Managing great expectations of the new Myanmar
The world’s expectations of Myanmar have swung wildly in recent years.
Hopes were sky-high following the National League of Democracy’s (NLD) victory at the 2015 elections, led by Ms Aung San Suu Kyi. But now, these have given way to a somewhat more downcast outlook.
Some projects approved under the previous administration have been re-assessed, and foreign investments have been slow.
The level of approved foreign investment into Myanmar dropped from US$9.5 billion (S$13.15 billion) in the last fiscal year to US$6.6 billion this year — the first fall since the country began opening up its economy four years ago.
Myanmar’s gross domestic product growth, too, has declined — from 7.3 per cent in 2015 to 6.4 per cent last year.
However, it would be premature to write off Myanmar, and Singapore certainly has not. Just recently, Singapore Minister of Trade and Industry (Trade) Lim Hng Kiang hosted a Myanmar delegation in Singapore, led by the Union Minister for Planning and Finance, Kyaw Win.
The meeting concluded with the signing of a memorandum of understanding to develop key sectors in Myanmar, including urban solutions, transport and logistics, utilities and professional services.
There are investments and projects moving ahead, serving as positive examples of how businesses can move forward, and what the Myanmar government can do.
When the Thein Sein administration began opening up the country in 2012, there was a stampede to enter “the last frontier” market.
There was a second wave of optimism when the NLD secured a landslide election victory at end-2015.
But really, did anyone think that doing business in Myanmar would be easy?
After almost 50 years as a closed economy under military rule, a backlog of issues remains. The need to upgrade physical infrastructure is obvious.
Since the colonial era, the country has suffered chronic blackouts, and the aged energy infrastructure is incapable of handling the rising demands of a developing country.
The need to rely on generators significantly adds to the costs of doing business.
Financial systems and political structures — certainly no less important — are less visible, but also in need of repair.
In the financial sector, following a number of bank failures and crises, an informal money-lending hundi (remittance) black market has emerged. Less than 20 per cent of the people use formal financial services.
This limits the Central Bank’s ability to reform the country’s financial system effectively. The government is also limited by the absence of a working tax system.
In politics, the majority of current headlines focus on the mistreatment of the Muslim minority in Rakhine state.
Few report on Ms Suu Kyi’s slow-moving peace process to end the long-standing civil war that involves some 15 different armed rebel groups. Many have their own standing, armed militia forces, as well as secured sources of income — often from cross-border contraband trade.
Long-term efforts are needed to tackle the complex issues that confront Myanmar.
This is not to say, however, that there is nothing the NLD government can do to improve matters.
Ms Suu Kyi herself acknowledged this at the commemoration of the NLD’s first year in power.
She had called for her people’s support and patience for her government to prove itself, adding that she would “return the position if there is someone who can do this better than us”.
For foreign investors, it is important to remember the characteristics that drew them to Myanmar in the first place — abundant natural resources, a strategic location, a large young population looking for jobs, and an untapped and potentially sizeable market. Moving forward from a low base, these keep the economic undercurrent strong.
Despite uncertainties and delays, things are moving ahead, such as in the real estate, construction, manufacturing and retail sectors.
Development of the Thilawa Special Economic Zone on the outskirts of Yangon has progressed significantly.
This attracted more than US$122 million foreign direct investment over this fiscal year, according to Myanmar’s Directorate of Investment and Company Administration.
Much of this is through the strong partnership that Japan has built with a local consortium led by Mr U Win Aung, the chairman of Myanmar Thilawa SEZ Holdings and Dagon Group of Companies.
Myanmar’s Shwe Taung Group has partnered Singapore property developer Keppel Land to complete the 23-storey Junction City towers in Yangon this year, offering office spaces that are drawing international companies and MNCs.
Another new property development in downtown Yangon, called Yoma Central, is led by Singapore-listed Yoma Strategic Holdings with Japanese backing.
The mixed-use development project is the largest foreign direct investment in the real estate sector, valued at some US$718 million.
A larger and steadier pipeline of projects is needed.
A step in that direction has come from infrastructure consultants Surbana Jurong, which recently signed a memorandum of understanding with the Myanmar Construction Entrepreneurs Association to find ways to develop much-needed low-cost housing in Myanmar.
Despite the more sombre outlook, Singapore’s companies are still investing in Myanmar.
The World Bank projects that Myanmar’s economy is set to rebound.
For the next three years, the forecast is for an average growth of 7.1 per cent per year. Given the backlog of issues to be tackled, the NLD needs to take visible steps forward in the coming months.
Firstly, the government needs to work more closely with local conglomerates and foreign investors, and consult them when making policy.
The NLD is used to being in the opposition camp and may harbour suspicions about dealing with big businesses. But unless addressed, gaps will grow between public and private sector expectations.
Secondly, the government has passed a new investment law and other regulations which are untested.
Administrative agencies should take the additional effort to closely guide investors through the new processes quickly and with greater certainty.
Thirdly, the NLD government needs to coordinate more closely among different ministries and regulators.
This has never been easy, and ministries can be highly autonomous, even with their own land holdings.
Myanmar faces many challenges; and thorny issues like the peace process and deep-rooted corruption can take years to resolve.
However, some stability and incremental improvements can go a long way in boosting foreign investment.
At the same time, those seeking to invest in Myanmar must be realistic and be prepared to take a measured risk, with a large dose of patience and persistence.
ABOUT THE AUTHOR:
Associate Professor Simon Tay is the Chairman of the Singapore Institute of International Affairs (SIIA). The SIIA will hold its 2nd Asean-Myanmar Forum on June 28 to discuss the future of business and investment for a new Myanmar.