“In a recent speech to the Burmese Chamber of Commerce, Thakin Nu, the Prime Minister, for the first time declared that foreign business had its part to play in Burma’s economic life and that the government was anxious to encourage individual as well as state-owned enterprise.”
The
Economist, January 8th, 1949.
“We must turn to national industrialization to transform
the country into a developed, rich one with a lot of employment opportunities
and high per capita income… We have to ensure a proper market economy designed
to reduce the economic gap between the rich and the poor and the development
gap between urban and rural areas.”
Thein
Sein, President of Myanmar, Inaugural Address, March 30th, 2011.
Despite
the best intentions of former Prime Minister Thakin Nu, few countries in the
world have developed less than Myanmar since 1949. By the end of military rule
in 2011, Myanmar found itself considerably behind its ASEAN neighbours. To put
this in context: in 1965, it had GDP per capita which was twice that of
Thailand and three times that of Indonesia. Now, it has the lowest GDP per
capita in Southeast Asia[i]. The country is the only
ASEAN nation not to even feature on the World Bank’s Doing Business Report for 2013. But the reformist zeal of current
President Thein Sein combined with trade sanctions being lifted by the United
States and Europe mean that the next five years have the potential to bring
more progress than the last 65. No other ASEAN nation can legitimately make
such a claim.
Its
low starting base effectively means that what would amount to incremental
changes in other ASEAN nations will amount to significant progress for Myanmar.
Myanmar’s location at the crossroads of Asia also means that it is of strategic
interest to many parties. President Obama’s visit in November 2012 – the first
ever by a US President – is sufficient indication of that. Situated between
India and China, Myanmar is ideally located in what will become the world’s
economic heartland in the 21st century. By the early 2020’s, it is
estimated that Asia will have a greater GDP than Europe and North America
combined[ii]. With India and China
providing the bulk of this economic activity (and a highway in Myanmar which
links them already in the early stages of development[iii]), Myanmar is set to
benefit from sharing borders with global business hubs. And as these economies
begin to mature, Myanmar can provide higher growth opportunities for investors.
For that to happen however, large-scale change is required in its business
environment.
 |
| Myanmar: Nothing this beautiful could be all that bad. |
Since
Thein Sein’s as President in 2011, government reforms have given cause for
cautious optimism. At the forefront of these is the Foreign Investment Law
passed by Parliament in November 2012, a document that creates a structured
framework in which foreign companies can invest in Myanmar. Most important, it
provides guarantees about investment protection and property rights[iv]. Foreigners can now own
100% of an enterprise based in Myanmar in “non-restricted” sectors, where
previously the limit was set at 35%. Foreign investors will also be entitled to
a five-year income tax holiday as well as a broad range of other reliefs and
tax incentives aimed at encouraging new investment. Foreign investors will also
be able to lease land from citizens or the state for up to 50 years,
effectively knocking a major obstacle to any foreign firms looking to set up
factories in Myanmar.
Infrastructure
Development
Infrastructure
in Myanmar will undergo massive improvements in the next five years. Take
transport infrastructure as an example. Myanmar is the only member of ASEAN
which is unconnected to any other country by railroad or highway. It has a road
density of about 2km per 1,000 people, compared to an average of 11km in ASEAN
overall[v]. However, in August of
2012, India provided loans of $500 million to complete its part of a trilateral
highway between running between India, Myanmar and Thailand[vi]. In addition, Myanmar
will gain its first deep-sea port at Kyaukpyu, which is almost complete,
providing the shortest trade-route linking China and the Mekong Basin to India
and the Middle East[vii].
A second is planned at Dawei as part of a special economic zone with multiple
transport links to ASEAN neighbours[viii] and a third[ix] is already underway in
Sittwe as part of an Indian joint-venture which will link India’s north-east
with Myanmar’s south west.
Other
infrastructure in Myanmar is similarly lagging behind its ASEAN neighbours but
will make great strides in the coming five years. With mobile phone penetration
of less than 10%, Myanmar is thought to be the second least connected nation in
the world after North Korea[x]. The next lowest
penetration among ASEAN nations is Laos with slightly over 20%. Compare these
with markets like Cambodia and Thailand with 70% and 110% respectively. On
January 25th 2013, the Burmese government received expressions of interest
to develop the country’s mobile telecommunications infrastructure[xi]. The licences will be
distributed in June 2013 and U Kyaw Soe, the head of Myanmar Post and
Telecommunication expects penetration of 75% in four years[xii] – effectively a 7-8 fold
increase. The knock-on benefits for small and medium-sized businesses should be
immense.
A
report released by the Asian Development Bank in August 2012 portrayed a dismal
picture of Myanmar’s electricity network[xiii]. Only 26% of its population
had access to electricity in 2011, compared with 100% in Malaysia, 80% in Laos
and over 90% in the Philippines and Vietnam. Electricity is essential in a
productive business environment. The Harvard Kennedy School terms it, “the
missing prerequisite for development[xiv],” and the country’s
leaders and the World Bank prioritized its development in a 3-day summit in
Yangon at the beginning of February[xv]. The World Bank has
committed $165 million in zero-interest loans for such priority needs. Norway
are also assisting Myanmar with drafting new electricity legislation[xvi], the aim of which will
allow private sector participation in power generation ,promote off-grid
electrification and establish a regulator in line with international best
practises. It is expected to be completed by June 2014.
Credit
Availability
The
financial landscape for business is also slowly changing. Since January 2013, foreign
debit and credit cards have been accepted by Myanmar’s bank network[xvii], allowing foreigners
increased access to local currency (which itself was moved to a managed
exchange-rate on April 1st, 2012)[xviii]. The country’s first
ever point-of-sale transaction occurred in February 2013[xix], representing a major
inflection point for any business environment. Elsewhere, the IFC has invested $2
million in ACLEDA bank in order to help establish a new microfinance
institution in Myanmar, the ultimate goal of which is to provide more than
200,000 loans to small businesses before 2020[xx]. The effect microfinance
institutions have had in other poorly developed countries has been phenomenal. As
of January 2013, Myanmar is the only ASEAN nation where microfinance has yet to
be introduced. Its arrival means that even the poorest Burmese citizens will have
some access to credit.
Higher
up the business scale, at the end of 2012, the government approached 22 local
firms about the possibility of listing on a revamped stock exchange planned for
2015[xxi]. This could signal the
very early beginnings of capital markets in Myanmar. Although still early days,
a local stock market has the potential to provide these firms with cheaper
access to capital, increase their financing opportunities and hopefully,
incentivize them to adopt better corporate governance. With so many vested
interests in large Myanmar companies such as the Myanmar Economic Corporation
(MEC) or the Union of Myanmar Economic Holdings (UMEH), a stock market could
provide at least two benefits which will be key to Myanmar’s future prosperity:
tying these vested interests to political and economic stability and forcing
their hand to increase productivity and transparency within the firms.
Conclusion
As the quotations at the
beginning of this article show, Myanmar has been at a similar juncture before. The
story of reform in Myanmar is a seductive one, but not easily achieved. There
are still major hurdles to overcome in terms of corruption and efficiency. A
business culture isn’t created as soon as sanctions are dropped. However, the
fact that Thein Sein is aiming for Myanmar to leave its status as a “Least
Developed Country,” behind shows that at least achievable targets are being
set. Aung Thura, CEO of ThuraSwiss, a consultancy in Myanmar notes[xxii]: “There are very high
expectations in the general public. However, we need to realistically assess
the economic development of the country. Implementation is also problematic.
Although the reforms look good on paper, time and again, we have seen that
implementation is paramount.” Those reforms deserve implementation. Now is Myanmar’s
time to move forward.
[i] http://blogs.wsj.com/searealtime/2012/08/20/myanmars-growing-but-has-a-long-way-to-go/
[ii] http://www.economist.com/news/asia/21570729-australia-still-does-not-seem-entirely-sure-where-it-edge
[iii] http://inchincloser.com/2011/01/14/china-india-myanmar-construct-the-stilwell-road-to-boost-regional-trade/
[iv] http://www.pwc.com/sg/en/assets/document/myanmar_business_guide.pdf
[v]
Myanmar Transport Sector Initial Assessment, Asian Development Bank, October
2012.
[vi] http://articles.timesofindia.indiatimes.com/2012-08-13/india/33181793_1_trilateral-highway-thein-sein-india-asean
[vii] http://www.economist.com/blogs/banyan/2012/07/investing-myanmar
[viii]
http://www.economist.com/blogs/banyan/2012/07/investing-myanmar
[ix] http://www.reuters.com/article/2012/05/27/us-myanmar-india-idUSBRE84Q00620120527
[x] http://in.mobile.reuters.com/article/idINBRE88C03K20120913?irpc=932
[xi] http://www.ft.com/intl/cms/s/0/3ade6302-5ef8-11e2-9f18-00144feab49a.html#axzz2K7HETAFu
[xii] http://www.economist.com/blogs/banyan/2012/07/investing-myanmar
[xiii]
http://www.adb.org/documents/myanmar-energy-sector-initial-assessment
[xiv] http://www.ash.harvard.edu/extension/ash/docs/electricity.pdf
[xv] http://www.worldbank.org/en/news/press-release/2013/02/05/World-Bank-Group-to-Support-Myanmar-8217-s-Plan-to-Improve-People-8217-s-Access-to-Electricity?cid=EXT_LinkedinWorldBank_P_EXT
[xvi] http://www.adb.org/news/adb-norway-help-update-myanmar-electricity-law
[xvii]
http://www.nationmultimedia.com/business/Myanmar-banks-join-Visa-ATM-network-30196850.html
[xviii]
http://www.imf.org/external/pubs/ft/scr/2013/cr1313.pdf
[xix] http://blogs.wsj.com/searealtime/2013/02/01/getting-credit-in-myanmar/
[xx] http://www.worldbank.org/en/news/press-release/2013/02/05/World-Bank-Group-to-Support-Myanmar-8217-s-Plan-to-Improve-People-8217-s-Access-to-Electricity
[xxi] http://online.wsj.com/article/SB10001424052702304870304577489544120654560.html
[xxii]
Aung Thura, in an interview given to the author; 23/01/2013.
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