IMPACTS OF FOREIGN DIRECT INVESTMENT IN BURMA 1
Impacts of Foreign Direct Investment in Burma: A study of ForeignDirect Investment’s impacts on tourism and hospitality industry inBurma
Foreign Direct Investment is one of the main factors to improve tradein every country to boost the economy. The Foreign Direct Investmenttrend has significantly changed by the move of inflows from developedstates to developing states for many years. In the states ofdeveloping their ultimate potentials, Burma appeared as a newlyopened market amid the most idyllic FDI destination in terms ofhospitality and tourism industry (Asirvatham, Rasiah, & Adamu,2016). This thesis aims at analyzing the impacts of Foreign DirectInvestment of hospitality and tourism industry in Burma. Theobjective directs the formulation of the theoretical framework in thehospitality and tourism industry which helps build the analysiscriteria. The research is carried out using both secondary andprimary data through archival approach of research. Moreover,descriptive and deductive research approaches are exploited inconcurrence with qualitative study methods to set the frameworksystematically. The findings fulfil the research objectives andprovide valuable and reliable review sources for making investmentdecision. The results and recommendations are useful research sourcesfor further study like industry based or product the based studyprojects in the provided states.
1.0 Introduction 4
1.1 Foreign Direct Investment (FDI) 4
1.2 FDI in Tourism and Hospitality 5
1.3 Foreign Direct Investment (FDI) In Hospitality and Tourism Sector in Burma 5
1.4 Research Problem 7
1.5 Research Objectives 7
1.6 Research Questions 7
1.7 Value of the Study 7
1.8 Research Design 8
2.0 Data Presentation, Analysis and Research Findings 10
2.1 Foreign Direct Investment in Myanmar 10
2.2 FDI Direction in Myanmar 11
2.3 FDI inflows into Burma 11
2.3.1 Countries Investing the Most of Burma 12
2.4 Tourism and Hospitality in Burma 15
2.5 FDI, Tourism and Hospitality 20
2.5.1 Positive Impact of the Local Tourism Investment 22
2.5.2 Impact on Revenue 22
2.5.3 Improved Skills of Labour 22
2.5.4 Improved Exports 23
2.5.5 Weakened Domestic Monopolies at the Local Industry 23
2.5.6 Business Integrity and Corruption 23
2.6 Why Foreign Investors Prefer Investing In Hospitality and Tourism Sectors in Burma 24
2.7 Benefits of FDI to Burma 25
2.8 Barriers in Burma Tourism and Hospitality Sector 25
3.0 Conclusions, Managerial Implications and Applications, and Possible Recommendations 27
3.1 Recommendations 27
Table of Tables
Table 1: Foreign Direct Investment In Myanmar By County(2000-2014)…….…..……………14
Table 2: Approved Amount of Foreign Direct Investment by Sector(2000-2014)……..………14
Table 3: Foreign Direct Investment In Myanmar(2000-2014)…………….…….………………16
Table 4: Cumulative Hotel Rooms in Burma …………………………..……………………….18
Table 5: Projected Arrivals And Spendings (2015-2020)………………..………………………19
Table 6: Hotel Rooms Supply In Yangon……………………………..…………………………19
Table 7: Hotel Room Numbers From 2011-2015……………..…………………………………20
Table 8: Ten Largest Foreign Hotels in Operation in Burma……..…………………………….22
Table 9: Benefits Of Financial Direct Investment (FDI) To Burma……..…………….………..26
Table of figures
Figure 1: The Pattern of FDI Inflows inMyanmar……………………………………………….12
Figure 2: Trend Of FDI To Myanmar….….……………………………………………………..13
Figure 3: Top Ten Countries Investing In Myanmar…………………………………………….15
Figure 4: Composition of Foreign Direct Investment……………………………………………15
Figure 5: Myanmar Tourism Graph From 2008-2016……….…………………………………..17
Figure 6: Foreign Visitors Arrivals ByRegion…..…………..…………………………………..18
Figure 7: Visitor Exports And International Tourists Arrivals…………………………………..21
Figure 8: Largest Foreign Investors in Hotel Industry inBurma………..……………………….22
A study of Foreign Direct Investment’s impacts on tourism andhospitality industry in Burma
This chapter encompasses the study background, research objectivesand research problems. Additionally, it contains the value of thestudy showing the importance of this research to various people andorganizations.
1.1Foreign Direct Investment (FDI)
Foreign Directed Investment was an aspect that was highly appreciatedby the government of Burma as an important source of income for thetourism and hospitality industry to enhance the economy of thecountry. In history, Burma has been struggling to be at par withother under developed nations in term of expansion. The flow ofForeign Directed Investment in this state had an unsteady trend inthe early years because at the establishment of its development, from1980-2009, the state experienced a slim increase of foreign fundsinvested. Conversely, after 2009, the Foreign Directed Investmentinflow decreased. Since 1980, the Burma government had finallycomprehended the foreign investment importance in Burma. As at 2015,the Burmese government has established a vital law that articulatesthe aspect of the foreign investment which states that the governmentencourages and welcomes the foreign people are to the country,whereas to strengthen and to ensures its stability within thedeveloping states. Burmese government has prioritized those sectorsand to start as the private ventures, natural resources,entrepreneurial activities, and initiating the foreign operations,which aims to inspire the state’s financial system in a long-run(Foreign Investment Law Myanmar, 2012).
1.2FDI in Tourism and Hospitality
With a perspective to inspire both international and localinvestments in this industry, the state has allowed 100% ForeignDirect Investment (FDI) in the habitual route thus allowing full FDIinto all construction expansion projects that includes hotel andresort construction, recreational facilities and regional and citylevel infrastructures. The quantity of Foreign Direct Investment(FDI) to growing States has for the initial time exceeded that of thedeveloped nations. Foreign Direct Investment (FDI) has clearlypositive impacts on the Burma local tourism and hospitality firms andthat the Foreign Direct Investment (FDI) recipients’ economy atlarge by offering benefits such as management capability,technological transfers, economic growth and job creation. Burma hasbeen an attractive destination for Foreign Direct Investment (FDI)because of diverse motivating forces of FDI in the aspect ofeconomics, society, and politics (Park, & Roland-Holst, 2015).
1.3Foreign Direct Investment (FDI) In Hospitality and Tourism Sector inBurma
Tourism and hospitality sectors hold vast potential for Burma economysince it can offer momentum to other sectors via forward and backwardconnection and can make huge income earnings for the state. ForeignDirect Investment (FDI) impacts are thoroughly conceptualized in theEclectic Paradigm theory. This particular theory analyzes the ForeignDirect Investment (FDI) impacts at macro and micro level to establishthe main basis and locations of big firms based in Burma. The nationis considered one of the most attractive and liberal destinations forForeign Direct Investment (FDI) that has been facilitated by theInvestment Law that permits 100 percent foreign rights with onlypartial number of firm closed to foreign firms. Besides, the nationassurance to influential economics and political reforms since 2005,FDI has facilitated Burma to become a new tourism and hospitalitypotential in Asian continent (Jones, 2014). This aspect resulted tothe abolishment of economic sanctions from developed states such asEuropean Union, USA, and other Western states and has opened chancesfor firms to carry out diverse investment in the nation. Foreigntourist arrival in the country is projected to grow to 15 Million by2016-2020, and the local tourism is anticipated to increase by 16% to22% over the subsequently six years according to the state TourismMinistry expectations based on the expansion in the last ten years.From the past research, we can see the significance that FDIs playsin the state’s tourism and hospitality industry. Burma greatlyappreciates Foreign Direct Investment as a prime aspect that reducesthe expansion gap in its tourism and hospitality industry in thestate. Foreign ventures responded positively to these actions in theprior years, and Foreign Direct Investment into Burma steadilyincreased in the period from 2004 to 2015. Conversely, before 2003Foreign Direct Investment inflow was drastically reduced until 2004when in inflow grew at a unique rate that reached the top level inthe history of the country. It is specifically more significant inthe country because FDI is considered a gateway for the state todevelop as it enables the country to fully channel most of theirresources, which lead to a big inflow of capitals that allows thecountry to utilize on more projects development. Realistically it isvaluable for a sustainable advancement than other types ofdevelopments experienced by the nation. Foreign Direct Investment(FDI are the fundamental techniques for the export-led growthstrategy for majority of the Asian states especially Burma givingfacts on how the FDIs stimulates the local tourism and hospitalityvolume. According to Moron Carranza (2004), the FDI offers anincrease of 12% in tourism and hospitality economic growth andbetween 5% – 10% of national income.
This study sought to carry out a survey of Foreign Direct Investment(FDI) and determine its impacts on the tourism and hospitality sectorin Burma.
The general objective of this study is to research on Foreign DirectInvestment (FDI) and determines the impacts on the tourism andhospitality sector in Burma. The specific objectives are
To understand the impacts of Foreign Direct Investment (FDI) in tourism and hospitality in Burma (Yuka, 2016).
To evaluate the relation between FDI and tourism and hospitality.
To determine the contribution of FDI to the tourism and hospitality the economy of Burma.
Which are the impacts of FDI on the tourism and hospitality in Burma?
Why do nations prefer FDI influx to others?
What does Burmese government do to reduce the barrier for FDI in this country?
1.7Value of the Study
The study findings will assist the country and the tourism andhospitality sector in formulating strategies that will enhance theirproduction. This will, in turn, increase the revenues collected bythe sector to beneficiaries. The findings of the study will alsoassist investors who would be interested in investing in tourism andhospitality sector, to make objective decisions on which FDIfacilities to invest in, and which facilities to include in theirinvestment. This research will also help emphasize the problemsencountered by FDIs in abiding by the guidelines set by Burmagovernment that are preferred by the investors. Finally, thisresearch will add value to the tourism and hospitality sector bytightening the gap of earlier studies done in the Foreign DirectInvestment (FDI).
For a research project, the design is articulated by the researchtheory. According to Lewis (2015), research designs that areappropriate substantively support the findings that encapsulate theresearch questions. The approaches of research are articulated inthree groups inductive, deductive and combination. In this researchproposal, the deductive research is adopted because the flow ofinformation takes place in the direction of general to specific(Bissinger, 2012). The theoretical framework of the hotel and tourismindustry heightens the identification of key FDI determinants. Theinductive approach is different from deductive approach because thetheory is pragmatically developed through data collection andanalysis of the empirical findings, then the findings are tested toprove their accuracy. The research proposal also adopts descriptiveresearch which is used to finding answers to the questions Who, WhenWhere and How. The approach of the research concentrates on thegathering and analysis of events or situations in Myanmar tourism andhotel industry to substantively support the final decision makingprocess.
The research project describes a type of market research. The marketresearch can be carried out by using quantitative and qualitativemethods of research. Nevertheless, the research proposal adopted thequantitative method, which encompasses the use of numerical,standardized data and analysis derived from statistics and diagrams.Ndanu & Syombua (2015) state that qualitative method on the otherhand accentuates a phenomenon where the non-standardized data issummarized, categorized and restructured to substantively create ameaningful analysis.
The research proposal heightens the use of archival research methodas the primary method used for collecting data. According to McBurneyet al. (2007), archival research concern a research where the use ofdata collected is done without the participation of the researcher.The researcher assesses and selects the available data accumulated inexisting records or archives for analysis. The advantage of archivalresearch is that the collection of data by the researcher is notnecessary and experimentation of the research conducted is notapplicable. The disadvantage of the method is that the researcherdepends on the agency types of questions and the biases that exist inthe procedure used in collection of data.
The empirical research in this research encapsulates the use ofsecondary data. The archival research is used in collection ofsecondary data. The data is accessed through both the public internetad research archives networks that are available from internationalagencies. The data is then categorized, interpreted and analysed toassess the tourism and hotel industry in Burma with aim of indicatingbetter market for foreign direct investment.
FDI data is generally compiled using two alternatives that is balanceof payments indicators or carry out firm survey. The balance ofpayments data encompasses measuring FDI as the fiscal stake of theparent in a foreign conglomerate. The benefit of the method is thatthe data can be collected easily for virtually all countries. Firmsurvey however focuses on the actual description of MNE. Firm surveyprovides a broad description of MNE activities and providesinformation about MNE characteristic. Unfortunately, the method is onavailable to very few countries such as the US and Germany.
Data for FDI is presented as a stock or flow of value. FDI flowcomprises of equity capital, reinvested earnings and other capital.The data is described on a net basis which accentuate thatdisinvestment has been catered for in the figures provided. FDIinflows and FDI inward stock is because of investment undertaken inMyanmar by a foreign MNE. FDI outflows and FDI outward stockencompass investment in overseas countries carried out by MNEs basedin Myanmar. The worth of FDI stock is calculated by use of the bookcharge in order to take into consideration the prices prevailing atthe time the investments were made. The research proposal encompassesan analysis of the impacts of FDI in Myanmar by considering thehospitality and tourism industry. The source of FDI data is gatheredand conveyed by various international organization and Myanmargovernment website. IMF compiles and report data on FDI from majorityof the world nation and is based on balance of payment statistics(IMF, 2012). UNCTAD publishes the World Investment Report, whichrepresents figures for both flows and FDI shares together with shareof FDI in GDP. UNCTAD primarily collects statistics straight fromnational official bases such as central banks and statistical officesfor respective nations (Simpson, & Park, 2013). There are alsoregional bodies such as ASEAN that provides FDI data. For theresearch project, data from World Travel & Tourism Council isalso admissible.
2.0Data Presentation, Analysis and Research Findings2.1Foreign Direct Investment in Myanmar
Myanmar has started to undertake major reforms after years ofisolation towards a system that is democratic and an economy that ismarket based. Reforms initiated include the liberalization of thebanking and telecommunication sectors. The government recognizes theadvantages of FDI and thus actively encourages FDI. The signing ofthe Foreign Investment Law, which specifies that foreign nominees donot need a local partner to commence a business, has boosted thisencouragement. The investors also enjoy many incentives in taxation.However, the law is considered opaque in some areas such as transferof ownership and settlement on disputes. Nevertheless, introductionof such a law is considered a huge step forward to the country.
2.2FDI Direction in Myanmar
Myanmar is hugely endowed with natural and human resources. Thecountry has vast lands that are cultivatable, long coastlines, riversthat are navigable, huge amounts of mineral and forests and apopulation that is literate.
2.3FDI inflows into Burma
The inflow of FDI into Burma are greatly concentrated on naturalresources based and extractive sectors like oil and gas, mining andpower sectors (Asirvatham et al. 2016). From the year 1990 to 2015total amount of foreign direct investment inflows into the countryare much resolute in the power provision sector (81.6%). Otherinflows into the sectors include agriculture (0.27%), manufacturing(1.96%) and tourism and hospitality (2.36%) which is relatively lowbecause the state have attractive features in terms of resources maybe constrained by diverse factors like sanctions imposed by EU andthe USA, unfavorable rates of exchange and FDI laws. Burma officiatedforeign investment that total USD 8.01 Billion from 200 firms for the2014-2015 financial years across several sectors. Among the sectorsthat attracted the FDI during the financial year ending 31stmarch, gas and oil were high in the list at USD 3.22 Billion, andthen followed by communication and transport with accepted capital ofUSD 1.68 Billion and $1.5 Billion. The sector of real estateattracted approximately USD 0.78 Billion and USD 0.36 Billion wasapproved for the tourism and hotel sector.
According to the above table, it demonstrate that DICA’s datashowed approved FDI virtually doubled from USD4.1 Billion financialyear 2013-2014 to USD8.01 Billion in fiscal year 2014-2015. Burmaanticipates receiving USD 6 Billion in the recent financial year.From financial year 2000-2001 to 2014-2015, the amounts accepted offoreign investment in Burma reached a total USD 54.23 Billion thatcome from 895 allowed firms from only 40 nations.
2.3.1Countries Investing the Most of Burma
After Burma changing its economy from a centrally planned economy tothe market oriented one, the state government had made diverseliberalizing measures to promote and raise the investment level inalmost each sector of the economy and encouraged private industriesto actively participate in the FDI activities. After the enactment ofthe financial investment law, Burma has attracted 18 foreign firmswith the amount of $449.487 Million in 2000-2001 and 22 foreign firmswith $280.6 Million in 2014-2015. In brief, FDI inflows into thestate gradually increased from 2000 to 2006, but the amount wastremendously decreased continuously from 2006 to 2008 because of theglobal financial crisis in the period. Conversely, the amount againincreased from 2009 to 2014 due to the huge investment in tourism andhospitality sector by Thailand (Mowforth, & Munt, 2015). In 2012to 2013, the total foreign investment increases to an amount of$984.446 Million and again rose in 2014 with an amount approximatelyto $19,997.45 Million. All the FDI during this particular period areconsidered to be mostly from UK, Asia and Russia. The approved sum ofFDI is demonstrated in the table below.
In accordance to the data from the Central Statistical Organization,the most investing states in Burma are stated in the chart above.According to the chart, the top investing state is China and otherstates include Singapore, Thailand, Korea, Hong Kong, UK, Vietnam,Malaysia and Netherlands.
Diverse home states had been investing in Burma in several sectorsthat include gas and oil, manufacturing, power, communication andtransport, real estate management, livestock and agriculture andhotel and tourism (Engvall, & Linn, 2014). The chart abovedemonstrates the comparison of FDI by sector.
As of 2014 to 2015 financial year, approximately 566 existing foreigncompanies from over 30 states so far invested $47.56 Billion in 10sectors that include gas and oil, manufacturing, power, communicationand transport, real estate management, livestock and agriculture andhotel and tourism. The impact of FDI in Burma in the structure ofemployment is specifically true in labor thorough sectors such astourism and hospitality (Kohlhaas, & Moser, 2015)
2.4Tourism and Hospitality in Burma
The World Travel and Tourism Council (WTTC) posits that the globaltravel and tourism sector contributes 11.1 percent to the regionalGross Domestic Product or USD 255.1 billion. The sector also accountsfor 8.8 percent of employment (25.4 million jobs) (WTTC, 2015). Thehotel and tourism industry has emerged as one of the fastest growingsectors that significantly contribute to the global economic growthand development. Burma has for many years recorded tourist arrivalsof between 200,000 and 250,000 at the Yangon airport. The cumulativefigure which comprise of the border tourists has roughly beenestimated in the range of 600,000 and 800,000 tourists. The bordertourists describe visitors who cross into Burma borders and stay forless than a day. The only point of entry in Burma until 2013 wasYangon airport, but since August 2013 four other land border wereopened for entry of tourists.
The tourist numbers since 2011 onwards started to increasedramatically and during the peak season there was shortage in thehotel room. 2013 would record a high demand for room services.Burma’s hotel situation has significantly improved with new hotelsbeing built in Yangon and Mandalay hence doubling the number of roomsas at 2016 (Khin, 2012).
The above graph highlights the cumulative tourist arrivals at Yangon,Mandalay and Naypyidaw international airports from 2006 to 2015 (Zaw,2014).
The table represents the cumulative hotel rooms in Burma. The touriststatistics excludes the border tourist. International tourism grew by25% in year 2013 and 15% in 2015. Asian countries are the majorsource market with 71%. Thailand tops the number of tourists with17.07%. China, Japan and Korea visitors account for 7.16%, Japan7.58% and 5.91% respectively. The other key international visitorsare from the USA, France and UK who account for 5.93%, 3.72% and3.51% respectively (WEF, 2012).
The Burmese Hotel and Tourism ministry 2016 forecasts that thetourists’ numbers will grow from 4.68 million to 6 million.Approximately one-third came of the 4.68 million came through theinternational airport (Ford, Gillan, & Thein, 2016). The TourismMaster Plan has a middle growth scenario of 5 million visitors in2020 while the government insists on the high growth of 7.48 millionvisitors in 2020.
Hospitality market development
The rates charged by Burma Hotels began to rise in 2012. The rise wasin response to the demand of hotel rooms from arriving tourists.Comparing the rates from 2011, the charges in 2012 doubled andtripled in 2013. For example, Sedona Hotel in Yangon charged $50 pernight in 2009 and $280 in 2013. The incredible rise of hotel roomprices has since stabilized because new hotels were opened to improvethe situation though travelers have complained of overpriced rooms.Yangon has recorded an increase in the number of new hotels and hencethe occupancy rates have gone down. The large number of hotels, whichhave opened since 2014 have resolved issues on accommodation
The number of hotel rooms double in the last four years has doubledin the main destinations with the exception of Bagan where thegovernment has restricted construction of new hotels because of theBagan archeological zone (Rich, & Franck, 2016). Burma as at endof 2011 had 731 hotels and by end of 2015, there are 1279 hotels,which represent an increase by 75%.
The hotel situation however is unclear in smaller areas. For example,no hotels in Mrauk-U have been opened since 2011 while Hsipaw roomcapacity has improved from 52 rooms to 255 rooms in only threehotels. The perspective in Naypyidaw is interesting because thegovernment moved its offices to the area. This has led to numeroushotels coming up with the anticipation that many internationaldelegates would visit. The result has been a massive supply with 5100rooms in 63 hotels but 1000 rooms are occupied.
Burma charges double the hotel price compared to countries likeIndia, Thailand and Cambodia who are its neighbors. However, the roomcharges have decreased in the last two years and in this case in theluxury hotels. Yangon and Mandalay luxury hotels in 2013 tripled andquadrupled their room rates at the top of the tourism rush but theroom prices have significantly dropped.
2.5FDI, Tourism and Hospitality
The tourism and hospitality industry is among Burma top contributorsto the economy. The industry contributed $2.1 billion, which was anincrease of 19% or a contribution of 4% on the GDP. WTTC project thatthe international tourist arrivals to total 3.385 million andgenerate revenue of $3.298 billion which is an increase of 10.1% p.a.(UNWTO, 2014).
Myanmar has had limited supply of hotels that are considered suitablefor tourists. Less than half of the hotel rooms in Yangon areadequately fitted in terms of facilities to cater for foreignvisitors. As a result, the occupancy rates in Yangon are unrivalledsoaring from approximately 60% at the end of 2010 to today levels of90%.
Nearly all the 700 locally run hotels are rated 3 stars or lower in2010 and struggled to survive due to the high operating costs and lowoccupancy rate (Sjöholm, 2014). This had major effect on themaintenance standards, quality of service and the development ofhuman resources. Limited capital resulted in these locally ownedhotels to have an average of 30 rooms each. The foreign owned hotels,which accounted for 4% of the total hotels in Myanmar, provided anaverage of 170 top quality rooms. Currently, the foreign owned hotelshave increased by 75%.
Foreign investment in the tourism and hotel industry has hence becomevital to replenish the constraint in quality hotel rooms that aresuitable for tourists in Burma.
Singapore is the largest investor in the industry with investments of$598 million. Other notable investors are Thailand, Japan, Hong Kong,Malaysia and the UK.
The table represents the ten largest foreign hotels in operation inBurma with Singapore direct investment offering the largestproportion (Santos, Brochado, & Esperança, 2016).
The government has provided several initiatives to entice additionalforeign capital. Apart from revising the foreign investment law tooffer more incentives in tax and allow 100% ownership, Burma isoffering plots in prime locations in Yangon for investors to bid fordevelopment of hotels. With strong demand in hotels, first moversgained a significant advantage in commanding higher prices. Thereindeed have been development with interest form Singaporeans and Thaihoteliers plus other large global chains such as Marriot and Sofitel.
Impacts of FDI on the Tourism and Hospitality Industry
The benefits of foreign direct investment frequently mentioned in theresearch papers as follows
2.5.1Positive Impact of the Local Tourism Investment
Financial Direct Investment (FDI) inflow tend to lead to lead so asto develop investment on country infrastructure and also improvedlocal investment as domestic forms to get access to distributionchannels that are opened by bigger foreign firms in the tourism andhospitality sector (Pwint, 2013).
2.5.2Impact on Revenue
Financial Direct Investment (FDI) broadens the domestic tax base andadds to the Burma government revenues to enhance its serviceprovisions (Tretter, 2013). Countries usually require enough funds toprovide social necessities such as school, medical care and securityto its citizens. Foreign firms that invest in the country usuallyprovide enough revenue to the country that will ultimately assist thecountry to provide social services to the citizens.
2.5.3Improved Skills of Labour
Foreign companies typically conduct more training than domesticcompanies do, and they engage in diverse events that use moderatelyhigh level of skilled employees. These particular proficiencies canbe transformed to other industry and events when workers hunt for newjobs or initiate their trade because FDI usually carries enhancedworking performance to develop the working situation and the workingsurroundings.
According to the research, Financial Direct Investment (FDI) in thecountry has embraced development because of the association with highexport levels since most of the overseas investors are usuallyexport-oriented individuals who usually initiate business in Burmaand then export their finished products to other countries.
2.5.5Weakened Domestic Monopolies at the Local Industry
Financial Direct Investment (FDI) can reinstate local ineffective andmonopoly companies with more effective and efficient foreigncompanies that can result to enhanced client’s welfare (Ramirez, &Tretter, 2013). The adverse of Financial Direct Investment (FDI)inflows to Burma must not be disregarded because big foreigncompanies may take prevailing market shares thus droppingcompetition. In accordance with the OECD details on FDI for growth,the benefits of Financial Direct Investment (FDI) do not occurmechanically.
2.5.6Business Integrity and Corruption
Corruption is considered a risk for foreign entities investing inMyanmar. Transparency International ranks Burma at number 146 out of169 in their annual Corruption Perception Index a position that hasremained unchanged since 2013. The President Thein Sein acknowledgesthat corruption and bribery is chronic and must be addressed bychanging the attitudes among the officials in government. Numerousaspects of the tourism value chain offer the possibility ofcorruption and particularly those that concern land acquisition forhotels, awarding of transport or concessions (Li, 2013). The lack oftransparency in tender regulations over leasing hotels owned by thestate to individual investors has been reported with those with closeties to authorities being given preferential treatment. The increasein investments by companies from Western countries may createpressure for some level of transparency, including their localpartners. The pressure may accrue when it comes to acquisition of newsites. A number of Myanmar enterprises have started to implement theanti-corruption programs and in some cases has led to foreignpartnerships.
2.6Why Foreign Investors Prefer Investing In Hospitality and TourismSectors in Burma
Foreign investors prefer investing in hospitality and tourism sectorsin Burma because of financial liberalization that has provided a newstrength to the hospitality and tourism sectors (Jarvis, 2012).Diverse foreign investors are able to enjoy several incentives thatthe government provides because in doing this, the foreign investorwill experience a great hospitality, which is at an increasing rateof 15% per year. Due to a stable social and political condition ofBurma, there will be an increased in the number of tourists’arrivals. The current administration in its process has taken a fewplans such as opening the partial sky procedure that has permittedprivate local airline operators to fly on the Burma skies. The entryof the international investors into Burma’s market through thestates FDI initiatives assisted the state in enhancing its balance oftrade by raising its trade in export (Steinberg, 2013). For instance,Financial Direct Investment (FDI) increased the amount of financialresources and the technical skills that Burma needed to exploit thetourism and hospitality sector. These tourism and hospitality sectorsaccount approximately 70 % of the Burma income that is gained frombusiness export per year that represents about 15 % of the nationalGross Domestic Product. Moreover, Financial Direct Investment (FDI)that targeted the tourism and hospitality sectors permitted BurmaMyanmar to increase its proportion of export products such asclothing that are usually sold in the global market to 21 % from 13%. By the country expanding its export trade, the country has managedto enhance its economic productivity and improve its balance of trade(Chantavanich & Vungsiriphisal, 2012).
2.7Benefits of FDI to Burma
The benefits of Financial Direct Investment (FDI) to Burma are listedto understand very easily by constructing the table below (Park,Khan, & Vandenberg, 2012)
Table: Benefits of Financial Direct Investment (FDI) to Burma
Create demand for export
Lower prices for consumers
Source: Ma Pwint Phyu Aung (2013), Ph.D Preliminary (Ba-2), “Impactof Burma country”, Assignment, Meiktila University of Econmics,Mandalay, Burma
2.8Barriers in Burma Tourism and Hospitality Sector
Financial Direct Investment (FDI) plays a major role in the countryeconomic development. However, to attract Financial Direct Investment(FDI) is not as simple and easy task. Significant number of barriersdeters the inflow of foreign direct investment into a specificdeveloping state, especially for a country that is least advancedbecause this particular barrier led to increased risks of foreignventures that can overshadow the are specific benefits and resourcedonations of LDCs. Thett (2012) posits that this aspect can hinderthe Financial Direct Investment inflow into the nation becauseforeign investors seek to get higher returns from the venture tocompensate bigger risk. The aspect of political instability isconsidered one of the most vital barriers to Financial DirectInvestment (FDI). On the government front, the guidelines on landownership and income repatriation are still uncertain and varyingfrom week to week. Composite regulations and rules from thedecades-old hotel law will also persist to create barriers for anynew entrants (Mikic, Anukoonwattaka, Ferracane, & Tacken, 2012).The contractual prerequisite on a Build-Operate-Transfer basis withthe Burma state will be less attractive to some investors, inaddition. On the investment situation, investors may also faceimperfect access to cheap funding in the country given the high staterisks that are involved and the nature of trade with the vastup-front capital needed and long-term investment prospect. High costsof a land lease, which have doubled in the past three years in maintourism cities like Mandalay and Yangon, will further put investorsunder pressure. In addition, according to Mowforth & Munt (2015),while local employees can be hastily trained for semi-skilled orunskilled positions, there is still short of infrastructures likeinternational schools and eminence hospitals to attract managementlevels from middle to senior hotel and their relatives to move toBurma.
3.0Conclusions, Managerial Implications and Applications, and PossibleRecommendations
As pointed out in the introduction, Financial Direct Investmentusually plays a vital role in intensifying the tourism andhospitality sectors in Burma. This demonstrates a suitable strategyto explore diverse plans and resources to expand new touristfacilities and venues that might need to be measured to meet therising demand for tourism in Burma anticipated from a constant strongFDI (Telfer, & Sharpley, 2015). The tourism and hospitalitysector provides an incredible chance to Burma in terms of GDPcontribution and employment generation. In accordance to CIIestimations, an extra 800 million tourists can assist generate incomeof USD 2,500 each year. Therefore, the Burmese government strategies,which would majorly focus on raising the number of tourists’arrivals into the nation and facilitate investment in hospitality andtourism development, would definitely lead to considerably superiormultiplier impact on the major economic factors of the Burma economy.
As tourism in Burma grows rapidly, the industry needs to expand thenumber of destinations that are offered to international tourists.Ethnic minority groups who have little or no interaction withinternational tourists inhabit many areas with promising potentialdestinations. Therefore, there is need for foreign investment inthese areas thereby increasing the tourism market.
Burma has a huge amount of resources and many Western firms haveshown interest in the need to invest in the lucrative tourism andhospitality industry (Rieffel, 2013). Therefore, there is need forthe government to accelerate construction of infrastructure in bothrural and urban areas.
The support of the political structure must be present towards theinvesting firms from abroad. This can be worked out when foreigninvestors put forward their interest for increasing FDI capital inthe tourism and hospitality industry. There is need for a commonground between the politicians and foreign firms investing in Burma.This would increase reforms in the FDI sector of the country.
The introduction of tax holidays would encourage FDI in the tourismand hospitality industry and make more players to set up hotels. Theperspective would bridge the gap of shortage of rooms especially tothose considered to adequately meet the standards required byinternational tourist.
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