Traders Support Relaxed FDI Restrictions

By May Lay 5 September 2012

The Union of Myanmar Federation of Chambers of Commerce and Industry (UMFCCI) has urged parliamentarians to reduce restrictions on international companies in the new Foreign Direct Investment (FDI) law.

Burma’s Upper House of Parliament is scheduled to debate the draft on Wednesday after the Lower House introduced 94 amendments designed to protect local businesses in the face of competition from abroad.

“We would like to request reducing some restrictions in the FDI law. More than 90 percent of local businesspeople are small and medium entrepreneurs. So we want this FDI law adapted to promote these businesses,” said UMFCCI Chairman Win Aung.

“Unfortunately, the draft FDI law after it was confirmed by the Lower House only thought to protect businesses by adding some restrictions for foreign investors.”

Under the current FDI draft, the minimum amount for foreign investment in Burma is US $5 million—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.

“The majority of foreign investors cannot invest this amount,” said government consultant Zaw Oo. “Even US companies have to request government permission if their capital investment exceeds $500,000. We still are not clear of US sanctions yet and we don’t want to extend them.”

Economists believe that foreign investment in Burma is vital to boost jobs, increase standards of living and encourage a real democratic transition.

“Burma certainly needs foreign investment of the sort that will promote employment, bring new technologies and methods, and generally ‘wire in’ Burma to the modern economy,” said Sean Turnell, economics professor at Australia’s Macquarie University and a Burma specialist.

Despite Burma’s new military-backed quasi-civilian government currently undergoing political and economic reform, around 80 percent of the country’s 60 million people live below the poverty line after the decades of international isolation and fiscal mismanagement.

And there are fears that Burma’s new FDI law will favor cronies with links to the previous ruling junta by only permitting between 35 and 49 percent foreign ownership of businesses. Some Asean nations currently allow complete foreign ownership.

“Actually, we want to promote incentives and reduce restrictions for foreign investment as we have to compete with other Asean countries,” added Win Aung

A spokesperson from the Ministry of National Planning and Economic Development told The Irrawaddy that President Thein Sein’s administration considers the FDI a key factor to drive Burma’s economic development and so it must provide serious incentives for investors.

“Some foreign businesses will come with high standard technology and massive amounts of investment,” said Soe Myint, chairman of the Myanmar Garment Manufacturers Association. “If local businesses must own 51 percent of the total share without technologies and strong investment, foreign investors will not think to enter as a business partner.

“The garment sector would welcome 100 percent foreign investment. We need new markets and technology. We are sure that foreign investment is one of the key solutions to promote the garment sector.”

The UMFCCI said that Burma’s main economic challenges are a lack of international markets and modern technology. UMFCCI members include the Myanmar Garment Manufacturers Association, Myanmar Beans and Pulses and Sesame Traders Association, government consultants and other interested parties.

“Some businesses only need modern techniques. We already have a good source of labor. If we also have the infrastructure, why should we not accept technical investments of 10 to 15 percent by foreign investors,” said Win Aung.

The draft 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.

“If the final law is not adapted to all kinds of local business in Burma, it will lead to illegal practices such as in the garment sector, for example,” said Khine Khine New, joint-secretary of the UMFCCI.

“In 1982, the military government enacted a law which prohibited 100 percent foreign ownership of garment businesses. As a result, most Burmese garment industries are owned by foreign investors but under local names such as the manager.

“Garment workers say that they cannot change job as they are under pressure from the owner. Actually, the owners are not really the owners but are just following the instructions of the foreign investors,” she added.

The draft FDI law has already passed through the Parliament’s Lower House and is currently being debated by the Upper House with a final version expected to be made public later this month.

The Irrawaddy reporter Lawi Weng also contributed to this article.