Myanmar: New Challenges of Economic Transition

09 Jul, 2013    ·   4028

Yves-Marie Rault on how the economic system has been transformed and impediments to its growth

Yves-Marie Rault
Yves-Marie Rault
Research Intern

Until a few years ago, as roaming services were inexistent, a foreign visitor who wanted to use a cell phone in Myanmar had to buy a local SIM card for the sum of USD1500. However, there are now around 500,000 tourists each year - symbol of the stupendous economic transformation of the country - and this number is expected to grow by 20-30% this year. After 50 years of military government, economic prospects obtained a brighter hue for Myanmar, which is planning on an average yearly GDP growth of 8.8% by 2030. The transition to a market-oriented system is on track with Myanmar, to quote the IMF, establishing itself as “Asia’s next economic frontier”.

However, the faster the change, the bigger the upcoming challenges. How deeply has the economic system been transformed? Which new challenges has this rapid evolution brought? Will the government be able to address these?

Myanmar’s Economy: The Overhaul So Far
In 2009, a massive series of privatisations was launched by the government, and Myanmar’s economic system embarked in a total overhaul at the macro level. The unification of the exchange rate of the Kyat was achieved with success, bringing down the black market of national currency and thus removing one of the major dissuasions for foreign companies’ settlement. Several laws facilitating foreign investment were enacted, making Myanmar the new "pasture" for Multinational Corporations. They are now allowed long-term bails for land rents, do not have to resort to a local partner for investment, are exempt from fiscal payment for 5 years, and the creation of joint-ventures has been eased. Hence, Myanmar saw a rush for bounties on oil, wood, natural gas, and mineral reserves of the resource-rich nation, as vast areas remained virgin, particularly offshore.

If the FDI has so far mostly concentrated on extractive industries, other sectors, such as tourism, are increasingly taking part in the process of economic development. With 60 million inhabitants and an emerging consumer market, including the availability of a cheap workforce and new outlets, foreign companies found in Myanmar, a chance to build a “fit for purpose economy”. The metamorphosis of Myanmar has been quick and is ongoing. Western brands started to appear in the market, commercial buildings are springing up, ATMs are mushrooming in the largest cities. Besides, several plans to create Special Economic Zones (SEZs) are becoming a reality. The Thilawa project's area of 2000 hectares in the Yangon region will soon emerge from the soil.

Infrastructural and Energy Deficiency
Booming Myanmar will have to face new challenges, as its economic growth of 6.5% in 2012 is expected to be inescapably increasing. In the long-term, the lack of adapted infrastructures could create a bottleneck, burdening its rapid development. This lack of infrastructural development in the country can be explained by the historical myopic vision of the importance of roads, railways, or tourism facilities and almost no investments made in the same. Although, now, several contracts have been signed with building companies, the transport network still remains to be developed and the existent routes are in a bad state. For instance, regarding the telecom sector, Wi-Fi services remain limited to few five-star hotels in Yangon, and only when they are not subject to power cuts.

With the expansion of tourism, mining, and agriculture, the economy's needs are growing more and more demanding. Consequently, the country has been thrown into a state of serious energy crisis. As of today, more than 50% of the population does not have access to electricity. Wedged between energy-hungry countries, Myanmar will face more problems of the kind if steps are not taken to ensure its autonomy. China and Thailand are the largest investors in dams and exploration platforms in Myanmar, but they are also the countries which drain most of its energy.

The Need for State Proficiency
The arrival of western companies is a new hope, but as the state of law is not complete, it is also a new risk. Although some countries, like the US, require their national firms to report on their activities and to adopt a reasonable attitude, yet there is no compulsion to act according to their commitments. Corruption is still spreading its roots and the elite, mostly composed of military families who own the lands and keep connections with the ruling class, could avail the best of the growth. This, added to an unstable legal framework and the weak enforcement of property rights, could undermine financial transparency and a fair wages repartition.

As investment is flooding in Myanmar, a strict and well managed system of checks and balances, coupled with strong state regulation is a must. It will require the quick establishment of adapted institutions, and for this, the help of the IMF and the ADB will be crucial. If the government manages to handle the new challenges of the economic transition, Myanmar could soon become the latest tiger of Southeast Asia. Otherwise, the recent enthusiasm aroused by the country could turn out to be no more than a flash in the pan, and Myanmar might immediately drop back to square one.