Viability of infrastructure projects essential for investments

Sean Turnell, economic adviser to the State Counsellor, said the country’s macro-economy is “remarkably robust and resilient” despite the odds during the Myanmar Global Investment Forum by Euromoney held in Nay Pyi Taw yesterday.

The adviser cited the World Bank’s estimate of 6.7 percent GDP growth in 2018-19 and said that the budget deficit has stabilised.

Nevertheless, Dr Turnell conceded that the political economy remains “extractive in nature and resistant to reform” and that times remain “challenging” for the economy. He was referring to the negative impact of the northern Rakhine crisis, “judicial controversies” and human rights concerns on foreign direct investments (FDI).

In that light, Dr Turnell acknowledged that FDI has fallen below expectations. Between April and August this year, approved FDI totalled $1.4 billion versus the $3 billion forecast by Directorate of Investment and Company Administration (DICA) for the April-September interim period between the fiscal years 2017-18 and 2018-19.

There are two areas where Nay Pyi Taw has moved forward though – China-related and Belt and Road projects as well as the Myanmar Sustainable Development Plan (MSDP).

“Myanmar has been highly successful in renegotiating the Kyaukphyu project,” Dr Turnell remarked, referring to the proposed Special Economic Zone in central Rakhine which involves a deep-sea port and industrial zone.

Infrastructure is key to the MSDP, he added. Significantly, the country will move from a practice where projects are selected based on budgetary consideration to a framework where the priority is for projects which are truly needed by the population. In that regard, commercial viability and bankability would be crucial factors.

The commercial viability of infrastructure proposals, including public-private partnerships (PPPs), was raised during a subsequent panel discussion.

For Serge Pun, chair of Singapore-listed Yoma Strategic Holdings, the private sector is willing to take part in PPPs only if “the project is commercially feasible”. For profitable projects, there is no shortage of domestic or international financing to “undertake many or all of our infrastructure needs”.

Mr Pun stressed that debt is not the only means of making a project viable. Authorities need to be willing to share the commercial benefits with the private partners and take into account that an infrastructure proposal brings benefits to other parts of the economy when delivering the project.

Niramarn Laisathit, executive vice president of Bangkok Bank, added that private partners should also share the risks in the PPPs along with the benefits.

New City scheme

The PPP-led Yangon New City project is a good example of that. Launched by the regional government in March via a 100pc govt-owned New Yangon Development Company (NYDC), the authorities have nevertheless promised to steer clear of public funds and tap the private sector for capital instead.

Infrastructure works related to Phase 1, based on a PPP model, are expected to amount to more than US$1.5 billion. This includes the construction of five village townships, two bridges, 26km of artery roads, 10km2 of industrial estate, power plant, transmission and distributions facilities as well as fresh water supply and wastewater treatment plants.

Mr Pun, who is also CEO of NYDC, said that the total value of the NYDC’s land is worth $150 million, while $1.5 billion is needed to build the infrastructure. However, he said that “other than land, we have nothing. We have no money.”

To help fund development, NYDC in May signed an agreement with state-owned China Communications Construction Company to prepare a detailed project proposal for infrastructure works for phase 1 without conducting a tender. CCCC was debarred by the World Bank under its fraud and corruption sanctioning policy from January 2009 until January 2017.

The NYDC will let the CCCC take 95 percent of the revenue until the firm has covered the capital and profits. Afterwards, CCCC will have 75pc while NYDC will enjoy 25pc.

Mr Pun also told the audience that the mission of the vastly ambitious scheme is to create two million new jobs.

The new Yangon city is an “empty piece of land … which cannot be farmed anymore since [Cyclone] Nargis. So the new population of this new city will have to start with industrial [projects]. And that’s where the two million jobs are going to come from,” he said, referring to manufacturers and mass industrial production.

“Two million jobs seem to be very tall order, but if you think carefully two million jobs means 1,000 factories each employing 2,000 workers,” he said.

“If you go to southern China and count the factories which employ more than 2,000 workers, you’ll find them in thousands. It’s not that difficult. The difficulty is – do we have the right climate to attract them to come and manufacture here, and therefore employ our people and give them jobs?”

Source: Myanmar Times

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