Myanmar should take steps to raise foreign direct investment (FDI) from China in labour-intensive sectors, such as garments, to boost the country’s economic transformation, according to a report by UK-based think tank Overseas Development Institute (ODI). Given its economic size and proximity, China should be the preferred partner, it says.

Stephen Gelb, ‘Foreign direct investment and economic transformation in Myanmar’, was reported recently by Supporting Economic Transformation (SET), an ODI-led programme funded by the British Department of International Development (DFID) that aims at providing practical policy support to governments and their partners in development countries. The briefing paper is a summary brief of the ODI report of the same title, which explores the potential for FDI to positively contribute to economic transformation and poverty-reduction in Myanmar, focusing mainly on garments and construction.

China, the largest foreign investor in Myanmar, already has substantial investments in the Myanmar’s garments sector, a major job creator. The study urges Myanmar to further ease entry restriction for foreign firms, undertake active investment promotion in garments through complementary reforms in finance and trade policy, expand training to tackle shortage of high-level skilled manpower, and engage with buying firms, especially global retail or apparel corporations.

Noting the scarcity of competitive local firms as a need for FDI, the study attributes that to the shortage of entrepreneurial, management and technical skills. High-level skills are a more binding constraint than shop-floor production skills and the foreign-owned firms have very few local managers.

In the longer term, Myanmar should follow the Bangladesh example, where tertiary education institutes dedicated to the garment industry increased the supply of managers and high-skill technicians in the industry, it says. Chinese and Hong Kong-linked garment firms have produced few benefits, linkages or spillovers in Myanmar beyond export and job creation, the study adds.