OECD INVESTMENT POLICY REVIEW OF MYANMAR

Mike PfisterInvestment Policy Reviews, OECD

4 March 2014, Yangon

Supported by the AANZFTA Economic Cooperation Support Program

Investment Policy Review of Myanmar

INVESTMENT PROMOTION & FACILITATION AND OTHER AREAS

OF THE PFI

• Strong reform momentum, very quick reforms

• Pushing up against capacity of MIC and other agencies in charge of “investment promotion”

• This calls for eventual de-regulation: but not all cost – need accompanying capacity

• Attractiveness of SEZ models: careful!

Context

• Effective investment promotion a function of sound policy environment

• Need for clear demarcation of Promotion and Facilitation – DICA mandate broad

• Focus should be on:– Transparency (criteria based system, reducing discretion)

– Accountability (feedback from private sector, UMFCCI etc...)

– Efficiency (streamlining, cutting down red tape, 1-stop shop)

– Monitoring policy effectiveness (DICA to develop KPIs, objectives)

• Need to improve data for better policy development

Investment Promotion & Facilitation

DICA’s broad mandate

Ideally: DICA as interface for investors

Investors

1 stop shop

Need for effective policy advocacy

Policy Advocacy investor feedback to

policies: surveys, public-private committees for

business climate reforms...

Main recommendations

• Investment promotion is perhaps less important for Myanmar at present than investment facilitation.

• Continue to streamline procedures (ease of doing business)

• Ensure that one-stop shops include single-point authority.

• DICA should take responsibility for addressing investor grievances and serve as a policy advocate within government for the private sector.

• Keeping existing investors happy is the best form of promotion.

• SMEs form:– 90% of the industrial sector

– 92% of the manufacturing sector

• Active SME promotion is at an infant stage

• SME Law: need accompanying capacity building

• Vibrant SME sector key to developing linkages: absorptive capacity to break away from low-technology with limited manufacturing equilibrium

• Myanmar will benefit more from FDI if domestic investment grows

• Renewed focus on Human Resources needed – 2% GDP of public investment too low…. Skills?

• Other SME issues: microfinance etc.

SME Development and linkages

Backward linkages: technology & knowledge transfer

Technology, know-how, management and product standards

Domestic market, Export, GVC

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Role of policy:SME policy, financing, vocational training

• Zones can help pilot reforms (Shenzen, Shanghai)

• A lot of FDI expected to come through SEZs in Myanmar;

• 3 SEZs, 18 zones, 34 sub-zones – many not fully operational, land prices high;

• Thilawa can be promising, given its strategic location, but governance will be key to its success;

• Need to link with the broader domestic economy; not just become import-export hubs;

• Promote linkages, monitoring general and environmental performance of companies in zones; develop training and R&D locally.– Example: CSR Unit in Clark Development Corporation, Philippines

• SEZ success depends on broader economic reforms

Role of SEZs

• Trade related challenges, TBs and NTBs; including imported counterfeit products;

• Increased trade facilitation measures could particularly benefit SMEs (incl. standardisation, certification…);

• Need to enhance competition in the banking sector, improve financial intermediation, microfinance

• Infrastructure: develop comprehensive sector development plans with clear roles for private sector, government and SEEs

• Build independent and effective regulatory agencies (transparency, regulatory certainty…)

• Ensure level playing filed between SEEs and private investors important to attract private sector

Trade, finance, infrastructure

Investment Policy Review of Myanmar

PROMOTING SUSTAINABLE

INVESTMENT IN AGRICULTURE

IN MYANMAR

Context

• Around 34.8% of GDP and 61.2% of employment

• Potential for rapid agricultural development relying on abundant land and water resources

• 30-year Master Plan for Agriculture Development:

Improve food security and farmers’ incomes and reduce poverty by increasing production (rice, oilseed and bean) through better technologies and access to finance and market liberalisation

• Relatively low public expenditures in agriculture:

Among ASEAN countries, lowest per capita agricultural expenditure and lowest share of agricultural expenditure to agricultural GDP

• Growing investment from neighbouring countries in both food and non-food crops

Investment policy in agriculture

• Land legislation revised in 2012: adoption of the Farmland Law and the Vacant, Fallow and Virgin (VFV) Land Management Law

• Foreign Investment Law enacted in 2013

Particularly favourable to large agricultural investors:

– Time and size limits on land use rights can be lifted for projects approved by the government

– Foreign investment restricted in a few agricultural activities

– Generous tax incentives

Challenges

• Insecure land tenure rights– Complex and long registration process:

Involvement of three government levels for farmland and application to the central level combined with heavy requirements for VFV land.

– Lack of recognition of customary land use rights:

No mention of customary rights in the new legislation; smallholders at risk.

– Overlapping responsibilities of agencies responsible for managing land:

Farmland Administration Bodies as line agencies within the MOAI; Central Committee for the Management of Vacant, Fallow and Virgin Land as a multi-ministerial committee formed at the President’s discretion; and the MECF

– Promotion of large-scale land allocations with weak safeguards:

Increase of large-scale allocations to 1.38 million ha in 2012, with large areas remaining undeveloped and uncultivated by companies.

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Challenges

• Limited access to finance

– Small short-term loans from the MADB

– High interest rates from informal lenders

• Limited access to and low quality of agricultural inputs

• Weak extension services and R&D

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Recommendations

Securing land tenure rights

• Harmonise the land legislation

Develop a unique comprehensive land law; Enhance the co-ordination across the Ministries responsible for land.

• Accelerate land registration

Set up an efficient institutional structure at national and local level for land titling and land surveys;

Establish a one-window service.

• Recognise customary rights

Protect customary rights, including collective rights and rights on land used for shifting cultivation;

Consider the diversity of customary law across different ethnic groups and geographic areas.

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Recommendations

Attracting investment

• Develop clear selection criteria before granting investment incentives

• Establish independent and accessible procedures to address grievances

• Promote the free choice of crops

• Reform the MADB to expand its coverage

• Strengthen extension services and increase public funding on R&D

Myanmar could recover its place as a major agricultural producer and exporter in Southeast Asia

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Recommendations

Promoting responsible investment

•Develop adequate safeguards for large-scale land acquisitions:

Promote transparent and inclusive consultations

Protect existing land tenure rights

•Establish transparent and fair expropriation and compensation mechanisms

•Set up a regulatory framework to support inclusive business partnerships

•Impose Environmental and Social Impact Assessments, especially for large-scale investments.

Policy Framework for Investment (and User’s Toolkit)

www.oecd.org/investment/pfi.htm

www.oecd.org/investment/toolkit/

FDI Indexwww.oecd.org/investment/fdiindex.htm

Investment Policy Reviewswww.oecd.org/investment/countryreviews.htm

ASEAN-OECD Investment Programmewww.oecd.org/daf/inv/mne/seasia.htm

ASEAN Investment websitewww.investasean.asean.org

For further information