Yangon, Myanmar

Phnom Penh, Cambodia

Dhaka, Bangladesh

Arrival of manufacturing FDI:
Asian “Latest Comers”- sharing experience –6th High Level Forum for the Phase II of Policy
Dialogue of Industrial Development in Ethiopia
Toru Homma
Senior Advisor on Private Sector Development
Japan International Cooperation Agency (JICA), andJICA Investment Promotion Advisor
Directorate of Investment and Company Administration (DICA), Myanmar

Addis Ababa, 12 August 2014

Contents
1. Introduction: Asian “Latest Comers” formanufacturing investment
2. Myanmar “Asian Last frontier”
3. Cambodia and Bangladesh
4. Experience and lessons from 3 countries
and implications for Ethiopia2Introduction: Asian “Latest Comers” formanufacturing investment• Some Asian countries, such as Myanmar, Cambodia and Bangladesh, are atlower economic level in the region but show rapid FDI growth in particular
manufacturing as “Latest Comers”, with rapid economic reform (esp. Myanmar).
• Fully utilizing their competitiveness of labor (cost and quality) and getting
success for attracting labor-intensive FDI• Garment sector (recently other sector as well) as processing charged-basis:
Typically known as “CMP” in Myanmar - Cutting, Making and Packing; “CMT” in
Cambodia – Cut, Make & Trim
• Considering how to step up to next stage to sustain inflow of manufacturing FDI
utilizing advantages of regional connectivity etc.
GDP
Population
GDP per
2014 Doing Asian “Latest(Mil USD)(Thousand)capita (USD)
Business
Comers” andMyanmar56,40864.932869
182 Ethiopia at a glanceCambodia

15,65915.407

1,016

Bangladesh

141,275

156.298

904

Ethiopia

48,14588.850542

137

Note: GDP and GDP per
130 capita are at current
125 US$ basis

Source: IMF, World Economic Outlook Database, April 2014; World Bank / IFC Doing Business 20143

Geographical Economics

China

Japan

India
MyanmarCambodia

Ethiopia
Bangladesh

China+1
Thailand+1
Connectivity

Thailand4

Competitiveness of labor of 3 countries
Cumulative stockof FDI, 2012
$ billion Japan's
share

Wage of unskilled
manufacturing worker($/month)
2003

2013

Labor productivity(thousand USD/worker)

10-yearchange2000

2011

11-yearchangeChina (Dalian)

832.9

11.2%

108

326

203%

4.8

13.5

181%

Indonesia (Jakarta)

205.7

9.0%

108

239

121%

6.6

9.5

44%

Thailand (Bangkok)

185.7

18.9%

163

345

112%

12.0

15.4

28%

Vietnam (Hanoi)

72.5

11.6%

98

145

49%

3.4

5.5

62%

Philippines (Manila)

31.0

33.5%

150

301

101%

7.7

9.2

19%

Myanmar (Yangon)

11.9

NA

29

53

83%

1.2

3.4

183%

Cambodia (Phnom
Penh)

8.4

2.1%

…

74

…

2.3

3.6

57%

Bangladesh (Dhaka)

7.2

NA

43

74

74%

3.4

4.4

29%

• Labor productivity increase is not bad: minimum wage of Cambodia and Bangladesh havebeen rapidly increased; Myanmar minimum wage has not been set yet(Source) ITC (2014), JETRO (2003, 2013), APO (2013), Ohno K. (2014) modified by author

5

Diversification of investment sectors
MYANMAR

FDI inflow to Myanmar tripled in 2013/14

Diversification of investment sectors: increase of manufacturing
2013/14 (Latest)(Unit: US$ Million)
Total
1419

Total
4107
(2.9 times)

Note: 2013/14 = Myanmar fiscal year that starts on April 2013 and ends on March 2014
Source: DICA (2014); Homma (2014)

6

FDI Inflow ( by country) (approved base)
MYANMAR1988/89-2013/14
Accumulated

No.
Pjts.

(Million USD)

2013/14(Million USD)

1 Singapore

2,300.121

1 China60

14,237.589

2 Malaysia

616.108

2 Thailand

73

10,098.465

3 Thailand

529.072

3 Hong Kong74

6,500.436

4 UK

156.864

4 Singapore

111

4,522.367

5 Vietnam142.000

5 UK

67

3,149.349

6 Hong Kong

107.102

6 South Korea

89

3,060.436

7 South Korea

81.205

7 Malaysia

47

1,647.393

8 China

56.9208 Vietnam

7513.186

9 Japan

55.711

9 France3

474.360

10 India26.04010 Japan45

325.994

Other: 6 countries

35.912Other: 24 countries

108

1,695.995

Total: 16 countries

4,107.055

Total: 34 countries

684

46,225.570• Asian countries (more recently Southeast Asian countries) dominated• Some investment through third countries (eg. Japanese investment through its Southeast
Asian core subsidiaries in Singapore) for administrative and tax reasons (eg. Tax Treaty)
Source: DICA (2014), Homma (2014)7

Promising prospects by foreign investors
Long-term prospects by Japanese investors

FY2011FY2012FY2013Myanmar’s ranking as promising countries/regions

No.19

No.10

No.8

FY2012FY2013

1 Inexpensive source of labour

72.9%

70.0%

2 Future growth potential of local market

50.0%

53.3%

3 Good for risk diversification to other countries

14.6%

20.0%

4 Qualified human resources

14.6%

10.0%

5 Base of export to third countries

12.5%

10.0%

Issues

FY2012FY2013

1 Underdeveloped infrastructure

72.1%

64.3%

2 Underdeveloped legal system

48.8%

48.2%

3 Lack of information on the country

37.2%

32.1%

4 Execution of legal system unclear

32.6%

26.8%

5 Difficult to secure management-level staff

27.9%

25.0%

5 Security/social instability

51.2%

25.0%

Reasons (for viewed as promising country)

Result of aquestionnaire survey(625 respondents)

Labour cost
& marketpotential as
considered 2
major
reasons

All issue isconsidered as
improvingbut still
significant

Source: JBIC (2013) “Survey Report on Overseas Business Operations by Japanese Manufacturing Companies”, Homma (2014)
8

DICA - Directorate of
MYANMAR Investment and Company Administration
 Established in 1993 under the Ministry of National Planning and Economic
Development (MNPED) Objectives:• To increase investments (local & foreign investment)• To encourage private entrepreneurship• To take part in regional and international economic cooperation
 Functions: Secretariat for the Myanmar Investment Commission (MIC)• Evaluate investment proposals• Assist in solving investment issues• Provide information to investors and coordinate with relevant ministries• Draft laws and regulations related to investment (e.g. SEZs, FDI Law)
• Undertake regional economic cooperation on investment
 Business administration and registration( Source: DICA Website: http://www.dica.gov.mm/dica.htm)
9

MYANMAR

DICA’s Organization

DICA consists of 7 sections with 225 staff as of January 2014.
Plan to increase up to 535 staff by 2016 and assigned more officials in theregional branch offices.
Just moved from Nay Pyi Taw (Capital) to Yangon (Largest city & BusinessCenter) with new organization structure, based on sectoral orientation.
DICA DG recently became Secretary of Myanmar Investment Committee (MIC).
10

MYANMARFDIPP (Draft)Long-term Foreign Direct Investment Promotion Plan
• Objective of FDIPP is to set out the Myanmar’s first comprehensive policy
direction of FDI promotion...
• … and to outline its transparent roadmap to reach its overall goal, contributing to
Myanmar’s further development and integration into the global economy.
• FDIPP aims to streamline its vision, goals and strategies with a framework
corresponding to that of National Comprehensive Development Plan (NCDP)
which is under preparation.
• Draft FDIPP has been prepared by DICA, supported by JICA, through a series ofsurvey, interview, document analysis and workshops for consultation withvarious stakeholders; currently under authorization process.
• FDIPP will not give priority to any specific sector. But each sector’s strategy
should be respected and coordination should be conducted between DICA andrelevant line ministries.
11II-1. Structure of Draft FDIPPVISIONGOALS
withTARGETSSTRATEGIES
followed by
ACTION
PLAN
Resource:
DICA (2014),
JICA Study (2014）12

II-2. Vision, Goals and Targets of Draft FDIPP
VisionDynamic economic growth led by FDI worth USD140 billion*
during the period of 2014 to 2030
*accumulated amount

Goals (with Target FDI amount: calculated to meet NCDP targets)
Short-term(2015)USD 4 billion/year

Increase of FDI to achieve access to the Global Supply
Chain for Myanmar's economy and to contribute to thedevelopment of the domestic market as well as to export

Mid-term(2016-2020)
USD 6 billion/year

Achievement of comparative advantage in the AEC withinternationally-recognized reputation and realization ofdomestic industrial diversification

Long-term(2021-2030)
USD 8 billion/year(2021-2025)
USD 11 billion/year(2026-2030)

Development of industrial agglomeration throughcontinuous FDI-led industrial development withsophisticated infrastructure and multi-layered supporting
industries that contributing as the core driver ofMyanmar's sustainable economic growth
Resource: DICA (2014), JICA Study (2014）13

II-4. Draft FDIPP Strategy 1:
MYANMAR Strengthening of the Legal Foundation
Responding to the needs of Foreign Investment Enterprises (FIEs),
improvement of legal issues including consistency, predictability,transparency and efficiency in enforcing laws/regulations to be(Note) FIL: Foreign Investment Law;highlighted
MCIL: Myanmar Citizens Investment Law;

1-1. Relaxing the Restrictive Provisions OSS: One-Stop Service
a. Review of JV and restrictive business permit requirements

1-2. Improvement of Legal Provisional Consistency
a. Coordination between FIL and individual business laws
b. Review of legal structure between FIL and MCIL

1-3. Improvement of Transparency and Efficiency in Law
Enforcement
a. Upgrading FDI application management mechanism / databaseb. Improving OSS by strengthening collaboration mechanism
14II-4. Draft FDIPP Strategy 2
Investment Facilitation for Industrial Development
2-1. Facilitation of FDI’s Portfolio Needs for the Global
Supply Chain (GSC)
Research & analysis of investors’ portfolio strategy
neighbouring countries’ strategy; Effective investment
promotion; Linkage with domestic industry

2-2. Facilitation of FDI for Diversification of Industry
Coordination with priority sectors/areas designated in
specific policies/strategies for FDI promotion

2-3. Facilitation of Infrastructure (hard and soft)
Development
Infrastructure including SEZ; regional development; finance2-4. Facilitation of Technology Transfer and Human
Resource Development

15

MYANMARII-4. Draft FDIPP Strategy 3:
Widening Investment opportunities

3-1. Wider opportunities for FDI in public sectors
Designate large-scale projects to attract FDI; Encourage
private sector participation by introducing PPP with legal
framework established3-2. Extensive dialogue among stakeholders
Emphasize to encourage private sector initiatives and publicprivate cooperation strengthen coordination among
stakeholders for further FDI opportunities

16

Improvement of doing business climate
Overcoming the Doing Business ranking debut last year at 182/189
Under the President’s direction, various reforms are going on
MYANMAR

Indicators (Starting a business)
Procedures (number)

Myanmar(East Asia & Pacific)

11

7Time (days)

72.0

37.8

Cost (% of income per capita)

176.7

29.8

7,016.0

293.3

Paid-in. min. capital (% of income per capita)

Promisingly to
be improved
much in thisyear issue assome arealready
reformed !

Source: World Bank / IFC (2013): Doing Business 2014 17

Thilawa SEZ Development
MYANMAR Under development by both public and private sectors of both Myanmar andJapan. First Phase (211ha) of Class A Area (396ha) has been started to be sold.
Total area is 2400 ha. New SEZ Law was enacted in January 2014.
located on theoutskirts of
YangonSource: JICA (2014) 18

JICA’s major approaches
for assisting investment promotion in Myanmar
Investment policy reform
Effective
Investment
Advisor promotion
Increase ofinvestment

Quantity

DICA’scapacitybuilding

Quality

Legal
Infra
structure

JICA’s assistance

Development

FDIPP

SEZ
Investment climate
improvement

Source: Homma (2014)19

Cambodia: open and welcoming approach High concentration on light manufacturing esp. garment
 Labour-intensive, Low labour cost
 Typical feature: “CMT (Cut-Make-Trim)” garment/footwear
 Caution of rapid increase of minimum wage: $61$80(‘13.5)$100(‘14.2)
 Becoming a part of global supply chain (GSC)
 “Thailand+1 approach”: horizontal division of labour at manufacturing
process level Quality investment
 Foot-rooting, employment creation, responsible inv.
 Japanese investment is welcomed as Quality Investment
 Individual approach by high-level for key/core investment
 Investment climate
 Open investment policy, high focus on SEZs
 Now 2nd stage of Japanese investment rush by Aeon Mall First super mall for Cambodia; 49/190 tenants are Japanese From manufacturing sector to other sectors
20Cambodia: FDI Inflow
Manufacturing investment has been increasing
Million USD

Almost all the amount of manufacturing FDI goes to LM

Average lightmanufacturing
investment
amount ratio:
96.6%

Source: Calculated by author from the data on approved Qualified Investment Project (QIP) by
Cambodia Investment Board (CIB) - Council for the Development of Cambodia (CDC)

Note: Manufacturing is defined as the sector classified under “industries” except for energy, mining
and others. Light manufacturing is defined as the sub-sector of food, garment, shoes and wood.

21

Various actions to be done by IPA (CDC: Council for theDevelopment of Cambodia) recommended by JICA project
Actions for Investment Information Services
Action 1 Periodical update of investment guidebook
Action 2 Periodical update of website
Action 3 Periodical update of QIP manual for investors
Action 4 Establishment of a library of investment-related information & data
Actions for PR Activities
Action 5 Set-up of units specialized in investment promotion of target countries
Action 6 Improvement of investment seminar management
Action 7 Training of provincial governments on investment promotion
Actions for Investment Consultation and Aftercare Services
Action 8 Upgrading of reception desk (Investors Desk)
Action 9 Introduction of an investment approval tracking system
Action10 Establishment and capacity development of aftercare service
Actions for Policy Advocacy
Action11 Formulation of a proposal for investment climate improvement
Actions for Organization and Management
Action12 Preparation and implementation of organizational reform
Action13 Preparation of job description & job flow to enhance inv. Promo. function
Action14 Introduction of task management system for effective provision of service
Action15 Introduction of annual planning and budgeting mechanism
Action16 Planning and implementation of training program
Source: JICA Study Team (2010)22

Purpose of investing in Bangladesh
Japanese potential investors survey• Not only garment, but there are a variety of promising FDI industries:
engineering, shipbuilding, pharmaceutical, ICT etc.
• Not only for export but increasing for domestic market targeted

Source: JICA (2012)23

Development strategy of Economic Zone
On-going policy changes toward private sector driven
Previous

New

Remarks

Key regime

EPZ (Export
Processing Zone)

 EZ (Economic
Zone)

Diversification of mode ofzones; difficulty of EPZ

AgencyBEPZA BEZA

2011 established

Capital &Management

Government
driven Private sector Introducing private sector’sdrivenexpertise & financial resources

Domestic linkage

Isolated Encouraged

In response to EPZ experience

Source: JICA (2012, 2014), table prepared by author

4 types of Economic Zone (EZ) categories
Category nameDefinition

1

Public and Private
Partnership (PPP)

Economic Zones established through public and private partnership by local or foreign
individuals, body or organizations

2

Private Economic Zones

Economic Zones established individually or jointly by local, non-resident Bangladeshis orforeign investors, body, business organizations or group3

Government Economic
Zones

Economic Zones established and owned by the Government

4

Special Economic Zones

Economic Zones established privately or by public-private partnership or by theGovernment initiative, for the establishment of any kind of specialized industry orcommercial organization
Source: JICA (2012, 2014)24

Bangladesh’s “light engineering” industry
 What is “light engineering industry”?
 Key features are similar to light manufacturing: Labour-intensive,
less capital etc.
 But it is essentially metal and engineering industry, which
provides with smaller items
 Considered as “mother of all other sectors”
 It is unique to Bangladesh Higher attention on light engineering It is more often heard than “light manufacturing” (although
Bangladesh is considered as one of the world leading lightmanufacturing bases, especially garment)
 Private sector driven: Light Engineering Product Business
Promotion Council (LEPBPC)
25

Summary and implications for Ethiopia
Although there are some similarities, each country has different
approach according to country’s situation; and each country does a
lot for attracting further investment in particular manufacturing.
(1) Investment strategy
 Contribution to national development plan (=GTP in ET)
 Linkage to (priority) sector-oriented strategy
 Consideration of Investors’ international portfolio strategy= Global positioning of the country Legal framework and enforcement as basic platform(2) Investment promotion agency
 Seeking overarching positioning in the government Need more capacity/capability of staff in quantity/quality
 Reducing time-consuming process (screening, docs etc)
 Enhancing advocacy role on behalf of private sector
26Summary and implications for Ethiopia(3) Investment-related legal framework
 Consistency, predictability, simplicity; as an entire package ofinvestment-related legal system
 Gradual open-up of restrictive business area & policy space(4) SEZ / Economic Zone / Industrial Zone
 Separated legal framework design Manufacturing and related/affiliated industries
 Strategic FDI attraction  Regional balancing(5) Labour cost competitiveness Securing sustainability of current advantage is most pressing issue
 Balanced increase of labor productivity and minimum wage but
difficulty due to wage claim and RBC/CSR
27

Summary and implications for Ethiopia(6) Hard infrastructure Hard infrastructure: power as always No.1 challenge for
manufacturing sector; road and alternative transport(7) Finance and customs as soft infrastructure Deregulation for foreign bank  protection of domestic bank? domestic industry support
 “Parent-subsidiary loan” by foreign companies
 Custom duty difference among CBU/SKD/CKD (see next page)(8) Global Value Chain (GVC) / Regional integration
 Thailand + 1: deepening of inter-process division of labor ASEAN Economic Community (AEC) into effect in 2015 
competitiveness, connectivity, corridor approach, RECs
 Sound supporting industries bases to enter into GVC
28

Automobile investment among CBU/SKD/CKD• For automobile and motorcycle industry, Semi Knock Down (SKD) and Complete Knock
Down (CKD) production are often introduced where domestic industry is not developed
CBU = (No local production)
SKD =Reassemble only bybolts & nuts

CKD =Reassemble only bybolts & nuts

Local technology at sufficient level is required+ Welding + Painting +Outfitting interior
fitting parts

Source: JAMA (2008), Homma (2014)• In order to develop domestic car industry, step by step shift is needed from Complete
Build Up (CBU) to SKD/CKD and finally local parts supply• Many countries impose higher custom duty on complete car than SKD/CKD (and carcomponents) to enhance this shift (Egypt, Malaysia, Russia etc.), on the other handsome countries discourage it without significant (or even minus) duty difference
Policy support for facilitating step-by-step shift along with country’s capacity development
SKDcar Employment
creationStage
Benefits

CBU
Sufficient
supplyChallenges

No technology Less local add valuetransfer

CKD Local parts supply
Industrial
Local add value
development
Lack of quality Lack of supporting
local techniques industries
Source: Homma (2014)29

Amesegenalew
Thank youwww.dica.gov.mm
www.jica.go.jp
Homma.Toru@jica.go.jp(All Photo in all page are taken by author in 2010-2014)30