Myanmar's illusory growth
Since it began opening up to the world in 2011, Myanmar has been one of the most hyped economies in the region. With promising economic growth averaging 7% a year, a young workforce and abundant resources, the country of 53 million seems to present boundless opportunities for local and foreign investors alike.
The civilian government has been working to attract investors by liberalising the economy, but global outrage over the military's crackdown in Rakhine state is keeping many of them away.
Those investors that do take the leap will find a more amenable climate thanks to the new Investment Law and Company Law. The new online registration process, Myanmar Companies Online (MyCO), greatly streamlines a previously complicated system.
Much remains to be done, though. Myanmar ranks 171st out of 190 countries on the World Bank's Ease of Doing Business index.
Another ray of hope is the shift to prioritised sectors by the revitalised National Economic Commission Committee (NECC) as it shapes policies and strategies in trade and commerce, banking and finance, investment, agriculture and manufacturing.
The archaic banking sector has also undergone major reforms, with foreign banks now permitted to offer some corporate services. The authority of the Central Bank of Myanmar has been clarified and a level playing field for private and state-owned banks is being promoted.
As well, a new Myanmar Sustainable Development Plan lays out a vision of balanced development by setting priorities to foster economic stability, create jobs and promote private sector-led growth.
All of these efforts deserve praise, but impressive macroeconomic data and high-minded reform proclamations are merely icing on a very stale cake.
The political economy in Myanmar remains extractive and the business sector is only partially reformed. The military and its cronies continue to exert huge influence over the economy and it is clear that the civilian government can do nothing about that.
The government is struggling with a persistent current account deficit, which has exacerbated the weakness of the kyat at a time when the US dollar is strengthening and global economic uncertainties are rising.
Infrastructure is weak because of past budget constraints. Acute electricity shortages are the top concern of most investors and they cannot be fixed overnight. With Western investors staying away in droves because of developments in Rakhine, correcting these shortcomings has become harder. China is happy to fill the gap, but only up to a point.
The banking system remains a deeply rooted challenge and the source of longstanding consumer mistrust -- 70% of rural Myanmar is still unbanked and even debit cards are a relative novelty. Despite reforms that began eight years ago, foreign banks are still barred from retail banking or direct lending in the local currency.
Myanmar's micro-economy is also struggling in many areas, with sentiment declining steadily. Business survey respondents worry about the shaky kyat, taxation and the inability of the central bank to exercise its power to lift confidence.
The government of Aung San Suu Kyi, increasingly perceived as adrift and ineffectual, needs to act to prevent problems from piling up further.
To regain investors' confidence, it should first consider working to restore its deteriorating reputation by showing a sincere desire to resolve the Rohingya human rights crisis instead of making excuses and jailing journalists. Otherwise, Westerners will continue to vote with their feet.
Then, the government needs to create the conditions needed to stimulate foreign and domestic investment in the soft and hard infrastructure the country sorely lacks.
Though the Project Bank was created to prioritise infrastructure projects, investors need help exploring commercially viable and sustainable financing methods. Better coordination among various ministries, state and regional governments is also needed to approve priority infrastructure projects and grant the necessary permits to investors.
Further investment in human capital and education is also crucial. Local companies should see foreign multinationals not as a threat but as a springboard for them to gain knowledge and learn more about how the world economy and business operates.
The central bank, meanwhile, can give a confidence boost to domestic businesses by promoting measures to help small and medium enterprises (SMEs) gain access to finance.
It would be a shame to see Myanmar's recent reforms falter because of a lack of concrete follow-up action. The country holds great potential but it must heed what businesses at home and abroad are saying and act accordingly to ensure a better future for all its people.
Asia Focus Writer
Asia Focus Writer
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