Thursday, August 23, 2012

Economist questions Burma’s Foreign Investment Law

Thursday, 23 August 2012 13:03 Mizzima News

Sean Turnell, a leading Burma watcher, says Burma’s proposed foreign investment law has run up against strong local opposition in the Parliament, and may go through significant revisions.

The proposed law has undergone ups and down in recent months, and he said it appears full foreign ownership of companies could be restricted in certain sensitive sectors, according to a report on the Voice of America (VOA) website on Wednesday.

Burmese farmers collect paddy seedlings from flooded fields to replant in Irrawaddy Division outside of Rangoon. Photo: AFP

Newer drafts of the law reportedly restrict full foreign ownership in certain sectors or ban their investment completely. At the beginning of this legislative session, which ends in late August, officials said the law would be passed this session, but that appears less and less likely, based on recent reports.

The new US ambassador to Burma, Derek Mitchell, said this week that more time should be taken to craft an effective, long-term law rather than rush a flawed law into passage.

An economist at Australia’s Macquarie University, Turnell, speaking to the Foreign Correspondents Club of Thailand, said a working draft of the law was now facing a local backlash of businessmen who are not yet prepared to face foreign competition.

“There’s been a bit of a push back against some of the concessions granted to foreign investors,” Turnell said. “In particular, there seems to be a walling off of some of the sectors from foreign investors. Now, that’s a bit unfortunate because in a sense a much more open approach, particularly in sectors that are dominated by local conglomerates that you know dominate the economy [is needed]; we really need an injection of competition on that front.”

Turnell noted that Burma’s biggest problems, which will directly affect foreign investment, are the lack of electricity, a weak financial and banking system and poor infrastructure.

As a short-term enticement, the government was considering offering up to five years free of taxes, according to earlier drafts of the law.

But Turnell said tax holidays are not at the top of the list of companies’ concerns.

“Not a single businessperson internationally I’ve spoken to has ever mentioned taxation,” as a major concern, he said.

Turnell said the tax breaks could also allows a loophole for Burmese conglomerates, which could use their foreign subsidiaries to evade taxes that smaller businesses would still have to pay.

Khin Maung Nyo, a Rangoon-based economist at the Center for Economic and Social Development, told VOA that 94 changes were made to the draft law so far, indicating a growing lack of confidence that smaller, local businesses can compete.

One of the bigger challenges for Burmese businesspeople  is getting access to credit to build a business. Some farmers turn to loan sharks, paying as much as 10 per cent a month, and fall into deep debt.

On the other hand, the long-term opportunities are real, Turnell said. “The country has been walled away for fifty years. There are incredible opportunities.  That’s why the planes are full, that’s why the hotels are full,” he said.

But foreign investors are concerned with the big picture issues of stability and the ease of doing business, say observers. And if you don’t have enough electricity, or financial flexibility, or a functioning road or rail system, then you give it all a second thought, at least in the short-term.

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