Don’t blame “economic malaise” on Rakhine, business groups warn, calling for less protectionism, gerontocracy

Two major business groups in Myanmar have warned against blaming all of the country’s economic woes on the northern Rakhine crisis, urging the government to tackle protectionism, involve the younger generation and provide clarity in the regulatory environment.

The British Chamber of Commerce Myanmar (BritCham) said Rakhine is “far from being the sole or main factor” in Myanmar’s “current economic malaise”, while the European Chamber of Commerce in Yangon called the misconception that Western FDI is not forthcoming purely because of Rakhine “cannot be further from the truth”. In reality, the lack of clarity on regulations and fumbling of reforms have deterred many international investors.

But both organisations warned that the humanitarian nightmare looms large for Myanmar “like a sword of Damocles” and that trade promotion abroad for the country has therefore been made “mission impossible”.

The intervention came as the National League for Democracy-led (NLD-led) government just reached midpoint of their five-year term and has come under increasing pressure over its handling of the economy. Local officials have sought to explain the disappointing FDI inflow and falling investor interest as a result of the reaction of Western investors to the catastrophe in northern Rakhine.

Stop the blame game

“It is never easy to pinpoint specific matters being ‘responsible’ for the current economic malaise in which Myanmar finds itself. Undoubtedly the advent of Rakhine has had a critical role in reversing the positive developments the economy had experienced from 2014 but it is far from being the sole or main factor,” the BritCham board wrote to The Myanmar Times in response to questions via email.

Meanwhile, Filip Lauwerysen, executive director of EuroCham, argued that “it cannot be further from the truth to say Western investments are not entering Myanmar purely because of the Rakhine crisis.” “Of course there are many factors contributing to the existing difficult business climate in Myanmar. While the problems surrounding the Rakhine conflict have damaged the ‘Myanmar brand capital’ tremendously … it is wrong to attribute all the economic woes to the Rakhine issue,” he cautioned.

However, this doesn’t mean the humanitarian crisis has no impact.

“Rakhine is certainly one issue that hangs over Myanmar like a sword of Damocles. The chance the country had to address the matter in the international arena with more positive communication and rhetoric is now too long gone for Myanmar to have any credibility,” BritCham warned. To move forward, the government needs positive help on local and international communications, which is a major void in the capacity of the NLD-led administration.

Myanmar as an investment destination is tarnished. It has become “almost impossible for anybody working in trade promotion for Myanmar, who is tasked with ‘selling’ the country as a possible investment destination, to avoid very critical questions regarding Rakhine from investor audiences in Europe,” according to the European chamber. “That task has been rendered ‘mission impossible’. So Myanmar misses out on all those that now decide to ‘wait and see’,” Mr Lauwerysen lamented. European investments in the near future will largely depend on companies which are already active in Myanmar or the ASEAN region.

Economic woes

The verdicts from both business groups were scathing towards the direction of the economy under the incumbent administration.

“Even if you take away the Rakhine issue, investor confidence has been hit by the lack of progress in abolishing protectionist policies or creating a level-playing field for foreign investors, lack of policy clarity or consistency, and red tape,” Mr Lauwerysen observed. His “gut feeling” is that investor confidence has worsened further compared to 2017.

“When I arrived in Myanmar in 2015, it was the fastest-growing economy in the world. The following year it dropped to number 9 and this year it’s not even in the top ten,” the EuroCham chief went on.

Similarly, BritCham criticised that it is “hard to identify any areas of positive development momentum gained under the new regime” despite the World Bank’s estimates showing positive growth, warning “the vortex of negativity is only growing.” “It does not feel like ‘positive growth’, the business community is feeling increasingly frustrated at the lack on [sic] inertia under the incumbent administration and the vortex of negativity is only growing. Myanmar is being vilified almost back to ‘pariah state’ status following the events in Rakhine and the recent report of the UN Fact Finding Mission.”

Referring to the article “Midterm report card: Myanmar’s economy is not working” published by The Myanmar Times earlier this week, the BritCham board said the piece “correctly identifies a litany of faltering attempts by the NLD administration to further the developments in the economy” and that the country had, hitherto in 2015, been “riding quite high” on initiatives instigated by then-President U Thein Sein’s administration.

Among the problems, the finance sector is “providing limited if any fuel” to pump the economy. The local currency has tumbled against the US dollar and “Kyat confidence plumbs new lows almost on a daily basis.” “There would appear to be no confidence in the Central Bank’s ability to manage the Kyat – it lacks the tools or the incumbent expertise on all fronts. And this position will not change while there is no manifest action to upskill the CB institution,” the business group said.

Time to act

There are now less than 2.5 years before the next General Election in 2020. Yet the BritCham leadership cautioned against delivering specific reforms because of the election schedule. Instead, the government’s actions should be established by its manifesto promises under which it was elected in November 2015.

While in 2016 the NLD provided a broad 12-point economic plan centering on the idea of “change”, it has finally been more specific on the deliverables in the Myanmar Sustainable Development Plan (MSD), published in August, more than two years after they took office.

“The government has therefore left themselves very little time for executing the MSDP, having deliberated long and hard on what this should be. Is it too little too late? No, it is never too late to start the execution of a Plan. But… the journey does need to start! And this is as much about communicating the action as about the action itself,” the business group noted.

In retrospect, it has to be acknowledged, rightly or wrongly, that a major tenant of the NLD manifesto promise was to deliver “peace” and the final “creation of the Union of Myanmar”. It took the NLD a “considerable period of time to accept that peace has proved elusive”. Only when that conclusion was reached would appear that the economy has taken a front row seat among this administration’s priorities.

Protectionism and other barriers identified

The board of British Chamber of Commerce Myanmar has identified a number of key issues which Nay Pyi Taw should effectively tackle.

Firstly, control of policy and action within the NLD administration is “suffocating and very tightly held”. In the private sector, it is widely accepted that authority needs to be delegated and devolved as an organisation grows. The same applies to running a government, and it is even accepted that certain parts of the “administration” are off limits to the civilian government. Further devolution and decentralisation are necessary.

Secondly, the continued lack of clarity in the regulatory environment has counted against Myanmar’s development. There have been various decisions which have “served to muddy the waters for investors”, on labour contracts, lack of a transparent tax environment, poor corporate governance and lack of the capacity to hedge the local currency risks.

For example, the oil and gas sector had been expected to be a crucial export earner for Myanmar, but regulators have been unable to discern what key terms of the EPA are to attract funding from foreign firms to exploit the discovered opportunities or for further exploration. As a consequence, a significant number of offshore licences sold under U Thein Sein’s administration have been returned unexploited. Meanwhile, Nay Pyi Taw has been unable to come up with an effective electricity tariff structure – with their own requisite backing in the form of sovereign guarantees – to make energy projects viable to the private players, despite a vast investor interest.

Thirdly, Myanmar’s progress has been “glacially slow” in solving the four areas considered by the World Bank as the main impediments on doing business: access to land, utilities, finance and human capital. The government needs to address these and make the country competitive in the region.

Fourthly, protectionism is stifling the country. “The suffocating theology of protectionism is enabled by the gerontocracy that is the pillar of the structure of Myanmar society,” the British chamber observed. The issue of protectionism has been discussed at length in the tea houses, where the consensus points to the need for the younger generation to take up a more prominent role in the establishment and direction of policy. In the younger generation, there is a significantly wider recognition of the value of liberalisation.

The private sector has long encouraged minimal interference by government in business. It has pushed where possible for faster and more aggressive liberalisation on all fronts. “The parallel with other ASEAN economies which have liberalised their markets to foreign investors is evident for all to see. This scenario has been promoted widely within the existing administration… but fallen on the deaf ears within the gerontocracy.” That is partly why Myanmar is not making progress.

There is an old saying “there is none so blind as those that cannot see”, counselled the business group. “The parallels are stark, the lessons are there to be learnt … but the administration chooses not to see them.”

SOURCE: MYANMAR TIMES

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