Last week, the World Economic Forum met in Myanmar, formerly Burma. The choice of venue was designed to bring the country to the world’s economic attention. Our President Aquino attended the forum and made a pitch for more foreign direct investments to the Philippines.
“Recluse in search of the shining path.†For years, Myanmar was ignored by the world, a basket case. As long as the military government ruled with an iron fist at the expense of the political opposition, its insular economic policies were of little interest to the outside world.
In 2011, a new military leader – Thein Sein – came into political power as president and undertook major political reforms. First among these was to allow long-time political prisoner Aung San Suu Kyi to actively participate in the nation’s politics.
This event led to further windows of opportunity. Diplomatic negotiations produced an unorthodox visit by US President Barack Obama to the country to cement the road to wider reforms. These developments signalled the coming of Myanmar into the international economic scene.
ASEAN’s early gamble has paid off big. Myanmar acquired a skylight to the progressive economic world when it was accepted to membership in the late 1990s.
“Myanmar’s economy.†Myanmar’s per capita GDP (in purchasing power equivalent dollars) is $1,300, quite low by ASEAN standards. At 60 plus million, the population of Myanmar is almost as much as that of Thailand. The labor force is around 33 million and unemployment is estimated at 37 percent, quite high. Poverty and unemployment are the result of decades of failed policies as a socialist economy.
Much repair work in economic relations with the world’s economic institutions is happening, led by the international development institutions. The World Bank and the Asian Development Bank are now actively engaged in helping the country resuscitate its economic programs by providing advice and project finance. This is helping to bring back international investments to the country it sorely needs. Economic reforms have to take place to jumpstart the economic engine.
Recently, about $6 billion of its international debt is under work to be forgiven or refinanced by international creditors. This represents about 60 percent of its international debt. Japan alone owns one-half of the value of this debt forgiveness.
The key to the economic future is the foreign investment law. Like most developing countries, Myanmar is short of capital and needs more foreign investments. There are opportunities to be reaped to develop the country’s energy resources, the natural and other rich mineral wealth, and finally, to develop the economy and employ its large labor force in industry.
“New investment law in outline form.†Last year, Myanmar passed a foreign investment law which is a radical departure from its former policies. Aside from providing the traditional incentives found in usual investment incentives legislation, the new law grants its foreign investment commission flexibility on a lot of issues. (Seen from our end, such provisions are definite No-No’s in the context of our restrictive Constitutional provisions governing foreign investments.)
For instance, it would be possible to have 100-percent foreign ownership in many areas of investments. Though the law contains some provisions about desired domestic equity ownership in particular projects, the investment authority or, if necessary, the parliament would be open to further negotiations on a project basis.
Thailand observers have deduced that the powers of the Myanmar investment commission are greater than those given to their own investment board equivalent which has succeeded to bring FDIs into Thailand. Thus, Myanmar’s path toward the attraction of FDIs could be relatively easy sailing as soon as that country starts to operate in earnest.
“Stable social & political framework and economic stability.†Hand in hand with a political and social framework that is corrected, Myanmar is likely to experience what Vietnam (and Thailand in a much earlier time) has achieved within a short period of time when it decided to have an economy open to FDI flows.
Of course, there will be early problems in this effort. The main uncertainty is whether the reforms in Myanmar are likely to deepen and not reverse. If economic reforms deepen, the road forward would be clear.
FDI flows will come in tune with those reforms. Moreover, Myanmar will likely emulate the East Asian model of using low wage cost as a major attraction point for inviting foreign investments. They will emphasize the need for training for labor and raising the productivity of employed workers and put less emphasis on measures such as setting high minimum wage standards.
In short, they will likely focus more on employment and productivity issues in attracting FDIs. Following the models of other East Asian countries, we can expect that Myanmar will enjoy rising wages as domestic investments and economic growth finally employ their large labor pool of unemployed labor and finally cause overall prosperity for all wage earners in general.
Already, some of the biggest of Thailand’s largest garment makers have announced moves to transfer production to Myanmar. Many Japanese companies have been looking into their possibilities in the economy. Even Philippine companies are looking for investment niches in Myanmar.
“Back to the Philippine FDI problem.†There are those who think that “investment grade†and good reviews will raise the level of performance. That they will is not questioned. The problem is one of assuring that the volume of the inflows is truly large, not only hopefully. There will be FDIs that will be turned off by our labyrinthine investment incentives framework for them. They will find better deals for themselves elsewhere.
Foreign investment promotion need not be encumbered by the enormity of rules and regulations that are part of the legal structure of Philippine FDI laws. With the economic restrictions in place in the Philippine Constitution, we have too many legal steps and processes that seem to escape those constitutional provisions.
Yet, they only burden investors, bringing in legal and economic costs that harm their competitive position in the world and regional markets. They create legal tangles when these should be avoided through the direct amendment of the restrictive provisions.
In a litigious society such as ours, leaders are only good on their assurances while they occupy political office. Thus it is wishful thinking among those who insist that those provisions will not do harm to the effort to attract the FDIs when in fact they do. Investment grade or not, it pays to improve the foreign investment laws in respect to the constitutional restrictions.
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