Myanmar: Achieving India’s Economic Interests

16 Jul, 2013    ·   4037

Asma Masood deconstructs India's role in Myanmar's energy sector

Asma Masood
Asma Masood
Research Intern

Myanmar’s economy has witnessed several landmark transitions recently.  The World Economic Forum held here in June 2013 ushered the country’s re-emergence on the international stage.  A plethora of reforms and prospects were highlighted. The international community pledged support for rebuilding Myanmar’s   economy.  They were accompanied by private companies eager to cash in on the new market.

What are the hurdles to investing in Myanmar? Where is Indian FDI in Myanmar headed to? How has India panned out FDI in Myanmar’s energy sector till now?

Major Challenges
There is a long way to go before Myanmar can deliver its promises on prosperity. It still needs USD170 billion in foreign capital in the first stage of economic transition. Some companies await an optimum investment climate. They are ready to pool funds but will find it difficult to scout talent. Productivity is less, as the population has an average of only 4 years of education. It will take time to fill the gap even with remote learning. Myanmar has the world’s poorest telecommunications connectivity.  Affordable internet access is also needed for efficient commerce.

Besides, investors desire clarity in Myanmar’s investment laws. There are no rules for demarcating cheap industrial land.  This can have repercussions on vital manufacturing sectors. Similarly reforms in agricultural sector do not include land aspects. Thus disputes may arise with ethnic groups. Hence agro-based industries are attracting fewer investors.

Another major detriment is lack of an efficient financial infrastructure and foreign exchange system. It is observed that the majority of investors are large conglomerates who have patience for change to completely materialize and who can afford risks. Their parent countries contribute reform aid for improving the poor infrastructure. This underdeveloped sector remains the biggest obstacle to FDI.

A Roadmap for India's FDI
Myanmar had invited India to invest in infrastructure. Accordingly, in May 2012 several agreements and MoUs were signed between the two sides to improve connectivity by air, road and multi-modal transport. A year later, post-WEF India has offered Myanmar USD 150 million to establish a Special Economic Zone in Sittwe. It will be linked to Kolkata via sea. Crucially, Myanmar’s infrastructure will also link India to Southeast Asia. The infrastructure investment process is aided by India continuing its 2012 deal to provide Myanmar with USD500 million dollars as a credit line for development projects.

There are several other areas where India continues a keen FDI policy with Myanmar. The transitioning economy also desires Indian investments. In June 2013 the government of India announced it had committed investments worth $2.6 billion to Myanmar. India and Myanmar set a bilateral target of increasing trade, worth USD1.872 billion in 2012, to $3 billion by 2015. To achieve the objective India will have to raise its low exports of only USD542 million. Increasing exports in goods may be a slow process given Myanmar’s young industrial base and low per-capita income.

Nevertheless Indian investors have an advantage in service sectors of IT and education. They will support the burgeoning investments in manufacturing, agriculture, automobiles, pharmaceuticals and healthcare. 

The continuation of investments is ensured by India’s diplomatic response to Myanmar’s ethno-social issues. Indian enterprises are hence capitalizing on Myanmar’s transformation in spite of the challenges. Perhaps they are emboldened by experience of dealing with obstacles in infrastructure and land allocations in their own country. The opportunity is also ripe for India to counter China’s strong presence in Myanmar, especially in the energy sector.

Indian Energy FDI in Myanmar
The need for energy security has driven USD257.7 in Indian investments in Myanmar’s energy sector. Myanmar’s black – gold mines sit on 3.2 billion barrels of crude oil and over 25 trillion cubic feet of gas reserves. The high stakes made India remain diplomatic despite crackdowns on pro-democracy protests in 2007. In fact, USD150 million were pledged for gas exploration. Today, India’s largest Myanmarese assets lie in the oil and gas sector. However the numbers are far behind those of the largest investor, China.

India also lags behind in efficient technical expertise to independently extract oil or gas. It drives a pragmatic partnership approach. This too has its drawbacks. For instance ONGC Videsh and GAIL India invested in a joint 30 percent stake for exploration in two of Shwe field’s blocks, under majority partner South Korean Daewoo International. Yet Myanmar chose to sell gas from the same blocks to China which has no stakes, and not the Indian shareholders. Ironically India had offered a higher buying rate than its Sino-counterpart. Consequently India might supply most of the produced gas for its biggest energy competitor, China. This can affect India’s Myanmarese energy-policy: The Ministry of External Affairs will decide whether the companies can lay pipelines to evacuate the discovered gas. The companies are also reconsidering investing in other oil-blocks. Thus Myanmar’s potential for India vis-à-vis energy is unpredictable.  It may be behind the same companies’ serious consideration of Iran’s invitation for oil production, despite Western sanctions. It remains to be seen if Myanmar will reverse its business tactics and ensure Indian energy investments are secured.