1. Assessment and recommendations

Economic performance

At a time of rapid economic change, it is perhaps easy to forget how far Myanmar has already come in such a short period of time. Prior to the reform period, the Myanmar economy was in many ways closed off to the global economy. Exports were minimal as a share of GDP and foreign investment was limited to a few large projects in natural resources, including hydropower. The financial system was primitive, with largely cash-based transactions and a dual exchange rate, while tax revenues relative to GDP were among the lowest in the world. Poverty was rampant, particularly in rural areas where much of the population lived without electricity.

Nine years cannot erase decades of mismanagement and Myanmar still faces many challenges, as befitting a least developed economy, but the achievements have nevertheless been impressive. According to the Myanmar Sustainable Development Plan, Myanmar has been one of the world’s fastest growing economies in recent years, partly as a result of foreign investment, and poverty has declined from nearly one third of the population in 2005 to below 20% in 2015. The economy benefits from low inflation and monetary and fiscal stability, and state economic enterprises (SEEs) are being encouraged to transform into non-budgeted units, followed eventually by corporatisation and then equitisation (MOPFI, 2018). Exports of garments in particular have grown rapidly, along with employment in the sector.

Growth in the post-liberalisation period has been mainly driven by capital accumulation and productivity gains (World Bank, 2018), similar to the experience of regional peers during their respective periods of post-liberalisation reform (Figure 1.1). The large gains in productivity largely reflect the rapid structural transformation and greater integration into the world economy that Myanmar is going through.

Figure 1.1. GDP Growth Decomposition in post-liberalisation period: Myanmar and regional peers, percent

Source: reproduced from World Bank (2018).

FDI has played a major role in supporting this economic transformation. Actual FDI inflows as a percentage of GDP grew considerably in the post-liberalisation period starting in 2011, notably during 2015-17. It then declined sharply in 2018, partly due to uncertainties arising from the Rakhine crisis and perceptions of slowing government reforms (Figure 1.2, Panel A).

Figure 1.2. Foreign Direct Investment: (A) FDI Inflows in post-liberalisation period, years from reform commencement (percent of GDP) and (B) Approved FDI stocks: total and manufacturing (USD million)

Note: (A) adapted from IMF (2018) with data from the World Bank World Development Indicators; and (B) based on data from DICA on cumulated FDI approved (permitted). Excludes foreign investment in SEZs and investments not under the purview of Myanmar Investment Commission in the past or present. Cumulative approved FDI does not necessarily match realised investments, but is indicative of the pattern of future inflows. (*) data for 2018-2019 estimated as of 30 September 2019.

Source: IMF (2018), World Bank Development Indicators database and DICA official statistics.

The government’s renewed focus on economic reforms, with the announcement of the Project Bank (see Chapter 5) and the further opening of the financial sector to FDI (see Chapter 2) in early 2019, as well the creation of MIFER in late 2018, is expected to help spur investors’ interest in Myanmar in the near term again and to halt this recent downward trend.

Approved FDI into manufacturing sectors outside SEZs has risen significantly since 2011, increasing from about 5% of foreign investments up to 2012-13 to 13% in 2018-19 (Figure 1.2, Panel B). Approved investments have in large part been implemented. Data on existing investments by foreign enterprises suggest that the manufacturing sector accounted for about 15% of the stock of existing foreign investments in Myanmar as of September 2019, in comparison to only 9% in 2015. Inside Thilawa SEZ which is the only operational SEZ at present, FDI in manufacturing is even more prevalent and growing, responsible for about 80% of all foreign investments. In total, as of September 2019, existing FDI inside the SEZ represented roughly 3% of all FDI in Myanmar, up a half percentage point from end-December 2018. These investments have and should contribute to furthering economic diversification, job creation and the development of better employment opportunities (see section below).

Despite the overall improvements since 2014, a number of development obstacles remain. The MSDP lists many of the challenges still faced by Myanmar, including a rural-urban divide, vulnerability to climate change, limited access to finance which is particularly acute for smaller companies, low productivity, an infrastructure gap and historic mismanagement and opacity in the natural resources sector (MOPFI, 2018). Only an estimated 50% of households have access to electricity, one of the lowest levels in the world in spite of abundant natural gas and hydropower. Furthermore, in spite of poverty reduction, one half of the population is estimated to be near poor and hence highly vulnerable to shocks (IMF, 2018). The private sector also complains of shortages of skilled labour.

Investment will be essential for Myanmar to meet the Sustainable Development Goals (SDGs), notably goals 8 and 9 on “sustained, inclusive and sustainable economic growth with increased economic productivity through diversification, technological upgrades and innovation” and to “build resilient infrastructure, promote inclusive and sustainable industrialisation and foster innovation”.

The government has set an ambitious target of 7.7% GDP growth, driven in large part by FDI and exports. While growth has been strong in the reform period, there are many risks which could affect this performance, not least through their impact on both FDI and exports. Already FDI flows have tapered off from the rapid growth in the early years of reform. In the short-term, the emerging global economic crisis related to the COVID-19 pandemic will certainly slow progress in this respect.

COVID-19 and its implications for Myanmar

The emerging global economic crisis related to the COVID-19 pandemic is expected to significantly slowdown Myanmar’s previous strong economic growth. Real GDP growth is expected to more than halve to approximately 2-3% in 2020, compared to 6.3-6.5% estimated for 2019, before rebounding to 6%-7.5% in 2021 according to the baseline estimations by the World Bank (2020a) and the IMF (2020) (Figure 1.3). Global projections by the OECD (2020a) point to a 4.5% fall in global economic activity in 2020, before picking up by 5% in 2021. The magnitude of these extraordinary shocks is unprecedented. By the end of 2021, the global loss of income will exceed that of any previous recession over the last 100 years outside wartime, with dire and long-lasting consequences for people, firms and governments in 2020.

Myanmar is affected through trade, FDI, tourism, and commodity prices, with poor households being disproportionately affected (World Bank, 2020a). Merchandise trade represents about 51% of GDP in Myanmar, with regional trade with China, India and other ASEAN member states, notably Thailand and Malaysia, accounting for about three-quarters of Myanmar’s trade. All of them are substantially exposed to the crisis. Economic activity in China and India are expected to contract by 2.6% and 3.7%, respectively, in the most optimistic scenario according to the OECD (2020a). The IMF (2020) estimates that Thailand’s economy will contract by 3% in 2020 and that of Malaysia by 1.7%, rebounding respectively by 6.1% and 9% in 2021. Globally, trade is projected to decline 9.5%-11.4% in 2020, before resuming by 2.5%-6% in 2021 (OECD, 2020a).

Figure 1.3. Real GDP Growth, 2015-2021

Source: IMF (2020) and World Bank (2020a)

Global FDI activity is expected to plummet by at least 30% under the most optimistic scenario (OECD, 2020b). FDI flows to developing countries are expected to drop even more because sectors that have been severely affected by the pandemic, including the primary and manufacturing sectors, account for a larger share of their FDI than in developed economies. The supply and demand shocks resulting from the pandemic will hit strongly some of Myanmar’s most prominent investment sectors. Garments which represent about 28% of total merchandise exports are overwhelmingly intended for European markets, the worst hit region, and rely extensively on imported inputs from China. Over two-thirds of fuel exports, which represent over 21% of total merchandise exports, go to Thailand, the worst hit economy in ASEAN according to the World Bank (2020), with the rest going to China. Declining global energy prices also add further downward pressure to exports and fiscal revenues.

Tourism-supported services, such as hotels, restaurants and transport, which account for about 16% of GDP and 27% of employment in urban areas, were among the first to be affected by the crisis and possibly will be among the last to recover as the global economic downturn will have lasting effects on household spending. Travel and border restrictions initially placed on travelers arriving from China, which made up about 20% of international arrivals in 2018/19 (World Bank, 2020a), and then extended later to all international arrivals, were imposed in early February, about a month and half before the first two reported official COVID-19 cases. By 27 April, nearly a month after the first domestic containment measures were implemented, mobile phone mobility data reported a drop of 74% in visits to retail and recreational locations, such as cafés, restaurants, shopping centres and movie theaters as compared to early January. A 67% reduction was observed in visits to public transport stations, and grocery stores and pharmacies saw a 64% decline in visits during the same period (IFPRI, 2020).

The crisis has now already begun to reverberate strongly across the economy. A recent survey by the Asia Foundation (2020) indicates that nearly one third of companies in Myanmar had to temporarily close due to the COVID-19 outbreak and the vast majority of those maintaining operations have reported a turnover drop of more than 50%. Another survey conducted by Eurocham Myanmar (2020) with its member companies reported expected revenue losses in the range of 30% to over 50%. The biggest projected losses are found in tourism, automotive, garments, fast-moving consumer goods and retail distribution. By the end of April 2020, according to the government, over 60 000 workers had lost their jobs due to closures and workforce reductions in factories following cancelled orders and the disruption of raw material supplies due to the pandemic (Myanmar Times, 2020a).

In such a pandemic crisis, aside from strengthening the health system, including by securing the supply of needed medical equipment, the government needs to focus on protecting jobs and household income and on preventing otherwise viable firms from bankruptcies. A number of policies have been used by governments worldwide for these purposes (e.g. short-time work and income support schemes, tax deferrals and credit guarantees etc.) according to the IMF’s COVID-19 policy tracker. The Myanmar government has established the COVID-19 Economic Relief Plan (CERP), which consists of a comprehensive set of emergency fiscal and monetary measures addressing workers and businesses’ needs, although implementation has sometimes been faulted for not reaching those most in need (Myanmar Times, 2020a; IFPRI, 2020). Among the most noteworthy measures are the establishment of a USD 71 million COVID-19 Fund to provide loans to mostly Myanmar-owned SMEs in the apparel, hospitality and tourism sectors, and deferral of corporate and commercial taxes interim payments until the end of the 2019/20 fiscal year (see Box 1.2).

In the aftermath of the pandemic, policies focusing on mobilising responsible investments will be key for the recovery and many of the pre-COVID-19 structural challenges and policies discussed in this Review will resurface in an ever more important fashion, as investors will be more risk-averse and selective, and industries might eventually be reshaped by the adoption of transformative technologies and new business models. Unlocking constraints to productivity growth will be critical to compensate for potentially higher transaction costs, lower mobility and reduced scope for resource reallocation across firms, sector and countries following the crisis. This Review’s policy recommendations, albeit addressing pre-COVID-19 challenges, remain thus highly relevant and may help to build a faster and more inclusive and sustainable recovery.

But investment policies and institutions can also be called on to assist in the immediate efforts of re-stablishing critical supply chains disrupted by the pandemic and supporting the business sector during the crisis. High-quality aftercare services by investment promotion agencies (IPAs) can be vital to ensure that investors remain and reinvest in the country during and following the recovery (see Chapter 3). Alleviating administrative burdens and reducing bureaucratic obstacles for investors can contribute to more efficient production processes and faster delivery of much needed goods to clients during the pandemic. Several countries have already taken steps in this direction (Box 1.3).

The MIC has taken rapid measures both to facilitate investment and to mitigate the impact of the COVID-19 outbreak, including steps to encourage investment in the medical sector. On 9 April 2020, the MIC announced a 50% reduction of investment application fees, and, on 11 April, that it would accelerate approvals for investments in labour-intensive and infrastructure projects (Myanmar Times, 2020b, 2020c). The MIC also accelerated approvals for investments in healthcare and medical equipment (e.g. producers of personal protective gear) and prioritised pharmaceutical enterprises and healthcare service providers. DICA has been publishing information related to COVID-19 on its website, although in Myanmar language only. Translating future announcements and publications into English would greatly help potential and existing investors in accessing important information.

Adopting a responsible business conduct (RBC) approach in government and business responses to the crisis can also bring short and long-term benefits to businesses and the economy as a whole (see Chapter 4). It would help ensure that such responses do not create further risks to people, planet and society – or contribute to destabilising supply chains down the line (e.g. resurgence of forced or child labour in certain strategic sectors). Promoting and enabling RBC as part of overall COVID-19 policy responses is thus essential for ensuring coherence between immediate actions and the expected recovery trajectory. Governments are in a particularly strategic position to steer the economic recovery towards long-term value creation (including reduced greenhouse gas emissions, enhanced worker skills and benefits and emergency preparedness).

For businesses, implementing internationally recognised RBC standards such as the OECD Guidelines for Multinational Enterprises or the OECD Due Diligence Guidance for Responsible Business Conduct can enhance their capacity to build resilience and better deal with current and future supply chain disruptions. For example, information from supply chain due diligence (e.g. on the origin of raw materials, and other traceability data) when overlaid with risks related to COVID-19 (such as infection rates, government restrictions and associated disruptions in production or distribution channels) can be used to understand short and medium term vulnerabilities in the supply chain, and support continuity planning to manage disruptions. Working out contingency plans with workers and suppliers may make more commercial sense than paying the price of disbanding large segments of a workforce that took years to build and train.

Businesses that put in place effective continuity planning, taking into account the range of RBC issues related to the crisis, including related to avoidance of layoffs and maintaining wage payments, may be better placed to access fresh capital, special emergency funds and relief programmes, regardless of any conditions that may or may not be included (OECD, 2020e). For example, the EUR 5 million emergency cash fund “Myan Ku” established by the EU to support Myanmar workers who have lost their jobs due to COVID-19 considers RBC aspects.2 Having a more sophisticated RBC lens is also a strategic orientation that can encourage a more systemic and dynamic crisis response and discourage a ‘go-at-it-alone’ position (Barry, 2020). Furthermore, it can also contribute to disaster preparedness and resilience overall, which is especially useful considering the risks of disruptions by climate change.

The COVID-19 pandemic may also work to reinforce some policy recommendations advanced here for the longer-term. For instance, measures taken by governments to protect their societies and economies during the pandemic may disproportionally affect some companies and investors. Investment treaties should thus allow governments sufficient policy space to respond effectively to crises such as the current COVID-19 one and to take vital measures such as securing quick access to essential goods and services (see Chapter 2). Older-style investment treaties concluded by Myanmar in the past contain vague, unqualified provisions that may in certain circumstances fail to appropriately safeguard the government’s right to regulate and may end up attracting undesirable interpretations in eventual ISDS disputes.

The crisis may also put on-going and planned infrastructure projects in considerable distress (e.g. loss of revenue due to lower demand levels, disruptions to projects under construction due to supply-shocks, adverse impact on access to finance etc.), which reinforces the importance of strengthening the framework for public and private investments in infrastructure (see Chapter 5). Many aspects of such frameworks are likely to be put to test, including the framework for re-negotiations, early termination and other provisions such as force majeure, compensation and change in law (World Bank, 2020b). Beyond their critical role in the immediate response to COVID-19 (e.g. emergency procurement of health products and expansion of healthcare facilities), procurement and infrastructure investment will play a critical role during the recovery as governments try to rapidly activate infrastructure projects in the pipeline to provide a further boost to the recovery. An enhanced public and private investment framework will be critical to ensure that mobilised resources continue to meet value-for-money expectations under the new economic circumstances.

In the same vein, the crisis also offers an opportunity to reconsider development priorities and place greater emphasis on green growth objectives (see Chapter 6). Unchecked, global environmental emergencies such as climate change and biodiversity loss could cause social and economic damage far larger than any caused by COVID-19 (OECD, 2020f). Economic recovery packages should thus strive for more than simply restoring economies and livelihoods quickly, but also seek to accelerate investments and behavioural changes that will reduce the likelihood of future environment-related shocks and increase society’s resilience to them.

The contribution of FDI to sustainable development in Myanmar

Foreign investment can benefit a host economy beyond raising its stock of capital. Under the right conditions, FDI can enhance growth and innovation, create quality jobs, develop human capital, and raise living standards and environmental sustainability. In other words, FDI can generate positive socio-economic and environmental benefits in Myanmar that help make progress towards the SDGs.

Realising these gains is not a given, however. While, in principal, FDI has the potential to advance sustainable development, private sector incentives and the policy context play a critical role in realising this potential. Different chapters of this Review examine how reforms in various policy areas can promote investment and, through investment, structural transformation in Myanmar. This section takes a broader view of FDI impacts, and examines new OECD indicators that link FDI to productivity, innovation, job quality, skills, gender equality, and energy efficiency (Box 1.4).

Foreign investors in Myanmar are for the most part not inherently different from their domestic counterparts in their socio-economic and environmental contributions (Figure 1.4, Panel A). Moreover, they tend to operate in industries with lower development outcomes, particularly in terms of labour productivity, innovation and skills development (Figure 1.4, Panel B). This is perhaps because one of Myanmar’s main attractions to investors is its abundance of young and relatively cheap labour, which is an asset for labour-intensive and low-skilled light manufacturing activities.

One aspect where foreign manufacturers distinguish themselves is in their contribution to reducing the gender employment gap: foreign firms both employ significantly more women than domestic peers and are more likely to empower women to assume top managerial roles. This may be partly because their operations are prevalently in female-dominated industries with a higher incidence of female top managers, like garment manufacturing. While intensive female employment in these industries has been an important avenue for women to enter the labour force in many developing countries, the development of these industries may exacerbate the gender gap if it perpetuates gender-specific labour roles, with women participating only in low-skill low-wage jobs, by deterring government action to promote gender equity in higher-wage jobs. This may warrant policy action to support training and skills upgrading opportunities in the garment industry, particularly as foreign firms are found to employ relatively less skilled labour than domestic peers, and in industries that underperform with respect to offering training opportunities. The fact that foreign firms are more likely to employ female top managers, nevertheless, suggests that they may already be investing in developing managerial skills of women employed in the garment industry.

Figure 1.4. FDI and sustainable development outcomes in Myanmar

Note: Panel A includes confidence intervals that indicate statistical significance at the 95% level. If the confidence interval crosses the zero line, the difference between foreign and domestic firms is statistically insignificant. For further details, see OECD (2019).

Source: OECD based on FDI Qualities Indicators

FDI qualities in Myanmar are comparable to those of regional peers at a similar stage of economic development, like Lao PDR and Viet Nam, and somewhat higher than Cambodia (Table 1.1). A notable difference in Lao PDR and Viet Nam is the relatively higher labour productivity associated with foreign investors relative to domestic firms, possibly due to FDI shifting to higher-value added and less labour-intensive activities as a result of rising wages in these countries. In Myanmar, instead, the main sustainable development contribution of foreign investment remains in the area of employment generation, with foreign firms offering somewhat higher compensation to workers. In more advanced countries like Thailand, Indonesia and Malaysia, foreign activity is associated with significantly higher innovation outcomes, particularly investment in R&D.

An area in which there is room for improving FDI qualities in Myanmar is that of environmental impact, and specifically energy efficiency. In most countries in the region, both more advanced and less advanced, foreign manufacturers are considerably more energy efficient than there domestic peers, possibly due to use of more sophisticated, cleaner or energy-saving technologies. In Myanmar, this is not the case, and policies to promote investment in cleaner technologies may be justified.

A closer look at FDI and job creation

Greenfield FDI created over 55 000 jobs between 2014 and 2017, more than the 46 000 jobs created in the previous ten years. The majority of jobs remain heavily skewed toward low-skilled and labour-intensive activities like construction and textiles (which account for 31% and 16% of jobs created, respectively) (Figure 1.5). However, industries that require more technical skills, such as chemicals and electronic components, are beginning to attract more FDI, and account for growing shares of job creation.

Lastly, while foreign investors outperform domestic peers in terms of creating new employment opportunities, jobs created per dollar invested remain low compared to regional peers, particularly for manufacturing investors (Figure 1.6).

Figure 1.5. FDI and job creation by industry

Note: Industries that account for less than 1% of jobs created are omitted. Number of jobs are based on announced FDI projects over 2003-2017.

Source: OECD based on Financial Times’ fDi Markets database.

Figure 1.6. FDI and job creation in Southeast Asia

Estimated number of jobs per million USD of greenfield investments, 2003-17

Note: Greenfield FDI is defined as capital expenditure (capex). Number of jobs and capex are based on announced FDI projects between January 2003 and December 2017.

Source: OECD based on Financial Times’ fDi Markets database

National strategies and development plans

As stated in the MSDP, Myanmar has myriad sectoral, ministerial and sub-national plans. A selection of these having an impact on private sector development is listed in Table 1.2. The MSDP is intended to provide an overall framework for coordination and cooperation across all ministries and all states and regions and is presented as a way to “reinvigorate reform”. It links action plans and strategic outcomes with relevant SDG targets, all structured around three pillars: peace and stability; prosperity and partnership; and people and planet.

Legislative reform

The first OECD Investment Policy Review of Myanmar already noted the urgency of the former government to reform the legislative framework. Many laws dated to colonial times, while others were developed under military governments and were often ill-suited to an open economy and not in conformity with international standards. A number of important laws date from this first period of post-2011 reform, including the revised Foreign Investment Law and the Environmental Conservation Law.

Legislative renewal has continued under the NLD government, including the enactment of new laws which were initiated by the previous government. Table 1.3 lists some of the most recent laws having a direct impact on the investment climate. The new Myanmar Investment Law (2016) and the Companies Law (2018) described in more detail below are both modern and comprehensive frameworks and represent a substantial improvement over what preceded them. But not all new laws have gone through as broad and inclusive a drafting process and as a result are not always unequivocally better than what went before, as will be discussed later.

FDI liberalisation

The Myanmar Investment Law and Rules, together with the Companies Law and various sectoral reforms, have allowed Myanmar to move from being the most restrictive country out of almost 70 surveyed in the OECD FDI Regulatory Restrictiveness Index at the time of the first review to being one of the most open in Southeast Asia and in line with the performance of other non-OECD economies in this regard (Figure 1.7). This degree of statutory liberalisation in only five years is almost unprecedented and could have a substantial impact on FDI inflows over time – assuming that political conflicts are satisfactorily resolved and other key business conditions do not deteriorate.

Figure 1.7. OECD FDI Regulatory Restrictiveness Index, 2019 (open=0; closed=1)

Note: The OECD FDI Regulatory Restrictiveness Index covers only statutory measures discriminating against foreign investors (e.g. foreign equity limits, screening & approval procedures, restriction on key foreign personnel, and other operational measures). Other important aspects of an investment climate (e.g. the implementation of regulations and state monopolies, preferential treatment for export-oriented investors and SEZ regimes among other) are not considered. Data reflect regulatory restrictions as of end-December. See Kalinova et al. (2010) for further information on the methodology.

Source: OECD FDI Regulatory Restrictiveness Index, https://www.oecd.org/investment/fdiindex.htm.

The antiquated banking sector has gradually been opened to foreign investors, initially limited to providing financial services to foreign investors and to offering export financing to local firms. Foreign investment is now allowed without discrimination in domestic banks (up to 35% foreign ownership). Beyond that, foreign banks are allowed to provide a full range of services to local firms in both foreign currency and kyat. Retail banking to physical persons remains closed until 1^st of January 2021 as announced by the Central Bank on 7 November 2019. As of February 2020, 13 foreign banks – all from Asia – had been granted licences to operate branches in Myanmar under the previous two rounds of foreign bank licensing conducted by the Central Bank in 2014 and 2016. A third round is planned for 2020 by the Central Bank and will accord foreign banks the right to establish subsidiary banks in addition to branches as in the past ones. The announced reform aligns with the diagnostic established in the MSDP: “capacity constraints experienced by our domestic financial institutions, as well as conditions imposed on foreign bank branches operating in Myanmar continue to pose challenges. It is therefore imperative that the banking and financial services sector be further liberalised” (MOPFI, 2018, p. 33)

Other examples of partial or full sectoral liberalisation include: insurance, which was formerly the monopoly of Myanma Insurance, a state economic enterprise; large-scale wholesale and retail distribution; education services; agriculture; and condominium units. The telecommunications sector was already opened to foreign investment in 2014. In some of these sectors, minimum capital requirements for foreign investors and other forms of discrimination remain but reforms nevertheless allow ample scope for foreign participation.

Rule of law

The first OECD Investment Policy Review of Myanmar highlighted the obvious challenge of governance in Myanmar, not just as a least developed country but also because of the legacy of military rule (OECD, 2014). Reforms in Myanmar have been impeded by weak capacity within government, particularly acute at the local level, institutional fragmentation and poor inter-ministerial coordination, and a lack of standardised procedures for both drafting and implementing new laws.

The following description from the first Investment Policy Review (OECD, 2014) is still relevant today:

An inevitable tension arises between the urgent need to update the legislative framework and the slow process of building capacity within government to draft and review laws and by-laws. Without improved capacity and more standardised procedures for adopting new legislation, there is a risk that heightened drafting activity will simply exacerbate the existing lack of capacity within government without providing the expected benefits to citizens and businesses. Development partners can assist with this process, but without adequate local participation this can lead to laws which lack local ownership and may not be sufficiently adapted to the situation in Myanmar.

When drafting legislation, ministries tend to operate in silos, with little reference to existing statutes elsewhere, and with little public consultation or review of what it done in other countries. According to one commentator:

Resolving these challenges will require improvements in many areas of governance: transparency, public consultations, inter-ministerial coordination and regulatory impact assessments. There is a clear need to build capacity within the government to draft and review legislation. The Union Attorney General’s Office prepared a strategic plan for 2015-19 with the help of UNDP as an important milestone on the path to updating Myanmar’s legal system (UAGO, 2015). The plan is candid in its assessment of the UAGO’s capacity to perform its oversight role: “we face some difficulties in completing and delivering our work in a timely manner in light of competing demands”, requiring both technological upgrading and training.

These reforms will take time but examples both from within Myanmar and from many other countries attest to their importance in improving the quality – and hence the impact – of legislation. These areas are all discussed in more detail below.

Investment policy

As alluded to earlier, at the time of the first OECD Investment Policy Review of Myanmar (OECD, 2014), there was a sense of urgency for reforming the investment policy framework. Many laws dated from colonial times, while others were often ill-suited to an open economy and not in conformity with international standards. The investment regime was scattered across multiple laws, in many instances outdated and incomplete. Investment procedures were cumbersome and sometimes unwarranted and some were particularly prone to discretionary abuse by authorities. Myanmar also remained largely closed to foreign investments, being assessed at the time the second most restrictive economy to foreign direct investment (FDI) according to the OECD FDI Regulatory Restrictiveness Index.

This second OECD Investment Policy Review of Myanmar takes place in a substantially different environment. Many of the policy recommendations made in the first review were instrumental to a series of important reforms implemented subsequently and that have significantly improved the investment climate. Myanmar has adopted a modernised investment and corporate framework for both domestic and foreign investors, pioneering explicit investors’ obligations to act responsibly and reducing considerably the level of discrimination against FDI. Although a significant number of sectors are still partly off limits to foreign investors, Myanmar no longer features among the top most restrictive economies under the Index.

Despite considerable progress over recent years, the reform momentum needs to be sustained and even deepened for the benefits of investment reforms to be shared widely and growth to be environmentally sustainable. Only in this way can the positive effects of investment more effectively contribute towards improving the lives of Myanmar people and meeting the Sustainable Development Goals (SDGs).

The foundations of an enabling investment environment have been laid down to a great extent with the new Myanmar Investment Law (MIL) (2016) and the new Companies Law (2017). New laws concerning intellectual property (IP) rights and arbitration are laudable achievements as they bring Myanmar’s legal framework broadly in line with international standards in these two important areas. However, a number of challenges for complementary policies and implementation capacity on the ground remain to be addressed. The success of these recent developments in the legal framework also hinges on ongoing efforts to improve the independence and competency of the judiciary and the Myanmar courts, which will have a crucial impact on investors’ confidence in the effectiveness of these new laws in practice.

Myanmar is also at an important juncture in terms of its approach to investor protection in investment treaties. With only 14 investment treaties in force today, Myanmar is in a favourable position to review its approach to investment treaties. Treaties with vague, unqualified provisions may attract undesirable interpretations in investor-state dispute resolution (ISDS) cases and, in some instances, overlap with newer investment treaties with the same partner countries. Overlaps between older bilateral investment treaties (BITs) and newer treaties with the same partners may raise issues of coherence between them which could potentially be exploited by investors to circumvent the newer, more nuanced investment treaties and thereby undermine reform efforts.

The investment policy chapter looks closely at the core investment policy issues – the non-discrimination principle, the degree of openness to foreign investment, the protection of investors’ property rights and mechanisms for settling investment disputes – that underpin efforts to create a quality investment environment for all. It takes stock of recent related reforms and examines the quality of government policies currently in place.

Investment promotion and facilitation

Myanmar’s investment promotion and facilitation framework has also evolved considerably since the first review. On the institutional side, a new Ministry for Investment and Foreign Economic Relations (MIFER) has been established to steer investment policy and deepen investment climate reforms. Important strides have been made with regards to investment facilitation, notably the streamlining of procedures for establishing a business, obtaining investment approvals and other needed licences with the one-stop-shop (OSS), although there is still much room for improvement with regards to the latter. The Directorate for Investment and Company Administration (DICA) – Myanmar’s Investment Promotion Agency (IPA) – has been strengthened to deliver on its mandate and has asserted itself as a leading reformist agency in the government. Myanmar has also established a long-term investment promotion plan – the Myanmar Investment Promotion Plan (MIPP) for 2016-2036 – which sets out an ambitious agenda and strategies for promoting further domestic and foreign investments.

This makes it timely to take stock of recent investment promotion and facilitation reforms and to provide possible directions for the government’s ambitious agenda to attract investment for sustainable development. The OECD’s survey of IPAs, which Myanmar also completed in the context of this review, allows for some benchmarking of country experiences across regions and provides additional insights on how best to organise Myanmar’s promotional and facilitation efforts going forward.3

Much of the analysis in this chapter concerns investment facilitation, partly because investment promotion activities remain rather embryonic in Myanmar.4 Apart from trips abroad where Ministers and the Director General of DICA meet potential investors and business groups and establishing a list of priority sectors for investment, investment promotion in Myanmar is still in its early stages. This is understandable given the weaknesses of the business environment that prevailed just after Myanmar’s economic transition in 2011. Investing heavily in investment promotion and branding activities before building the foundations of a good investment climate would have likely been a waste of resources.

DICA has, therefore, wisely focused its efforts on facilitating investments and has gone a long way in this regard as noted above. Focusing on easing regulatory bottlenecks is also indirectly a valuable investment promotion activity as it increases the attractiveness of Myanmar as an investment destination. There is still much room for improvement in investment facilitation nonetheless. To some extent a first tier of business reforms have been achieved with the new Investment and Companies Laws, but reforms to second tier levels of regulations are still much needed. Investors still complain about the unclear and burdensome procedures for obtaining ministerial licences and permits necessary for conducting their businesses. The OSS still operates more as a centralised information centre than as an actual single window agency with authority to issue permits and licences on behalf of the various ministries and agencies represented there. This is in clear contrast to the OSS at Thilawa SEZ where officials have autonomy to take decisions on behalf of their ministries, rendering the process much less burdensome for investors.

Myanmar’s investment framework has also reached a level of development that now allows DICA to take a more strategic look and graduate to more sophisticated investment facilitation and promotion activities. These include being more involved in the development of capacity building programmes for domestic firms and industries, as well as being more active in facilitating business linkages with foreign investors. Co-ordination with other major actors active in promoting investments and private sector development in Myanmar, such as special economic zones (SEZs) and the SME Centre under the Ministry of Planning, Finance and Industry, could be strengthened for these purposes, although wide capacity gaps between domestic and foreign firms still remains a major barrier to greater linkages.

DICA has, nonetheless, developed a good reputation and reach with the business community and has an ample understanding of investors’ interests and concerns. This can be leveraged in co–ordination with other relevant actors to build industry capacity building programmes and ‘first-stage’ linkages between domestic and foreign investors. Investment promotion activities could also be strengthened in alignment with these objectives, for instance by targeting investors in activities and segments with a greater propensity to integrate with the domestic economy.

Promoting and enabling responsible business conduct

Promoting and enabling responsible business conduct (RBC) is of central interest to policymakers wishing to attract quality investment and ensure that business activity in their countries contributes to broader value creation and sustainable development. RBC principles and standards set out an expectation that all businesses avoid and address negative impacts of their operations, while contributing to sustainable development where they operate.

RBC expectations are affirmed in international principles and standards and increasingly in legislation. Recent years have seen a proliferation of high-level statements, including at G7 and G20 forums, national legislation, economic instruments and industry initiatives on RBC. All recent ASEAN Blueprints include references to RBC. In particular, policy action has focused on promoting the integration of RBC in core business operations, including also in how companies manage and deal with their supply chain. Any company that wishes to integrate in the global economy and participate in trade and investment must be aware of the fact that their buyers, clients, and partners may have various obligations when it comes to RBC. Broadly speaking, RBC is also an entry point for any company that wishes to contribute to the Sustainable Development Goals (SDGs) or to achieve specific economic and sustainability outcomes.

Myanmar’s liberalisation process initiated in 2011 has enabled greater integration in global supply chains, strengthened the rule of law, and enhanced civil society participation. The first OECD Investment Policy Review of Myanmar highlighted the progress made in these areas and proposed options to leverage this context of reforms to promote and enable RBC (OECD, 2014). A number of policies and initiatives have emerged since then in support of RBC. The adoption of the Myanmar Investment Law, which includes explicit references to responsible investment, as well as the related legislative initiatives, was an important step in that regard. RBC commitments and provisions are also embedded in various national policies, strategies, and legal documents. The Myanmar Sustainable Development Plan 2018-2030 includes objectives for the expansion of the private sector as the engine of environmentally conscious and socially responsible growth. Promotion of responsible investment is also embedded in the vision of the Myanmar Investment Promotion Plan (MIPP) for the period 2016/17 – 2035/36.

Various initiatives have been spearheaded by international organisations, civil society and businesses. The UN Global Compact Myanmar chapter established in 2012 counts 126 participants in 2019. The Myanmar Centre for Responsible Business (MCRB), created in 2013 as a joint initiative of the Institute for Human Rights and Business and the Danish Institute for Human Rights, has become an important player for the promotion of RBC in the country. Business networks and associations such as the ASEAN Corporate Social Responsibility Network, UMFCCI, the American Chamber of Commerce and EuroCham organise regular events and make resources on RBC available to the public. The government and international organisations have collaborated with business networks to promote RBC on various occasions.

With Myanmar’s greater openness and integration in global supply chains has also come increased international scrutiny. In a context where demands on RBC are rising globally, the recent political and humanitarian situation has attracted significant international attention and affected global perceptions on Myanmar, with direct and indirect economic impacts on investment and trade as well as sectors such as tourism. Since 2018, the EU has enhanced its engagement with Myanmar in relation to the EU Everything But Arms (EBA) arrangement, which guarantees preferential access to the European market for all exports except for weapons and ammunition, due to alleged shortcomings in respecting core human rights and labour rights standards (EU, 2019).

To address reputational issues, support productivity gains and achieve its objective to attract responsible investments, Myanmar has every interest in working toward alleviating the concerns of investors and trade partners. This implies sustaining efforts to address human rights issues, minimise businesses’ exposure to RBC risks and strengthen the enabling framework for RBC. The government could also directly support businesses in implementing RBC principles and standards, and help them navigate RBC risks. Communicating clear expectations and providing guidance as to what business responsibility entails, as well as disseminating and supporting implementation of relevant due diligence instruments in targeted sectors such as raw materials and the garment industry, could be particularly effective. The government also has a role to play in providing strategic directions for RBC at country level and ensuring that all stakeholders work jointly toward the same goal and consistently contribute to national efforts to promote and enable RBC.

The RBC chapter takes stock of the initiatives and various advances made in relation to RBC since the first OECD Investment Policy Review of Myanmar, outlining steps taken by the government to promote and enable responsible business practices. Environmental considerations, as well as aspects related to land and SEZ are addressed in more detail in Chapters 6, 7 and 8, respectively. This chapter also highlights opportunities for the government to further support businesses in implementing RBC principles and standards in Myanmar’s current context, as well as to drive national efforts to promote RBC.

Infrastructure connectivity

Myanmar has come a long way in improving the investment climate in recent years, notably by laying down the basic legal foundations for a thriving business environment to emerge with the new Investment and Companies Laws, as well as the Special Economic Zones law. While these reforms are important building blocks, they are not sufficient to fully deliver upon expected investment attraction and development objectives. Policy complementarities play a critical role in nurturing an enabling environment for investment and for sharing the benefits with society at large.

A few high-priority issues have already been prominently addressed in other chapters, such as investment promotion and facilitation, special economic and industrial zones, responsible business conduct, green growth and land tenure and administration. Infrastructure connectivity is another equally important area requiring particular attention from the authorities as it plays a critical role in building a thriving business environment, supportive of linkages between incoming foreign investments and the local economy.

Myanmar’s political transition has been accompanied by substantial economic reforms to open the economy and to build a growth trajectory based on export-led development fuelled in part by foreign investment. The Myanmar Sustainable Development Strategy (MSDP) 2018-2030 clearly attests to this objective by embracing a private sector-led growth strategy and recognising its role as a potential engine of environmentally conscious and socially responsible economic growth. Acknowledging Myanmar’s current economic structure, the MSDP gives priority to supporting the development of agriculture and small-medium enterprises (SMEs). In conjunction, the government aims to promote manufacturing, industrial and service sectors development to induce faster structural transformation and generation of higher quality jobs, as well as to facilitate the transition to a digital economy in the future.

A critical ingredient for attracting export-oriented manufacturing investments and improving agricultural development as sought in the MSDP is access to markets and good international gateway conditions. Better transport infrastructure connectivity can help ensure more efficient and reliable supply chain networks, raising opportunities for firms to integrate global value chains (GVCs) and for countries to reap the benefits of participation.

This calls for integrated strategies that combine investment, trade and infrastructure policies. Investment promotion and facilitation policies, for instance, need to go hand-in-hand with trade and infrastructure policies to be effective. This is equally the case for infrastructure. The quality of hard infrastructure is enhanced when an efficient soft infrastructure system is in place, including in terms of trade facilitation and logistics services. There are often cases where hard infrastructure has been developed without accompanying trade and business regulatory reforms or where it lacked the necessary multi-modal approach to deliver the expected results. Overcoming a fragmented approach is thus critical for strengthening the investment climate and leveraging positive spill-overs and complementary effects.

Since the lifting of economic sanctions, Myanmar has drastically expanded its trade, with exports and imports growing by 82% and 362%, respectively, between 2010 and 2017 (Central Statistics Office Myanmar 2019). A large and growing population fuels demand for imports while abundant labour and natural resources provides a fertile supply of its exports. Its geographic position also benefits overall trade, strategically located between some of the world’s fastest growing economies: India, China and ASEAN countries. Infrastructure connectivity and expansion of logistics networks are therefore indispensable to Myanmar’s sustained economic growth through greater integration into the world economy and to the rising of living standards of urban and rural population.

Current transport infrastructure connectivity in Myanmar is still underdeveloped and fails to keep pace with pressing demands. With just over a third of its roads paved and port capacity limited, quality of hard infrastructure can be considered poor within the region (ADB, 2014). A high concentration of transport on roads and lack of multimodality infrastructure contribute to relatively high transport costs (ADB, 2016b). Overall Myanmar’s logistics performance is said to significantly lag behind the performance of its regional peers, especially with regards to trade-related infrastructure (World Bank 2014). Limited transparency and predictability in border procedures further add to the cost of doing business in the country by making it more burdensome to move goods across the border (OECD, 2018c). Stakeholders consulted during this review also complained about the presence of various formal and informal toll gates across important routes, such as along the major road from Yangon to Hpa-An (part of the East-West Economic Corridor), adding further costs and delays to transport.

There is a dire need for domestic connectivity to be improved through increasing transport investment from the current level of 1%-1.5% of GDP. China, Thailand and Viet Nam spend in comparison over 4% of their respective GDP on transport. The ADB (2016e) advocates that Myanmar should also aim to increase its transport investments to 3–4% of its GDP annually, suggesting that this can be done by increasing user fees in line with operational expenses, nudging SOEs to reach financial sustainability and actively involving private sector participation through concessions and PPPs.

Infrastructure investment planning and delivery would need a real boost to enable more efficient and sustainable expenditure on infrastructure. Transport infrastructure governance would generally benefit from the consistent use of proper feasibility studies, stakeholder consultation and project appraisal frameworks, taking into account any potentially negative social and environmental externality up-front, as well as from the introduction of long-term transport investment programmes and better monitoring and reporting (ADB 2016a). More efficient planning and delivery, such as strengthening governance in project selection, delivery and maintenance, can help to significantly save in infrastructure spending (McKinsey 2016).5 In doing so, the government should give particular attention to modernising the use of its road assets, by improving efficiency, such as allowing trucks on the Yangon-Mandalay expressway or increasing its legal axle loading, as well as by improving main trade corridors, such as the Greater Mekong Subregion North Road corridor to China and the GMS East-West Road corridor to Thailand (ADB 2016b).

Trade facilitation also remains weak within the region and will need to be strengthened. Myanmar can better facilitate trade through introducing the possibility to request advance rulings about the customs treatment of goods prior to their importation and reducing formalities at the border, in particular promoting automated processing for customs across all major border points, reducing the number of documents required for trade, and simplifying procedures in terms of associated time (OECD 2018).

The government is, nonetheless, stepping up efforts to tackle these connectivity deficiencies. It has established overarching goals and strategies in the MSDP and in the new National Logistics Master Plan 2018-2030. In 2019, it passed the regulation which will permit investments in much needed bonded warehouses. The government has also introduced a project bank of prioritised public investments which will facilitate co-ordination of donor support and the participation of the private sector. At the moment, Myanmar is already benefiting from support from the Asian Development Bank and JICA for the improvement of the main corridors. Their support is needed to scale up and upgrade existing transport connectivity infrastructure and, consequently, for attracting export-oriented investments that can better spur linkages with the domestic economy.

Investment framework for green growth

Green growth offers Myanmar an opportunity to foster economic growth and development while ensuring that natural assets continue to provide the resources and environmental services on which the well-being of its people relies. A critical aspect of green growth is catalysing investment and innovation in environmentally sound technologies and infrastructure which both helps to sustain growth and gives rise to new economic opportunities (OECD, 2011). In addition, with the increasing need for global action to address climate change, investment for green growth must promote a transition to a low-emissions, climate resilient development pathway (OECD, 2017). Investment for green growth includes, among other things, investment in infrastructure – such as renewable energy, energy efficiency, water purification and distribution systems, transport and housing – as well as in conservation and efficient usage of natural resources, and waste management (OECD, 2015b).

A green investment framework has much in common with a general policy framework for investment, but an investment-friendly policy framework does not necessarily result in green investment unless certain elements are also in place. These include: a strong governmental commitment at both the national and international levels to support green growth and to mobilise private investment for green growth; policies and regulations to provide a level playing field for more environment friendly investments; policy and planning systems that screen all investments at an early stage to ensure environmental sustainability is taken into account; policies to encourage more environmentally responsible corporate behaviour; an institutional capacity to design, implement and monitor policies to foster green growth objectives; financial mechanisms for green investment (OECD, 2015b).

This chapter describes Myanmar’s policy framework in these areas, providing an overview of the state of play and progress made in supporting green investment. It reviews the current policy framework in place to promote green growth and climate change (including policies that help to improve the environmental quality of investments in general), examines in greater depth existing efforts and the potential to engage the private sector to scale up investment in renewable energy, and highlights issues related to financing green projects in the country. It is structured around the questions on green growth and investment raised in the updated OECD Policy Framework for Investment and the OECD Policy Guidance for Investment in Clean Energy Infrastructure. It also builds on the discussions on policy choices to support the transition to a low-emissions, climate-resilient economy in OECD (2017) Investing in Climate, Investing in Growth.

Currently, Myanmar is facing several environmental and development challenges. It has seen year on year economic growth since its transition to a democracy, but the unsustainable use of natural resources is exacerbating development challenges. Primary sectors support employment and GDP growth, and the poorest populations live in rural and remote areas where livelihoods are reliant on small-scale agriculture, fisheries and use of forest resources. Illegal logging and other economic activities have resulted in widespread degradation of natural resources, with Myanmar estimated to have lost 10 million hectares of forest cover between 1990 and 2015 (Fodor and Ling, 2019). Increasing air and water pollution in urban areas is exacerbated by poor waste management, including of hazardous waste in industrial zones, uncontrolled construction activities and growth in vehicle usage. Myanmar is also one of the most vulnerable countries globally to climate change.

Promoting green investment is an opportunity for Myanmar to avoid locking in environmentally and economically unsustainable development. The country faces a major gap in infrastructure provision, with an estimated 40% of its roads being paved (Asian Development Bank, 2017a) and little more than 50% of the population having access to electricity as of December 2019 according to the authorities. These gaps present an opportunity for Myanmar to invest in greener infrastructure alternatives and avoid locking-in environmentally unsustainable infrastructure for the next two decades. Off-grid renewable energy can support increased access to energy while grid expansion takes place, and utility scale, on-grid renewables can help reduce the carbon intensity of the electricity supply.

The government has taken steps towards promoting green investment, with several new strategies and actions being put in place in the last year. The Myanmar Sustainable Development Plan 2018-2030 clearly integrates environment and climate change as one of five pillars for development. The country’s Climate Change Strategy and Action Plan 2018-2030 promotes climate action, and Myanmar’s Nationally Determined Contribution outlines mitigation and adaptation priority actions. The National Environment Plan 2018-2030 promotes integration of environmental issues across sectors, and the Environment Conservation Law 2012, underpinned by the Environment Conservation Rules 2014 and other regulations, promotes the greening of investments by assessing and mitigating against negative environmental impacts.

Taken together these policies represent a solid, and coherent framework for green growth in Myanmar, however, inclusion of targets or clear goals on specific areas relevant to green growth (e.g. renewable energy, emissions reductions) could present a stronger signal to investors. Further, significant efforts will be needed to implement these policies, and to raise public and private resources for green investments. All government agencies, and especially those in close contact with investors, such as the Directorate of Investment and Company Administration (DICA) among others, need to be well-aware and educated about these strategies, as well as disseminate them and integrate them early-on in their services and interactions with investors. This helps to clarify expectations and facilitates policy implementation and compliance.

Making the most of economic zones

Following the experience of regional peers, Myanmar is advancing an ambitious programme of special economic zone (SEZs) and industrial zone development, with the aim of attracting investors, creating jobs, and developing industry. Currently there are three SEZs and 19 industrial zones across the country. These zones impose a cost on society through forgone revenues from tax incentives, duty exemptions and infrastructure investments specific to the zone. In order to justify their establishment, the associated societal gains must outweigh these costs. In principle, zones, particularly SEZs, have the potential to generate long-run spillovers that benefit workers and firms beyond their confines through knowledge transfers, in addition to being a potential source of foreign currency as they typically target more export-oriented industries. In practice, the experience of SEZs as a vehicle for development has been mixed, depending much on the quality of policies and business environment in which they operate. On the positive side, host countries can, to a certain extent, influence the spillover potential of SEZs with appropriate policies and institutions targeting skills and supplier development, and facilitating the exchange of information between SEZ investors and local companies.

Some important differences in the framework for SEZs and industrial zones exist in Myanmar. SEZ programmes are governed by a special regulatory and institutional framework, dealing with trade, investment, land, tax, labour and environmental policy. The main legislation covering the regime for the establishment and operation of SEZs and the rights and obligations of SEZ authorities, developers and users is the 2014 Special Economic Zone Law. Industrial zones, on the other hand, do not offer a special regulatory or customs regime, and have until recently not been subject to dedicated legislation. The government submitted a draft Industrial Zone Law to Parliament in late 2019, enacted in May 2020, with the objective of ensuring a more systematic approach to zone planning and development.

To attract investors, the Myanmar SEZ Law offers a generous incentive package, including a corporate tax holiday of up to seven years, and a subsequent extended period of reduced corporate tax rate, as well as deductions linked to R&D investments and local staff training activities. In addition, the law mandates the establishment of a one-stop shop to access all government services and clearances, and the provision of basic infrastructure and utilities. In return, investors are subject to a minimum investment requirement, restrictions on domestic sales and employment of foreign personnel, and staff training obligations.

Compared to the in-land regime, the 10-year 50% corporate tax rate reduction offers a substantial competitive advantage, which partly justifies the restrictions on domestic sales of free zone investors, as a means of protecting inland investors from unfair competition. However, a less distortionary approach would be to gradually phase out the reduced tax rate, as has been the case in many regional peers, while relaxing the export share requirement, which would allow inland companies to benefit from high-quality goods produced in the zones.

Thilawa SEZ is currently the most advanced SEZ in Myanmar, with high quality facilities, public utilities and transport links. Its Management Committee, the TSMC, established a One-Stop Services Centre that significantly reduces the number of public officials with which investors must engage and offers expedited one-stop clearances for all necessary approvals and registrations. The TSMC is in the process of developing a portal for investors to submit applications and obtain approvals online, and has committed to specific turnaround times for many procedures, on par with zones that are internationally recognised for their good practice in business facilitation. It has also issued a notice clearly stating RBC expectations that apply to all companies doing business in Thilawa. As such, Thilawa can serve as a model for other industrial zones in terms of infrastructure development and zone management, and as a laboratory for policymakers to test new policies, like simplified regulations or RBC policies, before rolling them out to the wider economy. While it is too early to assess Thilawa’s wider economic impacts, currently, 74 businesses are operational in the SEZ and account for around 9 000 jobs; a quarter of these businesses have already started exporting. Moreover there is evidence that Thilawa is contributing to skills development, as reported by surveyed zone workers, while the extent of backward linkages with non-zone firms remains limited mainly because of the still limited capacity of domestic firms (IGC, 2018).

The planning and administration of industrial zones is generally less well developed compared to that of SEZs. Until now, management committees have not been subject to rules or standards for developing and managing the zones, and the respective roles of different government bodies in administering zone development were not clearly defined. The weak and outdated legal framework has resulted in the rapid proliferation of industrial zones with inadequate planning and little assurances on their performance and benefits. Many industrial zones have inadequate infrastructure, unused plots and irregular use of land. Infrastructure investment and maintenance have been insufficient over the years. Roads are in poor condition even in zones surrounding the main urban areas, and drainage and waste management continue to be a concern. The high prices of land in these zones have led many companies to sell their plots and take their operations outside the zones, defeating any strategy behind zone development. The newly enacted Industrial Zone Law of May 2020 sets out that existing zones shall comply with provisions of the new law, including on land use, environmental conservation, and infrastructure provision. If appropriately enforced, this new legal framework is likely to deliver significant improvements in industrial zone performance.

Mingaladon Industrial Park, developed by a public-private joint venture between the Myanmar government and a Japanese trading and investment company is a notable exception to the general shortcomings of industrial zones. It is widely considered to have the most advanced facilities of any industrial zone in Myanmar, which along with its proximity to Yangon are its main attraction to investors. Unlike other industrial zones in the country, Mingaladon is fully operational with some 41 running businesses occupying all available plots, and employing tens of thousands of workers in light manufacturing activities. But business facilitation in Mingaladon is little better than in other zones or in the wider economy. Building on the Mingaladon experience, the Myanmar government is looking to develop other two industrial parks in partnership with the foreign investors, namely with the Thai Amata Corporation and with the Korea Land and Housing Corporation. It is expected that these new zones will set new improved standards for future industrial zones in the country (Myanmar Times, 2019a and 2019b).

The MIPP proposes a set of actions to improve administration policies of industrial zones, including devising a zone allocation plan based on the investment and linkage potential of different regions; clarifying the roles and responsibilities of different institutions; setting the rules and requirements in terms of activities, infrastructure provision and environmental protection; and examining opportunities for streamlining business-related procedures through a one-window service. The government has since enacted a new Industrial Zone Law as mentioned above and is in the process of amending the Private Industrial Enterprise (1990) and the Small and Medium Enterprise Development (2015) Laws, for the purpose of increasing investment, strengthening links with SEZs, upgrading existing industrial zones and developing sustainable industries. If designed appropriately and in the line with the actions proposed by the MIPP, these laws have the potential to support framework conditions that are conducive to new investment attraction and industrial linkage development in Myanmar’s industrial zones.

Myanmar is currently able to offer abundant labour to investors at a competitive cost but with an insufficient supply of workers with technical or managerial skills, who are vital for the adoption of new technologies and for effective business management. The combination of tax deductions for training expenses, investor obligations to provide training activities, and gradually increasing restrictions on foreign skilled labour may serve to effectively transfer knowledge to local employees and develop the technical skills base. But restricting foreign personnel without a parallel initiative to develop the local skills base will only serve to discourage potential investors from choosing to locate in Myanmar. In parallel, the education system is undergoing a major overhaul and the MIPP proposes concrete actions to develop human resources for industry, including monitoring private sector needs and facilitating dialogue between government bodies that oversee vocational education and skill development, education and training institutions and private sector representatives. These actions, if implemented, have the potential to foster the sorely needed technical and managerial skills.

Given the limited base of local suppliers, Myanmar is still at an early stage with respect to linkage programmes, and still relies heavily on donor support to develop the necessary framework for integrating local suppliers in the supply chains of foreign investors. Going forward, successful special economic zones and industrial zones, like Thilawa and Mingaladon, offer a good starting point for implementing pilot linkages programmes. The TSMC could also promote the matching of buyers and sellers by, for example, providing firms in the zone with a list of firms in the Yangon region, and in neighbouring IZs that are producing the relevant inputs or through networking events.

Fostering secure and well-defined land rights

Secure and well-defined land rights are a key building block of an enabling investment environment, notably one that supports a more inclusive and sustainable development path. Myanmar still needs to make considerable progress in this respect. The first OECD Investment Policy Review (OECD, 2014) already shed light on many land tenure and governance deficiencies affecting the investment climate and sustainable development more widely. The review also recommended a number of reforms that would contribute to strengthening land rights and administration.

Many of the land tenure challenges identified then still persist today, although it is to be hoped that the prospects are brighter for addressing these issues in the near future, given the adoption of the National Land Use Policy (NLUP) in 2016 (Government of Myanmar, 2016). The NLUP, which was finalised in the waning days of the previous Thein Sein government after extensive stakeholder consultations, represents a rather progressive land policy framework. Among other strategic orientations, it proposes the development of a National Land Law (NLL) to support the implementation of the various NLUP objectives. The current government, which took office in April 2016 subsequent to the NLUP publication, also restated the commitment to addressing land governance and increasing land tenure security in its election manifesto (NLD, 2015).

Subsequent events, however, have led some businesses and civil society organisations (CSOs) to take a more sceptical stance on the ability and willingness of the Myanmar government to pursue the vision established under the NLUP. The somewhat slow progress in advancing with the NLUP implementation – for example, the National Land Use Council (NLUC) charged with the implementation of the NLUP was only established two years later – and some rushed and parallel reforms to key land-related legislations in late 2018, which are inconsistent with the NLUP, have raised concerns of stakeholders. Many CSOs also voiced concerns about the lack of consultation so far around the development of the NLL. It is hoped that this will change after the formation in September 2019 of a dedicated working committee under the NLUC for this purpose and in involving representatives of a wide group of stakeholders.

Concerns have also been raised with respect to the ‘Land and Property Bank’ project announced in late 2019, under which it seems that government entities would list all the plots of land under their control and that could be potentially made available to investment projects. This way investors would have an upfront idea of possible land plots and locations for their projects. At this stage, the lack of official information about the initiative precludes a more thorough assessment of its potential impact, but considering the various deficiencies of the current land information system discussed below, there are likely to be significant risks and challenges in pursuing the initiative.

Until at least some of the core provisions of the NLUP are implemented, land tenure will remain confusing and often insecure for investors, smallholder farmers, communities and other landowners or users. The reasons include inter alia: i) the fragmented, complex and outdated legal and institutional framework, with dozens of laws in place and multiple agencies involved in land administration; ii) weak protection of land tenure rights, particularly of customary land use rights that are predominant in many of the ethnic states in the country; iii) inaccurate or absent land information systems (i.e. cadastre and property registry systems); iv) complex and burdensome land registration processes resulting in low land registration rates, notably in ethnic upland areas; v) absence of land use planning and complex land use change policies; vi) overly strict land use policies, including rigid land classifications that are used for land administration interventions including land registration that do not reflect the reality of existing land use on the ground; vii) unclear and costly land transfer procedures; vii) a poor regime for compulsory land acquisitions by the state; ix) weak land disputes resolution system; x) challenges in addressing historical land grievances; xi) and, until recently, the promotion of large-scale land allocations without adequate safeguards.

The importance of secure access to land and natural resources cannot be overstated in Myanmar: it is the most important resource for rural households comprising two thirds of the population. A stark urban-rural poverty divide remains, with a still significant 23% of the rural population in poverty in 2015, compared to an urban poverty rate of 9% (MOPFI, 2018). This means that millions of people depend on access to farmland and rangelands, to fisheries and forests for their livelihoods. The way the government and society manage those resources has a direct impact on food security, poverty alleviation, investment and environmental sustainability (FAO and EU, 2018). Myanmar has been identified as one of the most vulnerable countries in the world to the effects of climate change, ranking 3rd out of 187 countries from 1998 to 2017 in the Global Climate Risk Index 2019 (Eckstein et al., 2019). As such, effective use of land and the prevention of degradation of land and natural resources must also be factored into long-term land use planning.

With the agreement on the Sustainable Development Goals (SDGs) in 2015, global recognition of the critical importance of tenure, access to resources and their governance for achieving sustainable development has been secured within a broad, comprehensive framework. Within this context, Myanmar adopted its Myanmar Sustainable Development Plan (MSDP) 2018–2030 which consolidates the overarching national development vision and strategy, and serves thereby the purposes of facilitating the alignment of policies, co-ordination and co-operation across all ministries, states and regions (MOPFI, 2018).

Despite explicitly noting that it results from the integration and distillation of existing plans and priorities, the MSDP fails to include a reference to the NLUP, which was dropped from its penultimate draft. The remaining section on land governance usefully focuses on sustainable land management to preserve the country’s natural capital but is silent on other relevant land governance dimensions (MOPFI, 2018). This omission adds to a number of confusing signals on the importance the government attaches to addressing the current complicated and conflicting land governance situation as mentioned above.

Anecdotal evidence suggests that the current situation is an important restraining factor on further investment as well as a source of continued frustration for smallholders, communities, and ethnic groups who must live with the vulnerability posed by insecure tenure. Land reform is often one of the most challenging areas of reform a government can face – it is tied up with long-held traditions of customs and use, more mundane but ever-present pushes and pulls of vested interests, both visible and hidden, and laden with economic and political implications. Those challenges are even more pressing in Myanmar given the deeply rooted interlinkages between land governance and the peace process.

Moving forward with this complex and highly contested process of land reform is essential for Myanmar to sustainably benefit from incoming investments that can contribute to improving the livelihood of its citizens.