a new ministry tasked with attracting and facilitating fresh inflows, though concerns over the re-imposition of import tariffs by the EU could cool investor appetite.

On November 19 the government established the Ministry of Investment and Foreign Economic Relations, a new authority tasked with streamlining foreign investment processes, promoting Myanmar as an investment destination and working with other government agencies to strengthen the regulatory and operational environment covering foreign firms in the market.

One of the first measures being considered by the ministry is the establishment of a land bank that will identify blocks available for industrial activity and streamline the development of such sites with suitable partners.

See also: The Report – Myanmar 2019

Efforts come amid falling FDI levels

The establishment of the new ministry comes as the pace of foreign investment has slowed in recent times.

Foreign direct investment (FDI) fell during FY 2017/18, with inflows of $5.7bn, according to data issued in November by the Myanmar Investment Commission. This represented a $900m drop on the preceding 12-month total of $6.6bn.

Furthermore, the second half of FY 2017/18, which ended on September 30, saw inbound investments of just $2.1bn, indicating a deceleration of FDI as the year progressed.

However, the creation of the new ministry should help reverse the easing inflows and lay the foundation for further reforms, according to Cheah Swee Gim, director at legal consultancy Kelvin Chia Yangon.

“This year the administration is expected to channel all its efforts into further strengthening the legal and administrative machinery for facilitating investment,” she told OBG.

“While overnight changes would not be realistic, we should see incremental changes among the ministries that deal directly with investors, as a result of growing alignment with the reforms and their earnestness to encourage investment in Myanmar.”

New reforms open up sectors to foreign investment

Alongside the establishment of the new ministry dedicated to boosting FDI, the government has taken other steps to encourage investment in specific sectors.

An example of this has been seen in the insurance sector, with the Ministry of Planning and Finance announcing that foreign insurance providers, underwriters and brokerage firms are now allowed to operate in the domestic market, though some restrictions to participation will remain.

In a statement issued on January 2 the ministry said up to three licences would be granted to foreign life insurers, with a further option of overseas policy providers forming a joint venture (JV) with local firms in order to enter the market.

In the non-life segment, foreign firms with a representative office in country will be sanctioned to form JVs with domestic operators, the ministry said.

With Myanmar having the lowest rate of insurance penetration in the region, estimated at around 0.1% of GDP, and the economy continuing to expand solidly, the sector has strong investor appeal.

The initiative follows similar efforts to open up Myanmar’s economy to foreign investment, such as allowing 100% foreign-owned firms and JVs to operate in the retail and wholesale trading sectors, a decision announced last May.

Then in November the central bank further loosened regulatory restrictions on the banking sector, allowing overseas banks in the market to lend to domestic businesses, having previously been limited to serving foreign clients. This expansion of the sector’s operational base could encourage foreign lenders to raise their investment profile in Myanmar.

Potential removal from EU trade scheme poses threat

While these recent reforms may incentivise the flow of foreign investment into Myanmar, other factors could weigh on international interest.

The EU, in response to human rights concerns related to unrest in Rakhine State, in late October announced that it may remove Myanmar from its Generalised Scheme of Preferences (GSP) unless certain issues were addressed.

Removal from the programme, which allows Myanmar to export products – with the exception of arms – to the bloc without facing tariffs and quotas, would lead to a reduction in demand for locally produced goods, particularly garments, according to industry figures.

Aung Naing Oo, director-general of Directorate of Investment and Company Administration, said such a decision, if it were to occur, would see FDI flows fall and slow the pace of economic reform.

“If [the] EU decides to withdraw the GSP, it will be hard for Myanmar producers to export their goods to European countries, and foreign investors may hesitate to do business here, leading to a fall in job creation,” he was quoted as saying by Thai daily The Nation on January 10.

While the EU has not made a decision on the matter, there are concerns that uncertainty over medium- and long-term access to European markets could hinder efforts made by the new ministry and other agencies to lift the country’s investment appeal.

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