Midterm report card: Myanmar’s economy is not working


In another 2.5 years’ time, many voters will be asking what the first NLD-led administration has delivered. The current numbers are hardly encouraging.

Between April and August this year, approved FDI totalled US$1.4 billion, less than half of the US$3 billion forecast by the government for the April-September six-month period between the two fiscal years. Meanwhile, the average international load factor, the country’s international flights, was a mere 60 percent in 2017, as visitor numbers inched up by only 2pc in the first half of this year. Just last week, Fitch Solutions Macro Research downgraded Myanmar’s construction industry growth forecast, citing political factors and the slowing of reform momentum.

First of all, inertia is to be blamed. Let’s take a look at the energy sector as an example. The national electrification plan aims to achieve universal electrification by 2030, but state subsidies are standing in the way of attracting investments for power projects and hence bringing electricity to the population. Despite claiming that electrification is a top priority, Nay Pyi Taw fails to change the tariffs in spite of 2.5 years of deliberation. Myanmar’s electricity price for businesses remains financially unsustainable, with the lowest rates in ASEAN. The residential rate is even lower. Currently, the wealthiest residents in Yangon purchase subsidised electricity below cost.

Small wonder that leading tycoon Serge Pun weighed into the debate last month and remarked, with energy and electricity minister U Win Khaing present, that the government’s policy of subsidising all users “has always been wrong”. “I hope the minister will support that view,” Mr Pun added. Whatever the minister thinks is secondary – there has been no progress on the country’s energy tariff reforms to date.

For some sectors, inaction has been disguised as reforms locked in “perpetual delays”. There are still no regulations to end the dominance of the state-owned insurance firm and put a halt to state-controlled pricing over existing service providers. Initially, the insurance market was supposed to be liberalised in the first quarter of 2017. This administration has now been in office for 2.5 years and yet no actual change has taken place at all in liberalisation, bar Thilawa. Foreign insurers which have set up representative offices in the country are asked to keep waiting with one delay after another.

More recently, the Insurance Business Regulatory Board claimed that the sector would be opened up during the next fiscal year. But, with the government’s record, it is increasingly difficult for businesses to take their word for it.

Too late, too little

Whenever a modicum of reforms did come along, they were also stalled and undermined.

After the List of Restricted Activities No. 15/2017, which allowed foreigners to invest in retail and wholesale businesses without restriction, was issued by the Myanmar Investment Commission, it took the commerce ministry over one year to publish a directive in May to partially liberalise the retail and wholesale sector. But when the policy was announced, the ministry failed to tell investors how the capital requirements were defined and implemented.

The policy already places substantial financial restrictions on foreign investors (US$5 million and $3 million paid-up capital for 100pc foreign investments in wholesale and retail businesses, respectively), as well as the minimum floor area (foreign investors or joint ventures are not allowed to operate stores smaller than 929m2). Given the huge delay and confusion, news that the ministry was considering further limiting foreign players had left people wondering whether the government is united in their commitment to promote investment and deliver reforms at all.

This mirrors the policy chaos in the tourism sector when the immigration ministry required East Asian visitors to have US$1,000 in cash upon arrival under new visa arrangements. The authorities ditched those rules within a week after the announcement. Nonetheless, the backlash has probably scared off more tourists in the short term than those attracted by visa relaxations.

What was said constitutes only a small part of a bigger problem. Foreign lenders remain virtual outsiders in retail banking, while the stasis of the banking sector continues with regard to liberalising financial services and interest rate controls, as well as the restructuring of state-owned entities. Joint-venture airline proposals have been repeatedly rejected even as local airlines throw in the towel one by one.

Energy tariffs aside, all the developments above reflect that the NLD-led government is mired in red tape as much as it is in protectionist policies, shielding vested interests and established players from competition. By fending off foreign participation in large parts of the economy, the government has missed the opportunity to secure investments and job opportunities for the people of Myanmar. At the same time, Nay Pyi Taw has also failed to give ordinary people the ability to choose by limiting foreign companies from providing services and products efficiently.

Of course, there is some good news under this administration. The new Investment Law which came into force last year and the new Companies Law implemented in August are major pieces of legislation intended to improve the investment environment and allow domestic businesses to seek foreign capital and know-how. The fight against corruption – via a legislative amendment and private sector dialogue – is also encouraging.

Elsewhere, the Directorate of Investment and Company Administration has led public consultation on draft laws and proactively engaged with the private sector, while the appointment of the new finance minister, U Soe Win, has been well received by the business community. Confidence on him, however, is falling as the insurance liberalisation has been stalled again.

The upcoming Myanmar Sustainable Development Plan (MSDP), published last month, is a sensible framework for the country to map out its infrastructure needs. The IMF called the MSDP “a good first step” towards setting reform direction and building an inclusive development agenda. In addition, the education sector has finally moved forward, granting international institutions a near-level-playing field.

But when placed against the broader picture and the fact that this government spent half of its entire term to take one good step, time is running out for Nay Pyi Taw to deliver change on the economic front. By 2020, the political leadership will have a lot to answer for.

Source: Myanmar Times

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