Foreign Direct Investment and the Garments Industry in
The coup d'etat by General
Ne Win in 1962, and the introduction of the ‘Burmese Way to Socialism’, ensured
that for almost 30 years foreign direct investment (FDI) in Burma was near
enough to non-existent. In 1989, after the uprisings of the previous year and
the re-shuffling of the upper military echelons into the reconstituted State
Law and Order Restoration Council (SLORC), the door to foreign investment was
opened once more.
The following attempts to clarify the state of play
regarding FDI in
The Myanmar
Investment Commission was established in 1989 to administer foreign
investment under
FDI approved by the Commission has access to a range
of incentives not available to other investors. Once the investment proposal is
approved, it goes to the Office of the
Myanmar Investment Commission. As this office includes representatives of
the state enterprises who may be in competition with the foreign investor,
restrictions can be imposed. In the past, this has included the rejection of
joint ventures between domestic private and foreign partners – only
subsequently for projects to be approved with the domestic private firm replaced by a state enterprise.
Privileges for those associated with the FDI approval process include signature
fees, both official and unofficial.
Not all FDI is approved under the Foreign Investment
Law. Small scale investment, and investment in industries that are not legally monopolised by the state and its various organs, do not
seem to need approval under the Law. The
minimum requirement for investment under the Foreign Investment Law is $500,000
in the manufacturing sector and $300,000 in services.[1] Small-scale foreign investment by Chinese nationals
has not needed approval under the Foreign Investment Law.
2.
The Data
In
addition to the usual problems of compiling statistics for developing
countries, there are three additional problems with the FDI data in the context
of
Comparison of FDI Data 1996-2000 ($m) |
|||||
|
1996 |
1997 |
1998 |
1999 |
2000 |
IMF (Actual) |
317.6 |
580.7 |
878.8 |
683.6 |
304.2 |
EIU (Actual) [2] |
310.4 |
387.2 |
315.1 |
216.3 |
|
World Bank (Actual ) |
|
|
70.0 |
|
|
Xinhua (Approved)[3] |
668.2 |
2,814.2 |
777.394 |
29.455 |
55.61 |
EIU (Approved)[4] |
|
|
777.5 |
29.5 |
55.6 |
IMF (Approved) |
668.2 |
2,814.2 |
1,012.9 |
54.4 |
58.1 |
CSO (Official Statistics)[5] |
668.2 |
2,814.2 |
777.4 |
|
|
Another source of misrepresentation and confusion in
analysing the data is the distinction between approved and actual FDI.[6] Total approved (or committed) FDI during the
last ten years was $7,177.1m, whereas total actual (or disbursed) FDI was only
$3,636.4m.[7] Not surprisingly, official Burmese agencies
almost exclusively highlighting approved over actual FDI. In the last ten years only about 50% of
investment committed by foreign investors has resulted in actual
investment. This is something that is
often overlooked by commentators when assessing
Another
issue with the FDI data is that it only presents figures for foreign investment
that has been approved under the Foreign Investment Law. According to the IMF some foreign investment
recorded in official statistics is not approved under the Foreign Investment
Law.[9] The IMF notes that this investment appears in
the Balance of Payments data. In the view of BEW, however, this is doubtful
given that the foreign investment flows that appear in
3. Foreign Direct
Investment
a. Sectors receiving FDI
Actual FDI in
Another
important determinant of the collapse in commitments to invest in
The Hotel and Tourism sector has also been an important recipient of FDI since 1994. FDI in hotels and tourism collapsed, however, after the Asian economic crisis and its relative importance as a recipient of FDI (especially vis-ŕ-vis oil and gas) declined dramatically. The large drop in investment in this sector took about a year to flow through, probably reflecting the time period necessary to complete projects. However, the decline in importance does not just reflect the Asian crisis, but also the limited success of the tourism industry - plagued by allegations of forced labour and subsequent international boycotts. Investors will also be wary of investing in this sector which is already over supplied with hotel capacity. Between 1995 and 1998 the number of hotel rooms almost doubled, to just under 14,000.[12]
The manufacturing sector, though still a small recipient of FDI in comparison to the oil and gas sector, has been slowly attracting FDI since about 1995. However, commitments (approvals) to invest in manufacturing in 1997, though relatively significant, have so far largely failed to result in actual investment. The Asian economic crisis having no doubt a significant impact. However, the impact of the Asian economic crisis on actual FDI in the manufacturing sector has been much less dramatic than its effect on hotels and tourism.
There has been a shift in the importance of sectors receiving FDI. The Oil and Gas sector, in terms of absolute amounts of investment and in terms the percentage of FDI received, is by far the largest recipient of FDI. The collapse in commitments to invest in this sector in the last two years, however, has seen its relative importance shrink. This decline is largely due to the completion of the aforementioned two large pipeline projects. The hotels and tourism sector, after receiving its largest percentage of investment in 1995, has been declining in relative importance since. In 1999 and 2000 the sector received less than 10% and 5% of actual investment respectively.
% o Actual FDI/Total Actual
FDI by Sector (1990-2000) |
|||
|
Manufacturing |
Oil & Gas |
Hotels & Tourism |
1990 |
1.6 |
98.39 |
0.0 |
1991 |
8.0 |
79.12 |
3.42 |
1992 |
0.34 |
97.15 |
1.15 |
1993 |
6.38 |
86.38 |
6.3 |
1994 |
4.69 |
72.52 |
21.92 |
1995 |
10.36 |
41.36 |
32.8 |
1996 |
9.63 |
59.57 |
18.67 |
1997 |
5.01 |
46.27 |
31.36 |
1998 |
6.02 |
55.68 |
19.57 |
1999 |
14.00 |
56.44 |
8.8 |
2000 |
17.95 |
65.25 |
3.45 |
The manufacturing sector in terms of absolute amounts of investment and percentage of total investment has seldomly been as important as hotels and tourism, but it seems to be becoming more significant. In 1999 and 2000, FDI to this sector was larger than the hotels and tourism sector.
b. Sources of FDI
Approved
and Actual FDI by Country (1990-2000 US$)
It is
often reported that the majority of investment in
Percentage of Approved and
Actual FDI by Region 1990-2000 |
||
|
% of Approved FDI |
% of Actual FDI |
Asian Countries |
59.3% ($4.26b)[13] |
36.0 % ($1.31b) |
Western Countries |
40.25% ($2.89b) |
64.84 % ($2.36b) |
This means
that in terms of actual investment,
Western countries have been the largest investors in
The
majority of the FDI from
Unlike Western countries, FDI from Asian countries has
not been concentrated in large projects.
The value of the world trade in apparel in 1999 was
$186b, or about 3.4% of world merchandise trade. The largest flow of exports of
apparel in 1999 was between countries in
Major Exporters and Importers of Apparel
1999 $USb[19] |
|||
Exporters |
Importers |
||
|
30.08 |
|
58.79 |
|
22.37 |
|
20.77 |
|
8.27 |
|
16.4 |
|
7.8 |
|
14.76 |
|
7.44 |
|
12.53 |
|
6.52 |
|
11.58 |
The export
of apparel between Asian countries is a significant component of world apparel
trade accounting, in terms of value, for nearly 15%. There are some suggestions that
The WTO and
the World Apparel Industry
One of the issues that has
arisen in the debate over
Transhipment
occurs with the establishment of ‘fake’ factories to hide the country of origin
of textiles and apparel. [21] The idea is that these factories pretend to
make apparel and hence avoid the quota placed on the country of origin. So, for example, textile and apparels
produced in
The American ambassador to
As a result of the
WTO-sponsored ‘Agreement on Textiles and Clothing (ATC)’, the quotas on
textiles and apparel imports will be completely eliminated by
The quota system has led to
expanding and constantly shifting global production capacity as investment in
new facilities is made in the less-restricted or unrestricted countries. Some
producing countries currently benefit from the quota system, allowing them an
opportunity to compete with major producers such as
Sources of FDI in
The limitations of the data
make any precise assessments of the origin and impact of FDI on output in
FDI in
Manufacturing, 1995/96-1999/00 (US$) |
||||||
|
1995/96 |
1996/97 |
1997/98 |
1998/99 |
1999/00 |
Total |
Approved |
21.3 |
923.5 |
319.2 |
43.3 |
18.1 |
1325.4 |
Actual |
30.6 |
29.1 |
52.9 |
95.7 |
54.6 |
262.9 |
Actual FDI from Countries reportedly
involved in |
||||||||||||
|
1995 |
1996 |
1997 |
1998 |
1999 |
2000 |
||||||
|
|
Act |
|
Act |
|
Act |
|
Act |
|
Act |
|
Act |
|
|
0.6 |
|
1.4 |
|
0.5 |
|
6.5 |
|
17.1 |
|
8.8 |
HK |
|
6.5 |
|
5.7 |
|
13.2 |
|
4.7 |
|
10.7 |
|
13.8 |
|
|
0.1 |
|
3.1 |
|
2.2 |
|
0.4 |
|
2.6 |
|
0.0 |
Total |
|
7.2 |
|
10.2 |
|
15.9 |
|
11.6 |
|
30.4 |
|
22.6 |
If investors have moved to
A comparison with
The rapid increase in apparel
exports from
Foreign owned factories began
shifting factories into
Another similarity between
In the Cambodian context, FDI
has had a major role in the development of a textiles industry for export.[35]
The Cambodian authorities have
implemented a management plan to deal with the quotas placed on apparel by the
Current and Future Problems
Many obstacles remain to the
further development of
-
Electricity
One of the most significant of these are the difficulties prospective manufacturers face in securing adequate power supplies at a reasonable price. There was a 10-fold increase in electricity prices in March 1999, and the Ministry of Electricity Power is planning to double the price again shortly - from 25 Kyat to 50 Kyat per unit.
Even worse for prospective
manufacturers than the high cost of electricity is the unreliability of its
supply in
-
General Infrastructure
The first criterion when investing in a country is its productive "quality". "Quality" is determined by infrastructure - roads, ports, airports, utilities, legal, administrative – all of which determine turnaround time. Turnaround time has to be fast enough to satisfy current customers. The second criterion is direct costs - wage structure, employee absenteeism and turn-over rates. Employee costs are determined by more than just cheap wages. Other considerations, none of which particularly favour Burma – the quality of the education system, levels of training, the health of workers, the quality of management, worker morale - all have to be considered. Any extra training a firm has to provide is an extra expense.
Shipping costs are very
important. Air cargo costs double surface rates. The number of carriers not just the number of
flights or sailings is important.
Competition in the freight business allows companies to negotiate better
rates. There is very little competition in transport to, from, and in
Companies tend to use local
management that have good relations with the government. A manager with good relations with the local
ministry can avoid delays. On the other hand corruption – rampant in
TABLES
Actual FDI 1995/96-1999/00 (US$)[38]
|
1996 |
1997 |
1998 |
1999 |
2000 |
Foreign-Owned |
211.0 |
313.6 |
588.5 |
478.8 |
187.1 |
Joint Venture |
106.0 |
267.1 |
290.3 |
204.8 |
117.1 |
Total |
317.6 |
580.7 |
878.8 |
683.6 |
304.2 |
Actual & Approved FDI 1990-2000 (US$m)[39] |
|||||||||||
|
1990 |
1991 |
1992 |
1993 |
1994 |
1995 |
1996 |
1997 |
1998 |
1999 |
2000 |
Approved |
449.5 |
280.6 |
5.9 |
103.8 |
377.6 |
1,3151.9 |
668.2 |
2,814.2 |
1,012.9 |
54.4 |
58.1 |
Actual |
56.0 |
225.1 |
235.1 |
149.0 |
91.7 |
114.6 |
317.6 |
580.7 |
878.8 |
683.6 |
304.2 |
Total
Actual Foreign Direct Investment 1995/96-1999/00 (US$)[40] |
|
||||
|
1996 |
1997 |
1998 |
1999 |
2000 |
Approved under Foreign Investment Law |
317.6 |
580.7 |
878.8 |
683.6 |
304.2 |
Not Approved Under Foreign Investment Law |
324 |
316 |
421 |
592 |
304 |
Total |
641.6 |
896.7 |
1,299.8 |
1,275.6 |
|
Actual FDI by Industry, 1990-2000[41] |
|||
|
Manufacturing |
Oil & Gas |
Hotels & Tourism |
1990 |
0.9 |
55.1 |
0.0 |
1991 |
18.0 |
178.1 |
7.7 |
1992 |
0.8 |
228.4 |
2.7 |
1993 |
9.5 |
128.7 |
9.4 |
1994 |
4.3 |
66.5 |
20.1 |
1995 |
11.9 |
47.4 |
37.6 |
1996 |
30.6 |
189.2 |
70.5 |
1997 |
29.1 |
268.7 |
182.1 |
1998 |
52.9 |
489.3 |
172.0 |
1999 |
95.7 |
385.8 |
60.2 |
2000 |
54.6 |
198.5 |
10.5 |
Total |
309.2 |
2290.8 |
572.8 |
Approved and Actual FDI by Industry (1995/96-1999/00/ US$m) |
||
|
Approved |
Actual |
Oil and Gas |
887.7 |
1,531.5[42] |
Hotels & Tourism |
485.9 |
495.3 |
Manufacturing |
1,325.4 |
262.9 |
FDI in
Manufacturing, 1995/96-1999/00 (US$) |
||||||
|
1995/96 |
1996/97 |
1997/98 |
1998/99 |
1999/00 |
Total |
Approved |
21.3 |
923.5 |
319.2 |
43.3 |
18.1 |
1325.4 |
Actual |
30.6 |
29.1 |
52.9 |
95.7 |
54.6 |
262.9 |
Approved and Actual FDI by Country (1990-2000 US$m) |
||||||||||||||
|
|
|
|
|
|
|
|
|||||||
|
App |
Act |
App |
Act |
App |
Act |
App |
Act |
App |
Act |
App |
Act |
App |
Act |
1990 |
3.5 |
0.9 |
40 |
5.8 |
- |
- |
64.1 |
- |
- |
- |
12.1 |
4.3 |
80 |
15.8 |
1991 |
5.3 |
2.2 |
60 |
32.3 |
- |
- |
96.9 |
19.6 |
- |
- |
7.5 |
12.9 |
93.2 |
60.7 |
1992 |
- |
3.5 |
0.7 |
31 |
- |
- |
0.6 |
- |
- |
- |
- |
10 |
- |
87.3 |
1993 |
23.2 |
1.2 |
0.5 |
5.7 |
8.6 |
1.4 |
8.9 |
1.0 |
10.0 |
27.1 |
4.0 |
13.4 |
29.5 |
52.2 |
1994 |
228.8 |
6.1 |
- |
1.0 |
45.2 |
1.8 |
41.3 |
9.0 |
- |
24.7 |
8.1 |
10.5 |
19.5 |
33.4 |
1995 |
55.1 |
29.8 |
- |
0.5 |
15.8 |
0.5 |
199.8 |
15.0 |
455.0 |
25.0 |
599.8 |
16.6 |
4.0 |
16.4 |
1996 |
287.4 |
55.5 |
19.4 |
0.4 |
157.7 |
5.7 |
10.2 |
32.4 |
- |
86.9 |
160.3 |
87.6 |
14.8 |
30.2 |
1997 |
611.3 |
175.0 |
72.1 |
15.6 |
235.1 |
10.6 |
605.7 |
42.6 |
5.4 |
71.8 |
512.2 |
222.2 |
341.0 |
14.3 |
1998 |
270.6 |
279.1 |
26.9 |
18.9 |
124.8 |
5.1 |
210.4 |
32.0 |
- |
201.7 |
47.5 |
288.6 |
- |
30.6 |
1999 |
14.2 |
79.1 |
8.9 |
33.5 |
- |
12 |
10.8 |
58.0 |
- |
90.0 |
4.4 |
203.1 |
- |
158.3 |
2000 |
4.7 |
14.9 |
5.1 |
18.8 |
- |
15.5 |
16.5 |
9.6 |
- |
33.0 |
15.1 |
176.1 |
5.3 |
0.8 |
Total
|
1,504.1 |
647.3 |
233.6 |
163.5 |
587.2 |
52.6 |
1,265.3 |
219.2 |
470.4 |
560.2 |
1,371 |
1,045.3 |
587.3 |
500 |
12 Month Restraint Limit on Textile and
Apparel Categories Imports to the |
|||||
|
1997 |
1998 |
1999 |
2000 |
2001 |
Male Shirts
(Cotton/Man-made Fibres) |
96,823 |
97,791 |
98,769 |
99,757 |
100,755 |
Skirts (Cotton/Man-made Fibres) |
26,152 |
26,414 |
26,678 |
26,945 |
27,214 |
Male Trousers, Breeches,
Shorts (Cotton) |
135,649 |
137,005 |
138,375 |
139,759 |
141,157 |
Nightwear & Pyjamas (Cotton/Man-made Fibres) |
41,102 |
41,513 |
41,928 |
42,347 |
42,770 |
Female Trousers,
Breeches, Shorts (Wool) |
2,386 |
2,410 |
2,434 |
2,458 |
2,483 |
Male/Female Trousers,
Breeches, Shorts (Man-made Fibres/Silk
Blends/Non-Cotton Vegetable Fibres) |
25,295 |
25,548 |
25,803 |
26,061 |
26,322 |
Percentage
of Quotas Filled for Textile Imports to the 1997-2000[46] |
||||
|
1997 |
1998 |
1999 |
2000 |
Male Shirts
(Cotton/Man-made Fibres) |
22.8 |
4.0 |
48.1 |
51.6 |
Skirts (Cotton/Man-made Fibres) |
16.8 |
13.1 |
34.8 |
63.7 |
Male Trousers, Breeches,
Shorts (Cotton) |
30.8 |
43.9 |
70.4 |
100 |
Nightwear & Pyjamas (Cotton/Man-made Fibres) |
7.2 |
0.0 |
8.2 |
16.3 |
Female Trousers,
Breeches, Shorts (Wool) |
0.0 |
0.0 |
0.0 |
0.0 |
Male/Female Trousers,
Breeches, Shorts (Man-made Fibres/Silk
Blends/Non-Cotton Vegetable Fibres) |
57.5 |
23.5 |
85.5 |
100 |
|
1999 |
2000 |
|
185.113 |
403.827 |
|
385.769 |
469.670 |
|
910.407 |
929.159 |
|
840.948 |
916.311 |
|
537.370 |
587.204 |
|
72.503 |
84.845 |
|
21.065 |
30.085 |
|
1792.039 |
1894.665 |
|
736.664 |
780.526 |
|
584.952 |
808.363[47] |
|
11.875 |
9.248 |
|
637.435 |
670.740 |
|
1525.092 |
1785.770 |
|
1675.715 |
2115.840 |
|
1685.817 |
2054.758 |
|
733.238 |
920.171 |
FDI from Countries involved in |
|||||||||||
|
1990 |
1991 |
1992 |
1993 |
1994 |
1995 |
1996 |
1997 |
1998 |
1999 |
2000 |
|
7.1 |
40.9 |
38.0 |
7.3 |
2.0 |
0.6 |
1.4 |
0.5 |
6.5 |
17.1 |
8.8 |
|
0.0 |
0.0 |
0.0 |
0.0 |
0.1 |
0.1 |
3.1 |
2.2 |
0.4 |
2.6 |
0.0 |
|
0.0 |
1.3 |
0.0 |
3.3 |
1.5 |
6.5 |
5.7 |
13.2 |
4.7 |
10.7 |
13.8 |
[1] All figures are presented in US dollars unless otherwise noted.
[2] EIU
Country
[3] Xinhua
"Foreign Investment in
[4] EIU
Country
[5] Directorate of Investment and Company Administration (www.myanmar.com)
[6] IMF data is used in the article unless otherwise indicated.
[7] "Since opening to such investment in late
1988,
[8] Though other factors can obviously be important, namely, the Asian economic crisis.
[9] This probably excludes small scale foreign investment already mentioned in such areas as Kareoke clubs and the like.
[10] Most
data in this report are for financial years. For example the year 1998 refers
to the 1997/1998 financial year. The
financial year in
[11]
International Monetary
[12] Far Eastern Economic Review (FEER),
"Wish you were here?",
[13] Some
countries outside the region, notably
[14] The three foreign partners in the Yadana project are Unocal (28.26% equity), Total (31.4%) and PTTEP (25.5%). The local partner is the state enterprise, MOGE, which has 15% equity. Premier Oil is the operator and largest shareholder in the Yetagun pipeline.
[15]
Sanctions applied by the
[16]
[17] In the
last 5 years only 28.8% of approved FDI from
[18] Note Textiles and Apparel are different categories of manufacture. They are two distinct stages of the clothing production process. The production of textiles is capital intensive, relying on sophisticated machinery with larger companies dominating the industry. This production tends to be located in the more developed countries or at least those with a reasonably developed manufacturing sector. The apparel industry is labour intensive with the majority of the labour force consisting of sewing machine operators. The majority of this production process is located in developing countries.
[19] WTO Trade Data 1999
[20] Myanmar
Times "Big players fare well in textiles"
[21] A
textile verification team from the
[22]
[23]
Also, the claim that these countries are bumping
up against quotas, and that
[24]
This is the culmination of a 10 year
transitional agreement to gradually integrate textile and apparel products
fully into GATT rules. The ATC replaced
the Multifibre Arrangement (MFA), 1974-1994, where
quotas were negotiated bilaterally. The MFA meant that certain developed
countries established quotas on imports of textiles and apparel from developing
countries. The four WTO members which maintained import restrictions under the
former MFA were
[25] There is always the possibility that investment in the apparel industry is mostly local.
[26] ADB
"Country Assistance Plan (2001-2003):
[27]
"Big players fare well in textiles"
[28]
The data is only
shows the source country of the FDI and the sectors that receive
it. The data does not provide
information on the sector in which the source country invests.
[29] Note, this table does not show FDI in the apparel sector, only actual FDI from countries reportedly involved in this sector.
[30] ADB "Cambodia 2001-2003: Country Assistance Plan" Dec 2000. The ADB reports the existence of 180 and the IMF for the same year reports 152 firms.
[31] Foreign exchange receipts from garment exports in 2000 were $851m and in 2001 $902m.
[32]
Official categories for
[33] ADB
"Country Assistance Plan (2001-2003):
[34] IMF
"
[35] IMF
"
[36] IMF "Cambodia Selected Issues" October 2000, p.52.
[37] The
[38] IMF figures
[39] IMF figures
[40] IMF Figures
[41] The
data for 1996-2000 comes from IMF, "
[42] In the previous 5 years total actual FDI is larger than total approved. This shows that much of the actual investment that has taken place in the last 5 years was approved prior to 1995/96. This also reflects the completion of the gas pipeline projects.
[43] Calender year.
[44] Federal Register Online - www.access.gpo.gov
[45] Quotas are based on limits notified to the Textiles Monitoring Body as part of WTO agreements on Textiles and Apparel. Quotas are established for each calender in negotiations under the WTO.
[46] www.customs.gov
[47] Garment
exports to the
[48] IMF figures