The Irrawaddy Business Roundup (Apr. 4, 2015)

By Simon Lewis 4 April 2015

EU Investment Deal Could Keep Garment Sector Wages Low

London-based charity ActionAid has warned that a trade deal currently being negotiated by the Burmese government and the European Union could negatively impact female garment workers in the country.

The Bilateral Investment Treaty would set terms and conditions for foreign direct investment into Burma, and provide legal protection to European companies. Critics warn that such agreements can undermine the ability of governments to regulate business practices.

Talks on the deal were conducted in February and further negotiations are expected in May.

A post on Action Aid’s website compared the deal to the controversial Trans-Atlantic Trade and Investment Partnership, or TIPP, that would govern trade between the United States and European Union member states. The charity called for the Burmese government to ensure laws were in place to protect workers’ rights as investment from overseas ramps up.

“[T]he government of Myanmar hasn’t had time to put the right laws and policies in place to make sure this investment benefits its own citizens,” said the post by Ruth Kelly, ActionAid’s program policy manager.

“Some investors are trying to improve conditions for workers in their factories and for the local businesses they work with. Unfortunately, such investors are few and far between.”

It highlighted the garment sector, where the vast majority of workers are women and are make wages that are low even relative to other popular sourcing countries. A minimum wage law has been passed, but the lower limit for salaries has not yet been agreed.

“Most investors go to Myanmar because they can pay workers low wages. If the minimum wage goes up, investor profits go down,” the post said. “If the deal with the EU goes through, investors will be able to sue for compensation for the increased cost of wages.”

Kelly also warned that investors have sued governments around the world for billions of dollars for breaching the terms of trade deals. In some places, democratically elected governments find themselves unable to change the law due to the risk of upsetting investors. “This is not OK,” Kelly wrote.

Calls for Investment Law to Be Delayed for More Consultation

The Myanmar Centre for Responsible Business (MCRB) has urged the government to delay submitting a new investment law to Parliament amid “confusion” over the law’s scope.

The Investment Law is intended to combine existing legislation on foreign and local investment in order to assuage concerns over the lack of clarity in a highly complex regulatory environment governed by numerous overlapping laws.

In a letter to Burma’s Directorate of Investment and Company Administration, MRCB director Vicky Bowman welcomed the agency’s willingness to consult on the law demonstrated by holding an open consultation period. The consultation was originally set to close on Mar. 31 but has reportedly been extended by one month.

However, Bowman, a former UK ambassador to Burma, said that significant “further consultation and refinement”—including on regulations that will follow the law—would improve the legislation.

She said discussions on the law held in Rangoon in March had demonstrated that “there is scope for confusion about what the law does and does not seek to regulate, including specific sectoral issues as well as the interplay with other regulation.”

“Further development of supporting explanatory material would help to address this,” she added. “We therefore suggest that further time is taken to prepare the law and accompanying regulations before submitting it to a parliament with a fresh mandate in 2016.

“Such a timetable would be more likely to result in a law in which investors had confidence, and whose implications had been fully considered in a transparent process.”

New York-based Human Rights Watch also called for more consultation on the law last week.

“During the minimal consultation that did take place with independent groups, local community members raised concerns about the government’s regulation of major international investments.,” the group said in a statement. “They noted that local people often have no means for redress when an investment goes wrong.”

Toshiba to Provide Turbines for Shan State Hydropower Project

Japan’s Toshiba has announced that a subsidiary will supply the turbines and generators for a Chinese-led hydroelectric dam in Burma’s northern Shan State.

The project known as the Upper Yeywa dam is expected to begin operating in 2018, according to an Apr. 1 statement from Toshiba, which said the firm’s Chinese subsidiary Toshiba Hydro Power Hangzhou Co Ltd had won the contract. The 308MW dam is being developed on the Myitnge river in Kyaukme district by Zhejiang Orient Engineering (a Chinese “state holding enterprise,” according to its website.).

The firm would begin delivering four 77-megawatt hydropower turbine and generator units in Mar. 2016, it said.

“Toshiba Group previously supplied a hydraulic turbine for the 28.4MW Sedawgyi hydroelectric power plant in 1989, making this the second commission from Myanmar. Hydroelectricity is currently Myanmar’s primary source of electricity, accounting for approximately 75% of the country’s power supply,” the statement said.

“There are plans to build more power plants in Myanmar to meet growing energy needs triggered by the country’s strong economic growth.”

Hydropower dams are controversial in Burma and have faced opposition in the past over their social and environmental impact.

The Chinese-backed Myitsone project in Kachin State was suspended in 2011 after widespread protests over the plan to dam the Irrawaddy River. Like Kachin State, northern Shan State has been wracked by fighting between the government and ethnic armed groups in recent years, adding further concerns about large-scale development projects.

Investment, Expertise Needed in Airport Services

While ambitious expansions are underway at Burma’s two busiest airports, more investment is needed in services at the country’s aviation hubs, including maintenance, according to British consultancy Oxford Business Group.

In an update on Burma’s airports this week, the firm highlighted the upgrade currently underway at Rangoon’s airport.

Rangoon’s international airport—operated by a subsidiary of local conglomerate Asia World—is expected to complete a new international terminal by the end of this year. The terminal is part of an upgrade to a “business airport” that will see annual passenger capacity increased to 6 million to handle soaring numbers of international visitors, the update said.

“Despite only being listed as having the capacity for 2.7m passengers a year, Yangon International handled 4m passengers last year, with some other airports also working above capacity,” Oxford Business Group said.

In Mandalay, Japanese companies Mitsubishi and Jalux, alongside Surge Pun’s Yoma Strategic Holdings, last year won the right to operate the airport for 30 years, and plan to spend $100 million on upgrades. A brand new $1.5 billion airport to serve Rangoon is also planned in Pegu Division.

However, Oxford Business Group pointed out that previously announced plans to upgrade as many as 30 domestic airports had been “put on the backburner for now.”

The group also said there were calls for more investment in services at airports, citing an official at Myanmar Airlines International (MAI). The state-run airline’s managing director, Si Thu, reportedly told the Oxford Business Group that the areas of freighter services, cargo and maintenance, repair and operations all needed a boost.

“We need foreign expertise and investment in these areas,” Si Thu was quoted saying. “We need investment in infrastructure—new aircraft hangers and other facilities—and more importantly, capacity building to have qualified professionals in aviation.”

Mitsubishi to Enter Joint Venture With Instant Coffee Maker

Japanese conglomerate Mitsubishi Corporation will enter a joint venture with local firm Capital Diamond Star Group (CDSG), which makes popular instant coffee brand Premier.

In a joint statement on Monday, the firms announced they would form a food manufacturing and distribution company in Burma named Lluvia.

The deal involves Mitsubishi taking a 30 percent stake in CDSG’s existing businesses, which include producing wheat flour, tea mix, milk powder and instant coffee for the domestic market.

The new company will invest more than $200 million over the next three years, and “will leverage Mitsubishi Corporation’s international network to expand aggressively in the region and aims to be one of Myanmar’s first homegrown regional companies,” the statement said.

Mitsubishi is one of three major Japanese corporations who between them hold a minority stake in the Thilawa Special Economic Zone near Rangoon. The statement did not say whether Lluvia would establish a plant in the zone, which is set to open this year.

“The investments Lluvia intends to make across the food value chain in Myanmar will significantly benefit the country’s food and agriculture industries,” the statement said.

“In the upstream activities, Lluvia intends to work closely with farmers to facilitate better access to capital and enhance their farming techniques through knowledge transfer from Mitsubishi Corporation and its network of partners.

“Lluvia will also play a role in connecting the farmers to regional and international markets. In the downstream activities, Lluvia will also contribute to better food safety through technology transfer and help reduce Myanmar’s reliance on imports through local production of ingredients.”