In Person

U Khin Shwe: 30 Cronies Can’t Match A Foreign Investor

By Kyaw Hsu Mon 25 October 2016

RANGOON — U Khin Shwe, chairman of the Zaykabar Group of Companies and former Union Solidarity and Development Party parliamentarian in the military-backed government, spoke to The Irrawaddy about his perspective on the newly enacted Myanmar Investment Law—approved by both houses of Parliament and signed by President U Htin Kyaw—and new economic policies released by the National League for Democracy government.

Featured on the US’s Specially Designated Nationals list for over a decade, U Khin Shwe benefited from the recent lifting of American sanctions—a move deemed controversial by rights groups, who advocated for maintaining international financial restrictions against Burmese companies and individuals with military ties.

The government has now enacted the new investment law. Some local businessmen have criticized the legislation as providing the same footing for both local and foreign investors, saying that it may eventually harm local businessmen. What is your view on this?

Local businessmen will suffer, because it is like making a goat fight with an elephant in the pitch. Previously, there were separate laws for foreign investment and citizens’ investment, mainly because the banking system, which is the lifeblood [of the economy], is not good and the local businessmen are far behind their international peers. In fact, even around 30 so-called cronies together can’t match an individual foreign businessman. When there were separate laws for foreigners’ and citizens’ investments, there were some that favored local businessmen.  For example, the old laws did not allow foreigners to run eateries, restaurants, department stores and taxi services; those businesses were limited to citizen investors. But, under the new law, if foreign investors enter those businesses, local businessmen will find it difficult to compete. Then, citizens will remain as employees.

Perhaps the two laws were combined at the demand of the international [business] community. The combined version has some advantages, but the problem is that it is quite hard for local businessmen to obtain loans from banks. To obtain a loan, they have to put up their property as collateral, and they can only get a loan equal to 30 or 40 percent of the value of the property—not a proper amount for making an investment. And the interest rate here is 13 percent, but it is just below four percent in other countries. So, if we are to compete, we have no chance of winning.

The new investment law offers bigger incentives for investing in less developed areas, and smaller incentives for investing in areas that are more developed Which areas do you think will see greater development and what changes do you expect?

The previous governments set up industrial zones, but, for example, laborers from places like Twante and Kunchangon have difficulty in working in [Rangoon’s] Hlaingtharyar Industrial Zone. So, if possible, [industrial zones] should be implemented where there is a large pool of laborers. [In places where the primary livelihood activity is agriculture,] it takes less than 20 days to grow rice paddies in a year and they are free the rest of the year. But jobs are scarce and textile plants could be set up there, as the Americans have lifted sanctions now. If they and their children who have reached 18 have work, then their socio-economic life will also improve.

What is important is to create jobs. As only those who are close to industrial zones in the town get jobs, and those from rural villages don’t, and the children of those rural people who make up 70 percent of the country’s population also do not get jobs when they grow up, and they still have to rely on farming.

For example, if my grandpa owned ten acres of farmland and he had six children, then each child would get less than two acres, and the grandchildren would not even get an acre. So, industrial production is the only option for them. One acre of farmland can provide livelihood for only a family, but one acre of industrial production can sustain the lives of around 2,000 people. So, it is a must to switch.

Some are optimistic that the country will see rapid economic growth since the US has ended sanctions, but some are concerned that inabilities and weaknesses will be revealed. You are one of those who were removed from the sanction list. What advantages do you think our country will gain from the ending of sanctions?

There is a saying it is never too late to mend. But, our country has been in economic ruins. We can’t mend it overnight. We are very weak in terms of the morale of the people and the national infrastructure. In Rangoon, [the government] has warned that it would confiscate the inactive lands and structures in industrial zones. But how can those factories operate without electricity? [The government] can’t provide electricity. Regarding infrastructure, there are only nominal changes. So, it is not possible to operate more businesses. It seems that the conditions are worse now. I would like to urge the authorities to change this.

The by-laws concerning the investment law have yet to come out. What are the business community’s expectations for it?

Normally, by-laws are supposed to be enacted within three months of a law taking effect. The condominium by-law has yet to come out. The by-laws of many of the laws we enacted while we were in the Parliament have yet to be enacted. So, there is no progress. I think departments are responsible for this. They need to work.

Under the new investment law, [authorities] have to give permission for investment proposals within 45 days of the proposal being submitted. But there is problem with the way the proposals are handled by the lower level staff. In some cases, it takes three to four years to get permission. In my case, I have been waiting for five years and still did not get permission for my cement plant proposal. I have only been asked to submit the proposal again and again. While the other countries are providing one-stop service, the situation is different here—the authority is held by a single person. If the decision-making power is held by a single person, it won’t work. Even in China, the lower echelon can make decisions, but it is just the opposite here, where any decision has to be made by the upper level.

Recently, the Rangoon government suspended high-rise buildings in Rangoon. While that decision has made many laborers redundant, international businessmen have questioned why the already permitted projects have been suspended, and they are concerned that they would meet the same fate if they came in. It is important that such cases do not happen frequently. The government needs to have a stable policy. There was a joke about laws in Burma—there are only two laws in Burma, one law at present, and something else at later time. The new government needs to avoid this.

Although international organizations are optimistic about the potential of Burma’s economy, the inflation rate has increased in recent years and the US dollar has also appreciated. So, what do you think of the government’s economic policies in their first six months?

We can only say that it is a wait-and-see period. It appears that only Daw Aung San Suu Kyi has been working. Despite her age, she goes to international countries and seeks assistance. She is working incredibly.  She is the hardest working person in the past 60 years. But in comparison, her government works less than her. This is the view of a businessman. It is not enough that she works alone. [Her government] needs to work shoulder to shoulder with her. It is fair to say both ministries and divisional and state governments still can’t work shoulder to shoulder with her. They need more experience. There are also shortfalls that occur out of goodwill. We will have to wait and see how long the citizens can endure those errors stemming from goodwill.

What would be your advice to the government for the country’s economy to pick up?

If we are to focus on industrial production, we can’t compete with China, which has had worldwide influence in industrial production. The previous governments adopted the objective of building an agro-based economy. I as a lawmaker suggested the former minister breed livestock in Chin State, and establish an agricultural zone in Shan State and fish breeding zone in Irrawaddy Division. And Tenasserim produces minerals and can rely on the East-West economic corridor. The 30-year plan is not practical and it will take time to achieve economic development. But the market economy is the most effective means. That’s the way we should practice.