FDI Law Passed with $5m Restriction Dropped

By Lawi Weng 7 September 2012

Burma’s Union Parliament passed the controversial Foreign Direct Investment (FDI) law on Friday but dropped the clause which required minimum investments of US $5 million.

Speaking to The Irrawaddy on Friday, Lower House MP Win Oo, a member of the Investment and Industrial Development Committee, said that the Union Parliament approved the law after the bill passed through three drafting stages.

He said that in order to protect local businesses, the drafting committees retained the other restrictions such only permitting up to 49 percent foreign ownership of businesses in restrictive sectors such as agriculture, livestock and offshore fishing.

The minimum level for investment is 35 percent across even nonrestrictive sectors, while foreign investment in areas which would damage culture, health, natural resources or the environment would be prohibited.

“They did not want foreign companies confused about the $5 million, this is why they negotiated to drop it. But the other existing restrictions are set to be the same from the last draft,” said Win Oo.

The minimum capital of $5 million would have been the highest capital amount in the Association of Southeast Asian Nations (Asean), with neighbors Cambodia, Laos, the Philippines and Thailand only having low restrictions in certain important sectors.

Despite some critics saying that restrictions in the FDI law were added to protect Burma’s junta-linked cronies, Win Oo said that the law was intended to protect the whole country. Friday was the last day of the current parliamentary session and passing the FDI law was deemed vital to expedite the auctioning of Burma’s offshore gas reserves.

Burma is currently undergoing a political and economic transition and many people need job opportunities. Some economic experts said that there should not be any restrictions to the FDI law in order to encourage as much foreign capital into the country as possible.

However, Win Oo said that all Burmese people could become workers of foreign companies if some restrictions are not put in place. He added that other countries in the Association of Southeast Asian Nations such as Thailand also employ similar restrictions.

Sean Turnell, economics professor at Australia’s Macquarie University and a Burma specialist, said that Thailand has a 50-year head-start on Burma. “[Thailand] was able to become a successful agricultural exporter and used this starting point—an economy switched into the global division of labor with transformed institutions as a consequence—to become an exporter of labor-intensive manufacturing,” he told The Irrawaddy.

“In other words, it has more room for such things. Of course, this does not mean Burma has to be completely open to everything, but it’s important it doesn’t go down the road to excessive protectionism. It has trod [that] road before.”

Earlier this week, the Union of Myanmar Federation of Chambers of Commerce and Industry also urged MPs to relax FDI restrictions if the country is to prosper. Business owners say foreign capital and technology is vital to help develop the economy and create jobs.

There is also a fear that restrictions on overseas investment would have resulted in ownership fraud, which is currently rife in garment businesses as legislation passed in 1982 prohibits 100 percent foreign ownership. Many international businessmen use their local manager’s name to register factories and so dilute lines of responsibility for worker rights.

The new FDI law also contains provisions for local workers in foreign-invested industries. In the first year, 25 percent of the total workforce must be Burmese, with this expanding to 50 percent and then 75 percent over the following two years. Foreign investors also must help with the technical transfer of skills to domestic workers through their local business partner.