Foreign Direct Investment

Introduction
European Union
United Kingdom
United States
China
Japan

Introduction

Foreign direct investment has been gradually increasing in Burma since 2012, after sanctions were suspended and subsequently lifted by the EU, Switzerland, the US, Canada, Japan, Australia and New Zealand. Overall, the governments of major investing countries which had sanctions in place against Burma have stressed the importance of investing ‘responsibly’, and also highlight the benefits of this investment for Burma. The US has gone the furthest in this regard, developing what a Framework for Responsible Investment, which imposes reporting requirements on US companies which invest in the country. Other than in the case of the US, governments are generally relying on appeals to companies, and references to the UN Guiding Principles.

Both Daw Aung San Suu Kyi and President Thein Sein have called for ethical and responsible investment. Investors seeking involvement in projects in Burma therefore need to carefully select who they partner with, as they run the risk of allegations of complicity if they associate with businesses with close relationships to members of the former military government.

European Union

In April 2012 the EU suspended all sanctions (except the arms embargo) against Burma for 12 months. Subsequently, in April 2013, all remaining trade, economic and individual sanctions were permanently lifted, although the arms embargo remains in place. This move was criticised as premature by human rights groups. However, the EU position is that it “recognises the vital contribution that the private sector can play in [Myanmar’s] development” and is therefore seeking to create trade and investment opportunities for both Burma and European companies. In July 2013, the EU reinstated Burma’s access to the Generalised System of Preferences, which provides for duty-free and quota-free access for the country’s products to the European market.

The joint EU-Myanmar Task Force met for the first time from 13 to 15 November 2013 in Yangon and Naypyitaw. This Task Force is co-chaired by EU High Representative/Vice President of the European Commission Catherine Ashton together with Minister in the President’s office of Myanmar U Soe Thane. It aims to provide comprehensive support to the transition in Burma through development aid, parliamentary cooperation, support to the peace process and investment. The Task Force supports the establishment of an EU-Myanmar Business Advisory Council, to be consulted by the government of Burma, and a European Chamber of Commerce in Burma. The launch of negotiations for an investment agreement has been scheduled in the first half of 2014. At the Task Force meeting, the EU and Burma signed several letters of intent to strengthen cooperation and holding policy dialogue on small and medium enterprises, and raw materials, and in the field of sustainable tourism and agriculture. The European Investment Bank and the Central Bank of Myanmar also signed an agreement on EU financing for Burma. The EIB will focus on infrastructure projects such as transport and energy, as well as on environmental projects and credit loans to selected local banks for lending to SMEs.

In 2012 the EU committed €150 million development assistance funding to Burma (of which €100 million was allocated in 2012 and €50 million in 2013) A further 90 million will be provided over 2014-2020, making Burma one of the principal recipients of EU support.

United Kingdom

In April 2012, following the lifting of EU sanctions, the British Government announced that it was also lifting its policy of discouraging trade and investment with Burma, urging all UK companies entering Burma to abide by international standards of corporate governance and social and environmental responsibility (including the OECD guidelines for Multinational Enterprises, and the UN’s Guiding Principles on Business and Human Rights). UK Trade and Investment (UKTI) opened its first office in the country in July 2012. A New Burma/Myanmar Investment and Trade Summit was held in London with the support of UKTI and the UK-ASEAN Business Council in September 2012. The Summit aimed to prepare companies for investment in the country.

In 2011, the UK committed £187 million in aid to Burma until 2014, making it the largest bilateral donor to the country. On 4 March 2013 the UK agreed to provide £600,000 to establish a Responsible Investment Resource Centre in Yangon intended to strengthen responsible business practices for Burmese companies and those investing in the country. On 16 July 2013 the UK announced the creation of a Financial Services Taskforce to support the development of Burma’s financial services sector and advise on suitable regulatory structures to support the sector.

British business is beginning to develop a presence on the ground: Standard Chartered Bank was the first non-ASEAN financial institution to open a representative office; Unilever opened a manufacturing facility in May 2013; and three of the “big four” accountancy firms have opened offices in Burma (PricewaterhouseCoopers, KPMG and Ernst & Young).

United States

In May 2012, the US Government announced that it was easing sanctions against Burma and on 11 July 2012 it issued the first General Licence to allow “US companies to do business responsibly”. The ban on imports from Burma was suspended in November 2012, although the ban on imports of gems remained. In February 2013 the US took further steps to normalise economic relations by authorizing US entities to conduct transaction and access a range of other financial services with four of Burma’s major financial institutions: Asia Green Development Bank, Ayeyarwady Bank, Myanmar Economic Bank, and Myanmar Investment and Commercial Bank. US entities persons are still prohibited from dealing with blocked persons, including both listed Specially Designated Nationals (SDNs) as well as any entities 50% or more owned by an SDN. The Treasury Department continues to add entities to this list, and in November 2012 added 7 companies with links to violence, oppression and corrupt practices. However, most recently the US has reconsidered limited military engagement with Burma.

US investment in Burma is regulated by specific reporting requirements under the Burma Responsible Investment Reporting Requirements which were issued in May 2013. US companies investing US$500,000 or more are required to report on a range of policies and procedures with respect to their investments in Burma, including human rights, labor rights, land rights, community consultations and stakeholder engagement, environmental stewardship, anti-corruption, arrangements with security service providers, risk and impact assessment and mitigation, payments to the government, any investments with the Myanmar Oil and Gas Enterprise (MOGE), and contact with the military or non-state armed groups.

It has been noted that the restrictions pose significant challenges for US companies due to the extensive reach of the military in the private sector. In addition, the guidelines for environmental standards and human rights are said to be ill-defined. Additional criticisms highlighted in a joint submission by rights groups raise concerns about the lack of detail regarding enforcement of the requirements and the consequences for companies which do not comply.

The first reports were issued in July 2013. Media reports noted many companies were slow to report and human rights groups raised concern over “serious informational gaps” suggesting a lack of full disclosure and a failure to report by self-declared “passive” investors. In October 2013, EIRIS Conflict Risk Network sent letters to Coca-Cola, Ford and GE urging them to submit thorough and accurate reports under the Reporting Requirements; and to Capital Group, urging it to resubmit its report for being “grossly inadequate”.

The US has also reopened a USAID mission in Burma and will provide a projected US$51.2 million in aid in 2014, a boost from the 2012 figure of US$35 million. In November 2013 the US government pledged an additional US$25 million for humanitarian assistance for displaced communities in Rakhine State, Kachin State, and Burma’s Southeast region. The US is one of the largest bilateral donors for Burma and its extended reengagement has been described as an opportunity to focus on longer-term development and deepen participation in political and economic reforms. In November 2012 three new projects were unveiled, including a project to boost access to the Internet, strengthen transparent government and expand digital literacy; a project aimed at reducing preventable child deaths; and a project supporting free and fair elections.

China

China has traditionally been the biggest investor in Burma, with government figures released in October 2013 indicating that of the $43.735 billion in approved investment since 1988, Chinese companies accounted for US$14 billion, or 32 percent of the total. However since the civilian government entered into power in 2011, Chinese investment in Burma has decreased from approximately $12 billion between 2008 and 2011 to just $407 million in the 2012/2013 fiscal year. The Chinese government continues to encourage private investment in Burma, and in November 2012 signed various trade, economic and finance agreements, albeit in an environment of increased distrust. In August 2013, Burma signed a high-interest US$100 million loan from Chinese state-owned Export-Import Bank (EXIM Bank), to be used for micro-credit programmes in rural areas and upgrading cooperatives.

The changing political and regulatory environment in Burma and the increase in investment from Western entities has meant that Chinese investors must consider new strategies to ensure the long-term success of their investments. In 2013, the Chinese Ministry of Commerce issued several new sets of rules governing the extra-territorial conduct of Chinese companies covering sustainable development and environmental protection, commercial bribery and regulation of employment of foreign workers, and competition.

The three largest Chinese investments in Burma are the Myitsone Dam, the Letpadaung Copper Mine and the Sino-Myanmar oil and gas pipelines. President U Thein Sein suspended construction of the Myitsone Dam in September 2011 following local protests and has deferred any further decision until after the end of his term in 2015. The operation of the Letpadaung Copper Mine has been suspended since November 2012, following mass local protests and demonstrations. Daw Aung San Suu Kyi was appointed to lead a Committee on Inquiry into the violent police crackdown on protesters. The Committee supported the continuation of the project but recommended greater compensation for residents. In response, a new contract was signed in July 2013 which gives the Burma government 51 percent of the mine’s revenues, with 30 percent going to Chinese company Myanmar Wanbao Mining Copper Limited and the Myanmar military-backed Union of Myanmar Economic Holdings (UMEHL) receiving 19 percent. The mine resumed operation in October 2013 but protests continue.

Japan

The rapid increase of Japanese involvement in Burma, both on the part of the government and the private sector, has been noted by Burma analysts, with Japan reportedly interested in ensuring that it doesn’t lose its foothold in the country as a result of competition with other countries. Japan announced in 2012 it would resume official development assistance and write off US$3.7 billion worth of loans in arrears and agreed to provide at least US$18 billion (incorporating both government and private funds) in aid, investment and debt forgiveness. In May 2013 Japan announced that it would provide ¥51 billion in new loans to help develop Burma’s infrastructure, as well as up to ¥40 billion in grant and technical assistance in fiscal 2013. In addition, in January 2013 the Japanese Bank of Cooperation provided a bridge loan to allow Burma to clear outstanding debt with the World Bank and the Asian Development Bank.

According to official statistics in 2012-2013 the total trade volume between Burma and Japan reached US$1.5 billion. Japan is a significant investor in the development of special economic zones, with a joint government-private agreement signed to develop the Thilawa Special Economic Zone (Japanese corporations involved include Mitsubishi, Marubeni and Sumitomo), as well as involvement in talks concerning investment in the Dawei Special Economic Zone. Other infrastructure projects include the upgrading of Mandalay International airport and the rail link between Yangon and Mandalay, as well as the construction of several ports along the Ayeyawaddy. The Japanese not-for-profit Nippon Foundation donated US$3 million for humanitarian aid in 2012 and a further US$11 million for building schools in 2013. It has also been involved in facilitating peace talks between the heads of various rebel groups.

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