The World Bank has lowered its growth projections for 2016-17 to 5.9 percent, below expectations and slower than growth of 7pc in 2015-16. Investment demand decelerated during the year as private investors held back their plans pending greater clarity in the government’s economic agenda.

Due to fiscal constraints, public investments also declined, dropping to just 5pc of GDP during the year compared to 6.2pc in 2015-16.

Sector-wise, agriculture contracted despite expectations of a recovery from the 2015-16 floods, while industrial output also fell as a result of slower manufacturing and production activity in the first three quarters of the current fiscal year.

Rakhine risk

After taking into account the recent security issues in Rakhine and its potential economic impact, the World Bank expects growth to average 6.8pc in the coming quarters compared to its earlier forecast of 7.1 pc.

“The escalation of tensions in Rakhine State could further heighten investor perceptions of risk and negatively affect investment flows,” it said. “Whilst the tensions in Rakhine remain geographically contained…an escalation of violence and humanitarian needs have implications on public expenditures, trading opportunities, security and broader ability to implement an inclusive growth strategy.”

All that could exacerbate falling investor confidence as a result of the government’s lack of clear communication over its reform agenda. In addition, rising protectionism, tighter global monetary conditions, and stagnant commodity prices globally could deter investors from taking further risks.

Investment potential

On the other hand, the global economy has recovered to a much healthier level and investors remain hungry for growth and expansion. With their economies recovering and interest rates still low in countries like Japan and in Europe, international investor interest in Myanmar remains strong, and the country has “the potential to capitalise on major investment opportunities,” the World Bank said.

Notable investments in 2016-17 include the opening of Nissan Motor Company and Tan Chong’s car assembly plant in Yangon, Puma Energy Sun Asia and MPPE’s fuel storage facility, Sembcorp Industries’ gas-fired power plant, Myanmar’s fourth telecommunications operator Viettel and a slew of new hotels, such as Lotte Hotel, Pan Pacific Yangon and Hotel G Yangon.

Still, the current challenge is to convert investment commitments in Myanmar to actual fund flows, the World Bank noted. It pointed out that although investor interest remains strong, the lag between investment commitments and implementation has started to grow.

On the positive side, private consumption, which accounts for close to half of GDP, has remained strong, particularly in urban areas, and as poverty levels continue to fall. Indeed, rising consumer purchasing power and greater access to markets have contributed to substantial growth in household asset ownership this year, with urban areas seeing faster growth in household welfare and a sharper decline in poverty in percentage terms.

Meanwhile, implementation of the recently adopted prudential regulations under the Financial Institutions Law, while extended as banks seek more time to comply, is expected to support financial sector stability and to manage risks. Meanwhile, steps to develop a Secured Transaction Framework and Credit Bureau licensing should help to improve access to finance and credit quality.

Finalising the power sector master plan and following up on decisions dealing with gas supply shortages and electricity tariff adjustments are on the agenda as the government seeks to improve access to electricity, while better fiscal management should allow for higher spending on important infrastructure like roads and bridges.

Business regulations have also improved with the implementation of the 2016 Investment Law and approval of the Companies Law.

While much of the economy still needs improvement, one Singaporean investor at least sees big opportunities to expand in the current landscape. “The existing issues and lack of clarity in implementing important legislature may be problems for other investors. For us though, these problems are our prospects,” said Mitchel Tan, who heads Dragan New-Tech, a private business providing qualified training to workers in the offshore and marine and infrastructure sector.

“If the economy had no issues and policies were clear cut, we would have less opportunity to grow.”

Source: https://www.mmtimes.com/news/growth-lowered-due-rakhine-risks-investment-potential-remains.html