Foreign Direct Investment and Economic Transformation in Myanmar

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Stephen Gelb, Linda Calabrese and Xiaoyang Tang, March 2017

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This study assesses the potential for foreign direct investment (FDI) to contribute to Myanmar’s economic transformation, by raising productivity and growth. The study focuses on four sectors – agriculture and agro-processing, garments, construction and tourism – selected for their significance for both transformation and FDI in Myanmar, particularly FDI from China.

The paper begins with a brief review demonstrating that economic transformation over the past two decades has been limited, though data limitations make it difficult to reach firm conclusions. Following this, a review of trade and investment looks at overall performance, as well as in the four selected sectors, and at relations with China. Exports have grown especially into China, but are dominated by extractives (particularly natural gas and precious stones). Garment export potential has raised manufacturing FDI since 2012. The trade and investment regimes are still undergoing liberalisation to encourage entry. Forty firms in the selected industries were interviewed, of which 31 were Chinese investors which suggest the Chinese firms are fairly satisfied with their performance in Myanmar, and with the productivity of low-skilled Myanmar labour (adjusted for wages). The Chinese and non-Chinese firms are not very different with respect to their main concerns: the quality of infrastructure (energy and transport particularly) and trade facilitation; the quality of local employees in higher-level managerial and technical positions; the limited breadth of the financial system, including the narrow scope of financial and foreign exchange instruments; and the unpredictability or absence of regulation.

The paper reviews in some detail the foreign presence in each of the four sectors and its impact on economic transformation. Significant positive effects include employment and exports in garments, local enterprise development and downstream user costs in construction (and infrastructure), and exports, technology transfer and product market competition in agriculture and agro-processing. The paper also concludes with a number of policy recommendations for UK DFID.

 

Photo credit: Axel Drainville (Flickr)

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