Zaw Myat Lin discusses the impact of FDIs on sustainable human development in Myanmar.
Myanmar’s economy has been slowing down over the past two and a half years and the NLD government has been received much criticism for its poor management and leadership. The slowdown is evident in the falling amount of foreign direct investments (FDIs), which affect the economic growth of developing countries such as Myanmar through an inflow of capital, tax revenues, employment, technological spillover, skills transfer, and access to foreign markets.
Unfortunately, much attention, especially from the media and the Myanmar Government, has been mainly on the quantitative side of FDIs, and not much on the qualitative aspects: which sectors the FDIs have been flowing into, how they could contribute towards sustainable economic growth and human development, what the constraints and challenges are, and what measures the government should be taking to maximize the potential development benefits of the FDIs?
Beginning in 2011, Myanmar has been pursuing the path of political democratization, economic liberalization, and increased openness to foreign investment. With the enactment of a new Foreign Investment Law in November 2012, the amount of FDI inflows into Myanmar increased significantly year by year. According to the official statistics of Directorate of Investment and Company Registration (DICA), Myanmar received only USD 1.4 billion in 2012-13. But the amount increased to USD 4.1 billion in 2013-14, USD 8 billion in 2014-15, and USD 9.5 billion in 2015-16, a staggering 29 times of the 329.6 million received in 2009/2010, the year before the political transition.
With their landslide victory in the November 2015 elections, the National League for Democracy (NLD) government led by Daw Aung San Suu Kyi came to power in 2016. In October 2016, the NLD government enacted a new Myanmar Investment Law (MIL), replacing the 2012 Foreign Investment Law and the 2013 Myanmar Citizens Investment Law. Having different laws for foreign and local investors had previously caused the perception that foreign and local companies were not being treated equally and many potential investors welcomed the new investment law. However, despite high expectations, the NLD government attracted only USD 6.6 billion of FDIs in its first year of 2016-17, a fall from the record high USD 9.4 billion received by U Thein Sein government in 2015-16. In 2017-18, the amount went down even further to USD 5.7 billion, hitting its lowest level since 2013.
To fully realize the developmental potential of FDIs, there is a need for an economic policy or direction which encourages investments in strategic economic sectors that create job opportunities, promote technology transfers and skills development, facilitate trade and market access. For Myanmar, the strategic sectors include manufacturing, agriculture, livestock and fisheries, and hotel and tourism.
But, the review of official FDI data shows a somewhat different direction. Under U Thein Sein’s government, between April 2011 and March 2016, foreign investments in Myanmar totalled USD 27.7 billion. However, about USD 13.7 billion, accounting for almost half of the total, went to the oil, gas and power sectors. Only USD 4.8 billion, just about 17 percent of the total went to the manufacturing sector. The hotel and tourism sector attracted only USD 1.4 billion, merely 5 percent. Agriculture received only USD 76.8 million, just about 0.3 percent of the total FDI.
Over the past two and a half years of the NLD government’s term, a total of USD 13.6 billion worth of FDIs flowed into the country. In percentages, about 25 percent went to manufacturing, 16 percent into real estate, 4 percent into hotel and tourism. Agriculture and livestock and fisheries received just 1 percent each.
As of the end of August 2018, the oil and gas and power sectors combined constitute about 56 percent of the total value of approved FDIs over the past 30 years, since 1988. The manufacturing, hotel and tourism, agriculture, livestock and fisheries sectors received only 12.93 percent, 3.9 percent, 0.51 percent, 0.76 percent respectively.
Most of the FDIs in Myanmar have been concentrated as a few projects in the extractive industry. This means that the approved FDIs in Myanmar have very limited potential to fulfill development expectations relating to job opportunities, technology transfers, trade development, and access to markets.
Human capital is also crucial when it comes to learning and absorbing modern skills and technologies. Unfortunately, human capital in Myanmar is very low and it is unlikely that local enterprises and workforces will absorb advanced foreign technology in an effective manner. This is evident in the latest ranking of Myanmar’s Human Development Index (HDI). The HDI measures three basic dimensions of human development: a long and healthy life, access to knowledge, and a decent standard of living. A long and healthy life is measured by life expectancy and standard of living is measured by Gross National Income (GNI) per capita. Access to knowledge, which is directly related to human capital, is measured by two indicators: mean years of schooling for the adult population— which is the average number of years of education received in a lifetime by people aged 25 years and older— and expected years of schooling for children of school-entrance age, which is the total number of years of schooling a child of school-entrance age can expect to receive if prevailing patterns of age-specific enrolment rates stay the same throughout the child’s life.
According to the Human Development Report 2018, in Myanmar, the mean years of schooling is 4.9 and expected years of schooling is 10, lower than the averages of 7.9 and 13.3 respectively for countries in East Asia and the Pacific and the averages of 6.7 and 12 respectively for countries of medium human development. This is not really surprising in light of underspending in education and health for many years. A UNICEF report on public budget allocations in Myanmar highlighted that Myanmar’s expenditure on health and education is remarkably low compared to other countries in the Southeast Asia region. The report pointed out that for the financial year 2012-2013, total government spending for education and health were just 11 percent and 5.7 percent of the total budget, the lowest among the Southeast Asia countries. For the year of 2017/18, the first budget year overseen by the NLD government; only 8.5 percent and 5.2 percent of total expenditures were allocated on education and health, whereas 14.2 percent was allocated for defense. The defense budget was larger than education and health budgets combined. The recently approved budget for the year 2018-19 is more or less the same in terms of percentage for education, health, and defense at 8.7 percent, 4.6 percent, and about 13.1 percent on defense respectively.
Land is another key issue relating to both economic growth and human development in Myanmar. The 2016 MIL allows land lease for foreign investments for a period of up to 50 years and renewable for a further two 10-year periods. Land tenure could be granted for a term longer than 50 years for projects in less developed and remote areas for the purpose of development. Though these are favorable provisions for the investors, they could bring devastating effects for small-holder indigenous landowners, who rely upon subsistence farming and shifting cultivation mainly operated by customary land use practices.
Several studies and analyses (for example, FSWG’s review and MCRB’s briefing) have pointed out that Myanmar’s current land laws do not recognize customary land use, and there is a risk that land being used by small-holder indigenous farmers could be classified as ‘vacant and fallow’ land and could be taken away by the government to give to investors. Most of the victims of land confiscations do not receive any compensation. A report published by Namati in 2015 highlights that only 882 out of 20,000 cases or complaints – just about 4 percent- reviewed by the Parliament’s Farmland Investigation Commission received compensation. Even for this, the amount of compensation received, about 4.6 million kyats per acre, is significantly lower than market value, about 40-200 million kyats per acre depending upon the location.
Meanwhile, there has been a great delay in resolving land disputes, returning confiscated land to rightful owners, and providing compensation to farmers whose lands were grabbed. According to another paper prepared by Namati in 2017, based upon their own experience helping farmers whose lands had been confiscated, the resolution rates for land disputes that involve government ministries, companies, and military are very small: only 7 out of 52 cases (15 percent), 20 out of 130 cases (13 percent), and 37 out of 116 cases (32 percent) respectively. Therefore, with no effective legal framework and mechanisms to protect land rights and address land disputes, FDIs impose additional threats to land tenure security of the people in Myanmar.
A vast amount of oil, gas, hydropower and mineral potentials are mainly located in the ethnic minority regions and many investors are interested in investing in the existing infrastructure, energy and extractive businesses. However, without achieving genuine peace for the current political solution, the presence of foreign investment in those conflict-torn areas could worsen the plight of local communities. The Myitsone Dam hydropower project in Kachin State, and Kyauk Phyu deep seaport and Special Economic Zone (SEZ) project in Rakhine State, both backed-up by China, are examples of this.
The Myitsone Dam project has been largely unpopular across the country. In particular, the relationship between the Myanmar military and the Kachin Independence Army (KIA), a Kachin ethnic armed organization fighting for self-determination of the Kachin people, began to deteriorate rapidly since the commencement of the Myitsone Dam in 2010 and the resulting clashes between both sides in 2011 ended a 17-year ceasefire agreement. The conflict is still ongoing and nearly 100,000 people have been displaced as of December 2017 according to the UN Office for the Coordination of Humanitarian Affairs. Similarly, the Kyauk Phyu deep seaport and SEZ project in Rakhine State is also causing displacement of local communities. According to a report produced by the International Commission of Jurists (ICJ), 26 families were involuntarily displaced from their farmland in 2014 by the government’s construction of two dams to serve the project. It has been estimated that around 20,000 people from 35 villages could be affected by this project. A few studies (for example, TNI’s and ICJ’s) have warned that these investment projects could cause irreversible damage to the environment and ecosystem, social and political stability, and livelihood patterns of the project areas and the whole country.
FDI is a desirable form of capital inflow as it could help create job opportunities, industrial competitiveness, economic growth, and sustainable human development. However, it is unlikely that Myanmar will realize such great developmental potentials of FDIs with the current structure of FDIs. The government needs to channel more investments into the key economic sectors of the country, such as agriculture and manufacturing, and invest more in human capital through increased expenditures on education and health care. Otherwise, the country’s workforce will not be able to absorb modern technologies and skills. The government should also put in place laws and regulations that protect land rights and environmental rights of the population, especially of the rural and ethnic minorities. Moreover, without lasting peace and political solution in place, the FDIs in ethnic areas would bring more harm than benefits by causing armed conflicts and displacement of people like in the Kachin State. The peace process should also be accelerated to achieve genuine peace and political solution involving different ethnic groups. Only then will FDIs be able to bring sustainable human development into Myanmar.
Zaw Myat Lin is a development practitioner engaging in the areas of local governance, political economy, access to justice and rule of law. He studied international development for his Master’s degree at Tulane University, USA with a Fulbright scholarship.