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Promoting Investment Climate: How to attract FDI?
Presenter, Commentator,Khaing Sape Saw (Ms.) Khin Maung Nyo (Mr.)Freelance Researcher Freelance Researcher and Writer
Myanmar Engineering Society (MES), 3F, Hlaing Universities Campus March 15, 2014
KGU-MARCEDThe 1st International Conference On Development Alternatives
Kumamoto Gakuen University, JAPAN
Myanmar Research Center for Economic Development
Promoting Investment Climate: How to attract FDI?
Outline• Types of FDI • Determinants of FDI• Obstacles to FDI • FDI and Socio-Economic development• Investment promotion• Myanmar : Case study on Investment Climate
ObjectivesWhere the Myanmar is with regards to the FDI targets
Progress by which Myanmar is moving towards the development
Types of FDI
4
By Direction
Inward FDIOutward FDI
By Target
investmentMergers and AcquisitionsHorizontal FDIVertical FDI
By Motive
Resource-SeekingMarket-SeekingEfficiency-SeekingStrategic-Asset-Seeking
Types of FDI
Among types of FDI, efficiency-seeking FDI is probably the highest potential impact on development effect
Determinants of FDI
Determinants of FDI
Economic conditions• Markets• Resources• Competitiveness
Host country policies• Macro policies• Private sector• Trade and industry• FDI policies
MNE strategies• Risk perception• Location • Sourcing• Integration transfer
Key determinants of FDI in Host country
Determinants of FDI Eclectic Paradigm Concept
John. H. Dunning (1976, 1980) introduced the FDI theory via the Eclectic Paradigm.
Eclectic Paradigm means “the multinational firm that posits three types of advantages benefiting the multinational corporation: ownership-specific (O), location-specific (L), and internalization advantages (I).”
Determinants of FDI Eclectic Paradigm ConceptSelected Variables for Myanmar
• Gross domestic Product• Foreign Exchange Rate• Interest Rate• Inflation• Economy Openness• Countries official
language
• Distance (km)• Shared Border• Economic globalization• Political globalization • Social globalization
Obstacles to FDI
General obstacles to FDI Administrative and legal barriers • General approvals and licenses; industry specific
licenses; utility, labor, land access, clearance procedures, reporting requirements
Policy barriers • Fiscal, monetary, trade, exchange rate, debt managementInfrastructure barriers • Electricity, water supply, communications, roads, ports,
airports, etc.Institutional and human resources barriers • Health and education, social capital; public
institutions11
Traditional obstacles to FDI (cited by business)• Political and economic instability• Lack of proper infrastructure• Lack of required labor skills• Difficult access to land and other assets• Absence of rule of law/corruption• Invasive red tape/high costs of doing business• Lack of performance • Incompetent partners
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Obstacles to FDI : Myanmar• Political risk: entrenched interests and the future of the reform process• Ongoing conflict with ethnic minorities• Regulatory uncertainty• Poor enforcement of rules/lack of competence and impartiality of the
court system• High land and real estate prices• Insufficient level of labor skills• Lacking infrastructure• Higher costs of doing business/excessive red tape• Difficulties with expatriation of profits• Primitive financial system/lack of international accountancy standards• Ongoing sanctions• Export tax and exchange rate fluctuations• Complex import and export procedures
13
Important factors attracting FDI• Open economy, high growth (e.g. China, India)• Rule of law (e.g. Singapore, Thailand)• Political and economic stability (e.g. China, Singapore)• Low labor costs (e.g. ASEAN, LDCs, China, India) • Competent labor (e.g. India, Taiwan)• Natural resources (e.g. Indonesia, Myanmar, Kazakhstan)• Large market (e.g. China, India, Indonesia, AFTA)• Infrastructure facilities (e.g. Singapore, Hong Kong, Thailand)• Absence of red tape (e.g. Singapore, Hong Kong)• Trade facilitation (cross-border zones and areas, e.g. growth triangles)
14
FDI and Socio-Economic development
15
FDI can contribute to technology transfer and skills developmentFDI can contribute to Economic development but it is not a simple ways.
16
FDI and Socio-Economic developmentHypothesis
1) Open economies generate development and growth
2) Country Development and growth attract FDI3) Liberalization improves efficiency.4) The national regulatory framework ensures
stability.5) National development strategies and plans must
integrate to FDI policies
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FDI and Socio-Economic developmentKey Factors
6) Integration in global and regional7) Whether Risk or Benefit : take opportunity
from ASEAN Economic Community (AEC) 2015
8) Promoting domestic investment by supporting industries, clusters and finance
9) Negotiation of investment agreements and contracts
18
FDI and Socio-Economic developmentKey Factors
10) A proper balance between the investor and the benefits of the host country
11) Assess to Natural resources
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FDI and Socio-Economic developmentKey Factors
Investment promotion
Investment promotionHypothesisThe success of an investment promotionThe strategy depends on; A country’s image and proven commitment to CSR. policy coherence and consistency . Coordination and cooperation among all stakeholders. Quality and efficiency is important than size of organization.
Investment promotionKey Factors
• Formulation FDI policies • Promotion and persuasion Strategies for FDI• Legal requirements for FDI• Negotiation • Institutional capacity building• Cluster between government and private sector.• Set regulatory Framework • Clear mandate• Investment facilitation• Single window system • Cut red tape 22
• Political and economic stability• Rule of law and regulatory Frame work• Skilled Labor• Developed infrastructure• Favorable investment climate• Provide accurate information with
international Language
Investment promotionKey Factors
Myanmar : Case study on Investment Climate
Natural Gas Resources
Forest
Land Resources
Fishery Resources
Rich Natural Resources
Other Mining Products
Gold
Copper
Precious Gem Stones
Economic Development Reform
• Attracting More FDI• Modifying in Trade Policy• Monetary Policy and Finance Policy• Conducting National workshops in various Economic sectors
Foreign Investment Law
93.53%
5.33% 0.69% 0.43% 0.01%
Power
Oil and Gas
Manufacturing
Mining
Transport
2011-2012
Source : DICA
Foreign Investment by Sector
28.23%
25.66%
21.78%
21.13%
1.08% 1.04% 0.68% 0.39%
Manufactur-ing
Power
Oil and Gas
Hotel andTourism
Mining
Others
Agriculture
Fisheries
2012-2013 US$ million
Source : DICA
Foreign Investment by Sector
Foreign Investment by Country
Chin
a
Viet
nam
Sing
apor
e
U.K
Hong
Kon
g
Japa
n
The
Repu
blic
of K
orea Indi
a
The
Neth
erla
nds
Mal
aysia
Thai
land
Cana
da
Brun
ei
Daru
ssal
am
0
50
100
150
200
250
300
350
400
450
407.
318
329.
390
247.
810
232.
700
80.8
09
54.0
63
37.9
42
11.5
00
10.3
01
4.32
3999
9999
9999
1.30
0
1.01
0
1.00
0
China Vietnam Singapore
U.K Hong Kong Japan
The Republic of Korea
India The Netherlands
Malaysia Thailand Canada
Brunei Darussalam
US$ million
Source : DICA
32
• Agriculture• Fishery• Mining• Forestry• Oil & Gas
Resources
Based
• Garment• Electronic assembly lines• Footwear
Labor Intensiv
e
•Hotel & Tourism•Logistic•Real Estate
Service
• Food Processing• Seafood• Mineral Processing• Wood, Furniture • Petrol Chemical
Labor Force 37 Million
Potential HR and Potential Industry
Issues related to SEZs/IZs• Purpose, goals and target should be addressed. • Many bodies involved and duties and responsibility unclear.• Effective strategies for Development• Flexible Procedures and regulations• Develop infrastructure• Be ensure with international trade and investment rules
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MyanmarEnacted Law related to Investment
• The Union of Myanmar Special Economic Zone Law was enacted in January 2011
• The Dawei Special Economic Zone Law was also enacted in January 2011 subsequently.
• The Republic of the Union of Myanmar Foreign Investment Law (FIL) was enacted on 2 nd November 2012 (revised)
36
Strengths of Myanmar
Location Advantage
Natural Resources
Human Resources
37
• GMS • ASEAN Community•Hub of South East Asia
• Rich Natural Resources
•Semi-skilled and skilled labours
Policy considerations
• Competition Policy• Competition Policy during transition to Market economy• Action on the National Level• Action on the regional level
• Cross-border Mergers and Acquisitions and Development
• International Co-operation
• Benefitting from co-operation
38
Some government measures, examples in natural resources
• Australia: 30% tax on iron ore and coal mining profits to tackle climate change (75% of Australians are against it)
• Indonesia: 20% tax on raw mineral exports (caused uproar among foreign investors)
• Mongolia: 68% windfall profit tax on gold and copper and up to 50% state ownership (now rescinded)
• India: benefit-sharing with the local community (26 per cent of profits), investments in CSR (3 per cent of turnover)
• Philippines: Executive Order of the President (July 2012): balancing the rights of the state, communities and investors: rise in windfall tax and more stringent environmental protection clauses (opposed by governors)
39
FDI in natural resources
FDI in the power sector Opportunities continue to increase
2011_2012 : 94%
2012-2013 : 26% Long-term:
Generation Medium-term:
Transmission
Distribution Short-term:
Distributed power generation40
Considerations for FDI in the power sector• Power generation should be not only for
domestic usage, but also for Export • Power is essential for development • Electricity rates should be affordable to
everyone.• Ensure proper regulation of power sector• Government Role• Contract enforcement• Ensure environmental and social sustainability• Country wide and ASEAN-wide• Manage the supply chain
41
Considerations for FDI in agricultural sector• Agricultural efficiency• Access to technologies and rural employment• Food security• The rights to Land access • Sustainable land use• Environmental issues• Water use• Value added products for food industries• Rural infrastructure, especially for transportation and Logistics purpose
42
Recommendations for FDI policy
• Labor-intensive areasInfrastructure, agriculture, electricity,
telecommunications, transport, logistics, health, other services
• Systematic rule of law • Reduce red tape• Allow 100% FDI ensuring country benefits• Integrate FDI strategies to the development plan• Diversifications FDI• Export-oriented FDI • Create better overseas market access• Proper sharing benefit in natural resources• Particular attention to social and environmental impacts• Incentives
43
Development Priorities
• Land ownership • Profit sharing agreement• Set up comprehensive investment promotion policy and • Set up an investment promotion agency (IPA) for its
implementation• Focus on greenfield investment• Attention on both : domestic investors and foreign investors• Develop local capacity of SMEs• Narrow gap in performance necessities• Apply competition policy
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Recommendations for FDI policy
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Recommendations for FDI policyInvestment preference regimes• Market access schemes;• Tax exemptions for firms that invest in priority
sectors;• Investment and credit-risk guarantees;• Inclusion of productive capacity and infrastructure-
related provisions in International Investment Agreements;
• Dissemination of information about investment opportunities
Challenges• Socio-economic and
humanitarian challenges • Weak capacity for
implementing reforms• Beginning not the end• Much still depends on
individuals not policy• Sanctions• Official Development
Assistance (ODA)• Lowest recipient of ODA
among all LDC’s, with 7.2 US$ per capita in 2010
• Kick-starting/Jump Start, Grow – SEZs, Deep Sea Ports
• Equality of opportunities not outcomes
• “Pulled Along” by China, India + ASEAN
• Poor Infrastructure• Corruption• Weak rule of law and property
rights • No independent judiciary and
lack of legal transparency• Arbitrary tax policies
EXISTING CHALLENGES• International sanctions not fully removed yet• Opaque and arbitrary policymaking, including
frequent, unannounced and unwritten policy changes• Tiny financial sector and shallow domestic capital
market• Continued unpredictability in electricity supply,
especially areas outside Yangon and other major cities• Privatization• Weak educational system and unskilled workforce• Evolving system of exchange rates and foreign
exchange controls• Investments approved on a case-by-case basis
48
Recommendation
New Myanmar • One of Asia's final economic frontiers• Comparative advantages• Geographical location• 60-million untapped market• Numerous natural resources
References
S., Lall, “Attracting Foreign Investment: New Trends, Sources and Policies, Economic Paper 31” (Commonwealth Secretariat, July 1997)
J.,Wan Cho, “Investment Promotion and Enterprise Development Bulletin for Asia and the Pacific: ESCAP Works Towards Reducing Poverty and Managing Globalization By Economic and Social Commission for Asia and The Pacific”, UN. ESCAP.
M., Proksch “Promoting FDI for Development”, UNESCAPM., Proksch “Promoting and Attracting FDI for Development : Key Messages and Areas for Technical Assistance”, UNESCAP
H., Qaqaya., “The role of competition policy in mobilizing investment and competitiveness”, UNCTAD
Myanmar Investment Policy, Directorate of Investment and Company Administration (DICA)
SEZs in Myanmar ,DICA
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