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Myanmar’s economy is robust now but faces a risky future

Myanmar’s economy is currently showing robust growth, but its future is uncertain because of some inherent internal issues and international economic trends, the World Bank says.

In Its latest six monthly ‘Myanmar Economic Monitor’, released last week, the World Bank has predicted that the country’s economy will grow at over six percent in the coming financial year, a slight increase over the growth in the previous financial year. But at the same time, it has warned that the on-going conflicts in the country will pose a major problem for businesses in the longer run.

“Myanmar continues to experience robust growth but as the global economic environment deteriorates, the importance of domestic factors -- like the challenges of continued conflict –affect investor sentiment and may hamper the country’s long-term prospects,” said Hans Anand Beck, Lead Economist of World Bank Myanmar, at the launch of the report in Yangon.

According to the report, the presence of armed groups and conflicts posed additional challenges for businesses in a third of the country. Those businesses operating in conflict-affected areas bear additional costs to stay open. Above all, conflicts discourage increased investment, especially from abroad.

“Urgent action is needed to address the sources of conflict, improve social inclusion, and foster a diversified and responsible private sector to sustain economic performance and set the foundation for Myanmar’s future prosperity,” Beck said.

But other factors, including low private sector productivity and constraints of finding finance, lack of a reliable supply of electricity, shortages of skilled workers and land issues are also likely to strangle growth, the report said.

Global and regional growth has been lower than expected and trade tensions remain, which could affect Myanmar’s future economic growth. Volatility in the Middle East, which could affect oil prices in the long-run, and fluctuations in the value of the dollar will also have an impact.

However, the World Bank still expects strong economic growth buoyed by growing investment – public and private -- in the transport and telecommunications sectors and the planned government infrastructure spending in the lead up to the 2020 elections.

According to the report, reforms have lifted Myanmar’s ranking in the recent World Bank Group ‘Doing Business Index’. But firms in Myanmar need greater access to finance, land, and skills, better connectivity, and an enabling business environment to support a responsible private sector.

It recommended that polices should be geared towards private-sector-led growth by fostering market expansion, improving allocation of resources and developing the capacity of market participants.

This upbeat World Bank assessment is endorsed by many of the European companies which are operating in Myanmar, though they also share many of the Bank’s concerns.

European businesses, according to the annual Euro Cham Myanmar Business Confidence Survey for 2019 published in December, are now more confident about the long-term potential of the country and the prospects of doing business here than they were a year ago.

“The survey showed an improvement of 35% compared to last year in how companies view the current business environment, a positive change mostly due to improvements in the legislative framework,” Gerdien Velink, Euro Cham Myanmar’s business development manager told South Asian Monitor (SAM).

More than a third of the companies surveyed said that the local business environment has improved over the last twelve months –nearly 20 percent more than in the last survey. Almost two-thirds of European companies believe that the business environment in Myanmar has improved or at least has not worsened.

“The improved confidence of European businesses can also be seen elsewhere, with more businesses having expanded their footprint in the country by investing and developing their business in new cities such as Mandalay and the Shan State,” said Nicolas Delange, chair of Euro Cham Myanmar.

The majority of the European companies expect their market share to increase in the coming years. Most companies surveyed expect their profits to increase in the coming years, or at least stay the same.

But despite the increase in European confidence in Myanmar’s potential, further investment is being hindered. Nearly half the companies surveyed do not plan to invest in the coming year. The challenges limiting Myanmar’s potential for growth, according to the European businesses surveyed, are perennial and similar to those identified in last year’s survey.

“In addition to the degree of legal uncertainty, European businesses consider the lack of skilled labor as a major factor hindering investment and growth in the Myanmar market,” said Velink.


“However, it is essential to note that a new risk is rising for European companies doing business here: the human rights’ situation in the country. Addressing these issues is fundamental to unlocking Myanmar’s potential, especially for long-term investors like European companies,” Delange said.

European businesses said that the government must do more to improve the business sentiment. “The government should promote an open, sustainable, transparent, and inclusive business environment,” said the Euro Cham business development manager.

Poor healthcare, education and the urgent need to further develop infrastructure should be addressed.

“Training of human resources should be one of the government’s key priorities,” they add. This view resonates among local businessmen also. “Skills development is perhaps the most important issue for the country’s development,” said Zaw Naing, CEO of Mandalay Technology. He is one of the new breed of independent Myanmar businessmen.

He believes that the government should establish and finance a National Skills Development Fund that provides free of charge skills training for semi-skilled and unskilled workers. “Private skills and vocational training centres should be encouraged rather than grand government-owned training centres, where limited skill training is provided free of charge but with limited long-term sustainability,” Zaw Naing said.

Another prominent entrepreneur, Thu Zaw, who owns Sithar Coffee Company, – was also insistent that skills or capacity training must be at the forefront of government policy. This must also include training the civil servants and changing their mindset. He felt that industry and government needed to be overhauled and ‘new blood’ introduced.

“Recruit younger and dynamic talent in all sectors in the country,” he told SAM. This should also involve increased and appropriate remuneration for those who are promoted to senior positions.

Most Myanmar businessmen agree that infrastructure improvement and increased reliable electricity supply are essential for Myanmar’s development and for attracting investment, local and international. “Without proper and adequate infrastructure, businesses are understandably reluctant to invest,” said Zaw Naing.

Although there is obviously much to be done in the financial sector, Myanmar’s financial reforms have added a new dimension to the economic outlook. And there is more to come.

“Further financial sector liberalization is in the pipeline,” said Sean Turnell, economic advisor to the State Counsellor Aung San Suu Kyi. And this, he believes, will lead to a much needed and welcomed 'democratization of finance'.

After the reform of the insurance sector last year, insurance providers are preparing to introduce more policy options into the market this year. With only one percent of the country's population exposed to insurance, there is huge potential for growth, according to William Maung, an independent Myanmar financial analyst and author of two books on Myanmar’s insurance industry.

“We are at the beginning of a fast-growing phase, with a surge of interest and enthusiasm at all levels of the market. The market will become more competitive and people will start developing more awareness of the benefits of insurance,” he said.

This will translate into higher interest and demand, and the rate of penetration in our industry will grow,” said Myo Min Thu, Managing Director of AYA Myanmar Insurance, which has several new products in the pipeline likely to be launched in the near future,

A further opening of the banking sector – to foreign banks – is expected anytime soon. And the rapid development of the country’s digital payments sector is expected to take off this year -- with new payment technologies and greater public awareness, which will in turn help economic growth and investment.

But there is no doubt that everything this year is going to be overshadowed by the elections in November. The government, politicians and the civil service will be preoccupied with the elections and this may hinder consideration of long-term projects that are not seen as having an immediate electoral impact.

“I can’t be bullish about the economic outlook this year,” said Kyaw Kyaw Hlaing, head of Smart group of companies and a renowned political commentator. “The National League for Democracy (NLD) will get back into power and we will have more of the same, a government which lacks credible policies, vision or a concerted implementation strategy,” he added gloomily.