Is Myanmar´s new economic policy up to investors´ hopes?

Last month the government released the long-awaited new economic blueprint. The business community, in particular, was anxious for the new government to quicken economic reforms and provide clarity on issues of economic policy. But does the newly published blueprint live up to investors´ hopes? The briefness of the outline doesn´t bode well.

Essentially, the policy blueprint released by the Myanmar government is rather a vision paper, outlining 12 high-priority goals. More specifically, the paper promises the promotion of a comprehensive “market economy” and a level playing field for businesses by ending monopolies. It assures the government´s commitment to tackle corruption, make doing business easier, to shift more government functions online and to invest in job creation and education. Moreover, the blueprint acknowledges the importance of financial sector and state-owned enterprises’ reform. Upcoming reforms shall increase access to credit, encourage foreign investment, and provide funding for infrastructure development and the expansion of Special Economic Zones.

How, when and by whom are these goals to be realized? According to Sean Turnell, key advisor to the Burmese government and practicing economist at Australia´s Macquarie University, the blueprint´s positive “takeaways are that this is a very pro-market, liberal (…) and prudent government when it comes to economic reform”. While this may be a good start, it is hardly more than the broad statement of intent released before last years’ elections. The policy outline lacks financial specifics as well as any kind of implementation guideline. More importantly, it fails to address the still predominant power of the military in the economy, blocking necessary reform in crucial sectors such as agriculture. Business leaders certainly were hoping for a more decisive step towards reform.

One particularly important issue remaining unresolved are land rights, stifling growth in one of the country´s most essential sectors. More than 54% of Burmese citizens are reliant on the agriculture sector. The latter, however, suffers from chronic unproductivity, contributing in big parts to the country´s still worryingly low GDP per capita. At 1,200 USD Myanmar´s GDP per capita is only about one sixth that of neighbouring Thailand. Productivity rates paint a similar picture. The country has the second-lowest rice yields in Asia. In comparison Vietnam, which enjoys similar geographical conditions, achieves 114% higher rice yields. A core reason for Myanmar´s underperformance is the fact that military officials, speculating on land-prices to spike, have been involved in large scale land-grabbing for years. The negative effects of this practice are twofold. Firstly, farmers fearing to lose their land see little point in investing in productivity increasing measures such as irrigation canals, pumps and fertilizers. Secondly, much of the land grabbed for speculation is laying bare. While the new government seems aware of the issues, so far little has been undertaken as any attempt to improve security of tenure would mean a direct confrontation with the military.

Besides the remaining uncertainty in regards to land-rights, the recent government ordered halt of 185 construction projects approved by the previous administration caused upheaval among investors. While the suspensions are intended to ensure greater compliance with safety standards, investors are concerned about the demonstrated policy unpredictability and the seemingly low regard for economic issues and cooperation with the business community.

Indeed, de facto leader Aung San Suu Kyi´s economics team hardly inspires confidence. The new minister of planning and finance Kyaw Win holds a master´s degree and doctorate awarded by a Pakistani university known for providing fake diplomas, while the minister of commerce, Than Myint, gained his credentials from an unaccredited correspondence school. Even if Kyaw Win should be up to the task of steering the country´s economic policy, there are signs that the Minister also heading the Investment Commission (MIC), responsible for approving investment projects, is overstretched. With the ongoing reformation of the MIC the backlog is growing, as of June 2016 more than 100 investment projects were awaiting approval.

While the government’s new economic plan provides some indication as to the future economic direction of the country, it does little to quell investors’ concerns. As the administration fails to provide policy predictability, comprehensive reform and legal stability, investors become increasingly reluctant. “We have not heard their broad economic policy and direction yet. Not much interaction has happened” says Win Win Tint, CEO of Myanmar´s largest supermarket chain City Mart Holdings. Ms. Win Win Tint´s company has scaled back projects for next year due to the lack of “encouraging policies” and economic certainty.

BDG Insights

As of now Myanmar´s potential lies mainly in the low-cost sector, namely the garment and foodstuff industry as well an infrastructure construction. It is, moreover, a resource rich country, possessing significant oil and gas deposits. Besides, demand for convenience products is growing slowly but steadily. Nevertheless, the art of doing business in a country in transition is a difficile one. Investors should seek expert advice and undertake a comprehensive risk assessment before investing in Myanmar.

Sources: 1, 2, 3, 4