The Nation: RANGOON'S REFORMS (r)

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The Nation (Bangkok)
April 15, 1994

RANGOON'S REFORMS: A DAY LATE AND A KYAT SHORT

Sein Kyaw Hlaing 


Burma remains a potential mine field for foreign businessmen, Sein
Kyaw Hlaing writes.


The military junta which took power in Burma in 1988 following
nationwide demonstrations against General Ne Win's regime pledged
to replace the collapsed socialist economy with a market-based one.

Since then, continued accusations of human rights violations have
isolated the country economically and resulted in the suspension of
international aid.

Relations between Burma and the British government have cooled as
well.

It was somewhat of a surprise then, when the British ambassador
designated the last week in March as "British Week," inviting UK
firms to visit Burma and conducting seminars in Rangoon.

Does "British Week" signal the adoption of an Asean-style
"constructive engagement" towards Burma/  If so, is this the right
time for British firms to be looking to this country?

Despite certain reforms, the Burmese economy is still rife with
corruption and improper dealings.  While trading has been
liberalized allowing a few local firms to prosper in importing and
exporting, ten number of exportable goods in this country is small.

Unconfirmed letters of credit, dodgy methods of payment, and the
fact that bank enquiries are not allowed may make business
transactions unappealing to many  foreign traders, not to mention
a lack of infrastructure that can delay transactions, make shipping
schedules hard to organize and cause a host of other problems.

These problems notwithstanding, trade links do exist between the
two countries, mostly involving private UK firms and the British
government departments.

Bonnie and Partners, for example, has been supplying the Yangon
City Development Committee with water pipes.  The YCDC has been
making payments in rice.

In order to expedite such a transaction the UK firm needs a third
party buyer to take the rice.  Burmese authorities require that the
buyer purchase the rice at Burmese government rates, which are
usually $50 per ton higher than the world market price.  The UK
firm generally has no choice but to offer to refund the $50 per ton
to its buyer, which usually results in inflated prices on the
original product, not just to cover the refund costs but the payoff
of Burmese officials which is often necessary as well.

On top of all this, firms such as the London-based Export Credit
Guarantee Department have reported outstanding payments due to
failure on the part of Burmese government departments to deliver
the goods promised as payment.

Identifying a potential market is a main objective of any investors
and many foreign companies have set economic feelers into Burma
despite failures by the military junta to respect ten results of
the 1991 elections.

It is vitally important therefore that the Burmese Foreign
Investment Law (FIL) reflects the rights and obligations of
potential investors.  Understanding the legal environment is one of
the major covers of foreign investors in any country.

As it stands, the Burmese FIL seems [weak], especially in areas of
technology transfer and the right to profit repatriation in foreign
currency.  This is in part why major foreign investments have
flowed into Vietnam in recent years.

According to official statistics, total authorized foreign
investment in Burma during 1992/3 was $850 million, but paid-up
capital was only $625 million.  These figures resulted in a lack of
credibility on the part of the military junta's claims that it had
made significant economic strides, and the withdrawal of many joint
ventures in 1992.

The highly artificial exchange rate of about 6 kyats per US dollar
(the free market rate is about 120 to 1) further complicates
negotiations between investors and authorities and makes proper
appraisal of the values of imported machineries and capital goods
difficult.

Local currency problems are particularly pressing in light of the
fact that foreign investors do not yet have the right to
repatriation in foreign currency.  Profits, generated locally in
kyats, can only be converted into foreign currency by purchasing
local goods and exporting them to a third country.  The only way to
keep these problems from discouraging foreign investment is to
adopt an FIL that embodies a legal framework concerning re-
investment so that enterprises with foreign-invested capitals are
entitled to reinvest profits earned in Burmese currency in other
investment projects.

In the case of joint ventures garment factories set up between the
government and foreign companies, the government could provide
land, labour, construction and electricity while machinery, raw
materials and know-how were invested by the companies.  Only 10 per
cent of the textile products were sold locally; the other 90 per
cent goes on the US market, as Burma is eligible for duty-free
export.

Hopes of a US market for textiles produced in Burma became much
dimmer, however, when the US administration decided not to renew a
bilateral textile agreement in 1990 over a perceived lack of
worker's rights there.

Furthermore, many of the foreign companies that established joint
ventures in the early stages of economic reform are reluctant to
bring in their portion of paid up capital as there has been no
indication of improvement on the side of government in promoting
business development.

Some Asean members such as Thailand are gaining profits from Burma
in terms of trading but the size of direct foreign investment in
Burma by Asean is inappreciable.



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Sein Kyaw Klaing was formerly the Commercial Officer of the British
Embassy in Rangoon.  Prior to that he was a businessman dealing
with local and foreign forms since the beginning of the market
economy.