August 19, 2016

Foreign Investment: How important is it for economic growth?

Tin Shein

First and foremost, I want to make it clear that this is a very highly technical subject that only economists can deal with competently and knowledgeably. As a matter of fact, I am walking on the ground where angels are afraid to tread, so to say. Thus as I am not myself an economist, I am going to approach this important subject from the perspective of a lay man.
It is generally acknowledged in the circle of economists that foreign investment is a key factor in driving economic development, especially in developing countries.  There is no need to overemphasize the importance of foreign investment for its contribution to the economic development of all countries, especially developing countries where financial resources for capital investment are in short supply. Most of their economies are based on agriculture, forest and mineral products that can’t generate enough foreign exchange income that is badly needed to meet the costs of imports of consumer products for the people and machinery and equipment for manufacturing industries. The number of manufacturing companies, both local and foreign, now operating in Myanmar, is still few, as compared with other trading, construction, and services companies.
Of course, there is no denying that foreign investment in any form can bring much benefit to the country in terms of more job opportunities, employment for the people thereby cutting down on unemployment in the ountry. Also manufacturing industries that produce consumer products which are not available locally can be of much benefit to us. Of course, they can generate much-needed economic development. That is why all developing countries are clamoring for foreign investment.
They are vying with one another to attract foreign investors to invest in their respective countries. In this context, even economically advanced countries are no exception. So it will not be very wrong to say that foreign investment is a “must have” for developing countries like ours, because there are certain industries, such as manufacturing, mining, oil and gas exploration, etc. which need an infusion of massive amounts of funds in foreign exchange beyond the financial capacity of local entrepreneurs. But it is important that foreign investments must be prioritized in terms of the types of industries, which have the potential to effectively contribute to the development of our economy. Manufacturing industry must be put on the top of the priority list for foreign investment. Why? Because it is the manufacturing industry that plays a key role in producing consumer goods and capital goods, both for domestic consumption and export to other countries. Manufacturing industry alone can help us create an export-driven economy, because it is by exports of manufactured goods that our country can earn enough foreign exchange with which to buy consumer goods for our people as well as capital equipment that we ourselves can’t produce at home. So emphasis must be placed on the development of industry as a critical factor in lifting our country out of the vicious circle of poverty and economic stagnation, into which we have been dragged through mismanagement of the rich natural resources, underground and above ground, over decades. Now look at the present economically advanced countries, both in the East and in the West; we shall see that they all have well developed modern industrial bases.
It won’t be very wrong to say that there are certain exceptions. They are small and resource-poor countries, but highly developed, their people enjoying the same high standards of living as those of the large developed countries. They are Switzerland, Denmark in EU and Singapore in South-east Asia. They lack the key building blocks of industry—iron and coal—without which heavy industry will be very difficult, if not impossible, to establish. Then the question is: why are they so developed industrially and technologically? The answer is not far to seek. They possess highly developed technical and financial skills. Swiss wrist watches are matchless in the world while Singapore is one of the largest financial centers in South-east Asia, pouring huge amounts of investment capital into ASEAN countries, including our country. It need hardly be said that we have to go a long way before we can catch up with those advanced countries. But despite depletion of our natural resources through economic exploitation over the years, we still have enough natural resources left over and with good leadership and economic policy and guidance, as well as efforts of all involved in national building, we shall be able to catch them up in the not distant future.
As we all know, ours is an agricultural country, and the majority of people live in rural areas, depending on agriculture for their livelihood. Rice is our staple food and much of what we have produced is used for domestic consumption; only what is left over from home consumption can be exported to earn much-needed foreign exchange. Our current exports of rice are still far from matching those of other countries like Thailand and Viet Nam. The reason why may be that with the increase in population, domestic consumption has risen, too. Thus, for rice production to keep up with the rise in population, we need to change the traditional methods of cultivation by using modern methods of agriculture in order to boost rice production not merely for domestic consumption but for exports too.  Another reason is that quality may have quite a lot to do with demand for our rice in foreign markets. Our rice exports may be placed at a disadvantage when competing with those of other rice-exporting ASEAN countries in terms of quality. I think we are ranked below Viet Nam and Thailand in terms of economic development. Of course, this is my own view, not backed up by any statistical data. So I may be wrong.
Teak and hard wood are other items of raw materials we have available for exports to earn foreign exchange which is badly needed for our own investment in the industrial field. Here, too, it won’t be wrong to say that not much stock of teak and hard wood remains standing in our forests even in the remote areas of the country, perhaps due to their excessive extraction for exports and for use as fuel by local populace over the years. It is noted that it takes about 50 years for a teak tree to grow to maturity before it can be felled for commercial purposes. It is quite clear that we can’t rely very much on exports of rice, teak and hard woods in order to raise enough capital in foreign exchange we need to undertake major industrial projects. So it will be a long time for us to wait until teak and hardwood trees that have been replanted by the Forest Department to grow to maturity and be ready for export or for use as fuel for cooking in rural areas. It won’t do much good remaining an agricultural country forever relying mainly on exports of only raw materials. There is no denying that foreign investments that have been made in oil and gas exploration and production over the past years are paying big dividends in terms of foreign exchange flowing into our state coffers. On the other hand, foreign investments in garments industry are not generating as much foreign exchange as has been expected, if only because the sewing charges earned for finished garments per piece in terms of dollars are not enough to cover local production costs for most of the garment factories operating on a C M P (Cut  Make, and Package) basis here. Under this system, the foreign buyers have to supply the garment factories with fabrics to be processed into finished clothes which have to be re-exported to the foreign buyers.
No tax is imposed on imports of fabrics; only a 2% commercial tax is collected on re-exports of CMP products abroad. So, the financial statements of most of these factories show losses. The reason why is not very difficult to seek. The rate of sewing charge per finished garment is set rather low when compared with the price that each of the finished shirts, trousers, blouses, skirts, etc. is likely to fetch on the foreign markets. It is obvious that foreign investments in these garment factories only create job opportunities for our local people and help reduce unemployment among them to a certain extent.
Beyond that, the State can’t hope to get much benefit in the way of taxes from their business operations. There are also the foreign or local investments in setting up brewery and cigarette factories in the country. Most of their products are geared to domestic distribution with little potential for exports, which is the main source of foreign exchange we are badly in need of for the development of our national economy. As is the case with garments, their main contribution to our economy is the opening up of jobs opportunities and reduction in unemployment and poverty among our people to some extent. It is common knowledge that beer or liquor of any kind has a very devastating impact on the moral character and health of our people, both young and old alike. From the point of view of health, liquor of all kinds plays a key role in causing liver damage that may finally lead to the dreadful liver cancer and other lethal diseases for which there is at present seen no effective remedy on the horizon. Moreover, young people, and for that matter, even men are more likely to commit crimes when drunk than they are sober.
Cigarette is another crucial factor in contributing much to the wide spread of lung cancer and other heart problems among smokers. What is worse, we still don’t have adequate medical facilities for effective and efficient treatment of such killer diseases, especially among the majority of our people living in the countryside. We are still a long way from matching our countries like Thailand, Singapore, etc. for medical care of the public. In the face of such killer diseases, the well-to-do usually go to Thailand, Singapore or India for medical treatment. But the poor have to be content with whatever medical treatment is available to them at state hospitals here.  Even the private medical centers are beyond their reach as the medical costs charged by those centers are too high for them to afford.  It is high time that the Government made a realistic review of its policies on foreign investments, prioritizing them in terms of their contribution to our sustained economic growth.
Of course, another counter argument can be put forth that unless liquors and cigarette are not allowed to be manufactured by foreign or local investors in our country, it is more than likely that they will have to be imported from abroad at a much higher price than our consumers have to pay here, because there is a tremendous demand for them by people, young or old alike, in the country.  Another possibility is that they may be smuggled into the country through the back door.  Of course, it is a really difficult problem to solve to the satisfaction of all. It is obvious that the diseases caused by cigarettes and liquor will no doubt add to the medical care burden we all have to bear out of the various taxes we have to pay to the Government.


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