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Corporate Japan urges Myanmar to address business concerns

The most senior Japanese business leader in Myanmar urged the government to recognise how liberalisation, efficient bureaucracy and reliable power supply allowed Thilawa Special Economic Zone (SEZ) to attract considerable investments. He also warned that current restrictions placed on foreign firms in the retail and wholesale sector are already “the maximum” but commended the ministry’s reform efforts.

According to information from the DICA, Japanese investment approved in fiscal year 2017-2018 (ended in March) amounted to US$384 million. Including investment via third countries and to the Thilawa SEZ in southern Yangon, Japanese investment in fact more than quintupled from the same period a year earlier, reaching $1.48 billion. This made the island country among the biggest investors in Myanmar.

Japan Inc plays an important role in Myanmar’s investment landscape. Thilawa SEZ, initiated by then-President U Thein Sein and recently hailed by State Counsellor Daw Aung San Suu Kyi as “a crowning success”, is spearheaded by Japanese firms, receiving around $1.5 billion investments.

More recently, the growing investor interest in retail and wholesale might result in much-needed foreign direct investment for Myanmar, amid the government’s disappointing handling of the economy. Approved FDI this year has fallen short of the government’s estimates by a wide margin, while tourist numbers have been largely stagnant.

The Myanmar Times sat down with Kunio Negishi, chair of Japan Chamber of Commerce and Industry in Myanmar (JCCM), to talk about the latest developments. For a start, he said recent reforms in partially liberalising the retail and wholesale sector, and the new Companies Law, have encouraged business interest from Japan, but the lack of reliable power supply remains the primary challenge to attract manufacturers.

Retail and wholesale

Myanmar’s commerce ministry in May authorises 100 percent foreign-owned companies as well as joint ventures to carry out retail and wholesale businesses in the country. Mr Negishi welcomed this particular reform and highlighted that “a number of Japanese companies are seriously considering to enter retail and wholesale in Myanmar.” Among the investors who reached out to the ministry to discuss investment opportunities was Tokyo-headquartered Aeon.

This is a partial liberalisation. The new policy places substantial financial restrictions on foreign investors (US$5 million and $3 million paid-up capital for 100pc foreign investments in wholesale and retail businesses, respectively), as well as a minimum floor area (foreign investors or joint ventures are not allowed to operate stores smaller than 929m2).

However, local retailers are still not happy with this small step forward in liberalisation. Myanmar Retailers Association (MRA), for example, insisted that there should be further restrictions imposed on non-Myanmar firms to fend off foreign competition from local operators.

In response, Mr Negishi warned that the current restrictions imposed on foreign players have reached “the maximum”.

“We appreciate very much the commerce ministry’s efforts to open up the sector for foreign companies. But further relaxation should be expected because Myanmar’s barrier to entry for companies outside is still high,” the business leader said, adding that imposing further barriers would significantly deter investment. With more players entering the market, Myanmar consumers would be able to choose from a wider variety of products. Healthy competition will drive down prices, benefiting consumers across the country.

A long wait for insurance

Crucially, protectionism stands in the way of attracting foreign investments in many sectors. The government, for example, has yet to open up the insurance sector to foreign players, despite having committed to do so in the first quarter of last year.

Several major Japanese insurance providers have opened representative offices in Yangon and are still waiting for the liberalisation, according to the JCCM chair. At the moment, they can only do business in Thilawa SEZ. “Of course, delay in reform discourages businesses. I hope the Myanmar government will soon decide to open up the market, after which Japanese insurance firms have a range of insurance products which will help the healthy growth of Myanmar’s economy,” he explained, taking vehicle insurance as an example.

“Right now, only around 10 percent of people insure their cars in Myanmar. In Japan, almost everyone has car insurance. That makes it a much safer society. We must look into efforts to raise awareness in Myanmar about the importance – and necessity – of securing insurance, and how that is going to support people’s lives and provide them security when accidents happen,” Mr Negishi said. Furthermore, he suggested the authorities to relax the regulation on lending for domestic banks, foreign exchange and financial services.

Learn from Thilawa

The government has recently made it clear that it wants to attract more FDIs to remote and rural areas, such as Chin State, because most investments concentrate on big cities these days.

How could that be done? The business leader suggested Nay Pyi Taw to look at the factors which make Thilawa SEZ “a success”, notably a more open economy (within the zone), a clearer regulatory environment, efficient bureaucracy, and reliable power infrastructure.

Firstly, Thilawa area is governed by SEZ Law, which allows foreign investors substantially more room to do business. There is also a one-stop service centre within the SEZ, therefore businesses can avoid the need to wait for permits from different authorities, saving time and uncertainty. Thirdly and above all, infrastructure in terms of power supply, water supply, roads and ports – supported by Japanese overseas development aid, has developed significantly over a relatively short period of time.

“Developing rural areas is important but I suggest the government to think about the reasons behind Thilawa’s success,” he explained. Infrastructure, in both connectivity and power supply, is the reason Japanese investors focus on Yangon and Mandalay.

In order to secure investments in infrastructure and energy, Mr Negishi said, public-private partnerships – the model much prized by the government – should adhere to international standards and be bankable.

SOURCE: MYANMAR TIMES

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