CHAPTER II: LITERATURE REVIEW

2.1. Country Profile

Region: East Asia & Pacific (known as Southeast Asia)

Country: The Republic of Union of Myanmar

Capital: Naypyidaw

Largest City: Yangon (7,355,075 in 2014)

Currency: Myanmar Kyat

Population: 53.90 million 2015

GNI Per Capita: (US$) 1,293 2015

GDP: $64.87 billion 2015

GDP Growth: 7.0% 2015

Inflation: 10.8% 2015 (The World Bank, 2016)

2.2. History

Myanmar has been recoded as one of Asia‟s most prosperous economies in the region before World War II and expected to gain rapid industrialization. The county belong rich natural resources and one of most educated nations in Southeast Asia. However, Myanmar economic was getting worst after military coup in 1962, which transform to be one of the poorest nations in the region. “Then military government centrally planned and inward-looking strategies such as nationalization of all major industries and import-substitution polices had long been pursued (Ni Lar, 2012)”. These strategies were laydown under the Nay Win leadership theory so called “Burmese Way to Socialism”. Since then, the country economic getting into problems such as „inactive industrial production, high inflection, rising living costs, and macroeconomic mismanagement‟. Therefore, the country economic declined and became worsts situation which caused to rise nationwide revaluation known as “8888 Uprising” in 1988. The next military leaders took up economic development status that connects to its neighbors countries like Thailand and Singapore mainly. Especially, the Association of Southeast Asia Nation (ASEAN) regional integration was link with Myanmar market so far. Then Myanmar provides Foreign Investment Law then allowed foreign private companies carefully with limited investment sector which in only industries factor. However, after Asian financial crisis in 1997, the government policies had changed that against market-mechanisms by adopting measures to emphasize import-substitutions and to involve in different economic sectors under control of military government (Oxford, 2016).

2.3. Geography

The Republic of the Union of Myanmar is the largest country on the mainland of Southeast Asia. It is strategically located between most populated China in the northwest and India to the northeast. The sovereign state also bordered around Bangladesh in the west and Laos in the east and Thailand to the south east, the Andaman Sea and Bay of Bengal to the south and south west.

Area: Myanmar extends 925 km (575 miles) from east to west and 2,100 km (1,300 miles) from north to south. The Irrawaddy River runs through the center of the country in south coast to north. To the west are the Arak mountains and the Chin hills and the Kachin hills to the north where southeast Asia‟s highest mountain rage, Hakabo Razi which reaches 5,881 m (19,295 ft). There are seven administrative states and regions namely, seven states are, Kachin, Kayah, Kayin, Chin, Mon, Rakhine and Shan States; seven regions are namely, Sagaing, Tanintharyi, Tanintharyi, Bago, Magway, Mandalay, Yangon and Ayeyarwady (Irrawaddy) Regions (Wikipedia, 2016).

Climate: Myanmar has a monsoon climate with three main seasons and the tropical monsoon in the lowlands below 2,000 m (6,562 ft), rainy, cloudy, hot and humid summers. The hottest period is between February and May, when there is little or no rain and temperature can rise above 40°C. The rainy season is generally from May to October and cooler weather from October to February. The coast and the mountains see significantly more rainfall than the arid central plains (World Travel Guide, 2015). 2.4. Methodology

This study used statistical data as quantitative study based on secondary research which comes from interment website, blog, especially its root sources from Myanmar investment commission regarding trade and investment. By using these data, the study figures the past and present condition of FDI in Myanmar. Hence, data analyzed to the problem and benefit of FDI in recent Myanmar economic growth. Overall, there are adding opportunity and challenge which obstacle to achieve the desire level of economic growth in the country.

2.5. Country Economic Over View

Myanmar‟s economy grew at 8.5 % in real terms in 2014/15 but Growth rate is projected to moderate to 6.5% in 2015/16 due to floods and slowing investment. The Medium- term economic growth prospect remains strong and assuming continued progress on reforms. Economic reforms have supported consumer and investor confidence without ongoing business environment and socio-political challenges. However, poverty is concentrated in rural areas, where poor people rely on agricultural and casual employment for their livelihoods in Myanmar. In fact, Among of ASEAN countries Myanmar has the lowest life expectancy and only one third of the population has access to the electricity grid and road density remains low at 219.8 kilometers per 1,000 square kilometers of land area. Overall, continuingly rising demand for investment-related imports has widened the current account deficit. This has put pressure on Myanmar‟s exchange rate together with the general strengthening of the US Dollar. In consequently, the liberalization of the telecommunication in 2013, mobile and internet penetration has increased significantly from less than 20% and 10% in 2014 to 60% and 25% respectively (World Bank, 2016).

In fact, Myanmar total trade volume during 2015/16 FY was USD 11,193,794 million and the export volume was only USD 4,549.957 million compared to the import volume of USD 6,643.837 million according to the ministry of Commerce of Myanmar. The total volume of trade is comparable during the 2014/15 FY, the foreign trade volume was US$ 10,383.666 million, and is comprised of export USD 3,958.523 million and import US$ 6,425.143 million. Furthermore, Myanmar connected border trade reached US$ 2.48 with Bangladesh, China, India and Thailand (ThaibizMyanmar, 2016). Table :1# Myanmar Economy Data since Economic Reforms

Population (Million) 2 2 2 2 2 011 012 013 014 015 GDP per capita (USD) 5 5 5 5 5 0.1 0.5 1.0 1.4 1.8 GDP (USD bn) 5 5 5 5 6 6.0 5.6 6.7 6.7 3.1 Economic Growth (GDP, 5 7 8 8 - annual variation in %) .6 .3 .4 .5 Unemployment Rate 3 3 3 3 - .4 .3 .3 .3 Fiscal Balance (%GDP) - - - - - 4.6 1.7 8.4 2.9 Public Debt (% of GDP) 4 4 3 3 - 9.3 3.1 4.8 1.6 Inflation Rate (CPI, annual 2 2 5 5 - variation in %) .8 .8 .7 .9 Policy Interest Rate (%) 1 1 1 1 1 2.00 0.00 0.00 0.00 0.00 Exchange Rate (vs USD) 5 8 9 1 1 .44 51.7 83.8 ,031 ,301 Current Account (% of - - - - - GDP) 1.9 4.2 5.2 6.1 Current Account Balance - - - - - (USD bil) 1.1 2.3 3.0 3.9 Trade Balance (USD 0 - - - - Billion) .2 0.3 0.8 5.2 Exports (USD billion) 9 8 1 1 - .2 .9 1.2 1.0 Imports (USD billion) 9 9 1 1 - .0 .2 2.0 6.2 International Reserves 7 7 4 4 - (USD) .0 .0 .5 .8 External Debt (% of GDP) 1 1 1 1 - 4.6 4.1 2.8 0.1 Source: Focus-Economics.com

2.6. Determent of FDI

When FDI inflows started to take off a few decades ago, the business environment in ASEAN did not stand out as exceptionally good. Many of countries aspects important for foreign multinational firms were relatively poor in this region. The variables probabilities are highly consider traditional gravity, cultural distance factors, parent country per capita GDP, relative labor endowments and regional trade agreement.

In case of Myanmar, there are weaken of Macroeconomic and political stabilities are a key factor for Multinational Enterprise (MNEs) chooses where to locate their affiliates which could not access perfectly such as multilateral trade openness, infrastructure, electricity and economic institution that actually large importance for MNEs. The positive Determinants of Myanmar‟s FDI conditions link with larger Market size , rich natural resources, cheap labor cost, less Competitiveness for host country, flexible macroeconomic policies, allowing private ownership, WTO membership since January 1995 since for trade and investment as well as regional free trade access which link other ASEAN countries. Therefore, the FDI policies for any MNEs company can easy to integrate with less risk perception and great location and sourcing (Sagarik, 2015).

Overall, the Determinants of FDI eclectic paradigm concept selected variables for Myanmar, Gross domestic product, Foreign Exchange Rate, Interest rage, inflation, economy openness which are careful considerable in positive growth. Investors also needed to aware for mobility of countries ethnics diverse, sensitive religious issue in order to avoid risks.

2.7. The Role of FDI in Myanmar FDI is considering by many to be one of the last economics development factor in Myanmar. The FDI level reach into advance since past five years that truly existed for the period from 1988 to November 2015 reached $ 58.2 billion. Most income consisting mainly of manufacturing enterprise, with oil and gas companies bringing in one third of total investment, at $ 19.2 billion since 2012 opened foreign investment sectors and the total of over $ 8 billion approved in 2014. However the investment inflow only $ 3.9 billion that significantly drop compare the previous years. Therefore, although The FDI roles from very important part of Myanmar economic growth. However, the current Myanmar economic condition is unstable in this period of the years (Oxford, 2016)

In fact, in many countries, FDI had played an important role in their economic development. FDI become a key solution to reduce development gap between poor and rich community in Myanmar. It is also rapid growth of multinational corporations (MNCs) and explores Myanmar market currently. Myanmar government had identified a number of potential investment opportunities for foreign investors allowing through a joint venture and hundred percent foreign own entry in some business sectors such as manufacturing goods and services sectors under thee foreign investment law will be granted (New E. K. M., Myint Z. T., 2015).

2.8. Current FDI Inflow in Myanmar

The FDI inflows into Myanmar are much considering on natural resource based and extractive industries sectors such as power, oil and gas and mining. In the past three fiscal years, FDI inflow has beaten its targets. In fiscal years of 2012-2013, Myanmar expected to receive $ 1 billion in FDI but actual attracted $ 3.42 billion unacceptably higher. In 2013-2014, the targeted amount was $ 3 billion and received was $ 4.11 billion. In comparison, FDI amounted to only $ 329.6 million in the year of 2009-2010. Therefore, FDI has inflow continuously increased over the last four years and it expected to reach & $6 billion for fiscal years of 2015-2016 (Khine Kyaw, 2015).

In fact, Myanmar approved foreign investment totaling US $ 8.01 billion from 211 companies from 2014 to 2015 fiscal years in 12 sectors. Among the sectors attracting foreign direct investment during the fiscal year ending 31 marches, oil and gas sector topped the list at $ 3.22 billion, followed by the transport and communication with approved capital of $ 168 billion and manufacturing with $ 1.5 billon. The real estate sector attracted $ 0.78 billion while $ 0.36 billon was approved for the hotel and tourism sector (New E. K. M., Myint Z. T., 2015). .

As Myanmar targeted, it is high recorded FDI fiscal year ended in March totaled $ 9.4 billion for 217 projects in 2015-2016. Long with the years, the oil and gas sectors attracted the biggest involvement, followed by transport and communication and manufacturing. Among investors, Singapore rank as largest investor which put $ 4.3 billion into 55 projects, followed by China invested $ 3.3 billion (Reuters, 2016).

Table:2# Foreign Direct Investment in Myanmar (2010-2015)

US$ Million

year No of Approved Investment Enterprise 2010-11 25 19,999.000 2011-12 13 4,618.160 2012-13 94 1,419.450 2013-14 122 4,088.470 2014-15 209 7,963.520 Total 463 38088.66

Figure:1# Myanmar FDI inflow 1971-2015 Myanmar FDI inflows 1971-2015

3,500,000,000 Myanmar 3.13 Billion

3,000,000,000

2,500,000,000

2,000,000,000 USDBillion 1,500,000,000

1,000,000,000

500,000,000

0

1975 1977 1980 1983 1985 1989 1990 1991 1993 1995 1997 2000 2002 2005 2007 2008 2009 2010 2011 2012 2013 2014 2015 -500,000,000 1971 Source: World Bank:

The line grape shows the e FDI capital flow from 1971 to 2015, which illustrated dramatic growth of FDI inflow in Myanmar. Following with long line, Myanmar FDI moment in highest record in 2016, therefore, Myanmar economic growth hit positive impact due to FDI inflow since 2010 reforms to present day as high breaking record.

Overall, there are many investments still growing in the recent year since country reforms. Following the table below illustrate the total improvement in numbers of factors in FDI and in capital flows since its significant change in the past five years.

The actual growth of FDI after country reforms has been increased by number of sectors. As well as among of investment in USD were remarked within five years.

2.9. FDI Inflow by Countries

Foreign direct investment in Myanmar is gradually increasing by 426.20 USD million in February 2016. All total of the over the past five since economic reforms in 2011, the FDI inflow averaged 473.16 US$ million until 2015. The below table show the data of FDI inflow by countries which simply note for 2015 as below:

Table: 3 # FDI inflow by Countries in 2015 (US$ in Million)

S Country Existing Enterprises No Number Approved % Amount 1 China 90 15,274.19 31.16 2 Singapore 153 11,480.42 23.42 3 Hong Kong 99 7,175.77 14.64 4 U.K. 48 3,406.68 6.95 5 Republic of Korea 108 3,324.68 6.78 6 Thailand 51 3,216.57 6.56 7 Malaysia 25 1,065,02 2.17 8 The Netherlands 10 747.49 1.52 9 India 21 726.15 1.48 10 Viet Nam 10 691.57 1.41 11 France 3 537.61 1.10 1 Japan 72 506.00 1.03 12 1 Canada 5 167.00 0.34 13 1 Russia Federation 2 156.33 0.32 14 Republic1 of Liberia 4 94.00 0.19 15 1 Brunei 16 79.20 0.16 16 BrunieDarussalam 1 Luxembourg 3 72.63 015 17 1 Mauritius 3 45.75 0.09 18 1 Indonesia 4 39.58 0.08 19 2 Samoa 3 35.39 0.07 20 2 Switzerland 2 30.21 0.06 21 2 Australia 3 27.00 0.06 22 2 Panama 1 26.51 0.05 23 2 Sweden 1 26.00 0.05 24 2 Taiwan 6 14.30 0.03 25 2 Norway 1 12.25 0.02 26 2 Philippines 2 11.80 0.02 27 United2 Arab Emirates 2 7.17 0.01 28 2 Germany 2 6.19 0.01 29 3 Qatar 2 6.10 0.01 30 3 U.S.A. 1 4.65 0.1 31 Republic3 of the Marshall 1 4.50 0.01 32 Island 3 Bangladesh 1 2.36. 0.00 33 3 South Africa 1 1.31 0.00 34 3 Sri Lanka 1 1.25 0.00 35 3 Austria 1 1.00 0.00 36 3 Laos 1 0.09 0.00 37 Total 759 49,024.71 100.00 Source: Directorate of Investment and Company Administration (DICA)

Table: 4# Foreign Direct Investment in Myanmar by Counties (2000-2014)

(US$ million)

Source: Central Statistical Organization As its shown up clear data regarding to Foregin Direct investment inflow Myanmar. it is recorded singanifict growth since the country political and economic refroms in 2010. Most data always show the imporatnce of Asian FDI flow into the cournry rather than west. Therefore, research indicate the top ten countreis FDI inflow that grap show as below:

Figure: 2# Top Ten Countries Investment in Myanmar (2000-2014)

Source: Central Statistical Organization

According to the graph, the most investing courtiers in Myanmar are China add over 14 million and other top are including Thailand, Singapore, Hong Kong began from over $8 million to $6 million rise. Rests are lower than $ 4 million.

2.10. FDI inflow by Major Sectors

Foreign Direct investment inflow, which lead by power and oil and gas sector which total highly percentage share in long way of Myanmar economic development since country open FDI until present day. In recent and further of years Manufacturing sector emerge in the country.

Table: 5# Approved Amount of Foreign Direct Investment by sector (2003-2015)

Source: Central Statistical Organization

Figure: 3 # Composition of Foreign Direct Investment by Sector

Source: Central Statistical Organization

According to pie chart, the power sector 43.88 percent of total share in FDI flow, which is significant. Following the oil and Gas sector as second largest in the country that 34.49 percent of share. However, the most important and largest population rooting sectors of Agriculture base only 0.47 percent as lowest due to lack of road system, electricity and transportation condition. Therefore, this country current economic situation is unstable yet. The agriculture sector is also welcoming with attractive condition offers such as tax holiday and reduces taxation.

2.11. Economic Growth (In GDP)

Figure:4# Annual Real GDP Growth (% change) /Gas Exports and Net FDI (US$ Billion)

Source: IMF

Economic development is most characterized by increasing gross domestic product (GDP) in nations and GDP per capita. It also link to the distribution of income.

2.12. Trade & Investment

During the past five years of economic growth dealing foreign trade and investment, Myanmar is largely expected to increase economic integration from the regional and internationally. In the fiscal year (FY) through to April 2015, the nation reported total foreign trade receipts of $ 29.16 billion, which rose up from $ 18.17 billion in the period of 2011 and 2012. However, Myanmar kyat value was failed against the US dollar, due to a lack of high- quality transition, Transport, electricity, infrastructure, restrictive investment and trade regulation and legal framework are main issues to consider. Yet, based on the past five years of liberalization, Myanmar leaders appeared to be serious about continuing to open up the county, attract increased amounts of FDI and trade. Economic open door for external trade to private enterprises significantly increased the number of exporters and importers in Myanmar. According to trade volume grew, Myanmar exports increased by 6.8 times between 1985 and 2003, during the same period its imports increased by 5.5 times. without this increase in the volume of foreign trade, the share of exports and import in GDP constantly decreased from 13.2% in FY in 1985 to 5.6% in FY in 1990 and further to 2.5 % in FY 1995, 1.1 % in FY 2000, and 0.4 in FY 2003. However, it was problem for official exchange rate during the military government that examined exchanged about 6 kyat per US dollar (approximately change 800 hundred key per US dollar at that time). For this reason, it is difficult to measure the openness of the economy simply by the share of external trade in GDP (Kudo T. & Mieno F. (2007). However, Myanmar now access extraordinary increased in trade and investment since reforms that reemerge from isolation. Out of the $ 9.5 billion FDI permissions granted from April 2012 to October 2014, $ 2.9 billion went to projects in manufacturing and $ 2.2 billion to real estate in hotel and tourism, $ 2.5 billion to transport and communications. In this way, since president U Thein Sein has been gradually liberalized trade regime, the export and import get higher and also the country rank for international trade jumped from 135 to 103 in the doing business report in 2015(Oxford, 2015).

Overall, Myanmar is basically, an agriculture county, the agricultural sector constitute 41 per cent of the total GDP and eleven percent of foreign exchange earnings. In otherwise, livestock and fisheries, forestry, mining, energy, manufacturing, hotels and tourism, information and communication technology sectors also widely opened and easy to invest in the country nowadays.

2.13. Source of FDI

Myanmar has a wide variety of natural resources distributed across the county. The recorded value of export of gas, oil, coal, jade, gems, metals, and wood made up about 70 % of natural exports or 10 % of GDP in 2012-2013. Natural gas exports alone of US$ 3.6 billion which represent the largest source of foreign income for the government with peak of 6.5% of GDP projected in 2014-2015. It is also estimated ranked 41st in the world for proven reserves of natural gas (Thet Aung Lynn & Mari Oye, 2014).

2.14. Comparison between Myanmar and ASEAN FDI Myanmar has had the ability to learn from fellow ASEAN remember countries in their past experiences of attracting FDI. ASEAN member states have benefitted greatly from FDI and their investment policies and its development. Therefore, Myanmar has been presented with an incredible opportunity through net changes in FDI flows and internationally also aware to translate into capital that would significantly impact the growth of its economy. In overall analyzing of the institutional determinants in FDI flows to ASEAN member countries, Myanmar need to change its own policy according to the successes and failures of its neighbors (Tretter, 2013). Although, there are a lot of barriers remain in Myanmar FDI development progress, the countries recent growth of FDI inflow and GDP and economic growth are most significant. Considering Myanmar development, here research compare between other ASEAN counties focusing on recent years for opportunities and challenges to the investors. The first, analysis will be made on Myanmar relative to Cambodia, Laos and Vietnam (CLMV countries).

Table: 7# Basic Economic Data of Myanmar and other CLMV countries

NO Data Myanmar Cambodia Laos Vietnam Land 1area 676,578 Km 181,034 Km 237,955 Km 332,698 Km 1 261,227 Sq Mi 69,898 Sq mi 91,428.991 128,565 Sq Sq mi mi Population2 (2015) 51,486,253 15,4550,332 6,803,699 91,700,000 2 (2014 census) Nominal3 GDP $ 74.012 bi $ 17.814 bi $11.676 bi $214.750 bi 3 (2015) GDP per4 capita $ 1,416 $ 3,476 $1,692 $2,321 4 GDP (PPP)5 $ 311 bi $ 54.035 bi $ 34.400 bi $593.509 bi 5 GDP Per6 capita $ 5.952 $3,476 $ 4,986 $ 6,414 6 Annual7 GDP 7.0 percent 7.0 percent 7.0 percent 6.68 percent 7 growth rate (2015) Export8 (US$ 1747.30 7420.80 740.13 16090.00 8 million) (2015 -16) Import9 (US$ 1967.10 10591.00 1412.04 16000.00 9 Million) Trade1 Balance 593.30 -76.30 41.50 1444.00 10 Inflection1 Rate 16.22 35.57 167.00 28.24 11 (2015-6) Source: Wikipedia & Tradingeconomics.com

In the table, Myanmar is the second largest market among CLMV countries net only to Vietnam in terms of population, GDP and trade volume. However, Myanmar has lowest GDP per capita and lowest inflation rate among the CLMV countries. Foreign investors, especially in the case of market seeking FDI, pay attention to the market size of the host country. Market size represents population and purchasing power of the host country, GDP per capita serves as proxy of purchasing power of the country. Among CLMV, Vietnam is the largest market, having the largest population and highest per capita GDP at the same time, Although Myanmar has the second largest population, its GDP per capita is lowest among CLMV. Low GDP per capita means lower income that limits the size of market (Thandar Khine, 2008).

Moreover, the below graph indicated the annual GDP Growth in the comparison between Myanmar and ASEAN Counties. Within period of time, sine 2007 to 2014 in which Myanmar reach the most significant growth in each year‟s especially, Myanmar great achievement since 2010 reforms until 2014.

Figure: 5# Annual GDP Growth

Source: ASEAN Secretariat: ASEAN Economic Community Chart book 2015.

ASEAN GDP grew at 4.6% in 2014, lower by 2.0 percentage points from 2007, GDP growth in CLMV remained higher than in ASEAN 6 during the same period. Myanmar GDP highest grew at 12.0 in 2007, which maintain highest. Rate in 2014 at 8.7 %

NOTE# ASEAN 6= Brunei Darussalam, Indonesia, Malaysia, Philippines, Singapore and Thailand.

On the other hand, the economic growth the compression between ASEAN member countries is in huge gap in the states. Singapore and Brunei are always higher rank in GDP per capita income in all long years. Myanmar is still maintaining lowest one in the region follow by Laos and Viet Nam until 2014.

Figure: 6# GDP per capita (at current price) Source: ASEAN Secretariat

According the graph indication, Member States GDP per capita varied widely. 2014, Singapore gain US$ 56,287 in last two years and Brunei reached more than US$ 40,000: while GDP per capita in Myanmar stood at US$1,278. Rest countries GDP per capita ranged from US$10,784 to lowest 1,105 in Cambodia.

Figure:7# Net Inflows of FDI as share of GDP by ASEAN Member States.

Source: ASEAN Secretariat

Again, FDI inflows in Singapore accounted for 23.4% of the country‟s GDP in the region, FDI inflows in Myanmar reached highest in 2013 into 5% share among ASEAN but Cambodia achieved second largest share GDP at 10.3 sine 2007 to 2014. Moreover, in case of currency exchange rate, many countries are trouble challenge in the region. Especially, Myanmar currency is more depreciated following by Indonesia.

Figure: 8 # Rate of Change Currencies to US Dollar (period average)

Source: ASEAN Secretariat and IMF World Economic Outlook October 2015

Unacceptably, ASEAN currencies against the US dollar are depreciated in 2014, the Myanmar Kyat is depreciated, by 6.1%.

Figure: 9# and 10# indicated the Goods of imports and exports which compare within ASEAN and outside of ASEAN regions.

Figure: 10 # ASEAN Member States Imports of Goods by Origin, 2014

Myanmar imported most of their commodity items within the region, accounting for nearly 50% of the total imports of goods in intra-ASEAN. Laos PDR are heist commercial within the region which reach at 75 %.

Figure: 10 # ASEAN Member States Exports of Goods 2014

Source: ASEAN-Chartbook2015.

Myanmar exported with extra-ASEAN 60%, which is positive impact on FDI and Singapore exported most of its product within the region while Viet Nam, Cambodia and Philippines shipped most of their commodities outside ASEAN.

Furthermore, the development access of telecommunication and internet sectors, Myanmar is rink as lowest nation in the region. The line graph show clear clarification by the all of year since 2010 to 2014 as below.

Figure: 11# Internet Subscribers/Users and Cellular Phone Density (Per 100 person) Source: ASEAN-Chartbook2015.

The number of internet users in ASEAN continued to increase in 2014 else Myanmar, there is also increase in the number of cellular phone users. There are more than 100 numbers of cellular phones per 100 persons in all of the ASEAN Member States with the exception of Myanmar.

Figure:12# Tourist Arrivals in ASEAN

Tourist arrivals in ASEAN grew by 2.8 percent, reaching 105 million in 2014 from 102 million in 2013; Malaysia maintained its top spot as the favorite torist destination in the region, followed by Thailand (24%) and Singapore (14%). Myanmar noticeably growth at 3.081 in 2014 but it still keeps in lowest rank in the region.

2.15. Key Findings by Other Researchers The analysis of political aspect in Myanmar reveals that political situations and corruption issues still remaining however the cause risks to foreign investors in the manufacturing sector. Myanmar apparently offers more attractive business environment based on the results of the analysis of current economic factors. Among them, Myanmar has stable and manageable inflation rate recently and higher ranking in the market openness from the better grade of specified economic freedoms. As well as, Myanmar currently provides more attractive human capital to foreign investors in the manufacturing sector which is comparable with Cambodia although Myanmar literacy rate is higher than Cambodia in which the productivity of labor forces. Besides, shortage of skilled workers in both countries poses a serious challenge to the national economic development in general and attraction of foreign investment in particular.

Myanmar provides a more competitive investment climate for efficiency seekers in the manufacturing sector in terms of vertical FDI. Myanmar does for efficiency-seekers in the manufacturing sector in terms of standing FDI. The investment consist three aspects, political, economic and social aspects (Vu, 2015).

2.16. Why Invest in Myanmar

Myanmar is rich natural resources which have attracted the most attention on oil, gas and mining sectors receiving the largest amount of the foreign investment. Currently, labor cost is cheap, albeit lower skilled and productively gains are to be expected along with industrial reforms and introduction of modern technologies. Myanmar government has identified several factors of growth for development.

Industrious low cost work force: Myanmar has been one of a best country in the world for cheap labour cost that make more attractive for manufacturing sectors following by Bangladesh and Cambodia are benefiting from the lowest labour costs in the world. The average wage in Myanmar is less than US$ 100 per month compared with China US$ 450 per month. The lowest paid 1700-2,000 kyat (US$1.70-US$2.04) per day (Boot, 2015).

Strategic location: Myanmar is strategically located between China and India. It is endowed with Asia most outstanding location geographically. The ASEAN Market become emerges into next ASEAN Free Trade Agreement (AFTA). Myanmar also connects for an alternative oil transport route from the Middle East. Local market growth: the objective of Myanmar local market growth is more attractive after long isolation in the international community and Myanmar has improved to second largest market in short period of time in the mainland of Southeast Asia.

Proven export competitiveness: Myanmar joined AFTA in December 2015 among ASEAN Member state as well several important trade partners are links with Myanmar such as Untied State, India and China. Myanmar also becomes strong competition from other exporters in the region like Thailand, Vietnam and Cambodia in the area of rice exports. Myanmar now need more space for rice export target for two million tons of years in this year and four million tons by 2020. Therefore, Myanmar is one of potential nations to get in top for next developed country in the region (The World Bank, 2016).

Positive climate: Myanmar creates a positive business climate meant to generate more inward foreign investment. Myanmar investment commission (MIC) plays a leading role in the regulation of foreign investment and approve all investment projects. A host country economic stability generally allows business to operate in a more predictable investment climate which leads to a relatively secure investment position in the country (US,2015).

Competitive incentives: Myanmar offer the great potential liberal FDI in the region allowing 100% foreign equity with unrestricted exit policy and accessible royalty and reparation of profit and income.

Other reason for investment in Myanmar: Foreign investors can easy to access to the affordable housing sector in Myanmar. International investors will likely depend on the structure and perceived transparency of the tender. On the other hand, there are many sectors list on sensitive issues which are prohibit as follow:

 “administration and conservation of natural forest;  production of traditional medicines;  drilling of oil wells whose depth does not exceed 1,000 feet;  small and medium scale mining;  cultivation and production of traditional herbal plants;  wholesale trading of components and scrap-iron;  traditional food production;  production of religious items and wares;  handicraft production;  private specialist traditional hospitals;  trading of raw materials used for traditional medicines;  medical research and operation of laboratories for traditional medicine;  ambulance services;  care centers for the elderly;  catering on trains, freight forwarding using trans, cleaning of coaches, management of trains;  agency services;  (erection and operation of) power plants with less than 10 megawatts; and  Printing, publishing and distribution of periodicals in local languages spoken in Myanmar, including the Myanmar Language” (US, 2015).

By the contrast, foreign owned enterprise or a Joint Venture approved by the MIC enjoy the following privileges:

 “A tax holiday period of five years; inclusive of the year the enterprise commences commercial operation.  An exception or relief from income tax on the profits of the business kept in reserve fund and reinvested in the business within one year after the reserve is made;  The possibility to accelerate deprecation in respect to machinery, equipment, building or other capital assists used in the business, at a MIC approved rate;  For exporting companies the possibility of a relief from tax on up to 50% of the profit accrued from the export of goods produced in Myanmar.  The rights to obtain an exemption or relief from customs duty, licensing requirements and internal taxes on the import of raw materials imported within the first three years of commercial production following startup/completion of construction.  Those taxes exemption and relief measures will certainly help to place Myanmar on the map of foreign investor preferred investment destination” (Doing business Thailand.com, 2014). 2.17. Advantages & Disadvantages of FDI in Myanmar

Introduction to Myanmar foreign investment, foreign investor granted an MIC to enjoy certain benefits and guarantees under the Myanmar Foreign investment law that are not available to foreign investors registering business entities without an MIC permit. The Myanmar foreign investment law also provides the recipients of an MIC permit will not be nationalized during the terms of their investment. While there is no specific rule on the minimum investment entrence for the grant of an MIC permit under the FDI law, the MIC has generally expected a minimum investment amount of $ 5000,000 for any investors in Myanmar. (Oxford Business Group, 2016).

2.17.1. Advantage of FDI in Myanmar

Like any other developing country, Myanmar considers FDI as a very important factor for development. The opportunity of FDI in Myanmar in Myanmar can be considering two different accepts. First, is the natural resource advantage such as gas, oil and mining including fishery industry, low cost labour . The second is the developing of power, telecommunication and transportation sectors. Myanmar also provides one-stop service consulting to foreign investors for entry into Myanmar‟s emerging market and business matchmaking with Myanmar companies.

Location: geographically, Myanmar is located between two most populated countries in the world and future possibility of global trading area in Asia, that target in Kyauk Phyuu, Silawa and Dewai deep Sea ports for international commercial.

Natural Resource: Myanmar one of a rich nature resource country in the Asia, which ranks 42 in the world resource production record (Wikipedia,2016).

Human resource: Myanmar is one of the optional nations to be faster growth economic in Southeast Asia. Overall, over 51 million populations are hardworking and young workforce for labor intensive industry. Production costs: Myanmar‟s garment industry is suitable for as less developed countries because it requires a relatively small amount initial investment. The production cost of is cheap and accessible for manufacturing investors.

Education: Myanmar education sector is another point of concern raised by many investors. This is a one of the important and effective sector which government gives privilege who is willing to invest in this particular sector.

2.17.2. Disadvantage of FDI in Myanmar

A developing nation may increase the amount of capital stock by incentivizing and encouraging capital inflows, and this is done more commonly through the attraction of foreign direct investment. There are several barriers for foreign investors in Myanmar such as policy barriers which sensitively consider social and religious concept that investor need to aware.

Infrastructure: generally poor infrastructure is a one of barriers for investor in the country. The extent to certain barriers posed obstacle to attracting FDI is more acute in industries which could be additional cost. On the other hand, there are recent challenges which need to consider human resources need to provide more training and skills to employees (Thandar Khine,2008)

Political condition: local political condition is one a main barriers for foreign investor. Investors also need to be aware when they are in country. It is due to record of human rights violations and sensitive religious issue. Multinational firms do not venture into Myanmar as it can affect their sales in the market unlike western countries. However, some global leading companies can possible dominate in new ideology concept when its enter investment (Hla Theingi, 2011).

Electricity supply: it has not perfect but it improved much better than before. The average rating of electricity in Myanmar was considerably lower than in Cambodia. Similarly, the average rating of electricity in Myanmar was significantly lower than infrastructure services.

Currency Exchange: previously, Myanmar exchange rate occurred worsts condition which government officially exchanged US$ 1 to only 6 Kyat that accrual price 1 USD over 900 Kyet underground markets. However, since April 2012, the central Bank of Myanmar has replaced the fixed exchange rate with managed floating exchange rate to be better reflecting market condition. Myanmar announced plans to phase out the use of foreign exchange certificates which served as proxies for the US dollar within 90 days from 1 April 2013. Therefore, every investor must exchange foreign currency into Myanmar Kyat for any further investment process in Myanmar (Skrine, 2016).