The inflow of foreign direct investment into Myanmar, a country that has only recently begun to open up to the world, is likely to reach at least $4 billion by next year as the country takes a leap forward in its development of infrastructure.
The Myanmar Investment Commission (MIC) says it is looking forward to a major increase in activity with the expectation of between $4 billion and $5 billion by 2015, which will be led by the massive investment in the country’s newly emerging telecommunications sector.
Aung Naing Oo, director-general of the Directorate of Investment and Company Administration and member of the Myanmar Investment Commission, told journalists in Nay Pyi Taw that the telecom sector had the highest potential to attract FDI into Myanmar.
Telenor or Norway and Oredoo of Qatar last year received licences as service providers after a highly competitive international bidding process last year but they will need more support from other telecom-related companies, he said.
For this reason, international telecoms companies and supporting enterprises might look to invest in Myanmar over the next year, he added.
“For example, building fibre-optic lines and towers around the country will be necessary, so we expect that some foreign companies that can help them will come to invest over the next year,” he said.
Aung Naing Oo said he expected that 20% of total FDI would most likely be in the telecom sector starting this year.
“It will become the number one sector to invest in Myanmar next year,” he said.
The staging of the telecom service bids and last June and the formal award of licences to Telenor and Ooredoo in January this year have been considered a milestone for the country.
The two winning bidders have promised to dramatically increase mobile phone use in Myanmar, where only one in 10 people currently has access to a telephone.
Telenor aims to provide network coverage for 90% of the population within five years, while Ooredoo said it had already started building its 3G network. Telenor said it paid $500 million for its 15-year licence and expects to break even in three years.
Aung Naing Oo said that some Japanese and Singapore telecoms companies had expressed their interest in Myanmar, while Ericson of Sweden, a major telecom infrastructure provider, has spoken with the government about ways to invest in the country.
However, in the local telecom sector, he believes the government still needs to provide some assistance to local players to compete as more foreign companies start to establish a presence in the country. This could take the form of financial assistance, laws to protect local businesses, and incentives.
It is expected that some local telecom companies might work together with foreign companies in order to gain expertise and keep their status intact in the industry.
Statistics from the Myanmar Investment Commission showed that the manufacturing accounted for almost 50% of the FDI of $3.5 billion in the 2013-14 fiscal year, followed by hotels and tourism. In the coming fiscal year, it expects telecoms to move into second place.
In the manufacturing sector, labour-intensive garment factories owned by companies from Japan, South Korea and China have already settled in local industrial zones.
Aung Naing Oo said FDI has been increasing steadily since new government incentives came into effect in 2011.
The total FDI figure for last year exceeded the commission’s target of $3 billion, but as he pointed out: “Many people have said that many foreign investors are still waiting and looking to invest in Myanmar. I am not accepting [$3.5 billion] as the figure because it has not all been invested yet, but one thing is that the FDI rate has been increasing year after year.”
He said there were no “short-term foreign direct investments in Myanmar” because the new law on Foreign Direct Investment requires a commitment of at least 20 years.
Myanmar was under military rule from 1988 to 2010, when most Western companies shunned the country because of economic sanctions imposed by the US and European Union or to avoid the bad publicity of doing business with the pariah state.
Most of the sanctions were dropped in 2012, after President Thein Sein was elected and quickly began carrying out political and economic reforms designed to win back international acceptance.
The commission’s figures show FDI increased from $300 million in 2011-12, to $1.3 billion in 2012-13, to $3.5 billion in 2013-14.
The figures support Aung Naing Oo’s contention that some investors were ready to make commitments before they actually started to put their money into the country. Prior to 2011 under the military government, FDI was $234.9 million in 2005 and $1.08 billion in 2009.
Among the foreign investors, Chinese businesses top the table with one-third of all FDI. From 1988 through last year, Chinese companies committed $14.19 billion or 32% of the $43.74 billion in foreign investment the government approved in the period.