Booming Myanmar Gets a Crash Course in Capitalism: QuickTake Q&ABy
Myanmar’s economy is among the global pacesetters in terms of growth. By most other measures, it’s one of the laggards -- a legacy of five decades of isolationist military rule. The optimism that greeted the Southeast Asian country’s opening up to the world has been tempered by economic realities, even after Aung San Suu Kyi’s party formed a new government last year. Poverty persists, real growth has slowed and the currency has tumbled as foreigners defer their investment plans.
1. What happened to the flood of overseas investment?
Foreigners pumped in a record $9.4 billion in the year though March 2016, up from less than $2 billion five years earlier, when the junta began to loosen the political reins. But the flow has stemmed, with investment down to $5.8 billion with two months of the current fiscal year uncounted. The main reason: Businesses put their plans on hold in anticipation of clearer economic policies from the new government. Some investors were put off by international condemnation of the treatment of the country’s Rohingya Muslims, which has led human rights groups to criticize Suu Kyi and is a reminder that the generals still hold great sway. And there was a backlog in approving investment during the switch of power.
2. So this is just a pause?
Probably. The attractions for investors remain: a low-wage population of 54 million people hungry for goods, services and better infrastructure, and the proximity to the giant markets of India and China. Add to that the U.S. lifting of the last of its decades-long sanctions late last year. Then there’s Nobel Peace Prize winner Suu Kyi’s star appeal, which she put to use on a 2016 promotional tour that took in China, India, Japan, the U.K. and the U.S.
3. Any new legislation coming?
An investment law that will make it easier for foreign companies to gain tax incentives and a companies law that will allow overseas investors to buy up to 35 percent equity in local firms before they’re considered foreign-owned.
4. What about the economy?
Some are concerned whether Suu Kyi, the de facto head of government, and her National League for Democracy party are up to the task of managing the $63 billion economy. But growth continues at breakneck speed: the World Bank forecasts expansion of about 7 percent per year through 2019. Inflation has wiped off some of the gloss, but is expected to ease.
5. Is life changing for the better?
Not always. Slums are expanding as villagers flock to the cities for work, with 41 percent of the urban population now living in shantytowns. And for those with a home or business, soaring rents are squeezing tenants who must pay six months’ or a year’s rent up front. Myanmar scores badly on economic basics such as life expectancy (65.8 years) and child mortality (72 deaths per 1,000 before the age of five versus a regional average of 30). A quarter of the population live below the poverty line. Substandard road and ports infrastructure and access to electricity remain challenges in an economy that is reliant on minerals, oil, gas and agriculture.
6. What should the government do?
The World Bank says the government’s “overarching priority” is to strengthen the clarity, communication and credibility of economic policies. It called for the release of an economic vision that balances fiscal prudence and the need to expand public services. The International Monetary Fund wants the central bank to phase out financing of the fiscal deficit and employ more proactive liquidity management. More broadly, some critics argue Suu Kyi has taken on too much and needs to delegate some of her responsibilities.
7. Why is the currency suffering?
The drop in foreign investment and slowing exports widened the current account deficit, plunging the kyat to its lowest level in December since the exchange rate regime was liberalized in April 2012. The central bank has little ammunition to fight the decline, with just $5 billion of estimated reserves. The difference between the official rate and the informal market rate has grown and policy makers have reacted by limiting dollar cash withdrawals.
8. What about stocks and bonds?
The Yangon Stock Exchange, now a year old, is home to just four companies. Foreign investment in stocks is forbidden (officials plan to change that) and an investor must physically go to the market or speak with a broker to execute a trade. Deals worth more than $8,000 have to be approved by the securities commission, which is known to reject many such trades. Efforts are underway to develop the domestic debt market, with the government recently expanding Treasury bill auctions through the introduction of six- and 12-month bills. Authorities started bond auctions in September 2016.
9. Can Myanmar overcome the hurdles?
As the U.S. Chamber of Commerce put it: “The process of registering and operating a foreign entity in Myanmar is opaque and the legislative and regulatory climate is, at best, uncertain.” But as Tom Platts, head of Stephenson Harwood LLP’s Myanmar practice, added: “You cannot revamp the political, legal, social and economic infrastructure of a country overnight, particularly one with as many complexities as Myanmar.”
The Reference Shelf
- World Bank’s Myanmar’s December Economic Monitor.
- A QuickTake explainer on Myanmar’s political transition.
- International Monetary Fund’s staff report on Myanmar.
- Bloomberg reports on the rise of shantytowns in Asia.