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Figures released by the Burmese government this week show that foreign direct investment in the country has soared in the past year to nearly $US20 billion, dwarfing those for the two decades prior.
It comes as little surprise that the vast majority of the investments, measured up to March this year, were from China, with the mainland ploughing in some $US8.27 billion and Hong Kong adding $US5.39 billion. Thailand follows with $US2.49 billion, according to Burma’s Ministry of National Planning and Development.
Of the total, around $US10.2 billion was invested in the natural gas and oil sector alone between April 2010 and January this year, according to estimates by the Economist Intelligence Unit (EIU). Some $US8.2 billion was poured into the power sector.
Despite this, the EIU notes that gas revenues were down over the year by some $US400 million.
The $US20 billion figure compares strikingly with a previous financial year total of only around $US302 million, the EIU said.
Perhaps even more noteworthy is that the current FDI level of $US20 billion equates to roughly 50 percent of total GDP in Burma, which according to the CIA World Factbook stands at $US42.95 billion on the official exchange rate for 2010. This compares with the world’s largest recipient of FDI, the US, whose FDI-to-GDP ratio was 16 percent last year.
The scale of investment in Burma’s natural gas sector will in large part be down to the building of the Shwe gas pipeline that will traverse Burma to China. This is emblematic of how the huge investments in gas and other primary or extractive sectors could have a limited impact on longer term GDP, and more importantly living standards, unless these revenues are used in a sustainable manner.
The record of reinvesting profits is reflected in the country’s Gross Domestic Investment (GDI) to GDP ratio. U Myint, an economic advisor to the Burmese government, says that Burma’s GDP growth over the last decade were achieved with roughly 50 percent of the GDI-to-GDP ratio of her neighbours. He notes however that these figures were likely fabricated by the government for political reasons.
Not only then could Burma’s GDP growth rate be far from what the country’s leaders claim, but it is achieved through short-term measures such as FDI inflows for extractive sectors, as opposed to sustainable economic investments.
Burma’s record of reinvesting such revenues in productive enterprises is deplorable at best, and as Nobel prize-winning Indian economist Amartya Sen noted in 2005, “FDI in some sense is not a value in itself and an economy cannot solely depend on it for progress”.
Indeed 2012 could be seen as a hiatus year for Burmese gas, while revenues are expected to increase dramatically after the Shwe pipeline becomes active in 2013.
The decline in gas earnings over the past financial year may indicate that the gas fields supplying the transnational Yetagun pipeline to Thailand are starting to diminish their yields, as year-on-year growth in output slowed to 2.3 percent, whilst oil output fell by 3.6 percent.
Tellingly, the domestic Weekly Eleven journal also reports that “only 22 [gas] plots are available for foreign investors at present, according to the Planning Department of the Ministry of Energy.” As Bangladesh and Korean multinational Daewoo have discovered however, not all these “plots” will possess recoverable yields.
The investment in the power sector has been pumped into other large-scale projects such as the Myitsone Dam in Kachin state, which again will see all of its produce, electricity, sold directly to China.
There may be some hope that FDI will spread to industries such as garments, which helped to spur China’s rise in a much more democratic way. The sector in Burma has the potential to employ thousands in the major cities, and generate export dollars, particularly as wages and rights improve in neighbouring China and India where strikes have occurred in recent months.
In January alone the Burmese manufacturing sector attracted some $US3 million in approved investments, but in comparison the power sector attracted some $US3.2 billion in the same period.
The figures will undoubtedly be encouraging to business people in certain sectors, and of course the government in Naypyidaw. But it also will provide further evidence that sanctions on the country are not inhibiting trade, and therefore suggesting they cannot be blamed for the dire economic situation many in Burma find themselves in.