Private capital needed to fund required infrastructure

Unlocking investment from the private sector is necessary for Myanmar to fund its building of transport infrastructure, speakers at a construction sector forum said. Bankability and risk-sharing would be the two key criteria to incentivise businesses to take part.

Recently, the European Chamber of Commerce Myanmar (EuroCham) held the first construction forum in Yangon. The event provided an update on progress and trends in the construction industry, and came after London-based consulting firm Fitch Solutions Macro Research downgraded its growth forecast for Myanmar’s construction industry, saying economic reforms which would boost infrastructure development had been knocked off course due to the Rakhine crisis.

However, many in the industry remain positive, especially with the release of the Myanmar Sustainable Development Plan 2018-30 and launch of the “project bank” which lists the infrastructure projects prioritised by the government.

Johannes Golüke, senior consultant from Roland Berger, highlighted the current imbalance in the sources of foreign direct investments (FDI). He noted a shift of Myanmar’s approved FDI from European countries towards China in recent years. In 2014-5, FDI from the UK amounted to $800 million and $510 million from China. Last year saw China pouring in $1.5 billion compared to $210 million from Britain.

While noting that European businesses should continue to focus on quality and sustainability of infrastructure projects, he added that “investments need to be incentivised.”

According to the business survey conducted by Roland Berger, the majority of companies indicated that transport infrastructure, stable electricity and transparency in policy-making are crucial for economic growth.

Transport connectivity, in particular, still has a long way to go for Myanmar to catch up with regional economies. For example, there are less than 64 kilometres of paved roads per thousand kilometres in the country.

According to the Asian Development Bank , Myanmar infrastructure investments have an estimated gap of $120 billion until 2030.

World Bank’s indicator on assessing countries’ logistics environment also showed the country’s deficiency on this front. The Logistics Performance Index has placed Myanmar at 137 out of 160 in 2018, dropping from 113 in 2016.

Based on the Myanmar government’s National Transportation Master Plan, approximately $27 billion would be needed to improve the transport infrastructure until 2030.

With such demand, “the government cannot be the answer for the financing problem to improve the transportation infrastructure,” said Mr Goluke, it lacks sufficient funds even if it relies on donor countries for sponsoring major infrastructure projects.

Nevcan Güngör, Shwe Taung’s chief investment officer, said that in this regard, Public Private Partnerships (PPP) have a role to play in financing and enabling better infrastructure. The PPP framework is very important as the union budget is not sufficient in financing such infrastructure needs.

For example the 2018-19 budget allocated just $5 billion for infrastructure out of the $16 billion in total funds, said Mr Golüke.

The government issued a notification last November, announcing that a PPP Centre under the finance ministry will strengthen capacity within government departments to identify, develop, procure, implement and monitor the projects, he went on. It will also be responsible for developing criteria on which government support might be provided for PPP projects, such as government guarantees or viability gap funding.

Mr Golüke, however, indicated the limitations of PPPs as over 55 percent of such contracts globally are renegotiated after 3.1 years on average. Without clear legal frameworks and guidelines and adequate risk sharing mechanisms, he warned, PPPs have the potential to deteriorate public perceptions towards such kinds of projects. However, the PPP centre proposed by the government is set to address some of the flaws already seen in other countries.

“If financing and planning [are] set out in the right way, we actually believe that Myanmar has the potential to become the number one logistics hub in the region,” he said.

Source: Myanmar Times

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