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Taiwan seen as low-profile, yet high potential investor in Myanmar

A Taiwan-led industrial zone half the size of the Thilawa Special Economic Zone is under construction northwest of Yangon.

The 890-hectare Htantabin Technology Park aims to create 150,000 jobs and attract over US$330 million in investments over the next eight years. The backers of the project estimate that the figure will rise to US$840 million in 15 years.

The project is led by Wedtex Industrial Corporation, a Taipei-based lace maker, which saw the potential of Myanmar as a manufacturing base as early as 2009, before the country opened up.

While other large manufacturing-centered developments in the region such as the Serge Pun-led Yangon New City, the Korea-Myanmar Industrial Complex, and Thilawa have attracted media attention, Htantabin has flown below the radar like many other Taiwanese investments.

Once launched though, the Taiwan-backed zone will rival its more high-profile counterparts in attracting investors to set up shop with land leases of up to 70 years, tax exemptions, as well as infrastructure such as wastewater treatment system and electricity.

The project reflects the appetite of Taiwanese businesses for investments in Myanmar. The world’s fifth largest creditor with US$1.28 trillion in net foreign assets as of 2018 has shifted its focus from China to Southeast Asia in recent years, hoping tap into one of the fastest-growing markets in the world.

As of September, Taiwan’s accumulated foreign direct investment in Myanmar since 2013 stood at US$131 million, according to the Directorate of Investment and Company Administration (DICA). This excludes approvals made in Thilawa as well as Taiwanese investments in Myanmar channeled through Singapore, Hong Kong and other cities.

Within Thilawa, for instance, only one approved investor is officially classified as Taiwanese, though four other Taiwanese investors have invested through their subsidiaries into the SEZ. Conservative estimates made by Taipei Economic and Cultural Office in Myanmar indicate the country is home to over 270 Taiwanese enterprises, accounting for more than US$8 billion in investments over the years. The office is Taiwan’s de facto embassy in Myanmar, which has no formal diplomatic ties with Taiwan.

Major Taiwanese investors in Myanmar include the world’s largest shoemaker Pou Chen, agri-food supplier Dachan Great Wall, lens manufacturer Asia Optical, banker E Sun, electronics manufacturer Foxlink, Century Iron and Steel and Abba Aluminium.

Bilateral trade volumes between the two countries have also seen significant growth, totalling US$343 million in 2018, a 20-percent jump from US$282 million in 2016.

Potential for more

Still, Taiwan’s level of engagement in Myanmar is dwarfed by its investments in the region such as Vietnam. Taiwan’s trade in Vietnam exceeded US$14.5 billion in 2018 and Taiwanese investment reached over US$30 billion over the years, making it the fourth largest foreign investor in Vietnam. In comparison, Taiwan is only the 20th largest foreign investor in Myanmar, according to statistics from DICA.

This is partly because Vietnam opened its economy decades earlier and offers better infrastructure. Political and market risks in Myanmar are also higher, for example, the possible withdrawal of the EU’s Generalised Scheme of Preferences, which could hurt the local garment industry.

In order to attract more FDI, Myanmar needs to show that it is a stable destination for foreign investment, according to Hunter Marston, doctoral candidate at the Australian National University, who studies the region.

“That means improving banking infrastructure, financial transparency, and for better or worse will require pushing back against long-term domestic interest groups which dominated the military-junta era, including notorious crony corporate networks, which the existing legislation still gives advantages to.”

“Taiwanese businesses see the opportunities and seek to invest in Myanmar, but they have no clue who and where to go to,” businessman Chen Pai-chin told Myanmar Times, adding that the well-entrenched bureaucracy deter investors.

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Mr Chen, chair of aluminium manufacturer Abba, said his firm decided to commit US$13 million for a factory in Thilawa because of the SEZ’s effective regulations.

Myanmar Times also talked to Yen-shiang Shih, former economic affairs minister of Taiwan, during his visit to Myanmar. The ex minister said Myanmar should set up dedicated desks to promote Taiwanese investment in the country.

He attributed part of the success of Indonesia and Vietnam in attracting foreign direct investment to such initiatives. As the desks are staffed with officials who are proficient in the languages spoken in the investing countries, they could more effectively promote trade and investment and address investor concerns. DICA launched its one-stop service centre in March this year, hoping to direct investment more efficiently and effectively.

In addition, Myanmar’s protectionist regime and red tape has deterred many investors. While the government has partially liberalised the insurance, education, telecoms and retail industries, foreign businesses remain significantly restricted in a large part of the economy.

For manufacturing – the largest target of Taiwanese investments in Myanmar – land leases continue to pose a significant hindrance. Foreigners are prohibited from owning land in Myanmar and the lease durations in typical industrial areas are much shorter than that in SEZs.

Historically, small and medium-sized enterprises (SME) have been the driving force for economic growth in Taiwan, which is exemplified by their contribution of over 80 percent to the country’s GDP. China’s industrialisation and supply chain development since the 1980s could largely be attributed to capital and expertise from Taiwanese SMEs.

However, Mr Chen, who categorises his company Abba as a SME, observed that these kind of enterprises seemed to be ignored by Myanmar’s government. He warned that “the development of the country would be affected,” if SME investments continue to be shunned. In the real estate market, which Taiwanese investors have expressed interest in, foreigners were prohibited from purchasing property until the rules and by-laws of the 2016 Condominium Law are enacted.

Myanmar’s banking sector has also drawn interest from Taiwanese investors. Of the 45 or so foreign banks that have set up representative offices, one out of four is from Taiwan. However, only one out of 11 has received a foreign bank licence under the previous administration led by U Thein Sein.

Taiwan’s regional strategy for Asia

Nevertheless, there remains a large reservoir of untapped potential for Taiwanese investors in Myanmar. Under its New Southbound Policy initiated by Taiwan President Tsai Ing-wen in 2016, Taiwan companies have been encouraged to pursue projects in Southeast Asia involving industrial supply chains, medical cooperation, and agriculture to tourism. The policy also extends to the grassroots level by promoting talent cultivation and youth exchanges.

In that light, there are still opportunities for more cooperation in sectors like education, healthcare and agriculture between Myanmar and Taiwan, said Chun-Fu Chang, Taiwan’s de facto ambassador in Myanmar.

Despite the humanitarian crisis in northern Rakhine, the impact on trade relations should be minimal, said Chen-dong Tso, professor of political science at National Taiwan University. “The most significant thing remains to be the [commercial] viability and transparency of regulations,” he said.

“Myanmar’s natural resources and agricultural sector can be hugely attractive to investors,” he added.

Myanmar continues to be one of Asia’s top agricultural exporters, especially in corn and rice. Agriculture contributes nearly 40 percent of GDP, according to the UN’s Food and Agriculture Organization. In this regard, Taiwan’s agri-tech could play a key role.

For instance, Taiwan’s Known-You Seed Co started selling fruit seeds in the Myanmar market in 1994. Known-You has made its mark locally especially with watermelons: the majority of Myanmar-grown watermelons today are in fact types developed by Known-You.

Taiwan’s New Southbound Policy also holds promise for Myanmar students’ being educated in Taiwan. “Through such a channel, Myanmar will be able to incubate the talent necessary – at a much more affordable cost – for its next phase of economic development,” said Taiwan-Asia Exchange Foundation, a Taipei-based think-tank.

Taiwanese businesses, while not committed to large-scale infrastructure projects like Chinese state-owned enterprises, endeavour to deliver quality and transparent economic cooperation with its Southeast Asian counterparts, the Taiwan-Asia Exchange Foundation says.

The other appeal in Myanmar for Taiwanese investors among other Southeast Asian economies is the Chinese-speaking population. Over the years, there have been thousands of Chinese-speaking Myanmar people who studied and worked in Taiwan. As Taiwan and Myanmar seek to deepen the bilateral relations, these people could “serve as a bridge,” said former minister Mr Shih.

Taiwan may well move up the ranks to become a much larger investor in Myanmar in the years to come.

Source : Myanmar Times

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