There is great anticipation both inside and outside Myanmar over amendments to the foreign investment law that are being finalised in the parliament.
This is understandable; many countries have greatly benefitted from foreign direct investment (FDI), which often creates jobs, results in improved infrastructure, generates tax revenue, provides training for workers and ultimately promotes economic growth and increases the standard of living for citizens of the recipient country.
Likewise, companies that make the investments can potentially make tremendous profits from the country’s relatively cheap, hard-working and flexible labour and abundant natural resources. However, the amendments to the law will need to ensure investment creates a win-win scenario and is relatively fair to both sides.
As the government begins to “open” up the economy, one of the common misconceptions is that FDI will miraculously and instantly solve all economic problems, particularly in reducing the high unemployment rate.
It is important to realise that multinational companies are not responsible for and have little interest in helping to develop physical infrastructure, such as electricity, telecommunications and transportation. At best, they may improve or extend some of the existing infrastructure that pertains to their profit incentives.
Myanmar lacks human capital, has an overvalued real estate market in its larger cities and possesses low-skilled workers. In addition, Myanmar lacks the supply chain required for many large manufacturing companies to consider relocating their production here.
On the other hand, timing may be on Myanmar’s side given recent dramatic increases in the price of labour and increasing nationalism in China. To capitalise on these changes, Myanmar has to make sincere efforts to implement efficient policies for building much-needed infrastructure while employing the highest levels of transparency and accountability.
Effective and sustainable development policies could see Myanmar attract sufficient foreign investment to create thousands of jobs in manufacturing. In the short and medium term, an effectively monitored and enforced fiscal stimulus package, in conjunction with increased physical and human capital, are all required to create jobs and improve the economic welfare of citizens.
Myanmar’s existing infrastructure needs to be rebuilt or upgraded urgently. Increased spending on infrastructure should come not only from non-government organisations, foreign governments and development banks. Increased spending on infrastructure creates jobs at many levels over both the short and medium terms. The ratio of government spending on basic infrastructure relative to GDP needs to increase substantially, while improving transparency and accountability at the same time.
For example, detailed information about infrastructure projects, such as the number of companies bidding for a project, detailed cost structure of the winning company, the projected timeframe for completion and so on, should be published in local newspapers and on a dedicated website. An independent watchdog is needed to enforce and oversee projects to make sure that they are being implemented as promised and to the highest quality. It is imperative to make sure that increased spending physical infastructure is used efficiently.