The Cost to Burma of a Stalled Investment Law

By William Boot 2 October 2012

Foreign company executives are being invited to take part in an investment “summit” in Rangoon this month despite the continued absence of the much-promised new foreign investment law.

Several senior government officials will speak on “investment opportunities and private sector development”—while the Foreign Direct Investment (FDI) draft law languishes on President Thein Sein’s desk waiting to resubmitted to Parliament for yet further changes.

“Regardless of the delay in the passing of the country’s foreign investment law, numerous global foreign corporate executives and regional businessmen are convening in Myanmar [Burma],” said the Centre for Management Technology, a Singapore-based conference organizer trying to drum up business.

But just how much is the 10-month-long FDI wrangle hurting Burma’s economy?

“I think the delays in passing the FDI law will deter some investors, but probably not those with a long term outlook and [not] those who would probably most benefit Burma,” economist and Burma expert Sean Turnell told The Irrawaddy on Oct. 1. “Given the shape that the draft FDI law has taken at various times in this long process, I would be more concerned that a bad law is passed, rather than the fact that there is not one yet.”

Parliamentarians won’t meet to discuss the president’s proposed amendments until after Aung Naing Oo, the director-general of the Directorate of Investment & Company Administration, has given a talk on “Investment Opportunities and Private Sector Development.”

He and other senior officials from the Ministry of National Planning and Economic Development and the Ministry of Finance and Revenue are supposed to advise participants on rules for joint ventures and land ownership.

“The uncertainties surrounding the status of this law and the process of enacting it are symptomatic of two major challenges for Thein Sein’s administration: transparency and decision making,” says a timely new study on Burma published by the Washington think-tank Brookings Institution.

“It is difficult to reconcile the democratic spirit of this [Burmese] administration with the reality that the text of the initial draft law was not made public, that there was no public discussion of the issues when the draft was deemed to be flawed, and that the administration has declined to explain clearly the timetable for the law’s enactment,” said the study’s author Lex Rieffel.

A former Southeast Asia specialist in the US Treasury and senior executive at the Institute of International Finance, Rieffel said, “For the most part, policy decisions are being made largely in a non-transparent, top-down, discretionary manner as was the practice in previous governments.”

It is this lack of transparency that has stalled plans by the Ministry of Energy to hold a much-heralded auction of offshore blocks for oil and gas exploration for which there have been two major “find-out-all-about-it” conferences in Rangoon this year.

Those conferences attracted executives from oil majors such as Chevron, Shell and ConocoPhillips who remain uncertain about new conditions of investment and have voiced concern about the continued involvement of the Myanmar Oil and Gas Enterprise which is tainted with the military regimes of the past.

President Thein Sein has said he wants parliament to make the FDI law clearer and more flexible than the version which was approved by parliamentarians on Sept. 7. Officials in his office have said Thein Sein wants the limit on foreign stakes in joint ventures raised above the 50 percent level. An earlier draft had limited the foreign share to 49 percent. He’s calling for more flexibility, with the level of foreign ownership variable depending on the industry.

The current law restricts foreign investment in agriculture and fishing and agriculture, but the president wants clarification of this too.

“Weaknesses in the policymaking process have delayed the adoption of measures in the agriculture sector to raise farmer incomes, an essential step in a country where 70 percent of the population is rural. Furthermore, natural resource extraction continues at an unsustainable and even counterproductive rate,” said Rieffel.

Turnell, who edits Burma Economic Watch at Australia’s Macquarie University, said he believes some delays in new investment might not be such a bad thing.

“I am in favor of something of a moratorium on new mining and resource extractive concessions,” he said. “On this front there needs to be better processes both in contract awarding and revenue transparency, if for no other reason than to insure Burma is not ripped off. So a pause here is something of a good thing, I think.”

Rieffel pointed out that no other country in the 10-member Association of Southeast Asian Nations (Asean) has a specific FDI law. Rules and conditions for foreign investors are generally contains in other more general national laws.
In neighboring Thailand, for instance, foreigners can never own land or property no matter how much money they invest. In Malaysia, land ownership by foreigners is permitted.

“It remains to be seen how important this new law will be to foreign investors contemplating entry into [Burma] in the near term. After all, the existing law has not been an obstacle to the tens of billions of dollars of foreign investment approved by the government of [Burma] over the past 20 years,” said Rieffel.
“At the same time, the ambiguous status of the new law is raising red flags and casting doubt on both the Thein Sein administration’s commitment to build a modern market economy and its ability to prevail over influential groups expected to be losers in such an effort.”