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The first ever Myanmar Business Environment Index 2019 Report

 

The first-ever Myanmar Business Environment Index provides a tool for Myanmar government, businesses, investors, and the public to better understand the strengths and weaknesses of local economic governance in Myanmar. First pioneered by The Asia Foundation in Vietnam over a decade ago, and adapted to the Myanmar context in partnership with Duke University’s Development Lab, the Index is designed to objectively benchmark local economic governance. The Myanmar Business Environment Index is a diagnostic tool for Myanmar’s Union and state/ region governments to better understand the local business environment, and it serves as the first step for providing Myanmar’s Union and state/region governments with the data necessary to pursue widespread economic governance reforms. The Foundation also looks forward to conducting a second round of the MBEI in 2020 in order to illustrate ongoing changes in Myanmar’s economic governance.

 

The followings are the key findings from the Myanmar Business Environment Index Report 2019:

 

  1. Eighty-five percent of Myanmar businesses have at least one documented proof of formalization. Sixty-five percent of businesses in the MBEI sample have obtained only a township-level operating license, while an additional 17% possess an operating license from a City Development Council in Yangon, Mandalay, or Nay Pyi Taw. Only 6% of businesses possess a registration certificate from the Directorate of Investment and Company Administration (DICA). Fifteen percent of businesses are fully informal, possessing neither documentation of registration nor an operating license (see Figure 4 in report).

 

  1. Many businesses perceive administrative procedures for business entry as satisfactory. Although most Myanmar businesses have obtained only an operating license, 60% of Myanmar businesses report having all the required documentation that they believe is necessary to be fully legal within three months of starting the application process. Only 9.3% of firms complain of difficulties in obtaining the necessary documentation. However, the data shows that these procedures are still lengthier and more cumbersome than for firms in Vietnam.

 

  1. Informal payments may be less problematic for service and manufacturing SMEs than generally perceived. In general, MBEI enterprises report that informal payments are infrequent and small. Seventy-four percent of firms report that informal payments are not common for firms like them, and 79% pay less than 2% of their annual revenue in informal payments. Using a list experiment to shield respondents, we estimate that only 2% of respondents paid such facilitation payments (see Box 10 and Table 3 in report for details). In regards to informal payments in procurement, 68% of firms that participated in public tenders claim that commissions are not necessary for winning government contracts (see Figure 8). Experience with informal payments, however, varies dramatically across states and regions. Moreover, this geographic variation is correlated with corruption complaints filed in each state/region with the Myanmar Anti-Corruption Commission (see Figure 9).

 

  1. Firms show signs of trust in Myanmar’s contracting institutions. Eighty-four percent of firms believe that the courts judge economic cases by law. Seventy-six percent of firms also claim that legal aid supports businesses by helping them with legal procedures and dispute resolution. While many businesses may not have extensive experience with Myanmar’s court system, faith in courts bodes well for business confidence and plans for expansion.

 

  1. Post-entry administrative procedures are not terribly problematic  for  many  businesses,  but inspections are still a hassle. Regulation and administrative procedures after entry, such as recurring administrative tasks and business inspections, are also reasonable in international comparisons. Firms in Myanmar spend less time on paperwork and find officials more effective than the average Vietnamese firm. However, Myanmar businesses are twice as likely to face regulatory inspections and are much more likely to complain that regulatory fees are not clearly posted in local offices than similar firms in Vietnam.

 

  1. Many SMEs have surprisingly little difficulty with land access, possibly because they largely operate from their homes; however, titling takes too long.    Land access and security is a major policy concern in Myanmar, particularly for many agricultural communities, areas affected by conflict, and very large businesses. However, in most states/ regions, SMEs report adequate land or property ownership to provide confidence for long-term investment. Seventy-eight percent of businesses in the MBEI survey operate on property that is owned by the owner of the enterprises. Fifty-six percent of businesses operate on family property, while 28% operate on property purchased from another party. Only 22% of businesses operate on property that is leased from government (5.2%) or from another private party (16.7%). Opportunities for improvement remain, however. The land titling process takes about 90 days after a firm submits all supporting documentation, which is a lengthy waiting period by international standards.

 

  1. Low quality infrastructure is leading to lost business hours and spoiled products. Quality of infrastructure is a severe concern for businesses in Myanmar. In particular, firms express dissatisfaction with road quality and electrical power (only 49% of firms say these features are good or very good). Firms are more positive about the telephone (66% report good or very good) and Internet (54% report good or very good). However, even these infrastructure features have problems. The median firm experiences 20 hours of lost telephone and Internet coverage, and 20 hours of lost electric power in the past month; and the median firm claimed to have lost 7 days of business transport activity due to flooded roads. These types of road and power outages can cost firms tremendous amounts of money in lost and spoiled products (see Section 3.5 for details).

 

  1. Access to vital information necessary for business is extremely low,  and major improvements in government transparency are still necessary. In general, businesses have very limited access to important planning and legal documents provided by the government. Only 3.6% of firms report having access to the state or region budget, and only 4.3% of firms report having access to new investment plans. Among the application documents reviewed for this study, the easiest to access were standard application forms for fulfilling regulatory processes, yet only 26.9% of firms had access to these forms. This lack of government transparency is likely to reduce investment, as firms need to understand how to comply with government regulations and how to maximize their earnings potential in line with government investment and budget plans. Transparency provides firms with the certainty and stability necessary to do so effectively (see Section 3.6).

 

  1. Strong favoritism exists toward businesses with connections. The business environment in Myanmar remains biased in favor of businesses with connections to elite decision makers, which distorts investment patterns and reduces business productivity. Sixty-four percent of respondents claim that the government has shown favoritism in land access for businesses with strong connections, and 44.6% of firms believe that there is also favoritism in access to loans. But only 19.8% claim that there is favoritism in access to information, and only 25.2% of firms claim that there is favoritism in administrative procedures. As with informal payments, bias varies heavily by state and region (see Figure 12 in report for details).

 

  1. Qualified labor is hard to find. Recruitment of qualified workers, particularly elite technicians and managers, is a major problem for firms in Myanmar. Over half of respondents found it difficult to recruit manual rank-and-file workers, technicians, accountants, supervisors, and managers. Moreover, finding good workers is expensive. The median firm spends 5.4% of its operating budget on labor recruitment. Taken together, these results imply that it is difficult and expensive to find qualified applicants (see Section 3.9).

 

  1. Business owners’ concerns about crime and security are hurting business prospects. Myanmar businesses feel strongly that the risk of physical harm and damage to property remains high. Only 37.5% of respondents believe that their local security situation is good, while only 44.9% of respondents believe that if government staffers violate the law, they will be disciplined. An extremely high 11.2% of all respondents were victim of a crime in the past year.

The data contained in the MBEI provides government, businesses, and other stakeholders with a valuable resource for improving economic governance and thereby boosting Myanmar’s future prospects for economic growth. The MBEI serves as a diagnostic tool for both Union and state/region governments in Myanmar to better understand local economic governance. The next step is to facilitate discussions between government, businessess, and civil society in order to identify solutions that will improve Myanmar’s business environment by working to address the challenges outlined in this report. In addition to providing lawmakers with insights for future policy and administrative reform, the MBEI also provides businesses and investors with a source of information for making investment and expansion decisions. Finally, it can also be a resource for donors and civil society organizations as they seek to support economic and governance reforms. Ultimately, the MBEI is designed to be a resource for improving Myanmar’s business environment and contributing to sustainable and inclusive economic growth.

Source: The Asia Foundation

 

You can download the full PDF report here

 

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