Finpro Basic country study myanmar final

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Finpro Basic country study myanmar final

  1. 1. 1 Myanmar Basic Country Study Prepared by Finpro Malaysia March 2014
  2. 2. 2 TABLE OF CONTENTS P3 INTRODUCTION P4 POLITICAL DEVELOPMENT P4 GENERAL OVERVIEW P5 THE GEOSTRATEGIC FACET P6 THE REFORM PROCESS P6 POLITICAL RECONCILIATION P7 THE BY-ELECTIONS P7 THE LEGISLATION P8 BUREAUCRACY P9 FREEDOM OF EXPRESSION P10 ECONOMIC DEVELOPMENT P10 GENERAL OVERVIEW P13 ECONOMIC REFORMS P15 POPULATION P17 EXCHANGE RATE P17 FOREIGN DIRECT INVESTMENTS P21 MYANMAR BUSINESS OVERVIEW P21 NATURAL RESOURCES P21 MAIN INDUSTRIES P23 TRADING PARTNERS P24 INVESTMENT PROGRAMS P25 MATURITY/DEVELOPMENT PHASE P26 INTELLECTUAL PROPERTY P27 SUB-AREAS/CITIES & LEADING ECONOMIES P30 DOING BUSINESS IN MYANMAR P30 INFRASTRUCTURE P32 PEOPLE & SOCIETY P33 LOGISTICS & TARIFFS P34 CORRUPTION P35 FACTORS FOR DOING BUSINESS P36 COUNTRY RISK ANALYSIS P36 COUNTRY RANKINGS P39 OUTLOOK P41 APPENDICES P41 SOURCES P44 LIST OF ABBREVIATIONS P45 MAP OF MYANMAR
  3. 3. 3 INTRODUCTION Recent political developments have pushed Myanmar on the path of the 21st century with governments and businesses in Asia and the West closely monitoring the reform process. The most recent milestone of the reform process has been the by-elections on 1 April 2012, which were considered a great success and a major step towards progressive developments in Myanmar. The election result did not just give a window of opportunities to Myanmar's opposition leader Aung San Suu Kyi. It also provided a chance for the international business community to participate in the newly developing market after more than a decade of sanctions. Myanmar1 is arguably the last economic frontier in Asia. For decades, the country's economy was outperformed by its neighbours. Every private, semi-government and government sector is decades behind in development when compared to Myanmar’s peers in ASEAN. What sets Myanmar apart from other underdeveloped nations in Asia is the fact that the country is rich in resources such as vast oil and gas reserves, hydropower, minerals and timber, located mainly in the ethnic minority regions. Myanmar also has a large, relatively young population representing potential domestic demand and competitive labour. Due to the “remarkable progress” culminating in the by-elections, the EU and the US did suspend most sanctions, keeping the arms embargo in place. With the suspension of the sanctions, the country's growing attractiveness has led to a noticeable hype by foreign investors and in media coverage that can be found in many investment reports and press releases. While Myanmar offers considerable investment opportunities, significant challenges will remain in the short and medium term. On the other hand, long-term investors might find attractive rewards. This Basic Market Study examines the significant political and economical transformation processes now taking place in Myanmar, providing perspectives on the recent developments, the current reforms and the opportunities and challenges resulting for foreign companies and investors. Topics covered are the Political Development, Economic Development, Myanmar Business Overview, and Doing Business in Myanmar. 1 In 1989, the government of Burma changed the official name of the country from the Union of Burma to the Union of Myanmar. In 2010, the name was officially changed to the Republic of the Union of Myanmar. In 2005 the government was relocated from Yangon to the new capital Naypyidaw.
  4. 4. 4 POLITICAL DEVELOPMENT GENERAL OVERVIEW Myanmar gained its independence from Great Britain in 1948. The country is home to more than 135 ethnic groups, some of which are situated in areas known to hold most of Myanmar's valuable natural resources. Post-colonization and the issue of ethnic minorities' separatist aspirations were the main reason for a coup d’état by General Ne Win in 1962, which brought the Revolutionary Council to power, centralised control and nationalised the economy. Ne Win, failing to bring prosperity to Myanmar, turned the country from Southeast Asia’s richest nation into its poorest. The military became the most powerful institution in the country with strong influence in the economy and on society.2 By 1988, the "military-crony economy" was removed following nationwide demonstrations, known as the 8888 Uprising that brought down Ne Win's regime and replaced it with a liberalised economy. The new economic system was still dominated by military entrepreneurs with a lack of clear demarcation between government-owned businesses and private enterprises. The EU and the US had imposed sanctions on Myanmar since 1989 in response to serious human rights violations. This stands in sharp contrast to China and other neighbouring countries that have maintained close trade relations. The sanctions have led to international isolation as the regime failed to achieve objectives of restoring democracy. The multiparty elections in 1990 saw a decisive victory for the National League for Democracy (NLD), the opposition party led by Aung San Suu Kyi that won 80% of the seats. The military-backed party, the Union Solidarity and Development Party (USDP) had, in contrast, a mere 2% of the vote. The State Law and Order Restoration Council (SLORC) imposed martial law, refusing to validate the election result and to relinquish power. The monk-led protests in September 2007 were the largest against the regime since 1988, but they did not lead to change. A new constitution was revealed in April 2008, outlining the "road to democracy" that ensured the military's retention of power in a nominally democratic system after parliamentary elections were held in 2010; reserving for the military a quarter of seats in the parliament and a further 58% held by the military-backed USDP.3 The military regime, renamed in 1997 to the State Peace and Development Council (SPDC), was formally dissolved on 30 March 2011. The former head of state, General Than Shwe, was replaced by Thein Sein, the first civilian president of a new, nominal civilian government in nearly 50 years.4 This political change was possible mainly due to the 'retirement' of General Than Shwe and his deputy Maung Aye, leading the path for former General Thein Sein to become president. To somehow keep a power balance between the parliament and the military, Than Shwe has chosen as his successor General Aung Hlaing, who does not enjoy the implicit support from the military, which prevents him from gaining absolute power. 2 Bünte 2011: 5. 3 The USDP won 884 out of 1,154 seats. 4 Twenty-eight of 35 high level cabinet ministers are former military officers, holding key positions in the new government.
  5. 5. 5 Sources: CIA World Factbook Cambodia Philippines Malaysia Vietnam Thailand Myanmar The visit of Hilary Clinton in December 2011 marked the turning point in international relations for Myanmar and was considered an acknowledgement of the reform process. This culminated in the highly anticipated parliamentary by-elections on 1 April 2012 in which the opposition leader and Nobel Peace Prize winner Aung San Suu Kyi had a land slide victory. The country has ever since found itself in a transitional phase, often referred to as the "Myanmar spring". THE GEOSTRATEGIC FACET Myanmar, one of the largest countries in Southeast Asia (SEA) at 676,578 km2 (See Figure 1) sits strategically at the intersection of the two major emerging economic players: China and India. Its opening is politically and economically significant due to its geostrategic location, which has shifted the region’s trade routes. With direct access to the Andaman Sea and the Bay of Bengal where the major shipping lanes pass through the Indian Ocean, Myanmar lies at a crossroads and might well develop into a crossroads itself. As soon as Myanmar's infrastructure sector has been sufficiently developed, the country will unroll trade routes in all directions and turn into an energy and natural resource hub, connecting the Indian subcontinent, China and Southeast Asia. As Myanmar's border states are mostly inaccessible, the country remained isolated and thus has one of the world’s largest remaining virgin rainforests. Myanmar's political opening and economic development will probably change this geopolitical fact. Figure 1: Country Size (area in sq km) Influence of the near economies Myanmar's relation to its neighbouring countries has been mainly peaceful, despite tensions with Thailand due to border conflicts caused by drug trafficking, refugee movements and ethnic conflicts in the Karen state. Profiting from sanctions imposed by the West, China has the strongest influence in the country and some even consider Myanmar a "Chinese province". But the economic overreliance on China has led to growing concerns over Beijing’s resource extracting strategy in Myanmar. For his inaugural visit, the new Myanmar Commander in Chief, Min Aung Hlain, has, interestingly enough, chosen Vietnam, a country bearing historically similar reservations about China. Despite these tensions, China will most likely remain a very important ally, having close political and economic links. Indeed, Kunming, in the Chinese province Yunnan, could turn into another transit hub for Southeast Asia, as rivers and rail routes from Myanmar, Laos and Vietnam converge. China sees Myanmar as having an increasingly important role in its energy security, not just as a direct resource exporter, but also as a transit country for planned gas and oil pipelines that will connect the Chinese province
  6. 6. 6 Yunnan with the Golf of Bengal: a much desired alternative route to the US-patrolled Malacca Strait, through which 80% of China's crude oil imports are being transported. Other players other than China are quickly positioning themselves, trying to increase their influence in Myanmar. India, too, has already signed several agreements on strengthening economic ties, focusing on direct highway, rail and shipping links as well as resource extraction.5 India is already constructing an energy hub in Sittwe on Myanmar's coast that will provide India with offshore natural gas sent northwest through Bangladesh. During a previous visit, the Indian Prime Minister Manmohan Singh offered a USD 500 million credit to further develop Myanmar’s infrastructure sector. The Association of Southeast Asian Nations (ASEAN) community, which Myanmar joined in 1997, has long considered Myanmar as tainting the organisation’s reputation. With Myanmar being confirmed as the chair of ASEAN in 2014, the country is on the verge of a new approach within the SEA region and will need to continue to open up politically. ASEAN itself has had a strong influence in the country's political opening and has a unique opportunity to play an important role in shaping the transition by providing technical assistance to the government. THE REFORM PROCESS In his address to the Union assembly on 1 March 2012, President Thein Sein outlined both the government’s achievements and its commitment to achieving "genuine democracy". The extent of the president's ambitions to further pursue fundamental political change and his commitments towards social reforms and the rebuilding of the economy were striking and not only to the Western community. The speech was very well received across the whole political spectrum, and it covered all essential issues from the political process, economic change and ethnic minorities to day-to-day matters on the ground. The government's overall ambition to reform the country has put Myanmar on a new path towards democracy, greater prosperity and peace, but the speed and the extent of the reforms have also raised questions about the sustainability of the transition process, as some laws have been rushed through without sufficient knowledge and advice. Considering Myanmar’s current lack of institutions, Western institutions and international companies remain a valuable source of advice on global best practices. POLITICAL RECONCILIATION President Thein Sein met with the opposition leader of the NLD, Aung San Suu Kyi in August 2011 to agree on a common path towards positive change. This was probably the most visible example of political reconciliation: the head of state beside the most prominent opposition voice, debating further democratisation, economic reforms and social justice. Amendments to the electoral legislation laid the groundwork for the NLD to become a legally registered political party and for Aung San Suu Kyi to return to the formal political landscape. The majority of political prisoners were granted amnesty, including prominent figures like Min Ko Naing, who took part in the 1988 5 Gottipati 2012.
  7. 7. 7 demonstrations, as well as Ashin Gambira, the leading figure of the 2007 monk-led demonstrations. This was an essential step, as numerous NLD members and other opposition parties had been serving prison sentences. On 5 January 2012, the NLD became a legally registered party for the first time in over twenty years with Aung San Suu Kyi as its chairperson, The president also extended an invitation to political activists living abroad to return home from exile. Prominent figures like Harn Yawnghwe, head of the Euro-Burma Office and son of Myanmar's first president accepted this offer and returned. After over six decades of civil war, remarkable progress was made in reaching preliminary ceasefire agreements with nearly all of Myanmar's armed ethnic groups. THE BY-ELECTIONS On 1 April 2012, by-elections were held for 45 vacant seats: 37 in the lower house, six in the upper house, and two in regional legislatures. Union Solidarity and Democratic Party (USDP) legislators had vacated these seats after being appointed to executive positions, such as ministers and deputy ministers, as stipulated by the constitution. Of the 17 political parties competing in the by-elections, the NLD, which had boycotted the 2010 elections, emerged with 43 out of 45 seats, including one for Aung San Suu Kyi, who made her first formal entrance into government. This makes NLD the second largest opposition party in the national legislature behind the Shan Nationalities Democratic Party, which holds 22 seats in the Union Assembly. The USDP secured only one seat, for which there was no NLD candidate. The landslide victory of the NLD can be interpreted as a demonstration of the popular support for Aung San Suu Kyi and gives her a clear mandate as "the voice of the people" in the legislature. Even though the by-elections did not have the potential to shift the power balance in the legislatures, which is still dominated by the USDP, they were considered a milestone in the path to political reconciliation and a more peaceful and democratic transformation.6 International response was invariably positive and resulted in many Western governments lifting sanctions. Although opposition parties won nearly all available seats, only a relatively small percentage of seats were at stake. The real test of the willingness for deviation from the political establishment will be the next general elections, scheduled for 2015. THE LEGISLATION The new constitution that came into force in 2011 implemented a bicameral national legislature system with an upper house ("Amyotha Hluttaw") and a lower house ("Pyithu Hluttaw"), which can act in joint sessions in the Union Assembly ("Pyidaungsu Hluttaw"). In the upper house, a total of 224 seats are available, 168 of which are directly elected and 56 of which are appointed by the military. In the lower house 330 out of 440 seats are directly elected and 110 are reserved for the military. 6 The 37 vacant seats in the lower house represent 11% of the elected seats in that chamber. The six seats in the upper house represent less than 4% of the elected seats.
  8. 8. 8 There are 14 regional assemblies, and all parliamentary members serve a five-year term. The judicial branch, based on the British legal system, is not entirely independent from the executive power and represents a mix of both English common law and customary law. Apart from the president, regarded as the key architect of the reforms, legislators have emerged as strong supporters of the reforms. Shwe Mann has become a leading reformer, having taken advantage of his influence as Speaker of the lower house. Looking at the history of Myanmar's military rule, however, many strong personal rivalries linger within the government. The most significant one can be seen between Thein Sein and Shwe Mann. Both are among the strongest supporters of the reforms, but Shwe Mann is one of the strongest contenders for the presidency.7 Despite this internal power struggle, Shwe Mann would probably not challenge the broader reform process. Debates of legislators on making of laws are said to be remarkably dynamic and there seems to be a consensus among the military that is supportive.8 The continued momentum of the reforms seems irreversible given its significant progress. Currently a whole set of new laws and regulations are in the pipeline. The priorities under the new government are to legislate democratic rights and to rebuild the economy. Key pieces of legislation that have been adopted are:  Foreign Investment Law Amendment Bill  Virgin Land Management Amendment Bill  Union Budget Bill  Condominium Law  The Law Relating to Peaceful Gathering and Peaceful Processions  The Labour Organisation Law BUREAUCRACY Reversing the political direction of Myanmar while simultaneously reforming the economy and pursuing a peace process with over a dozen separate armed groups is an enormous challenge. Initially, the public administration has very few people with the skills and vision to lead the process, with the result that a small number of individuals are faced with an enormous work-load. Inevitably, in the beginning of the reform period, ad hoc and inadequately informed decision making was the order of the day. However, with the Framework for Economic and Social Reform (FESR) put in place, which sets out policy priorities until 2016 and also the guiding principles for longer-term development plans, there is a pathway of development to be followed by the bureaucracy. The priorities of the FESR have effectively become the reference point for decision making process in the bureaucracy, as also the implementation of the reforms. 7 Given the poor health condition of Thein Sein, the president might not run for a second term. The opposition leader Aung San Suu Kyi will not be able to run for president, as her children are British. The constitution would have to be changed for her to be able to run, which would require the support of 75% of the legislature followed by a referendum. 8 International Crisis Group 2012: 3.
  9. 9. 9 There are several visible structural changes in transforming the Myanmar bureaucracy into a development agent. The reorganizing and restructuring of Myanmar’s Ministries in 2012 was a first right step in this direction. FREEDOM OF EXPRESSION In addition to the introduction of new laws on economics and legislation, the government took a number of steps to strengthen freedom of expression. The Myanmar National Human Rights Commission was established, aiming to meet the Paris Principles for national human rights institutions.9 Another important step was allowing Internet users unrestricted access to most websites with political content. In September 2011, the government lifted restrictions on 30,000 blocked Internet sites, such as international and banned media as well as on sites such as FaceBook, Twitter, YouTube and others.10 As part of a new media law that was drafted, censorship of the print media was likewise relaxed. In December 2011, around 50 publications, mainly business magazines were permitted to publish without submitting their articles beforehand to the censorship board. About 200 entertainment publications received similar permission. 9 The Commission received more than 1,000 complaints in 2011 within the first three months of its operation. Certain issues, including the independence of the commission itself and the handling with cases that involve military officials, are yet to be confirmed. 10 Sites with pornographic content remain blocked.
  10. 10. 10 ECONOMIC DEVELOPMENT GENERAL OVERVIEW Myanmar is steadily reducing its rigid trade policies to attract foreign funds with the hope of shaping its economy and competing with its much more developed neighbouring countries. Despite the existence of valuable resources, Myanmar ranks among the least developed countries in the world with a GDP per capita of USD 1,600 (2012) (See Figure 2). But Myanmar does not lack money. The government receives about USD 3 billion from its gas reserves, allowing its foreign currency reserves to be valued at over USD 7 billion.11 The development of the planned gas and oil pipelines will further increase these revenues. Figure 2: GDP per capita (PPP) (in USD) Despite recent growth in tax revenues in 2010, there was also an increase on the government's debt stock, leading to a rapidly increasing budget deficit. In recent years, the government has financed part of its fiscal deficit through treasury bond issues, rather than relying on money creation alone to finance the fiscal gap. As a result, the inflation rate fell significantly from over 30% in 2007 to 1.5% in 2012 (See Figure 3). Myanmar’s GDP growth rate significantly increased from 5.3% in 2010 to 6.8% in 2013 (See Figure 4). 11 Biron 2012b. (Note: data are in 2012 US dollars) Sources: CIA World Factbook
  11. 11. 11 Figure 3: Inflation rate (consumer prices) (%) Figure 4: GDP - real growth rate (%) The economy relies mainly on the agriculture sector, which accounts for the majority of the labour force, but contributes only 44% to the GDP in 2010 (See Figure 5). In contrast, other countries have shifted towards industry and services during the last four decennia. Sources: CIA World Factbook (Notes: e = estimate; f = forecast; GDP measured in constant 2010 US dollars) Sources: Worldbank
  12. 12. 12 Figure 5: Sector share of GDP (%) The main export goods in 2010 were gases (38.5%), precious stones (24.4%), vegetables (11.7%), and wood (7.3%) (See Figure 6). Figure 6: Top 10 export commodities (2010) (%) a. Petroleum gases and other gaseous hydrocarbons b. Precious stones (other than diamonds) and semi- precious stones c. Dried leguminous vegetables, shelled, whether or not skinned or split d. Wood in the rough, whether or not stripped of bark or sapwood e. Fish, fresh or chilled, excluding fish fillets f. Natural rubber, balata, gutta-percha, guayule, chicle g. Rice h. Men's or boys' suits, ensembles, jackets, blazers, trousers i. Crustaceans, whether in shell or not j. Men's or boys' shirts k. Others Myanmar Indonesia Thailand Malaysia Philippines China South Korea Sources: World Development Indicators, World Bank; Myanmar in 2010, Central Statistical Organisation, Myanmar; McKinsey Global Institute analysis Sources: UN Comtrade
  13. 13. 13 The main import goods in 2010 were Petroleum oils (21.9%), heavy equipment (4.7%), Marine equipment (4.1%) and palm oils (4.0%) (See Figure 7). Figure 7: Top 10 import commodities (2010) (%) a. Petroleum oils, other than crude b. Self-propelled bulldozers, angledozers, graders, levellers, scrapers c. Light-vessels, fire-floats, dredgers, floating cranes and other vessels d. Palm oil and its fractions e. Medicaments f. Woven fabrics of synthetic staple fibres g. Polymers of propylene or of other olefins, in primary forms h. Tubes, pipes and hollow profiles, seamless, of iron (other than cast iron) i. Portland cement, aluminous cement, slag cement j. Structures (excluding prefabricated buildings) k. Others ECONOMIC REFORMS Pace of economic reform Transforming the economy is probably the biggest task at hand. The economic reform process has proceeded at a much slower pace than political reforms. This is partially due to the absence of reliable economic data, a lack of transparency, weak institutions and limited technical capacity. Key reforms include a series of tax reforms, an increase in state pensions, regulatory framework for foreign investment and a currency reform to manage the kyat exchange rate to a realistic level. To encourage trade, the government cut the export tax from 10% to 2% in 2011 and privatized several state assets in 2010, including an airline, gasoline stations, public buildings and rice distribution operations in order to liberalise the economy. Sources: UN Comtrade
  14. 14. 14 Constraints to economic reform Four immediate constraints need to be addressed as priorities for economic reform and to help sustain growth: 1. The inadequate infrastructure and frequent power shortages are the primary reason for an increase in production costs, making Myanmar uncompetitive even where it has a comparative advantage. 2. Secondly, the excessive licensing and controls, which limit private initiatives, are a breeding ground for corruption and nepotism. 3. The tariff and non-tariff barriers also increase the cost of trade and restrain trade of goods and services. 4. And last, but not least, the inadequate kyat exchange rate distorts any accurate macroeconomic data and has led to the establishment of a black money market. Myanmar's black market economy Little information as to the extent of Myanmar's black market economy is available. What is certain is that it has existed for decades and has established its own networks between the legal and illegal economies, entrenching it in Myanmar's society. It has been estimated that the black market economy is three to five times larger than Myanmar's legal economy.12 Role of international financing institutions Asian Development Bank (ADB) Myanmar joined the Asian Development Bank (ADB) in 1973. ADB’s last loan projects for Myanmar were approved in 1986. Since the general elections in 2010, Myanmar has undertaken significant political and economic reforms. As a result, the international community has resumed reengagement with the country. In 2012, ADB developed a road map toward resumption of normal operations. The activities included initial assessments of the economy and of key sectors, provision of technical assistance projects, and development of an interim country partnership strategy for 2012–2014. ADB’s interim country partnership strategy for 2012–2014 seeks to support the government in achieving sustainable and inclusive growth. It focuses on (i) building human resources and capacities (capacity building in ministries in core areas of ADB involvement, and education); (ii) promoting an enabling economic environment (macroeconomic and fiscal management; and trade, investment, financial sector reform); and (iii) creating access and connectivity (rural livelihoods and infrastructure development, especially energy and transport). In January 2013, the Asian Development Bank announced a new USD 512 million loan for Myanmar. The World Bank After a nearly 25 year absence, the groundwork for re-engagement in Myanmar was laid when the Bank’s Board of Executive Directors endorsed an Interim Strategy for Myanmar in November 2012, reaffirming support for Myanmar government reforms to improve the lives of the people of Myanmar. 12 Shwe Gas Bulletin: 2005: 6. Other figures estimate the volume of the black market as 70-80% of the total output (2010).
  15. 15. 15 In January 2013 the World Bank’s Board approved the Myanmar Reengagement and Reform Support credit in the amount of USD 440 million. This credit facilitated the clearance of arrears to the World Bank, thereby paving the way for resumption of a full partnership to pursue Myanmar’s development objectives. In addition to helping Myanmar clear its debts to creditors, this credit is supporting critical reforms needed to strengthen macroeconomic stability, improve public financial management and improve the investment climate. POPULATION Myanmar’s population size was a bit more than 52 million people in 2012, of which the largest part is living in rural areas. In 2012 33.2% of Myanmar’s population lived in cities. By comparison, only Cambodia, Vietnam and India had lower urbanisation rates in 2012 (See Figure 8). Figure 8: Urban population (% of population) Aside from the two large cities Yangon and Mandalay, only eight cities in Myanmar have reached population levels exceeding 200,000, compared with 32 such cities in Thailand and 16 in Vietnam. Figure 9 gives an overview of Myanmar’s cities, which are mostly concentrated in the Delta and the Dry Zone, and cities close to Yangon and Mandalay are growing fastest. Sources: United Nations Escap
  16. 16. 16 Figure 9: Myanmar cities with 50,000 inhabitants or more, by population and population growth Sources: McKinsey Global Institute analysis
  17. 17. 17 EXCHANGE RATE Regulation of the exchange rate of the kyat, Myanmar's national currency, was a long-overdue concern. For more than three decades, government officials have kept a multiple exchange rate system in place, pegging the kyat to an official exchange rate of 6.4 kyat to the USD. While the official rate was tremendously overvalued, it left the country's black market rates floating at approximately 800 kyat to the USD.13 Such a discrepancy between the two rates created a huge obstacle to doing business and was a source of widespread governmental corruption. Several different exchange rates were in use for different purposes, such as the calculation of import duties and the conversion of foreign exchange revenues. In April 2012, the beginning of the Myanmar fiscal year, the authorities began a managed float of the Kyat. To ensure a smooth transition toward developing a formal interbank market, the currency is not completely exposed to the free market, but set at a reference rate of 818 kyat to the USD, plus or minus 2%.14 Interestingly enough, the new official benchmark reflects the former black-market rate. The budget for the 2012-2013 fiscal year aimed to calculate foreign exchange revenues and expenditures at the 800-kyat rate. This meant that, for the first time ever, Myanmar's huge foreign currency income, resulting from the sale of natural gas and other resources, would be accurately reflected in the national accounts.15 Within the next few years, the aim will be to allow the Kyat to float freely. The current exchange rate auction is part of a managed float that requires the central bank to intervene to keep the exchange rate within certain limits. Eleven domestic banks are currently authorised to conduct foreign exchange operations. An interbank exchange market is in the planning stage, allowing the central bank to influence the exchange rate and to intervene. To ensure that the foreign exchange auction becomes a permanent feature of the economy, and to keep the real exchange rate at a level that encourages domestic production and international trade, the government has to institutionalise the process by developing an independent central bank. For 2012, the International Monetary Fund noted that the kyat had been already overvalued by around 40%. Thus the Central Bank of Myanmar was likely to weaken the newly floated currency to prevent a further rise that could hurt the economy. As of 28th February 2014 the Reference Foreign Exchange Rate published by the Central Bank of Myanmar was 984 kyat to the USD.16 FOREIGN DIRECT INVESTMENTS Myanmar's Foreign Investment Commission had been updating the original Foreign Investment Law of Myanmar, which dated back to 1988. Foreign investment has since been encouraged but sanctions coupled with high corruption ratings resulted in little actual investment. Only two major investors remained during that time: China, and, to a much lesser extent, India. 13 Rates on the black market varied between 700 - 1,400 kyat to the USD. ICG 2012: 6. 14 (ICG 2012:33). 15 Previously state-owned enterprises had access to imports calculated at the six-kyat rate, which led to huge inefficiencies in the public finance sector as well as to corruption and a lack of transparency over losses. Only state-owned companies had the advantage to use the official rate - making it 125 times stronger than the black- market rate of around 800 kyat per USD for most transactions. 16 Central Bank of Myanmar
  18. 18. 18 This already changed, as Myanmar's very ambitious draft of the new Foreign Investment Law would permit fully foreign-owned businesses, allow foreigners to lease land for business purposes, create a five-year tax holiday at the start of commercial operations, and protect investments against nationalisation. The Foreign Investment Law Amendment Bill was approved by parliament and endorsed by the president in 2012.17 The economic activities allowed under the new Foreign Investment Law cover almost all economic sectors. Foreigners can either set up a 100% foreign-owned company or a joint venture with any partner: an individual, a private company, a cooperative society or a state-owned enterprise. Such joint ventures must provide 35% foreign ownership of the total equity capital.18 Tax breaks differ from five to eight years for investing in the newly established SEZs. Businesses can now use the prevailing exchange rate to book any transactions. Foreign companies can also lease land from the state or private citizens, who have permissions to use it for up to 30 years with the option for two extensions of up to 15 years each. The law requires that all unskilled workers must be from Myanmar, as well as a minimum of skilled workers, increasing over time from 25% after five years to 75% after fifteen.19 If products and services are exported, further exemptions from taxes and tariffs can be granted. The requirement from the previous legislation that products manufactured in Myanmar by foreign companies must be entirely exported was dropped, and those products can now be sold on the domestic market. Myanmar’s Foreign Direct Investment (FDI) more than doubled between 2011 and 2012, from respectively USD 1 billion to USD 2.2 billion (increase of 124%) (See Figure 10). Despite the economic reforms and the easing of sanctions, the majority of the country's FDI still comes from China, Thailand, Hong Kong and South Korea (See Figure 11). The sectors receiving the highest share of FDI in Myanmar in 2012 were: Power (46.5%), Oil & Gas (34.6%), Mining (6.9%) and Manufacturing (4.3%) (See Figure 12). 17 Robinson 2012. 18 Tun 2012. 19 (ICG 2012: 39) Given the size of the country, Myanmar is relatively thinly populated and a labour shortage is already developing, as workers are required to move to neighbouring countries where there are better wages.
  19. 19. 19 Figure 10: Myanmar Foreign Direct Investment (FDI) (in million USD) Figure 11: Myanmar FDI by country of origin (2012) (%) Sources: Worldbank 124% Sources: Ministry of National Planning and Economic Development (Myanmar, 2012); United Nations Escap
  20. 20. 20 Figure 12: Myanmar FDI by sector (2012) (%) Sources: Ministry of National Planning and Economic Development (Myanmar, 2012); United Nations Escap
  21. 21. 21 MYANMAR BUSINESS OVERVIEW NATURAL RESOURCES Myanmar’s major natural resources are: Petroleum, timber, tin, antimony, zinc, copper, tungsten, lead, coal, marble, limestone, precious stones, natural gas, and water (hydropower). Highlights20 Natural Gas Gas is the country’s most important source of export revenue. BP estimates that proven natural gas reserves in Myanmar total 7.8 trillion cubic feet, giving Myanmar a worldwide rank of 46th . Precious and Semiprecious Stones While its value is less significant, Myanmar’s endowment of precious and semiprecious stones is remarkable. Myanmar accounts for 90 percent of the global value of jade production and ranks among the top producers in the world of gems including rubies and sapphires. Water Water is becoming an increasingly critical resource for many countries around the world, and Myanmar is well placed on this front. It has an estimated 24,164 cubic metres per person per year, more than ten times the per capita endowment of China and India, around four times that of Thailand and the Philippines, and more than double the per capita endowment of Vietnam, Indonesia, or Bangladesh. Myanmar’s water resources also mean that it has considerable potential to use hydropower more extensively — hydropower already accounts for three-quarters of electricity- generating capacity — although there are social and environmental challenges in developing this power source. MAIN INDUSTRIES Myanmar’s main industries are: agricultural processing (of rice, pulses, beans, sesame, groundnuts, sugarcane; fish and fish products); wood and wood products; copper, tin, tungsten, iron; cement, construction materials; pharmaceuticals; fertilizer; oil and natural gas; garments, jade and gems. Myanmar’s major drivers of growth during next two decennia21 Agriculture Myanmar has a total of 12.25 million hectares of arable land and permanent crops, the 25th -largest endowment in the world. Although the country’s endowment of water and fertile land is abundant, productivity in Myanmar’s agriculture sector is low with output per worker of only around USD 1,300 a year, compared with around USD 2,500 per worker in Thailand and Indonesia. 20 McKinsey Global Institute analysis / CIA World Factbook 21 McKinsey Global Institute analysis / CIA World Factbook
  22. 22. 22 The sector’s low productivity and the low level of inputs such as seeds, fertilisers, water, and machinery suggest that there is significant room to grow. There is also large scope to increase the share of fruits, vegetables, coffee, oil palm, rubber, and other high-value crops as well as the production of fisheries. Given that agriculture currently accounts for 52 percent of workforce employment, capturing the full growth potential of agriculture is critical to ensuring that the economy’s growth is shared widely. Energy and mining Myanmar has large endowments of oil, gas — its most important export — and precious minerals such as rubies, sapphires, and jade. For example, Myanmar currently ranks 46th in the world in terms of proven gas reserves, and estimates of undiscovered gas reserves indicate that the amount of reserves is likely to be much higher. Myanmar produces 90 percent of the world’s jade, which is valued highly in Asia. Many of these natural resource reserves are largely unexplored today — with new technologies, the potential could be much higher than current estimates. Manufacturing Myanmar’s labour costs today are comparatively low, giving the country an opportunity to boost output in labour-intensive manufacturing sectors such as textiles, apparel, leather, furniture, and toys at a time when some of this manufacturing is leaving China. However, labour productivity in the sector is also weak. Output per worker is only 70 percent of that in Vietnam in 2010, 20 percent of that in China and Thailand, and less than 15 percent of that in Malaysia. To compete in the region, Myanmar will need to improve labour productivity. On the back of that higher productivity, there is scope over time to make the transition to more value-added sectors, following the example of Thailand, Malaysia, and other Asian economies. Infrastructure Myanmar’s infrastructure is not sufficient today to support the higher growth and future demand driven by developing industrial sectors and an urbanising population. Between 2010 and 2030, Myanmar will need to invest USD 320 billion in its infrastructure if the economy is to achieve growth of 8 percent a year. The majority of infrastructure investment — 60 percent — will need to be in residential and commercial real estate, but there is also a huge need for power plants, water- treatment plants, and road and rail networks.
  23. 23. 23 Sources: CIA World Factbook (2012) Sources: CIA World Factbook (2012) TRADING PARTNERS Major markets for exports in 2012 were Thailand, India, China, and Japan (See Figure 13). Imports are mostly coming from China, Thailand, Singapore and South Korea (See Figure 14). Figure 13: Export Partners Figure 14: Import Partners Myanmar is mostly exporting to Asian countries. This is in strong contrast with other SEA countries that have stronger ties with Western countries. To diversify trade, Myanmar would need to build trade ties with the West and strengthen existing ones in Asia (See Figure 15). Figure 15: Exports by top 10 countries of destination (2011) (%) Sources: Comtrade data; McKinsey Global Institute analysis
  24. 24. 24 Myanmar’s strategic location at the heart of Asia22 Myanmar’s export potential Myanmar has long been cut off from political, economic, and trading relationships and has not been able to participate in regional integration and capitalise on its ideal position in the world’s fastest-growing regional economy. Now that Myanmar’s economy is opening up, there is potential to become a major exporter, especially of agriculture and food products, to many of its regional neighbours that are experiencing strong demand and rapid growth. Considering the fact that Myanmar borders Bangladesh, China, India, Laos, and Thailand — home to 40 percent of the world’s population. Bangladesh alone has a population of 150 million, and Thailand and Laos have a combined population of 75 million people. China’s Yunnan province to the north-east of Myanmar is home to an additional 46 million people. The Indian provinces bordering Myanmar as well as those across the Andaman Sea have 240 million more people. Taking all of this together, Myanmar is close to a market of more than half a billion people and, by 2025, will be within a five-hour plane ride of 2.5 billion members of the consuming class. Myanmar as a trade hub on the crossroads of Asia In addition to this export potential, observers have often suggested that Myanmar could become a trade hub on the crossroads of Asia. However, it remains questionable whether the land routes across Myanmar can attract a substantial share of regional trade transit, given that China’s demand centres tend to be by the coast and that sea freight is substantially cheaper. For instance, transporting a ton of freight by ship from Chennai to Shanghai is ten times cheaper than shipping it to Myanmar and then trucking it overland to China’s eastern seaboard. INVESTMENT PROGRAMS23 European Commission (Europeaid) Following the suspension of most EU restrictive measures in May 2012, the EU is now fully engaging with the Myanmar government. EU development cooperation is assisting the civilian government's goals of inclusive, sustainable growth and development for all of the population of Myanmar. Directly backing the transition process, EU development cooperation has more than doubled in value and its scope has expanded. In February 2012, Commissioner Piebalgs visited Myanmar and announced a package of €150 million for the country's democratic reform and inclusive development initiatives. An EU Office was opened in Yangon in April 2012. The first EU-Myanmar Task Force took place on 13-15th November 2013 in Yangon and Nay Pyi Taw. It comprised of several high-level events, including a Development Forum where EU support and the countries development challenges were discussed. 22 McKinsey Global Institute analysis 23 European Commission; The World Bank; Finpro Research
  25. 25. 25 The European Commission has proposed the following main sectors for development cooperation with Myanmar for 2014–2020: Rural Development, Education, Governance and Support to Peace Building. Funding levels for the upcoming programming period are likely to be substantially increased, up to €90 million annually. World Bank Group World Bank Group to invest USD 2 billion in Myanmar to support reforms, reduce poverty, increase energy and health access (January 2014): On his first visit to Myanmar, President Jim Yong Kim announced World Bank Group plans for a USD 2 billion multi-year development program. It will include projects that dramatically improve access to energy and health care for poor people and support other key government development priorities. United Kingdom In April 2012, following the lifting of EU sanctions, the British Government announced that it was also lifting its policy of discouraging trade and investment with Myanmar. UK Trade and Investment (UKTI) opened its first office in the country in July 2012. In 2011, the UK committed £187 million in aid to Myanmar until 2014, making it the largest bilateral donor to the country. On 4 March 2013 the UK agreed to provide £600,000 to establish a Responsible Investment Resource Centre in Yangon intended to strengthen responsible business practices for Burmese companies and those investing in the country. US (Usaid) The US has also reopened a USAID mission in Myanmar and will provide a projected USD 51.2 million in aid in 2014, a boost from the 2012 figure of USD 35 million. In November 2013 the US government pledged an additional USD 25 million for humanitarian assistance for displaced communities in Rakhine State, Kachin State, and Burma’s Southeast region. The US is one of the largest bilateral donors for Myanmar and its extended reengagement has been described as an opportunity to focus on longer-term development and deepen participation in political and economic reforms. In November 2012 three new projects were unveiled, including a project to boost access to the Internet, strengthen transparent government and expand digital literacy; a project aimed at reducing preventable child deaths; and a project supporting free and fair elections. MATURITY/DEVELOPMENT PHASE According to The Global Competitiveness Report 2013-2014 (published by the World Economic Forum (WEF)), Myanmar’s stage of development can be classified as “a factor driven economy”. This classification is based on analysis of 12 indicators, which are presented in Figure 16.
  26. 26. 26 Sources: World Economic Forum: The Global Competitiveness Report 2013-2014 (Note: Global Competitiveness Index scores; Score 1-7, with 7 being most competitive) Figure 16: Myanmar’s Stage of development: a factor driven economy INTELLECTUAL PROPERTY (KNOW-HOW)24 Overview Myanmar joined WTO in 1994, became a member of ASEAN in 1997 and of WIPO in 2001, it has become responsible to observe and be in compliance with the provisions of relevant treaties of such organizations, particularly, TRIPS Agreement and the ASEAN Framework Agreement on Intellectual Property. Myanmar obtained special exemption of time preparation to apply the TRIPS Agreement till July 2013. Meanwhile, the Attorney-General Office, with the close cooperation of Ministry of Science and Technology that is designated as the focal point ministry to handle the Intellectual Property matters, is drafting the IP laws to have wide and efficient protection and promotion, being demanded by the regional and global IP regimes. Recent News Intellectual Property Group to Be Formed Ahead of Expected Law (December 2013): The Union of Myanmar Federation of Chambers of Commerce and Industry (UMFCCI) will launch a Myanmar Intellectual Property Association ahead of the expected passage of an Intellectual Property Law by Burma’s Parliament, according to a UMFCCI official. “There will be four components to the law, with provisions 24 ASEAN Intellectual Property Association; The Irrawaddy
  27. 27. 27 relating to trademarks, patents, intellectual design and copyright. The law will be in line with ASEAN and WTO standards.” Strengthening Intellectual Property Rights in Burma (June 2013): “Strengthening the protection of intellectual property rights in Burma has the potential to act as a catalyst for economic growth, spurring foreign direct investment and in the long run helping the country reap rewards in terms of greater domestic innovation and increased technology diffusion.” “For multinational companies, any lack of legal certainty, including the inability to safeguard intellectual property — the mainstay asset of modern technology-intensive enterprises — serves as a deterrent to investment, excepting those firms hoping to reap quick profits in capital-intensive and labour-light extractive industries, such as mining.” “And yet, attracting foreign investment with the potential to transfer technology to domestic firms is a key factor. Thus, the future pace of investment will depend to a large extent on how quickly the government takes steps to upgrade its IPR legislation.” SUB-AREAS/CITIES & LEADING ECONOMIES Meaningful sub-areas, cities & their leading economies to be highlighted are: Yangon, Mandalay, Mon, Shan, and Bago.25 Yangon Yangon is the country’s main centre for trade, industry, real estate, media, entertainment and tourism. The city alone represents about one fifth of the national economy. According to official statistics for FY 2010–2011, the size of the economy of Yangon Region was USD 9 billion, or 23% of the national GDP. The city is Lower Myanmar’s main trading hub for all kinds of merchandise – from basic food stuffs to used cars. Bayinnaung Market is the largest wholesale centre in the country for rice, beans and pulses, and other agricultural commodities. Much of the country’s legal imports and exports go through Thilawa Port, the largest and busiest port in Myanmar. Manufacturing accounts for a sizable share of employment. At least 14 light industrial zones ring Yangon, directly employing over 150,000 workers in 4,300 factories in early 2010. Tourism represents a major source of foreign currency for the city although by Southeast Asian standards the actual number of foreign visitors to Yangon has always been quite low. Mandalay Mandalay is the second-largest city and the last royal capital of Myanmar. Located 445 miles (716 km) north of Yangon on the east bank of the Irrawaddy River, the city has a population of one and half million, and is the capital of Mandalay Region. Mandalay is the economic hub of Upper Myanmar and considered the centre of Burmese culture. A continuing influx of Chinese immigrants, mostly from Yunnan, in the past twenty years, has reshaped the city's ethnic makeup and increased commerce with China. Despite Naypyidaw's recent rise, Mandalay remains Upper Myanmar's main commercial, educational and health centre. Mandalay is the major trading and communications centre for northern and central Myanmar. Much of Burmese external trade to China and India goes through 25 Finpro Research
  28. 28. 28 Mandalay. Among the leading traditional industries are silk weaving, tapestry, jade cutting and polishing, stone and wood carving, making marble and bronze Buddha images, temple ornaments and paraphernalia, the working of gold leaves and of silver, the manufacture of matches, brewing and distilling. Mon Mon State is an administrative division of Myanmar. It is sandwiched between Kayin State on the east, the Andaman Sea on the west, Bago Region on the north and Tanintharyi Region on the south, and has a short border with Thailand's Kanchanaburi Province at its south-eastern tip. The state's capital is Mawlamyaing. Mon State has a cultivated area of nearly 4.5 million acres (18,000 km²), mostly under rice. The major secondary crop is rubber. Orchards and rubber plantations are found in the mountainous areas while Coastal fishing and related industries such as production of dried fish, fish sauce and agar-agar are in southern part, Ye district. Production of Betel nut is also a sustaining business of Mon state, as the Mon peasants preserved their heredity land onwards along with the government regulations, however, there are some many parts of uncultivated crude land in the area closed to neighbour Karen state. Moreover, modern business development includes growing of cashew trees, from which they collect the cashew nut for market elsewhere. The Mon are an ethnic group from Myanmar, living mostly in Mon State. One of the earliest peoples to reside in Southeast Asia, the Mon were responsible for the spread of Theravada Buddhism in Burma and Thailand. The Mon culture is credited as a major source of influence on the dominant Burmese culture. Shan Shan State is a state of Myanmar, which borders China to the north, Laos to the east, and Thailand to the south, and five administrative divisions of Myanmar in the west. Largest of the 14 administrative divisions by land area, Shan State covers 155,800 km², almost a quarter of the total area of Myanmar. The state gets its name from the Shan people, one of several ethnic groups that inhabit the area. Shan State is largely rural, with only three cities of significant size: Lashio, Kengtung, and the capital, Taunggyi. Shan State is famous for its garden produce of all sorts of fresh fruit and vegetables thanks to its temperate but sunny climate. It is also part of the Golden Triangle, an area in which much of the world's opium and heroin are illegally produced. Drug trafficking is controlled by local warlords, some of whom have private armies amounting to thousands of soldiers. Much of the meth-amphetamine (yaba) that ends up in Thailand is produced in this region as well. There are some border trading centres along the Shan State border and neighbour countries. Muse, the biggest border trading centre along the Myanmar China border and Tachileik, another important trading centre between Myanmar and Thailand are in Shan State. The construction project of Sino-Burma pipelines of oil and gas that passes through northern part of Shan State started in September 2010. Bago Bago Region is an administrative region of Myanmar, located in the southern central part of the country. The division's economy is strongly dependent on the timber trade. Taungoo, in the northern end of the Bago Region, is bordered by mountain ranges, home to teak and
  29. 29. 29 other hardwoods. Another natural resource is petroleum. The major crop is rice, which occupies over two-thirds of the available agricultural land. Other major crops include betel nut, sugarcane, maize, groundnut, sesamum, sunflower, beans and pulses, cotton, jute, rubber, tobacco, tapioca, banana, Nipa palm and toddy. Industry includes fisheries, salt, ceramics, sugar, paper, plywood, distilleries, and monosodium glutamate. The division has a small livestock breeding and fisheries sector, and a small industrial sector.
  30. 30. 30 DOING BUSINESS IN MYANMAR INFRASTRUCTURE26 Roads Presently, Myanmar's transport sector is considerably under-developed for a country of its size, population, and potential. In 2011, Myanmar’s number of vehicles per 1000 people was about 38. In comparison, Thailand’s ratio was 432 and Lao PDR’s was 171. The number of vehicles in Myanmar has more than doubled from 960,000 in 2004 to 2,354,000 in 2011, and the strong growth trajectory is expected to be maintained as the economy continues to expand. The institutional structure for Myanmar’s transport sector is complex as there is no single agency with clear oversight of the sector. Currently, responsibilities are shared between six ministries, various city development committees and state-owned transport enterprises, where relevant. There is no formal coordinating platform to develop an overall strategy for the sector and no clear lines of responsibility within the fragmented institutional structure. Ports Myanmar currently has 9 ports along the western and south-eastern coast of the country, namely: Yangon, Sittwe, Kyaukphyu, Thandwe, Pathein, Mawlamyine, Dawei, Myeik, and Kawthaung. In addition, Myanmar International Terminals Thilawa (MITT) is a private multi-purpose container terminal owned and operated by Hutchinson Port Holdings. However, with the exception of the country’s principal port in Yangon, the rest are reportedly small coastal ports with limited port handling capabilities. According to official statistics from the Myanma Port Authority, Myanmar’s ports handled 24 million tons of import and export freight in 2011, with the Port of Yangon handling 90% of the cargo throughput. Railways The railway sector in Myanmar is currently a monopoly operated by state-owned Myanmar Railways. The rail network has expanded considerably over the last twenty years, expanding by almost 78% between 1988 and 2010, although the focus had been on providing transport services and connectivity to remote areas of the country. According to the Asian Development Bank (ADB)’s initial assessment of the railway sector, the rail network is in poor condition and investment in basic infrastructure, such as track renewal, replacement of sleepers, and upgrading of signalling and communications systems, has been inadequate. Airports Myanmar currently has a total of 69 airports, of which only 32 are operational. There are 3 international airports - in Yangon, Mandalay and Nay Pyi Taw, with 19 international airlines and 4 domestic airlines operating regular flight services between Myanmar and 17 regional destinations. In 2011, there were 1.5 million international passengers and 1.4 million domestic passengers. 26 KPMG International (2013)
  31. 31. 31 The Myanmar Department of Civil Aviation (DCA) wishes to double the capacity at Yangon International Airport from 2.7 million passengers a year to 5.5 million. The government also has plans to transform some of the existing domestic airports into international airports to serve the growing number of foreign investors and tourists. The DCA has already announced plans to re-develop airports in Yangon and Mandalay and to also build a new airport at Hanthawaddy, about 80km from Yangon. Energy & Power Myanmar has abundant energy resources, including renewable alternatives such as hydro, biomass, wind and solar. The country’s primary energy supply includes coal, oil, gas, hydropower and biomass. Hydropower is the main source of fuel in the country and electricity from hydropower plants contribute nearly 70% of the total electricity generated in the country, followed by 22% produced from natural gas and 8% from coal. Between 2000 and 2010, electricity consumption in Myanmar has almost doubled from respectively 3,303 GWh to 6,093 GWh. However, Myanmar’s per capita electricity consumption still remains the lowest among the ASEAN-10 countries, at 100 KWh in 2010, compared to a consumption of around 600 KWh in Indonesia and over 2,000 KWh in Thailand. It is estimated that only a quarter of Myanmar's population currently has access to a regular supply of electricity and even Yangon is plagued by frequent outages, limiting economic growth and development. The low national average per capita electricity consumption is due to the low electrification rate, low industrial development and lack of investment. The Myanmar government has indicated under the Framework for Economic and Social Reform (FESR) that the sector will be further liberalised through the deregulation of prices, the adoption of appropriate taxes and elimination of across- the-board subsidies in the energy sector. Myanmar is also developing a master plan for the electricity sector that will project future electricity consumption, develop a plan to meet those consumption requirements and identify necessary regulatory reforms. Tele-communications Myanmar’s telecommunications sector is significantly underserved, with exceptionally low penetration rates given the size and potential of the market. Although the mobile subscriber base has grown fivefold in the last couple of years, official statistics report that there are 5.4 million subscribers as at December 2012, or a penetration rate of just 9% of population. Fixed-line subscriber numbers have been growing erratically, with an overall penetration of around 1% of the population or 0.6 million subscribers. Internet user penetration is even lower, at less than 1% of the population or 0.5 million subscribers. Yangon and Mandalay account for majority of the mobile and fixed-line subscribers. The government has identified the key barrier to telecommunication access to be high costs and limited infrastructure. To achieve the target of increasing mobile phone density to 75-80% and internet penetration by over 50% by FY2015/16, the government has committed to undertaking several reforms.
  32. 32. 32 Special Economic Zones / Industrial Zones There are a total of 18 private-operated industrial zones across the country, contributing about 20% of the country’s gross domestic product (GDP). The government has been actively promoting greater public and private sector investments into the industrial zones to generate jobs and technological development. Myanmar expects to overcome infrastructure bottlenecks and promote foreign direct investment through Special Economic Zones (SEZs), which will emphasise Myanmar as a strategic location and a low-cost production base for exports to the region. Social Infrastructure One of the key policy priorities of the Myanmar government under the FESR is to focus on people-centric development, particularly in the areas of improving education, health and living standards. In the fiscal year 2012/2013 budget, the government increased expenditures on education and health. Education is a top government priority in view of the low levels of provision and the importance of investment in education for inclusive growth. Net enrolment in education for Myanmar is low compared to other ASEAN countries and the quality of education at all levels is generally poor. The ratio of government expenditure on education to overall GDP is also the lowest in the region. Health indicators in Myanmar currently compare poorly to those of neighbouring countries and the government has doubled its commitment to improving health care services and public financing in the healthcare sector. PEOPLE & SOCIETY27 Language There are approximately one hundred languages spoken in Myanmar. Burmese, spoken by approximately 65% of the population, is the official language. However, a wide variety of languages are spoken, especially by ethnic minorities, representing four major language families: Sino-Tibetan, Austro-Asiatic, Tai–Kadai, and Indo- European. English is the secondary language taught. English was the primary language of instruction in higher education from late 19th century to 1964, when Gen. Ne Win mandated educational reforms to "Burmanize". English continues to be used by educated urbanites and the national government. Religion Myanmar is a multi-religious country. There is no official state religion, but the government shows preference for Theravada Buddhism, the majority religion. It is practiced by 89% of the population, especially among the Bamar, Rakhine, Shan, Mon, and Chinese. Christians represent 4% (Baptist 3%, Roman Catholic 1%), Muslims 4%, Animists 1%, and others 2% of the population. 27 CIA World Factbook; Myanmar Times
  33. 33. 33 Cost of Living According to an article published by the Myanmar Times the cost of living for expats are on the rise in Yangon (December 2013): “Yangon has climbed to become the sixth most expensive city in the ASEAN bloc for expatriates to live and work, a new survey by global consulting firm, ECA International, found last week. Singapore was the most expensive Southeast Asian city and the 30th most expensive city worldwide for international assignees to live.” “The ranking was judged on the cost of living and looked at indicators like the average price of weekly groceries, basic goods like drink and general services like motoring and hospitality that reflect an “international lifestyle”, ECA said in a press release.” “Behind Singapore were Bangkok, Jakarta, Vientiane and Kuala Lumpur. Yangon pipped expat-populous Chiang Mai to take the spot of the sixth most expensive.” LOGISTICS & TARIFFS The Logistics Performance Index and Its Indicators Based on a worldwide survey of global freight forwarders and express carriers, the Logistics Performance Index is a benchmarking tool developed by the World Bank that measures performance along the logistics supply chain within a country. The index ranges from 1 to 5, with a higher score representing better performance. Allowing for comparisons across 155 countries, the index can help countries identify challenges and opportunities and improve their logistics performance. The World Bank conducts the survey every two years. Analysis of the six logistics indicators in 2012 shows that Myanmar scores lowest for all the indicators, with Malaysia and China showing the best performances in SEA (See Figure 17). Figure 17: The Logistics Performance Index and Its Indicators (2012) Sources: Worldbank
  34. 34. 34 Customs Tariff System in Myanmar28 In Myanmar, the customs procedures are provided in the Sea Customs Act and Land Customs Act. The tariff law was enacted on March 12, 1992 with a view to assisting the market economic system in order to facilitate external trade. In accordance with the Law, a notification was issued to regulate the classification of imported goods and assessment of duties. For modernization and standardization, in line with international practice, the Harmonized Commodity Description and Coding System (HS) was introduced in April 1992. After incorporating necessary changes in the Myanmar Customs Tariff, the 1996 Version of the Harmonized System was applied on 1st January 1996. The maximum Customs tariff rate is 40% and the minimum is 0%; Customs tariff rates on imports of machinery, spare parts and inputs generally range from 0.5% to 3%; Customs duty is zero rate for all the goods to be exported from the Union of Myanmar. CORRUPTION29 According to an article published by the The Irrawaddy, reforming Myanmar moves up in the Global Corruption Rankings (December 2013): “The Burma government’s reforms since a quasi-civilian government took charge in 2011 appear to be improving its poor reputation for corruption, with global watchdog Transparency International boosting the country’s ranking in its annual survey.” “The Berlin-based organization put Myanmar 157 out of 177 countries surveyed for its Corruption Perceptions Index 2013.The ranking represents a significant improvement from Transparency International’s survey a year ago, in which the country was ranked 172 out of 176 nations, above only Sudan, Afghanistan, North Korea and Somalia.” “The index gives countries scores between 0 (highly corrupt) and 100 (very clean). Despite the improvement, Myanmar’s score of 21 in 2013’s index—compared with 15 in 2012—put it only level with troubled African states Zimbabwe and Burundi, and made it the worst performer in Southeast Asia, except for Cambodia (20).” “Myanmar remained below neighbours Laos (26) and Bangladesh (27), while Thailand scored 35 and ranked 102 in the index.” “Transparency International said its rankings were based on “experts’ opinions of public sector corruption,” and took into account the level of access to information on corruption, the accountability of public bodies and the rules that a country has in place to govern the behaviour of public officials.” “The improved ranking for Burma comes amid a program of economic reforms since President Thein Sein’s administration came to power and began to shed the country’s image as a highly corrupt military dictatorship that allowed government cronies to win contracts and receive favourable treatment.” 28 ASEAN; Myanmar Customs Department 29 The Irrawaddy; Transparency International
  35. 35. 35 “Parliament in July 2013 approved a new Anticorruption Law, which established an anticorruption commission and requires officials in the executive, judicial and legislative arms of government to declare their assets.” FACTORS FOR DOING BUSINESS The Global Competitiveness Report 2013-2014 (published by the World Economic Forum (WEF)) presents the most problematic factors for doing business in Myanmar. From a list of factors, respondents were asked to select the five most problematic factors for doing business in Myanmar and to rank these between 1 (most problematic) and 5. The results are presented in Figure 18. The bars in the figure show the responses weighted according to their rankings. Most problematic factors were seen to be: policy instability, access to financing, corruption, and inadequately educated workforce. Figure 18: The most problematic factors for doing business in Myanmar Sources: World Economic Forum: The Global Competitiveness Report 2013-2014
  36. 36. 36 COUNTRY RISK ANALYSIS30 Based on analysis of strengths and weaknesses of Myanmar, several rating agencies, such as Coface, place Myanmar in the category with the highest country risk. It is expected that this rating will improve along with the ongoing transformation process in the coming years. Strengths  Strong reform dynamic with increased support from international organizations  Moderate external debt  Increasing hard-currency earnings potential  Substantial potential in natural resources, agriculture and tourism  A relatively large and young population  A strategic geographic location in a dynamic region Weaknesses  An inexperienced political system in the beginning of the transition from a military dictatorship and with a risk of setbacks.  The economy is in the beginning of a transformation into an open market economy and there are large deficiencies in macro-political governance and in institutional capacity in the state apparatuses.  A narrow economic base centred around gas extraction and low-productive agriculture.  A very difficult business climate: corruption, weak judicial system, difficult conditions for lending due to restricted provision of guarantees.  High risk of ethnic and religious tensions: Burmese-Buddhist extremism and ethnic-religious violence are one of the biggest threats to the reform process and stability.  Underdeveloped financial sector: the financial sector is rudimentary and fragile. Traditional banking in the form of borrowing and lending has been very limited for a long time.  Inflation risk: caused by sustained domestic demand, rising public sector wages, soaring property prices, etc. COUNTRY RANKINGS Rankings by: ease of doing business The Worldbank publishes a ranking on the ease of doing business in countries. Economies are ranked on their ease of doing business from 1 – 189. A high score on the ease of doing business index means the regulatory environment is more conducive to the starting and operation of a local firm. This index averages the country's percentile scores on 10 topics, made up of a variety of indicators, giving equal weight to each topic. The rankings for all economies are benchmarked to June 2013. The 10 covered topics are: Starting a Business, Dealing with Construction Permits, Getting Electricity, Registering Property, Getting Credit, Protecting Investors, Paying Taxes, Trading Across Borders, Enforcing Contracts, and Resolving Insolvency. Country ranking number 1 is the country perceived to be easiest to do business in. Myanmar ranks at the bottom with a ranking of 182 (most difficult to do business in) (See Figure 19). 30 The Swedish Export Credits Guarantee Board (2013); Coface (2013)
  37. 37. 37 Figure 19: Rankings by ease of doing business Rankings by: corruption The Corruption Perceptions Index (published by Transparency International) ranks countries and territories based on how corrupt their public sector is perceived to be. A country or territory’s score indicates the perceived level of public sector corruption on a scale of 0 - 100, where 0 means that a country is perceived as highly corrupt and 100 means it is perceived as very clean. A country's rank indicates its position relative to the other countries and territories included in the index. Country ranking number 1 is the country perceived to be least corrupt. 2013’s index includes 177 countries and territories. Myanmar, with a ranking of 157, is perceived to be the most corrupt country in SEA, except Cambodia (See Figure 20). Figure 20: Rankings by corruption Sources: Worldbank Sources: Transparency International
  38. 38. 38 Rankings by: country risk The Coface country risk assessment is based on macroeconomic, financial and political data. For 2013 a total of 158 countries have been evaluated. The analyses use a seven-level ranking. In ascending order of risk, these are: A1, A2, A3, A4, B, C and D (See Figure 21). The country rankings for Asia are: Cambodia D Philippines A4 Myanmar D Thailand A3 Vietnam C China A3 India A4 Malaysia A2 Indonesia A4 Figure 21: Rankings by country risk Sources: Coface (2013)
  39. 39. 39 OUTLOOK Myanmar's economy is currently in a pre-stage of transition. Neither insiders nor outsiders know for certain where the development will lead.31 What is certain is that the country is on the verge of considerable change. Despite the general enthusiasm about Myanmar's largely untapped market, investors need to be aware of significant risks and should maintain "healthy scepticism".32 Widespread corruption, a weak legal system, human rights abuses and a lack of protection for investors will remain serious obstacles. The successful by-elections were an important milestone in the reform process, but there is still a long way to go to democratization. The willingness for reform is a reaction to both internal and external factors. Internally, the military felt secure enough to reform the political system and to secure their assets. Externally, Western sanctions might have played a role, but also relevant are the growing economic overreliance on China and the political desire to gain legitimacy within ASEAN. Overall, political reforms are being initiated from "above" and many critical topics, such as corruption, civil war, military dominance and government mismanagement have yet to be addressed. The military has veto power over the entire reform process and sees itself as the guardian of national integrity. The state's weak institutional capacity and the lack of civilian control over the military was demonstrated in December 2011, when President Thein Sein unsuccessfully ordered the military to stop its offensive in the state of Kachin.33 Another challenge is the delicate issue of national reconciliation following decades of civil war and human rights violations that have created a deep mistrust between ethnic groups and the military. Additionally, there are hidden tensions between various ethnic and religious groups, which were not visible during the military control. These tensions erupt in times of political change, as we have recently seen in northwest Myanmar.34 The key to the future of Myanmar's economic transformation will be how the country integrates into the world economy: whether rapidly, under the free trade principles of the Washington Consensus or with a more gradual approach that initially provides trade protection and subsidises the domestic industries until they are competitive in overseas markets. Rather than follow the IMF and World Bank’s advice for rapid global integration, Myanmar should do what other ASEAN countries have done and develop its domestic industries before committing to reduce tariff rates. Despite the poor condition of its economy, Myanmar has already agreed to join the ASEAN Free Trade Area (AFTA) in 2015 and thus will have to compete with countries like Thailand and Malaysia. Myanmar's strategic location and its wealth of natural resources offers advantages few countries have, but Myanmar's comparative advantage in the primary resource industries and the exploration industry has to be adequately used in two ways: to develop the country from resource revenues that must be transparent and equally shared and to serve the domestic rather than international electricity demand. If the 31 Hellmann-Rajayanagam 2012. 32 Quote by opposition leader Aung San Suu Kye at the World Economic Forum in Bangkok in June 2012. 33 Bünte 2012: 3. 34 The Irrawaddy 2012.
  40. 40. 40 government fails to generate its large revenues to foster economic growth and to reduce poverty, this "resource curse" will continue to cause conflict and poverty. Myanmar's challenge will be implementing an industrial policy, which attracts certain types of FDIs that will benefit its manufacturing and services sectors rather than all kinds of FDIs focused in the energy sector. Small and medium enterprises face great difficulties in attracting investments and are less likely to arise in the special economic zones, where most FDI is being channelled. Foreign investors should invest in individual privately owned companies or joint ventures, rather than to participate in large-scale resource or energy projects, which are dominated by the global players. Insufficient understanding of ground conditions, especially in the resource-rich minority areas, could jeopardize any sort of investment and lead to conflict and frustration. Corporations and investors need to monitor the market very carefully and need a reliable source of information on investment policies, in order to take advantage of the unique opportunities that the transformation process permits. While setbacks will inevitably occur, foreign investors should think long-term and not expect a secure profit. Only investors who know the market and its challenges will succeed. The decision as to how democratic the country will be has yet to be proven; the next general elections take place in 2015. Until then it seems most likely that the liberal climate will continue, as numerous important events will challenge the government to further integrate. Myanmar's hosting of the Southeast Asia (SEA) Games in 2013, the hosting of the World Economic Forum (WEF) on East Asia in the same year, its chairmanship of the ASEAN Summit in 2014, and the movement toward a region- wide ASEAN Economic Community (AEC) in 2015, will all play important roles in contributing to the further political stability over the coming years. The challenge will be to keep up the reform momentum without causing macroeconomic or political instability.
  41. 41. 41 APPENDICES SOURCES Amnatcharoenrit, Bamrung 2012: Thais enter Myanmar hotel market with Bt8 bn stakes. The Nation. Bangkok, 25.May 2012. Arakan Oil Watch (AOW) 2012: Burma's Resource Curse. March 2012. Asian Development Bank & Myanmar, country fact sheet, April 2013 Asian Development Outlook 2012: Confronting Rising Inequality in Asia. Manila. Aung Ye Naing 2012: Business visitors to get "one-minute" visas. Irrawaddy, May 29 2012. Baldor, Lolita C. 2012: Panetta open to military relations with Myanmar. Associated Press. Singapore. 2. June 2012. http://abcnews.go.com/International/wireStory/panetta-open-military-relations- myanmar-16480226 Bangkok Post 2012: Pace of reform should be steady and sure. 04.05.2012: http://m.bangkokpost.com/opinion/291699 Biron, Carey L 2012a: Myanmar rush risk undermining progress. Asia TImes Online, May 5 2012: http://www.atimes.com/atimes/Southeast_Asia/NE05Ae01.html?utm_source=twitterfe ed&utm_medium=twitter Biron, Carey L 2012b: Myanmar gains at risk. April 20 2012: http://www.atimes.com/atimes/Southeast_Asia/ND20Ae01.html Boot, William 2012: Burma's Missing Ingredient for Success. The Irrawaddy, 16.02.2012. http://www.asiasentinel.com/index.php?option=com_content&task=view&id=4236&Ite mid=32 Bünte, Marco 2011: Burma's Transition to "Disciplined Democracy": Abdication or Institutionalization of Military Rule?. In: GIGA Working Papers No 117. August 2011. Bünte, Marco and Portela, Clara 2012: Myanmar: The Beginning of Reforms and the End of Sanctions. In: GIGA Focus International Edition, 3/2012. Conflict Risk Network 2012: Not open for Business: Despite Elections, Investor Risk Remains High In Burma. Washington. April 2012. EarthRights International 2011: The Burma-China Pipelines: Human Rights Violations, Applicable Law, and Revenue Secrecy. Situation Briefer No.1. March 2011. Washington.
  42. 42. 42 Economic Research Institute for ASEAN and East Asia: Effective Bureaucracy can Facilitate Economic Reforms in Myanmar, June 2013 European Chamber of Commerce 2011: Myanmar (Burma) - Economic Overview. July, 2011. Singapore Evans, P. 2011: Myanmar (Burma) - Telecoms, Mobile and Internet. http://www.budde.com.au/Research/Myanmar-Burma-Telecoms-Mobile- and- Internet.html Gottipati, Sruthi 2012: India reaches out to Myanmar. New York Times. 29.May 2012. Hellmann-Rajayanagam, Dagmar 2012: Betwixt and between: Myanmar's Economy on the Verge of Take-Off?. In: Blickpunkt Asia Pacific 03/2012 http://www.dapg.de/Content/news/2012-03_Dagmar-Hellmann- Rajayanagam_Betwixt-Between-Myanmar.html Hui, Qin 2012: Behind Myanmar's suspended dam. 28 March 2012. http://www.chinadialogue.net/article/show/single/en/4838 Info Birmanie 2011: Report on Tourism in Burma. Paris. International Crisis Group (ICG) 2012: Reform in Myanmar: One Year On. Jakarta/Brussels, 11 April 2012. International Monetary Fund 2012: Myanmar - 2011 Article IV Consultation. IMF Country Report No.12/104. Washington, May 2012. Lim, Linette 2012: Hoteliers eye Myanmar's hospitality sector. Channel News Asia. May 31.2012. KPMG International, Infrastructure in Myanmar, 2013 KPMG Myanmar: Foreign Investment Law and Investment Procedures in Myanmar, July 2013 Krause-Jackson, Flavia 2012: Myanmar's Corruption Legacy Shadows Opening to Investors. Bloomberg. 18.May.2012. McKinsey & Company 2013, McKinsey Global Institute: Myanmar’s moment: Unique opportunities, major challenges, June 2013 Myanmar Business Network 2012: Singaporean company to help build fibre cable network for Myanmar. Retrieved from Myanmar Business Network: http://www.myanmar-business.org/2012/04/singaporean-company-to-help-build- fiber.html Property Report 2012: Myanmar's hotel land prices on the rise. March 27, 2012. http://www.property-report.com/myanmars-hotel-land-prices-on-the-rise-20057
  43. 43. 43 Reuters 2012: “Myanmar Still Not Open on Oil, Gas Wealth”. Bangkok, 22. March 2012 http://www.reuters.com/article/2012/03/22/ myanmar-energy- idUSL3E8EL5LL20120322 Robinson, Gwen 2012: Myanmar finalises new investment law. Financial Times. Bangkok/Washington. 8. May 2012. Swedish Export Credits Guarantee Board: Country Risk Analysis Myanmar, August 2013 The Heritage Foundation 2012: Burma - 2012 Index of Economic Freedom. Washington. The Irrawaddy 2012: Police Begin Clean-up in Sittwe. Sittwe, June 11, 2012. http://www.irrawaddy.org/archives/6449 Tun, Aung Hla 2012: Exclusive Myanmar drafts new foreign investment rules. Reuters. Yangon. 16.March 2012. http://www.reuters.com/article/2012/03/16/us-myanmar-investment- idUSBRE82F0IY20120316 UN Comtrade: Import & Export figures, 2010 United Nations: World Statistics Pocketbook, 2011 United Nations Escap: Asia-Pacific Trade and Investment Report, 2012 Worldbank: Connecting to Compete 2012 - Trade Logistics in the Global Economy: The Logistics Performance Index and Its Indicators World Economic Forum: The Global Competitiveness Report 2013–2014
  44. 44. 44 LIST OF ABBREVIATIONS ADB - Asian Development Bank AFTA - ASEAN Free Trade Area ASEAN - Association of Southeast Asian Nations ATM - Automated teller machine CIA - Central Intelligence Unit CNPC - China National Petroleum Corporation CSO - Central Statistical Organization (Myanmar) DDC - Dawei Development Company Limited DSEZ - Dawei Special Economic Zone EIA - Energy Information Administration EU - European Union FDI - Foreign Direct Investment FESR - Framework for Economic and Social Reform GDP - Gross Domestic Product GSM - Global System for Mobile Communication IMF - International Monetary Fund ITD - Italian Thai Development Plc. km2 - square metre KWh - kilowatt hour MOGE - Myanmar Oil and Gas Enterprise MPT - Myanmar Posts and Telecommunications MW - Megawatt NLD - National League for Democracy PV - Photovoltaic SEA - Southeast Asia SEZ - Special Economic Zone SLORC - State Law and Order Restoration Council SPDC - State Peace and Development Council UMFCCI - Union of Myanmar Federation of Chambers of Commerce and Industry US - United States USDP - Union Solidarity and Development Party USD - United States Dollar WB - World Bank WEF - World Economic Forum
  45. 45. 45 MAP OF MYANMAR Sources: United Nations

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