Vietnam’s FDI in perspective of competition with Myanmar

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VietnamNet English - 72 month(s) ago 26 readings 1 duplicate news

Vietnam’s FDI in perspective of competition with Myanmar

VietNamNet Bridge – The government of Myanmar on January 28, announced the policy on giving eight-year tax break for foreign investors. This country can even prolong the time to draw direct foreign investment (FDI) into economic development projects.

Burmese Deputy Railway Minister Lwin Thaung told the media at the recent World Economic Forum (WEF) in Davos, Switzerland, that Myanmar is about to approve the amended Investment Law in late February to replace the one that was issued in 1991. That is a clear message of Myanmar to international community after it performed the first step of democratic reforms.

Myanmar’s current economic situation is similar to that of Vietnam 18 years ago, when the US embargo was lifted, creating business opportunities for foreign investors. Although Myanmar’s real potential is not fully informed but this country’s open-door policy has created expectations, as the comment by Jim Rogers, Chairman of the Singapore-based Rogers Holding Group.

“If you can find way to invest in Myanmar, you will be very, very rich over the next 20, 30, 40 years,” Rogers said.

Such comments were very popular at the time Vietnam opened its door. It is now repeated together with new business opportunities in Myanmar.

It is possible that part of the international capital flow will withdraw from the markets where the initial expectations have decreased because of inner and objective reasons. If it happens in the near future, will Vietnam have a redoubtable rival in attracting FDI?

Myanmar used to be the richest country in the region in the 60s. However, in nearly a half of the century under the control of the military regime, this country has lagged behind, has been isolated and is considered one of the poorest countries in Southeast Asia.

From 1988 to late 2011, FDI in Myanmar was limited, with a total registered capital of around $40 billion, mainly from China and Thailand. According to Myanmar’s official statistics, over 86 percent of FDI poured into electricity, mining and oil and gas industries.

The recent open policy has stirred up the hope that the embargo of Western governments will be removed, firstly by the European Union (EU) and then the USA if this country pursues its reforms.

Since mid-2011, besides the visits of Western politicians to Myanmar, foreign investors have also flocked to this country to make surveys. They are really impressed by surprisingly political changes in the country that is rich in natural resources and has the cheapest labor cost in Southeast Asia.

Foreign newspapers said that while China and Thailand have entered Myanmar for years, investing in hydropower projects, deep seaports and gas pipelines, Japan, the USA and many European countries plan to invest in other potential industries in this country.

Like Vietnam in the early years after the USA lifted its embargo, investment consulting offices will open in Myanmar to support oil and gas exploration, mining, banking, tourism, etc. projects, which are expected to be the hottest areas.

Regarding factors to attract foreign investment, though Myanmar and Vietnam have similar and different things, both countries have agricultural-based economy and low starting point.

In 1994, when the USA lifted the embargo, Vietnam’s per capita GDP was around $220. That of Myanmar at present is about $600.

The labor costs of Vietnam and Myanmar are both cheap, which are the consequence of a sluggish and backward education compared to the world development trend. The both peoples are hard-working but they are still poor, in the society where income distribution is unreasonable.

Both Myanmar and Vietnam, in the early open-door period, have the in abundant and outdated legal system and bureaucratic administration which are the fertile land for corruption.

The weak banking system could not do the function of pumping blood into the economy which is in need of capital while foreign currency business is not strictly managed, resulted in towering exchange difference, which makes harmful effects on import-export activities. In Myanmar, the difference of exchange rates at banks at in the black market is nearly 100 times.

Some Vietnamese entrepreneurs who have made surveyed of the Burmese market said that the underground economy makes up most of transactions and it is out of control. It is quite similar to Vietnam and it should be seen as the disease of the early open-door period.

However, Myanmar has more competitive advantages than Vietnam.

The first is natural resources. Myanmar used to be a rice exporting country. It has up to 23 million hectares of agricultural land but only a small part of it has been used. Meanwhile, Vietnam has only 9.4 million hectares, which have been thoroughly explored.

Myanmar really has “gold forest, silver sea”, with minerals of all kinds, with great reserves, especially ruby and marble, which are very expensive and famous in the world, besides rare wood.

This country has seaports to the Indian Ocean and great potential on oil and gas.

The second advantage is human resources. Myanmar covers 767, and has a population of 62 million. It was a colony of the UK so it has a better contingent of English-speaking laborers, particularly white-collar workers and middle-class managers who are very necessary for foreign investors.

With such human resources, the labor cost in Myanmar is very low. The average income of university professors is less than $200/month, around $300/month for excellent chief accountants and $50/month for workers.

This advantage is supported with nearly 90 percent of Burmese being Buddhist followers. It is popular to see most of people stop at a pagoda on the way home after work to burn incense and pray. It seems to have no connection to human resources but deeply, Buddhism has highly contributed to “social capital” of Myanmar. Most of people live honestly. This is a big advantage in the open-door period.

The third advantage is the sense of building and implementing the law. As a colony of the UK, Myanmar’s law inherits the clearness, transparency, understandable and easy to implement of the UK’s law. After the election in November 2010, Myanmar has built 18 laws, which are considered as open, including the law that permits people to go on strike. This country’s parliament is considering the Law on Foreign Investment, which is opener than the old one.

The above information about Myanmar’s ability to lure FDI is enough to worry Vietnam, especially when the FDI flow in 2011 felt by 26 percent over 2010, some foreign investor withdrew from Vietnam and some foreign investment funds reduced their capital.

Experts said that the fall of FDI is general situation. However, dozens of billions of idle US dollars in the world are seeking way to lucrative markets, which are new, potential and highly competitive markets and Myanmar may be a choice.

In that perspective, Vietnam is carrying out a strategy to restructure the economy and the national financial system, in which inflation control is the first mission to stabilize the macro-economics.

It is expected that this strategy will include the amendment to the Land Law, considering the key role of the State-owned economic sector and improving the role of the private economic sector to attract the domestic capital flow into the economy. Once Vietnamese can do business, foreign investors can trust in and find out reliable partners in Vietnam.

Vietnam has many things to do: developing infrastructure, simplifying customs and administrative formalities and improving labor productivity.

Vietnam should look at Myanmar as a rival in attracting FDI to improve its policies. Experts said that it will take Myanmar, like other countries that have just opened their doors, some time to deal with problems in luring FDI. Vietnam takes advantage as it goes ahead of Myanmar, but it is not competitive advantage.

It is unsurprising if Myanmar will become an Asian dragon in the next 20-30 or 40 years, the dream that Vietnam has been nurturing for several decades but it has not become reality.

Please don’t forget that time does wait for us.


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