August 19, 2016

Firing up Myanmar’s Economy through Private Sector Growth

Sjamsu Rahardja and Charles Schneider

Workers seen at a garment factory.
Workers seen at a garment factory.

Myanmar’s reintegration into the global economy presents it with a unique opportunity to leverage private sector growth to reduce poverty, share prosperity and sustain the nationwide peace process.
For much of its post-independence period, Myanmar’s once vibrant entrepreneurialism and private sector was stifled by economic isolation, state control, and a system which promoted crony capitalism in the form of preferential access to markets and goods, especially in the exploitation of natural resources. Reflecting this legacy, private sector firms are still burdened with onerous regulations and high costs, dragging down their competitiveness and reducing growth prospects.
Since 2011, Myanmar has returned to the global market place – sanctions have been lifted and the economy is increasingly opened for trade and investment. Between 2011 and 2014, export and import trade increased by 11 percent per year and approved foreign direct investment soared by 98 percent each year, both starting from a very low base. Global buyers in apparel are stepping up purchases from Myanmar’s textile industry, bringing expansion to this labor-intensive sector. Myanmar’s successful liberalization of the telecommunications sector has lowered the cost of phones, texting and internet access for people and businesses.
After decades of debilitating restraints, Myanmar’s determined business owners and operators remain intent on pushing forward to overcome bureaucratic and technological frustrations, emboldened by the spirit of social change and now economic reform.
“Reform is happening,” said one Yangon importer who launched his business in 2012. “We need to smooth the process, not lose hope.”
This businessman talks about the frustrations and obstacles he confronts almost daily, such as the lack of automation at the customs agency that delays import licensing, and complicated payment transfers that disrupt shipments. He hasn’t given up, he will keep working to change procedures because he’s confident his business will prosper.
What more can be done?
Making rules and regulations in trade and investment transparent and predictable.  Myanmar’s nascent private sector will respond to emerging opportunities if the playing field is level.  Passing the draft Investment Law prepared by the government in close consultation with stakeholders from the private sector and civil society will help build investor confidence while balancing the need for clear investor protections and the provision of regulatory space for the government. Passing the draft Companies Law will help ensure that key rules related to incorporation, management of companies’ affairs, financial reporting and audit requirements, share capital and capital raising, and the duties of directors are addressed using well-tested and modern approaches. This legal and regulatory framework is central to Myanmar’s market reform process.
Further telecommunications reforms and investment. Opening the telecommunications sector has helped attract foreign investment, and is connecting people and businesses through affordable internet access.  Consumer choice has increased and an ecosystem for digital innovation is developing.  Next steps: Adopting the Telecommunications Sector Master Plan, the eGovernment Master Plan and establishing an independent sector regulator to help Myanmar leapfrog into the digital age.
The government too, can install information communication and technology platforms at trade-related agencies to speed the clearance of goods across borders. A World Bank Group study suggests that these measures could reduce trade costs by 0.6 percent to 1.3 percent of cargo value.
Investment in better port logistics, and improved trade facilitation. Myanmar can leverage its unique geographical and comparative advantage by building its connectivity with its neighbors. Currently Myanmar’s logistics performance index lags last among ASEAN countries. Port terminals in Yangon suffer from congestion, long cargo-clearance processes, and regulations that incentivize traders to keep containers at port as long as possible. Cargo vessels entering the port are limited by the river tide and the lack of night navigation along the river channel. Myanmar borders on countries with the highest economic growth rates in the world and with markets that make up to 40 percent of world population. Removing logistics constraints and opening up ports can unleash the private sector’s potential – to become the engine of Myanmar’s economic growth.
Engaging the private sector in a dialogue over the economic reform agenda.  The government can send a strong signal of commitment to improve the business regulatory environment by coordinating inter-agency reform progress and integrating feedback from the private sector into the process. Establishing a structured policy dialogue between Government and private sector, such as a Myanmar Business Forum, can help establish trust between the parties.  Vietnam, for example, instituted its Doi Moi Policy of economic reforms that included a well-coordinated open reform process with a high level of government leadership and private sector participation through a well-functioning Public-Private dialogue platform, the Vietnam Business Forum. Similarly, Malaysia established a high-level inter-ministerial body, PEMUDAH, responsible for driving a continuous economic reform program and facilitating private sector dialogue.
While the challenges are great, Myanmar can be as successful in its transformation as its peers, and ultimately, benefit from the great economic potential of Myanmar’s natural resources, its geographic advantage and its people.
Myanmar has a history of ethnic conflict, so the successful expansion of private sector activities and the opening of the economy will depend on consultations with local communities, especially in conflict-prone ethnic-minority areas. Only with the participation and inclusion of these groups can the economic transformation effectively complement the ongoing peace process.
Achieving all of this is a tall order—but doable with strong leadership and public-private dialogue and cooperation. Progress in economic reforms can help to transform Myanmar into a peaceful, prosperous, and inclusive country, with a thriving private sector, high levels of employment and low levels of poverty.
This blog is based on the World Bank Group’s policy note “Breaking Business as Usual: Fostering Competitiveness and a Dynamic Environment for Private Sector Growth.” Sjamsu Rahardja is senior trade economist at the World Bank and Charles Schneider is senior operations officer at the IFC.


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