Myanmar’s FDI story: The hits and the misses

The streets of downtown Yangon overlooking City Hall and Sule Pagoda

While for long, the whole world was focussing on political reforms in Myanmar (transition from military rule to a democratic system), the country has also been witness to a significant economic transformation in the recent past. A strong reiteration of this point is the sudden jump in FDI, while the country was able to attract $ 4 billion in 2013-14 to $ 9.4 billion in  2015-16. China remains the single largest investor in China, it has not only emerged as its largest trading partner, but also made huge investment in Myanmar across the different sectors. Chinese FDI in Myanmar is estimated at around $ 19 billion, though it would be important to point out that the year 2016 China was not the single largest investor. In the year 2016-2017, China invested 2.8 Billion USD, while Singapore which invested 3 Billion USD was higher. Even Vietnam was fractionally ahead of China in terms of investments in Myanmar. Over a period of nearly three decades (1988-January 2017) China with a total of 19 Billion USD is well ahead of other countries.

China and Myanmar have maintained good relations since some time, since China shared robust relations with the military junta. This is evident from the FDI flows from China even during the military rule.  It is pertinent to note, that China fervently backed Myanmar in the current Rohingya crisis also. While the transition to democracy, and the thumping victory of the National League for Democracy (NLD) led by  Aung San Suu Kyi with such a thumping mandate did make many analyst sceptical about the direction of the China-Myanmar bilateral relationship, since Suu Kyi had strong personal ties with India.

But Suu Kyi dexterously navigated relations with both the Asian powers, as she emphasised in an interview that “Myanmar should not be seen as a battleground rather it can emerge as a bridge between India and China”. Suu Kyi has also developed a strong rapport with Chinese leadership in recent years. Even before becoming the State counsellor, she met President Xi Jinping in her capacity of opposition leader in June 2015. She chose China for her first overseas visit outside the ASEAN countries and since then she has met with Chinese leadership multiple times.

Having said that, the bilateral relationship faces numerous obstacles on the ground. Joint venture of China Power Investment Corporation (CPI), the Burmese Government’s Ministry of Electric Power and the Asia World Company began the construction of the Myitsone dam on the Irrawaddy river , which would supply power to the Chinese province of Yunnan. The project was vehemently opposed by the locals, due to its cultural significance- Irrawaddy river is considered as the birth place of Burmese civilisation- along with environmental, social and economic importance for the community. So In 2011,President Thein Sein suspended this project due to countrywide protests. Aung San Suu Kyi has yet to decide the fate of the project. The problems don’t end here, in spite of huge investments in Myanmar, China has been perceived as an exploiter rather than benevolent investor by the Myanmar people. Chinese face similar problem in other countries as well as there were anti China sentiment in Vietnam and  Sri Lanka.

Another problem is the slow and incompatible reforms in the country. Though Myanmar begin with political and economic reforms in the current decade, reforms are marred by the controversy because of inconsistent formulation and drafting.  The Reforms process was begun in 2011, with the Creation of a privatization commission to privatise state owned companies, which handed over these companies to relatives and family members of politicians and highly placed officials. In 2012, the Government passed aForeign Investment Law, to allow formation of joint ventures with a local partner and the leasing of land from the state and authorized companies. Critics argue that this law was misused by cronies to grab land in anticipation of a deal with a foreign investor.

Apart from the problem of reforms, the state of infrastructure in the country is in a very bad shape as millions of people are living without access to power and proper road network. It need huge investment in housing, connectivity, electricity and water supply, healthcare, education and tourism infrastructure etc. As per the Global Infrastructure Outlook report, Of the 50 nations surveyed recently.   Myanmar fared the worst in terms of infrastructure. Report estimates that it would require the investment of worth $112 billion by 2040.

Now the key question which arises here is that which country or investor would invest in such volatile political and economic conditions other China. In China, decisions are not taken by investment bank and private institutions but by the Chinese leadership, who attach immense importance to the strategic and political implications of investments – apart from off course the economic benefits. In the case of other countries, where the private sector plays an important role things are different – efficiency and transparency is important a pre-requisite for Foreign Direct Investment, as is political and economic stability. It is very difficult for investors to consider projects like the Myitsone Dam, wherein a decision is yet to be made, even under the new democratic leadership. Inept bureaucracy, lack of transparency, deep-rooted corruption and a lack of cooperation among ministries are another red rag for investment in such conditions. Myanmar’s new government should pay careful attention to the fact, that foreign investment plunged roughly 30% in March 2017, from March 2016.

Myanmar seriously needs to look at big investors beyond China, but for this genuine political and economic reforms are important.   Even after the successful transition from military rule to democracy, the military still holds the levers of power. By turning a blind eye to the atrocities against the Rohingya, and making a few perfunctory statements, Aung San Suu Kyi has done no favours to her position vis-à-vis the Myanmar army and the country’s image internationally. It remains to be seen whether we will see a course correction, whereby we witness the reforms which were expected after NLD took over. If not, China’s economic strangle hold in Myanmar is likely to continue, and this is likely to create discontentment within the local population, as has been the case in other countries like Sri Lanka and Vietnam.