Myanmar’s Second Investment Policy Review Urges Further Liberalization

By Nan Lwin 25 November 2020

YANGON—Myanmar has published its second investment policy review (IPR), which identifies needed policy reforms—ranging from enhancing responsible investment, establishing special economic zones (SEZs) and strengthening the implementation of environmental impact assessments to fostering secure and well-defined land rights—with the aim of attracting more foreign investment to the country.

Supported by the France-based Organization for Economic Cooperation and Development (OECD), the review issued on Tuesday made several policy recommendations intended to help the Myanmar government improve the country’s investment climate.

Among the recommendations, it suggested the government evaluate the costs of the remaining restrictions on foreign participation in the services sector, such as in financial, construction and retail distribution services, which provide critical backbone services to all economic sectors.

It said those sectors are largely interlinked with market and efficiency-seeking manufacturing investments that Myanmar aims to attract. It pointed out that these restrictions typically add costs to entire value chains, including in manufacturing sectors, by restraining potential competition among those providing services.

This not only hinders a country’s investment attractiveness, but may also end up hurting consumers’ choices and purchasing power, it said.

Moreover, it urged an evaluation of the costs and benefits of the remaining restrictions on foreign investment in the manufacturing sector with no bearing on national defense and security, and that remain partly restrictive to foreign investors due to joint-venture requirements.

‘Responsible business’

Among several recommendations for promoting responsible business, it suggested the government boost transparency in Myanmar’s most troubled sector, extractive industries, urging that it start with state-owned enterprises due to their importance to Myanmar’s economy.

The review said that improving transparency can be an effective way to help address and mitigate Responsible Business Conduct impacts in Myanmar and foster better business practices in the market.

In Myanmar, a lack of transparency in the extraction of natural resources in resource-rich ethnic regions helps perpetuate and finance violent conflict in these areas. The country’s extractive sector, which includes jade mining, is controversial and often deadly. A prominent example is the jade mines in Hpakant, Kachin State—mostly run by military-owned companies, companies owned by armed groups, and cronies of the authorities.

Economic corridors

To promote infrastructure connectivity, it said that the government needs to increase investments in transport and logistics infrastructure and modernize the existing infrastructure assets, with a particular focus on the main trade corridors, such as the Greater Mekong Sub-Region North Road (North-South) corridor to China and the GMS East-West Road corridor to Thailand.

Myanmar lies on two major economic corridors that Japan has proposed for the region: the East-West Economic Corridor connecting Vietnam’s Dong Ha City with Yangon’s Thilawa SEZ via Cambodia and Thailand; and the Southern Economic Corridor from central Vietnam through Cambodia and Thailand to the planned Dawei SEZ in southeastern Myanmar.

Myanmar is already committed to implementing the China-Myanmar Economic Corridor (CMEC) under China’s ambitious Belt and Road Initiative. The CMEC will connect Kunming, the capital of China’s Yunnan Province, to Myanmar’s major economic centers—first to Mandalay in central Myanmar, and then east to Yangon and west to the Kyaukphyu SEZ.

The policy review also urges Myanmar to ensure that environmental considerations are included in early screening of proposed investments by the Ministry of Investment and Foreign Economic Relations (MIFER), the Ministry of Natural Resources and Environmental Conservation (MONREC) and other relevant ministries.

Among other key recommendations for establishing economic zones, it suggested aligning SEZ and industrial zone development and administration with the broader investment promotion strategy.

According to the review, the government needs to implement an action plan for improving planning and administration of industrial zones, and ensure that clear rules and requirements in terms of zone allocation, infrastructure provision, business facilitation and environmental protection are embedded in the new Industrial Zone Law.

It also urged the strengthening of the implementation of environmental impact assessment (EIA) systems, including by building capacity at national and subnational levels to review EIAs and reduce delays in the process, and by improving the transparency and information systems supporting EIAs.

The review said that Myanmar should pursue the establishment of utility-scale solar and wind-based electricity generation more aggressively within the country’s energy plans, including through the formal recognition of the role of non-hydro renewables in the country’s power expansion plans, the introduction of standardized power purchase agreement templates and facilitating the land acquisition process, among others.

Stronger land laws

Among recommendations for fostering secure and well-defined land rights, the review urged that Myanmar implement the National Land Use Policy (NLUP) through a structured and consultative process that involves a wide range of stakeholders and which is set out in a transparent and predictable manner.

It also recommends the government develop a National Land Law (NLL) that recognizes and provides for the formalization of all formal and informal land tenure rights and delineates a streamlined institutional framework and process for land rights registration, transfers and acquisitions.

The report also urges the revision of the 2019 Land Acquisition Resettlement and Rehabilitation Law to strengthen the framework and ensure that compulsory land acquisitions by the state occur only in a non-discriminatory manner, for a well-delimited public purpose, under due process of law, and with prompt, adequate and fair compensation.

It calls for the development of a land dispute settlement system that is independent, timely, affordable, effective and widely accessible to all, and for the elimination of criminal sanctions concerning land-related offenses, or at least their restriction to the most severe cases.

Additionally, it urges the government to halt new large-scale land allocations in conflict-susceptible areas until land reforms are in place. It calls on the government to consider them only in areas where the risk of conflict is kept to a minimum, for instance in returned Vacant, Fallow and Virgin (VFV) lands over which there are no existing claims (including of customary rights holders) or over which land legacy issues can realistically be addressed and there is no risk of infringing on the customary rights of indigenous people and local communities.

Under the National League for Democracy government, the newly amended 2018 VFV Lands Management Law has been criticized by ethnic people for failing to recognize ethnic customary tenure.

The review said that addressing the complicated and conflicting land-governance situation is perhaps Myanmar’s greatest reform challenge in the near term. However, it said that, if not addressed, it will continue to have important economic and political implications, including for the ongoing peace process.

Post-COVID recovery

At the launch ceremony, Minister of Investment and Foreign Economic Relations U Thaung Tun addressed the impact of COVID-19 on the world economy, saying the government will need to rebuild with a sense of urgency.

He said Myanmar’s new recovery plan has been designed to help rebuild Myanmar’s economy, saying, “[Foreign direct investment] can sustain that recovery and advance it.”

He stressed that “We will need to make it easier to secure permits, easier to obtain appropriate and lawful access to land via the Land Bank, [and ensure] greater transparency in tendering and project selection via the Project Bank, while ensuring prior and informed consent of impacted communities and that traditional land use rights are respected.”

He added that recommendations from the second IPR would help Myanmar continue to promote responsible investment in the country that creates jobs, opens up new opportunities, sustains growth and spreads prosperity.

The first IPR, launched in 2014, focused on such issues as investment promotion and facilitation, financial sector reform, infrastructure development and responsible business conduct. It pushed a range of key investment-oriented reforms, including the drafting of the Myanmar Investment Law and the Myanmar Companies Law, according to the MIFER.