A BANNER YEAR FOR FOREIGN INVESTMENT IN BURMA?

UNCLAS SECTION 01 OF 02 RANGOON 000688 SIPDIS SENSITIVE STATE FOR EAP/BCLTV, EB COMMERCE FOR ITA JEAN KELLY TREASURY FOR OASIA USPACOM FOR FPA E.O. 12958: N/A TAGS: EINV ECON PGOV BM SUBJECT: A BANNER YEAR FOR FOREIGN INVESTMENT IN BURMA? REF: A. RANGOON 327 ¶B. RANGOON 43 ¶1. (SBU) Summary: Despite no improvement to Burma's investment climate, approved FDI last year increased by the largest amount in five years. The new apparent mini-boom is largely due to Chinese interest in Burma's questionable onshore oil and gas reserves, though new Thai and Japanese investment also flowed in. Unregistered foreign investment in Burma's rich forests and mines will continue. However, a new anti-foreigner policy for energy sector investment should ensure Burma's FDI growth is a one-off occurrence. End summary. The Chinese are Coming ¶2. (SBU) Despite continued economic problems in Burma, and no improvement in the country's investment climate (ref B), unpublished GOB figures indicate approved foreign investment in FY 2004-05 (April-March) was at its highest level in five years. The GOB data set total new approved investment at $158.28 mln, raising the total level of approved investment since 1988 to $7.8 bln. These numbers do not necessarily reflect actual investment, nor do they change when divestment occurs. ¶3. (SBU) The total approved FDI, and the number of new approved investments, in FY 2004-05 were the highest since FY 2000-01. The main reason for these increases was a surprising spike in interest in Burma's heretofore unappetizing onshore oil and gas sector (ref A). This sector attracted nine new approved investments worth $142.5 mln. Other winners in FY 2004-05 were the mining (four projects, $6 mln) and manufacturing (one project, $3.5 mln) sectors. ¶4. (SBU) The surprising expansion in FDI came primarily from China. With 11 new projects planned or underway, the PRC's official approved investment in Burma rose from $67 mln to $193.5 mln during the last fiscal year. Two of China's major energy firms (Sinopec and CNOOC) signed agreements to explore and, perhaps, develop a handful of onshore oil and gas blocks, and one Chinese mining outfit inked a $6 mln investment in mineral exploration. Though prominent Chinese investments are approved by the GOB and recorded, the amount of Chinese investment in Burma is still vastly underestimated by official data as much of it is informal investment in border regions or made by Chinese citizens who have illegally obtained a Burmese citizen's national identity card. ¶5. (SBU) The Thais also expanded their approved investment in Burma with four new projects worth $29 mln (mostly in oil and gas, with PTTEP exploring new offshore blocks, but also in hotels and tourism and manufacturing). The Japanese also made $2.7 mln worth of new investments, but only in previously approved real estate projects. The Rankings Now ¶6. (SBU) At the end of FY 2004-05, the FDI rankings remain pretty much the same as the prior FY. Based on the value of approved investments since 1988, Singapore remains number one, followed by the UK, Thailand, and Malaysia. Hong Kong has jumped to fifth (replacing the United States whose numbers come primarily from the pre-1997 investment by Unocal) due to a transfer of assets held on paper for a decade by Texaco to the Hong Kong subsidiary of Malaysian energy giant Petronas (which now operates the offshore Yetagun gas field). France remains in sixth place, followed by the United States, Indonesia, the Netherlands and Japan. Despite the new PRC investment, China is only eleventh in official total approved investment. Comment: Biting the Hand ¶7. (SBU) Though Burma's FDI is still extremely low by any standard, the significant increase in FY 2004-05 is a boon both to the GOB's wallets and prestige. Though there are no figures, we believe that informal foreign investment in the timber, mining, and fisheries sectors is also bringing cash into the Burmese economy. That said, the GOB is doing nothing to improve the climate for legal FDI; quite the contrary. In a typical move, the GOB recently announced it would not allow future foreign investment in the onshore oil and gas sector. This should help ensure that the good foreign investment times will not roll far. End comment. Martinez