August 19, 2016

The Future of Myanmar Economy in Postelection Period

2015 Myanmar election is hailed at home and abroad as a significant milestone towards Myanmar model of democratization. Riots and unrests which are the usual landscape in the election period in countries under democratic transition are almost unheard of in Myanmar. There are no gun shots and bomb blasts except in very tiny part of the country dominated by some armed groups who are still craving for armed struggle. How delightful to see the peaceful and quiet long queue in the poll stations throughout the country! Normally we don’t often see such a neat and tidy queue in Myanmar. When Myanmar woke up on 8th November, 2015, the world suddenly noticed that we have crossed the democratic maturity threshold. It is for all of us to keep it up. The media worldwide is full of blessing for the Myanmar people and the winning opposition party. In fact it is also the victory of the government, Tamadaw and Election Commission. All of them put tremendous effort for the tasks inside and outside the poll station for safe, smooth, secure, free and fair election. The government and Tamadaw have expressed their congratulatory words for the winning party and expressed their strong commitment for the peaceful transfer of power. After all there is a saying “Most of the people know when to start but only a few wise men know when to stop”.
After the election, most of the people hope that democratization process will gain stronger momentum. We must not forget that strong democracy cannot prevail unless we could improve the livelihood of the Myanmar people. The backbone of the economy of a truly democratic country is Small and Medium Enterprises (SMEs). The just and equitable income distribution for all of our people can be guaranteed only when there is flourishing SMEs. There are universal rules adopted by the World Bank for establishing, running and liquidating for SMEs irrespective of the differences in the geographic factors, natural and human resources. World Bank compares the criteria for ease of doing business in all countries over the world and publishes the report yearly since 2006. Doing Business Myanmar Report was started in 2014 and 3rd report came out only a few weeks ago.
World Bank’s criteria for ease of doing business includes 10 areas; starting business, dealing with construction permit, getting electricity, registering properties when someone want to  set up a business and getting credit, paying taxes, trading across borders, protecting minority investors, enforcing business contracts when a business started operation and finally solving bankruptcy if a certain business can no longer survive. The grading marks are defined and categorized according to number of steps involved, the time taken and the cost of the procedures. Not surprisingly Singapore ranked as the easiest country for SMEs to do a business for 11 straight years. Myanmar ranked 178th out of 189 economies in 2014, 177th in 2015 and come up to 167th position in 2016 report.
Myanmar democratization has taken roots in 2011. After publishing the Framework for Economic & Social Reform (FESR) on 14th January in 2013, series of reforms were implemented. Tax reforms including on line tax declaration was started. Liberalization of import and export process was implemented by removing quota and permit system. But improvement in 2015 report was only one spot because other transforming economies are liberalizing their bureaucratic machine faster than us as we have just woken up from the sanctioned economy. In the next year, One Stop Services (OSSs) were set up for speedy and less expensive company registration procedures as well as for electricity connection. Together with reform measures in other areas, we jumped 10 spots to 167th position in 2016 report.
Considering the slow bureaucratic machine which is the legacy of so many years of command economic system and old mindset of government employees, this outcome of jumping 11 spots in the World Bank ranking in just two years is not a small achievement. The government can only use half of its brain because the other half is busy with establishing nationwide peace process knowing that peace is essential for business. The popular opinion on the street in post-election period is that Myanmar economy can turn around quickly and poverty will decline dramatically once the sanctions were lifted after the new government office take office. It is true that sanctions were the barriers for the economic progress but many of our people cannot notice that our economy is held back not because of sanctions but because of our own internal hurdles. One example is that our SMEs are still unable to exploit the GSP benefit of European Union adopted since 18th July in 2013. According to that benefit, EU imposed zero tax for our products. Businesses from Japan, China, Thailand, Vietnam and various countries are preparing to reap this benefit through their factories in Myanmar.
Everybody knows that power is essential for the business. Although the process of getting electricity is easier in Myanmar than before, what is more important is how to get reliable electricity around the clock. There is an obvious mismatch between supply and demand in Myanmar. We have potential for producing 100 Gigawatt of hydropower. 40 Gigawatt is feasible currently. Hydropower is clean energy with zero carbon emission and less costly because of our comparative advantages. But we can produce only 5 Gigawatt at present because of insufficient capital, environmental concerns and armed conflicts in the project areas. What a waste to see large amount of water from Ayeyawady, Chindwin, Thanlwin and others are flowing fruitlessly into the sea for several years since independence without being able to produce enough energy for our economy. Some argue that we have a lot of gas but it is not a clean energy and not reliable for long term because it is not renewable. Although the coal energy is easy to set up and cheap, it is still difficult to draw public trust.
There are many challenges that the present government cannot touch yet. Credit available for Myanmar SMEs is still negligible compared to our neighbours. In Thailand the credit available for their SMEs is 600 billion US$ in 2013 (150 % of their GDP in that year). Vietnamese SMEs received credit of 200 billion US$ in 2013 (120 % of their GDP in that year). Only 3 billion US$ is available for Myanmar SMEs during the same period. Enough credit is not available because there is no credit information system for the lending banks. Offshore loans from oversea banks are also not available yet because of some delay in central bank procedures.
Protecting minority investors, enforcing business contracts and solving bankruptcy are at present insurmountable hurdles for SMEs since we don’t have dedicated commercial court and legal framework for the commercial disputes among businesses. In modern and business-friendly countries like Korea, commercial disputes can be filed on line and public can review the proceeding of the case on line. Myanmar has a long way to reach there.
In coming months the new government will take office and people’s expectation from the new government is exceptionally high. To improve the livelihood of people, it will have to face and solve a mountain of challenges like nationwide ceasefire, delivering basic utilities like electricity, handling natural disasters and turning round the economy by invigorating Myanmar SMEs. ASEAN Economic Community (AEC) will be in effect in 2016 and the clock is now already ticking. There will be free flow of goods and services across ASEAN after AEC. That will threaten the survival of Myanmar SMEs which are already in feeble stage. The term of the each democratic government is only five years which is too short for nation building works.
Everybody notice that the reform process in Myanmar is easier said than done. Public expectation cannot be met if the new government could not turn the bureaucratic wheel swiftly and smoothly enough and transform the economy in time to catch up with our neighbors. They will have to find the innovative ways to improve the efficiency of the bureaucratic mechanisms like decentralization the power structure or searching for the regional genius like Modi of Gujarat who transform the Gujarat state into an oasis of India complete with Chinese style modern and efficient infrastructure. The only other option is like Jokowi of Indonesia who bypasses the slow bureaucratic mechanism and uses the army to fulfill his nation building agenda.
The people of Myanmar have missed the opportunity to enjoy the respectable position in international stage for three times in modern history. The first time is post colonial period when Myanmar possessed flourishing democracy, strong economic prospect and is active in international diplomatic arena thanks to its educated technocrats like U Thant. Unfortunately the country was divided along the different ethnic and ideological groups soon after independence. The resultant armed conflicts brought down the country into chaos and we missed the opportunity. Because of the successive armed conflicts in the various parts of the country as well as the power game between the world super power and our giant neighbor, the military space was widened naturally. At the same time political landscape was divided and unable to form united front because of the irreconcilable personal grudges among the politicians. That leads to the second missed opportunity in 1960s. Near the end of cold war in 1980s, some communist states like China and Vietnam put the ideological differences in the shadow and started to follow the open market economic system. Politicians of the time in Myanmar were reluctant to change and the people missed the opportunity again for third time. This is our fourth invaluable opportunity in modern history. If every stake holders set aside the personal preferences and work together for the common goal of improving the livelihood of our people, there is no reason why we cannot catch up with our neighbors and people can enjoy the status of middle income country in a decade.


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