Key findings - Stephen Thomsen - Launch of the OECD Investment Policy Review of Myanmar


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These highlights from the OECD Investment Policy Review of Myanmar were presented by Stephen Thomsen at launch events in Myanmar on the 1 and 4 March 2014. Myanmar's Union Minister of National Planning and Economic Development, Dr. Kan Zaw, praised the comprehensive nature of the report and said that it would help to guide the government in solidifying investment climate reforms and in promoting more and better investment.

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Key findings - Stephen Thomsen - Launch of the OECD Investment Policy Review of Myanmar

  1. 1. OECD INVESTMENT POLICY REVIEW OF MYANMAR Dr. Stephen Thomsen Head, Investment Policy Reviews, OECD 4 March 2014, Yangon Supported by the AANZFTA Economic Cooperation Support Program
  2. 2. The Policy Framework for Investment and the IPR process Key themes of the IPR: investment policy, RBC • Investor protection • Screening and restrictions on foreign investment • Incentives • Responsible business conduct Outline
  3. 3. A multilaterally backed instrument to improve the investment climate building on good practices in OECD and non-OECD countries 82 questions in 10 policy areas – Investment – Investment promotion and facilitation – Trade – Competition – Tax – Corporate governance – Responsible business conduct – Human resource development – Infrastructure and finance – Public governance Policy Framework for Investment - PFI
  4. 4. The PFI stresses good governance: • laws and regulations • design, implementation and evaluation A process as much as an outcome • Capacity building (workshops in Myanmar and elsewhere for Myanmar officials) • Whole of government approach (task force) • Peer dialogue (within ASEAN and with OECD) • Follow up IPR process
  5. 5. OECD Investment Policy Reviews since 2005 Sub-saharan Africa  Zambia  Burkina Faso  Mozambique  Botswana*  Tanzania  Mauritius*  Nigeria* Asia  India  China (2)  Viet Nam* (2)  Indonesia  Lao PDR*  Malaysia  Myanmar  Philippines* MENA  Egypt  Morocco  Tunisia  Jordan South America  Peru  Costa Rica  Colombia Eurasia  Ukraine  Russia  Kazakhstan * On-going or planned
  6. 6. Key themes and recommendations Investment Policy Review of Myanmar
  7. 7. Rule of law, build capacity of judiciary Streamline government • Clarify respective roles and responsibilities of ministries • Consider merging ministries where appropriate • Improve inter-ministerial coordination Public consultations • Helps to empower civil society • Builds legitimacy and improves effectiveness by raising compliance • Increases social benefit by bringing to light at an early stage any possible adverse consequences Improve public governance
  8. 8. • Rapid pace of legislative activity since 2011 – Outdated laws, some dating to colonial period • Need to ensure these new laws are mutually consistent and also consistent with international commitments • Build capacity in government to vet draft laws and to review existing laws • Consider institutional innovations, such as a Law Reform Commission Ensure legal consistency and coherence
  9. 9. • The FIL offers some protection to investors but only weak protection against expropriation and nothing about the rules for compensation • Only weak protection of intellectual property rights • Ratification of New York Convention for the Enforcement and Recognition of Foreign Arbitral Awards in 2013: positive step towards better access to international arbitration • Promote alternative means of dispute resolution such as conciliation and mediation • Consider joining ICSID • International agreements (ACIA, ASEAN FTAs, BITs) Provide greater protection for investors
  10. 10. • MIC, Central Working Body for SEZs, line ministries for joint ventures with SEEs not requiring incentives • Multiple approvals in some cases • Concern expressed about too much discretion • Criteria for approval are complex and some might be beyond the likely capacity of MIC to evaluate: e.g. financial credibility, economic viability, appropriateness of the technology of proposed project • Possible capacity constraints of current system in the event of rapid growth in foreign investment Streamline investment approval process
  11. 11. • Narrow the scope of screening to only the most important sectors and largest investments • Ensure that major projects, including by domestic investors, require environmental or social impact assessments • Minimise the amount of discretion • Simplify the criteria • Streamline screening under the MIC to remove overlaps and gaps • Monitor compliance with commitments by investors • Evaluate periodically the aims and effectiveness of the screening mechanism, including through public consultations Recommendations: screening
  12. 12. • Some sectors are prohibited to foreign (and sometimes all private) investors, but most restrictions involve joint venture requirements. – Production and distribution of: biscuits, wafers, noodles, macaroni, vermicelli, other cereal-related products, candies, chocolates and others, purified drinking water, beverages (both alcohol and non- alcoholic), food products except milk and milk products. Also for cotton robes, ceramic/enamel products, plastic wares, rubber and plastic, paper and paper products, packaging services Restrictions on FDI are extensive and should gradually be reduced
  13. 13. • Industrial chemicals • Mass production of minerals • Construction: public works, apartments, condominiums, office buildings • Airline services • Shipping: freight and passengers • Retail distribution Further JV requirements
  14. 14. OECD FDI Regulatory Restrictiveness Index • Measures only statutory restrictions on FDI (i.e. where national treatment is not applied) • Does not include the degree of implementation, institutional quality or state ownership • Covers equity restrictions, screening, restrictions on key personnel and operational restrictions • Scores currently available for almost 60 countries, covering 22 sectors. Benchmarking FDI restrictiveness across countries
  15. 15. OECD FDI Regulatory Restrictiveness Index OECD average NON-OECD average 0.00 0.05 0.10 0.15 0.20 0.25 0.30 0.35 0.40 0.45 China Myanmar SaudiArabia Indonesia Jordan India Japan NewZealand Mexico Malaysia Tunisia Russia Iceland Canada Mongolia Kazakhstan Korea Australia Israel Ukraine Peru Austria UnitedStates Brazil Switzerland Kyrgyz… Norway Turkey Denmark Poland Chile Morocco Latvia Egypt United… Sweden CzechRepublic SouthAfrica Italy Hungary SlovakRepublic France Ireland Lithuania Belgium Greece Argentina Colombia Germany Estonia Spain Finland Netherlands Romania Slovenia Portugal Luxembourg Source: OECD Closed = 1; Open = 0
  16. 16. A 10% improvement in the Index score is associated with an up to 3.2% increase in the level of FDI stocks 0 .5 1 1.5 0 .2 .4 .6 INDEX Fitted values FDISTKGDPMore restrictive
  17. 17. Sustaining investor interest can be difficult 0 5 10 15 20 25 30 35 40 45 50 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 0 2 4 6 8 10 12 14 16 18 FDI as a share of total investment (per cent) China Viet Nam Source: UNCTAD
  18. 18. • Incentives are commonplace worldwide. • Little evidence that they are effective. • Stability and predictability more important, together with fair and efficient tax administration. • With very low fiscal revenue as a share of GDP, Myanmar would be better off taxing investment and spending the revenue on education, health, infrastructure, etc. • Incentives might actually reduce long-term investment. • Regional dimension Incentives
  19. 19. My government is taking steps to build investor confidence and promote responsible investment in Myanmar. President U Thein Sein As sanctions are lifted, investment should be responsible and help the process of democratisation. Daw Aung San Suu Kyi The EU…would welcome European companies exploring trade and investment opportunities [in Myanmar]. This should be done [with] the highest standards of integrity and corporate social responsibility. Council of the European Union, April 2012 We say to American business: invest in Burma (Myanmar) and do it responsibly; be an agent of positive change and be a good corporate citizen. (Former) US Secretary of State Hillary Clinton, 2012 We welcome the commitment to responsible investment in Burma/Myanmar G8 Foreign Ministers communiqué, 2013 A business considering investment in Myanmar should carefully examine the risks and opportunities, as well as applicable international standards for RBC. Business for Social Responsibility Responsible business conduct
  20. 20. • Host country measures – the primary responsibility for protecting human rights and the environment in Myanmar rests with the government • Home country measures – tying removal of sanctions and enhanced market access to commitments by both Myanmar and home country investors • Investors also have a role, independent of any measures by home governments. OECD investors should respect the OECD Guidelines for Multinational Enterprises and report voluntarily on their due diligence. Home and host countries and investors can all play a role
  21. 21. • Ratify major international human rights, labour and environmental conventions • Enact and enforce domestic legislation consistent with these standards • Strengthen the independence and expand the mandate of the National Human Rights Commission • Promote revenue transparency, such as through the EITI • Ensure that domestic enterprises, including SEEs, conform to the new standards of behaviour and prosecute lawbreakers • Expand the role of civil society (labour unions, local community organisations) to help ensure that businesses obey the law • Prepare sectoral master plans which include RBC (e.g. tourism) Host country (Myanmar) measures
  22. 22. • Provide adequate protection of property rights, including for customary land • Free, prior and informed consent for land acquisitions, relocations, etc. • Develop grievance mechanisms in other areas and provide redress to victims • Work with home governments to promote respect for the UN Guiding Principles on Business and Human Rights and the OECD Guidelines for Multinational Enterprises. Require foreign investors receiving a permit from the MIC to commit to these principles. Host country (Myanmar) measures
  23. 23. • Remind investors to respect international principles, including the UN Guiding Principles and the OECD MNE Guidelines • Guidance to investors on how to undertake due diligence • Promotion of RBC and best offices for mediation, conciliation through National Contact Points and other bodies such as the Myanmar Centre for Responsible Business • Reporting requirements: payments to officials, information on local partners, extent of due diligence and existence of redress mechanisms • Incorporate RBC obligations into future treaties with Myanmar and make any preferential market access contingent on respecting international standards (e.g. US- Cambodia, 1999) • Consider common approaches Home country options
  24. 24. Policy Framework for Investment (and User’s Toolkit) FDI Index Investment Policy Reviews ASEAN-OECD Investment Programme ASEAN Investment website For further information