Australian investors keen to access Burma’s mining industry and replicate lessons learned from the island nation’s mining boom years raised questions about taxation, policy constraints and bureaucracy on Tuesday at a panel discussion in Rangoon.
The business mingling event, “Breaking down barriers to business,” included a panel discussion that addressed the big-picture constraints and opportunities for foreign direct investment in Burma. The event was organised by the Australian Chamber of Commerce (Myanmar) Association (AustCham), a group that aims to connect members of the Australian and Burmese business communities.
Foreign direct investment has been on the rise steadily in recent years, though recent data indicate a potential cooling trend: FDI slowed between April and December 2016, standing at $3.5 billion and down 28 percent from the same period in 2015.
Inherited burdens hobbling NLD government
Economic adviser to Burma’s government Sean Turnell opened the floor by analysing the growth rates of the country’s economy. He emphasised that the National League for Democracy (NLD) government has a lack of fiscal space to play with, having inherited large debts with China from the previous Thein Sein government and projects such as the “damn dams” — thorny hydropower deals linked with foreign firms under the former administration.
Analysing the economy after one year of the NLD government in power, Turnell, who is also an associate professor at Macquarie University in Sydney, remarked that it was surprising the government hadn’t engaged in a spending spree or rewarded supporters and instead is characterised as full of “deficit hawks.”
Part of the success of current growth is the relatively stable macro-economy, agreed the panel, which widely praised the new investment law and attendant rules.
Country managing partner of the international law firm Baker McKenzie, Jo Daniels, referred to the investment law, a soon-to-be-released company law and an intellectual property law that it is hoped will be put forward by the end of 2017, as the “three pillars” encouraging foreign investment. With hopes high that these three pillars will be in place by year’s end, she continued with the running metaphor of the night — that “the glass is half-full” in her opinion, and the outlook for investors is bright.
On the other hand, Turnell said this legislation may not be enough to attract an investment boom, as the global economic climate in the wake of US President Donald Trump’s election is risk-averse.
While the Thein Sein government’s economic reforms addressed some low-hanging fruit, such as improving the environment for offshore gas ventures, Turnell said the government needed to make “an extra effort” to drive investment.
Aussies eye the mining market
The rosy outlook for investors was challenged by Richard Taylor of Phu Bia Mining Ltd, which forms part of the PanAust Group.
“The 6.5 percent growth isn’t enough,” said Taylor, and Burma remains “one of the black spaces” — a frontier economy that needs to actively seek out investors.
He advocated for Burma to join trans-national high-speed train links that are not just about “feeding infrastructure growth.” These connection would also help with “driving standards and processes [compatible with regional neighbours]” that, if neglected for too long, would make it more difficult to join cross-border transportation networks in the future.
Referring to the controversial copper extraction venture in Sagaing Division, Taylor said Burma needs “six Letpadaung mines operating just to satisfy domestic consumption” and develop like Singapore or South Korea, which has some of the highest per head consumption of metals in the world. “There is going to need to be development of domestic resources if the country is to follow the Asian miracle story,” as some regional neighbours’ economies take off.
Taylor added that Burma must reduce red tape and taxes or else Australian investment will continue to countries with more favourable tax regimes like Laos and Papua New Guinea.
Kevin Fisher, an audience member and director of logistics service provider CEA, raised as concerns his own nightmare dealing with Burma’s tax code and the lack of streamlined communication between governmental departments. But he was told to be patient and Daniels advised all businesses to be transparent in their processes so they can then raise their experiences and spark change within the system.
Turnell told DVB after the panel discussion that he agrees with Taylor’s assertion that Burma “needs a strong but responsible resource extraction sector, and it is from some Western firms that such good practices are likely to come.”
Missed chances to spark the economy, enthusiasm
Businesses’ nerves have been tested over the past year as the local currency has steadily depreciated, but Turnell believes a lower exchange rate is good for a country’s exports and appealing as a destination for foreign direct investment.
“Pursuing a slightly undervalued currency was central to the export-led growth and industrialisation strategies of Japan, China, the Asian ‘tiger’ economies and so on.” He also explained that the kyat’s “real” exchange rate has actually been appreciating and that the whole discussion of exchange rates gets confused when people forget that the US dollar has been rising too.
Looking to another promising sectors of the economy, Taylor said Burma’s tourism industry needs to evolve. He compared Laos’ high tourist arrival numbers with very low dollar spend ratios per tourist and Cambodia’s spend ratios, which double Burma’s. “Tourism needs to make choices because you can’t rely on hotel prices, you have to have more fun ways to spend money in-country,” suggested Taylor.
Founder of the Australia-Myanmar Parliament Group Janelle Saffin urged the current government to communicate more and “over-tell,” citing the so-called “vomit principle” she advises — to “say it over and over and over until everybody is sick to death of it” — when it comes to new policies. Turnell echoed this and pointed to the recent education and health national plans as missed opportunities for the government to boast.
A diversification of industries will also offer more bang for buck when it comes to long-term economic success, the panel agreed.
Summing up his take, Daniels said the key to attracting investors is in the hands of the government and what moves Burma makes to improve the “ease of doing business.” Saffin noted that the sprawling General Administration Department sits under the military-controlled Ministry of Home Affairs which is a major constraint and called for more people to raise this issue and to change the “command-control” approach that drives decision-making in the country.