Economy

Lingering Problems, New Challenges for Foreign Investors Despite Reforms

By Sean Gleeson & Kyaw Hsu Mon 30 October 2015

RANGOON — Despite improving access for international capital and the streamlining of company registration regulations, significant barriers remain for prospective investors in Burma, with local experts warning the de facto reintroduction of foreign exchange controls will hamper future growth.

In the annual Doing Business report, published on Tuesday, Burma climbed 10 places to 167th in the World Bank’s index on the ease of doing business in 189 countries. Covering the year to June 2015, the report praised the dramatic reduction in the time needed to register a business with the Directorate of Investment and Company Administration (DICA), along with the elimination of capital requirements for new enterprises.

Burma remains the lowest ranked country in the Asean region, well behind regional neighbors Thailand (49), Laos (134) and Cambodia (127). With an average of three years to settle tort claims in Burma’s court system, the country ranked 187th on contract enforcement, and lagged well behind the region in ease of access to credit and the legal rights of borrowers and lenders.

Zaw Lin Htut, CEO of the Myanmar Payment Union, said he expected the banking sector to improve as recent foreign entrants established themselves in the local market, but said foreign investors would be reluctant to set up locally without legislative reform to credit laws.

“This is only the beginning of the foreign banks operating in Burma,” he told The Irrawaddy. “They can’t yet provide good service for everyone, and that is a factor for why foreign investors are not happy to invest here… If the country focuses on what foreign investors need in the next couple of years, it will improve its ranking very soon.”

Following extensive deliberation, senior government figures including DICA director-general Aung Naing Oo promised that revisions to the 2012 Foreign Investment Law and the colonial-era 1914 Companies Law would be enacted before the general election. Both remain before the Union Parliament, which is not set to resume until after the election in mid-November.

Along with distrust of the local banking system, recent efforts by the Central Bank of Myanmar to clamp down on foreign currency transactions are placing an additional burden on foreign operators.

“Due to the weak banking system here, we are always having problems when transferring money from our foreign counterparts,” said Zay Htet, managing director of the Georesources mining and exploration services company. “They are always considering this before working with local companies.”

“Some of my colleagues told me that they always have problems when they use foreign banks to send investment capital here. They can’t find good banks that can directly work here; this is the one single most important factor.”

The Central Bank’s aggressive stance on monetary policy was taken in response to a 30 percent slide in the Burmese kyat against the US dollar since January. While the greenback has seen a global resurgence, the local currency has declined relative to regional currencies as a result of the country’s widening current account deficit.

An abortive attempt by the Central Bank to reintroduce exchange controls saw a wide disparity between official and market rates and the reintroduction of a thriving black market currency trade, which had largely disappeared when the Burmese government floated the exchange rate in 2012.

Zaw Lin Htut said that the kyat’s instability was making it more difficult for foreign firms to forecast revenue, and the Central Bank’s intervention had made investors wary of the potential for unpredictable revenue changes.

Experts have called for the Central Bank to shift its monetary policy focus to combating Burma’s rising inflation rate, forecast by the International Monetary Fund to hit 13 percent by the end of 2015.

Independent economist Aung Ko Ko told The Irrawaddy that the Central Bank’s current priorities were too aligned with the government, and reducing inflation at the expense of a weakened kyat would over time lead to greater prosperity and economic development.

“The Central Bank is not meant to protect the government, but to help develop the country and people,” he said. “It has to consider and take actions in the interests of the people and the country. It has an awesome responsibility.”

“Burma is a developing country with around 70 percent of the country’s population residing in rural areas. Rather than taking a cue from US Federal Reserve and European Central Bank, it should learn from central banks of Thailand and Vietnam how to stabilize inflation.”

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