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Will COVID-19 be the catalyst that kills foreign investment in Myanmar?
With COVID-19 seemingly worsening across Myanmar, and the uncertainty of what changes the coming election may bring, there has never been a more crucial time to focus on the financial stability of the country. The key to ensuring stability and safeguarding our future is FDI in Myanmar. But this isn’t about encouraging new investment, it’s about nurturing the businesses that are already here to protect our country’s future. On this note, there are a few areas where we are striking the wrong cord, and COVID-19 could be the catalyst that sees us fail in the long-term goals of our investment drive.
When it comes to making a country an attractive destination for foreign businesses, the rule of law is one of, if not the most, important criteria. Foreign entities need to know that they can trust in a country’s government to not only make the country an easy place for them to set up operations, hire talent, and acquire customers but also that they will create an environment that will support businesses for the long-term.
If a foreign business is willing to follow the laws of the land and conduct business in a way that adheres to these rules, they must at the very least, be able to expect the same respect in return. They need to trust that if they encounter issues, the country’s government will enforce the rule of law and do so in a way that is just, fair and consistent. For example, If a country cannot promise its foreign investors that their staff and hires will not be subject to harassment, their bid to attract them to set up in the first place will, unfortunately, end in failure.
While it’s true that many international businesses invest in Myanmar because of its untapped potential and low labor costs, competitive ASEAN countries are offering investors the full package. From a more skilled workforce to a more conducive investment environment with a clear and consistent rule of law to support investors, they are tempting foreign companies to establish themselves in new markets.
According to the World Bank’s Doing Business 2020 report, Myanmar improved is ranking to 165th place out of 190 countries when it comes to its strength on the world stage as a business hub. However, it is reportedly still the “least favourable country to do business in the ASEAN region”, with the report citing high levels of corruption and red-tape” with neighbours like Thailand, Vietnam, and Laos ranked 21st, 70th, and 154th respectively.
Moreover, with the current tensions between China and the USA, and supply chain lessons learned as a result of COVID-19, many businesses are reportedly considering diversifying out of China to its neighbour countries. While Myanmar is primed to seize this opportunity due to the shared border with China, is it really ready?
Despite the perceived challenges of doing business in Myanmar, the government has a strong track record of encouraging numerous foreign entities to set up here. In fact, it was recently reported that between October 2019 and July this year, Myanmar approved FDI totaling $5 billion. Following this, Yangon Region Chief Minister, U Phyo Min Thein said that moving forward quickly with these new projects will help local businesses and create more job opportunities in the region. And herein lies Myanmar’s difficulty.
Yes, this influx of businesses from overseas signposts the creation of new jobs for local people and the upskilling of our workforce, which will indeed help to grow our economy. Many foreign companies are among the biggest tax contributors in Myanmar, creating jobs and upskilling the workforce, contributing significant sums toward public services like transport and infrastructure, education, and healthcare services. But even with the lure of favorable tax rates and the promised fast processing of proposals, the danger is that Myanmar’s gloss might wear off after companies have established themselves.
Fast-tracking approvals are not enough
The lesson that must be learned, is that it is not just about attracting businesses to the country and ‘moving forward quickly’ with the approval of their applications. It’s about keeping those businesses here for the long-term – a point that seems yet to be the focus of our policymakers. After all, if they leave, they are not coming back and losing them damages our reputation immeasurably and sets a poor precedent that will not be forgotten by others who would have followed. If we lose the international businesses that have put their faith in our country, there is a danger that there will be no applications left to ‘fast-track’.
We have seen high profile and world-renowned businesses including a US law firm, UK-based insurer, global food and beverage outlets, and oil businesses, to name but a few, leave and foreign investment vehicles turn their back on us citing the slow pace of reform and the political climate. Whatever their reasons, their exits are interpreted as a vote of no confidence.
COVID-19 presents additional challenges because all businesses are assessing where to continue investing and where to make cuts. Now is not the time to put barriers in their way, now is the time to bend over backward to help them succeed. The full scale of the outbreak’s impact on our economy is yet to be seen. But one thing is for certain and that’s that businesses of all sizes will be paying much closer attention to their outgoings and proceeding with extreme caution when it comes to international expansion. Myanmar cannot afford to lose the foreign investors that are already present in the country. We must step up and fight to retain their interest, if we don’t want to worsen the negative impact of COVID-19 on the economy and further tarnish our already murky reputation.
To make Myanmar an opportune place for foreign businesses to set-up, and stay for the long-term, we need structural reforms – we must make processes simpler and offer ongoing support to those that are here.
From registering the company and obtaining the correct licenses to acquiring land or a location for operations and securing the hiring permissions to attract new talent, there is a lot of admin that comes with a business’ operations overseas. At present, these processes are far from straightforward in Myanmar.
Further, companies often complain about red-tape, drawn-out systems, and a perceived lack of clarity and transparency on how the processes and approvals work. Many international businesses are left feeling that they have been stopped in their tracks at every turn when it comes to their hopes of establishing a successful entity here.
Now, against the backdrop of a global pandemic and worldwide recession, is an urgent call for our government to turn things around and extend an olive branch to the businesses that have put their faith in our country.
Aung Khant Oo, originally from Mandalay, is a Yangon-based consultant specializing in public affairs.
Source: https://mmbiztoday.com/will-covid-19-be-the-catalyst-that-kills-foreign-investment-in-myanmar/