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Foreign Direct Investment into a country is influenced by Ease of Doing Business

FDI is desired by most of the countries as it can help in boosting the economic development of the country.

Therefore almost every country tries to attract the foreign investment by offering the incentive such as tax incentive, tax grace period and etc. Our neighbouring country, India had amended the Foreign Direct Investment Law in 2014. Foreigner’s limited shares were relaxed increasing from 26% to 49% in the insurance companies. Relaxations were made in 25 sectors of nation’s economy.

According to the international survey made in 2013 on FDI entering the countries, India was known to stand at 14, however in 2014 after amending the FDI Law India was promoted in standing from 14 to 9. The Financial Times internationally famous for its content on financial markets of the world stated that India surpassed China and America in 2015 in the respect of FDI coming into the country.

According to a source of a research of comparative study on per capita income of the countries, Singapore stands at 9 th position in the world, with its per capita income being US$ 52960. US$ 50 billion of FDI rolled into Singapore in 2016. (It is 8 times that of our country) However it was US$65 billion in 2015. Why it plummeted in 2016 was due to the 13% global decline in foreign investment.

The following table shows the FDI entering some Asian countries in 2016, Ease of Doing Business (EDB) and population.

Table (1)

Country F D I US$  in Bln E D B Ease of Doing Business Population in Million
Singapore 50.0 1 5.7
Indonesia 28.9 109 263
Vietnam 15.8 90 95
Malaysia 13.2 18 31
Thailand 11.2 9 68
Myanmar 6.8 167 54

 

Singapore has been the richest country of Asian countries and has the highest FDI. Why it has the greatest amount of FDI? There are many causes and the most important one is EDB. World Bank issues yearly announcement on the international grade in EDB basing on 10 criteria. The smaller the number is the better the Ease of Doing Business is. Singapore had been able to top the table from 2006 to 2016. However it had to give up its No. 1 position in 2017 and downgraded to No.2 position. We can take two lessons from this happening.

First lesson: Actually EDB in Singapore was not declining. New Zealand surpassed Singapore and got the top place by doing more relaxations and changes in economic policy.

Second lesson:Every country is now competing to get more FDI by relaxing rules and regulations as much as possible. If Myanmar doesn’t do the proper policy relaxations and changes, EDB index will certainly be downgraded.

Myanmar EDB was started to be included in World Bank EDB survey or assessment in 2014. In 2014 Myanmar’s EDB index is 180 and a little bit up to 177 in 2015. It continued to rise up to 167 in 2016, but another dip occurred in 2017 with index 170.

The following Table 2 indicates the relationship between EDB and FDI index.

2014 2015 2016 2017
E D B Ease of Doing Business 184 177 167 170
F D I US$ Billion 4.1 8.01 9.48 6.8

 

The criteria used by World Bank in determining the Ease of Doing Business

1. Time, expense and required investment in registering a company. In Canada it needs a piece of paper and takes only 5 days to register a start-up company. According to the surveyed assessment in Chad with index 182 out of 185 countries it needs 9 steps and 62 days to finish a registration of a country.

2. Time and steps to undertake required to acquire a permit to construct the buildings such as factories and ware-house.

3. Time, volume of works and expense to get a regular and full-voltage electricity supply.

4. Time, volume of works and expense required to get permit regarding land acquirement and land use.

5. E asiness to get the loan from bank and to work with the banks.

6. Protection of the foreign investments.

7. Clear and easy system in paying the tax.

8. Time and paper works to get permit for import and export.

9. Reliability of the contracts.

10. E asiness to liquidate a company

Every country in the world are now trying to relax their rules and regulations of their economic policy. Poland had the index 76 in 2009 and after some considerable relaxations and changes in policy they came up to 45 in 2014 and again 24 in 2017. FDI entering Poland in 2009 is US$ 9 billion that increased to 14.3 billion in 2014. Nowadays, per capita income of Poland is US$26,003.

Our country, Myanmar is now at the lowest level in Ease of Doing Business. In other words it is too difficult to start a business in Myanmar. It is to be noted that according to 2017 EDB level list issued by World Bank , Myanmar is at 170 and the neighbouring country, Thailand stands at 46 and an emerging economic potential Vietnam is at 82.

Myanmar government and its ministries have to cooperate for better EDB for start-up companies. Ministries should prioritize the people’s benefit rather than the interests of the ministries. Ministries should relax their tight policy to attract more FDI that can lead to better socioeconomic condition of the people.

Source: The Global New Light of Myanmar

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