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Can Myanmar make it easier for SMEs to do business locally?
The World Bank released its Doing Business report for Myanmar in 2017.
Based on the findings, Myanmar ranks 170 in ease of doing business this year, up from 171 in 2016. The country now has a population of almost 54 million, and a gross national income per capita US$1,293 per year.
At 170, Myanmar actually trails all its neighbours in ASEAN in the ease of doing business (see Chart 1). But it is aiming to raise its rank to at least 100 or less within the next few years.
Published every year, Doing Business sheds light on how easy or difficult it is for a local entrepreneur to open and run a small to medium-size business when complying with relevant regulations. It measures and tracks changes in regulations affecting 11 areas in the life cycle of a business.
The report then presents results for two measures, a distance to the frontier (DTF) score and a ranking for the ease of doing business. The ranking of an economy is determined by sorting the aggregate distance to frontier scores. An economy’s distance to the frontier score is indicated on a scale from 0 to 100, where 0 represents the worst performance and 100 the frontier.
Among the 11 areas highlighted in the report, regulatory changes and procedures in starting a business is an important indicator affecting a country’s rank in the ease of doing business index.
We discuss four out of the 11 areas here:
Chart 1. Myanmar ranks 170 out of 190 countries and is the least favourably ranked among comparable economies in the region on ease of doing business. It wants to raise its rank to 100.
Starting a business
In 2017, Myanmar made starting a business easier by reducing the cost to register a company. It also simplified the process by removing the requirement to submit a reference letter and a criminal history certificate to incorporate a company.
This was over and above eliminating the minimum capital requirement for local companies and streamlining corporate procedures in 2016, according to Doing Business.
Today, starting a business here requires 11 procedures, takes 13 days and costs 40.4 percent of income per capita for both men and women (Chart 2). Income per capita is the average income earned per person in a given area. In Asia, Myanmar ranks higher than Indonesia, India and Laos when it comes to ease of starting a business.
Chart 2. What it takes to start a business in Myanmar: 11 procedures, 13 days and 40.4 pc of income per capita.
Getting electricity
Access to affordable and reliable electricity is also vital for businesses to conduct their operations here. In Myanmar, Doing Business finds that getting electricity requires a total of six procedures, takes 77 days and costs 1270pc of income per capita (Chart 3).
Chart 3. What it takes to obtain an electricity connection in Myanmar: 6 procedures, 77 days and 1,270 pc of income per capita
Myanmar has not done so well on this front and more action is needed. It now ranks above just Laos in ease of getting electricity in the region.
“Myanmar cannot produce electricity itself. If the electricity tariff is increased, people cannot pay. If tariff is not increased enough, investments cannot be made,” said Dr Soe Tun, a local businessman.
“Hydropower involves a huge investment, but producing electricity from coal can damage the environment. It is like a vicious cycle. Without electricity, it is difficult to implement other plans,” he said.
Getting credit
Chart 4. Economy scores on strength of legal rights for lenders and borrowers. Myanmar’ scored the lowest among other comparable economies in the region.
Access to credit is another important area in the ease of doing business. However, Myanmar is far behind every country in Asia when it comes to getting credit. Currently, legal rights for borrowers and lenders are almost non-existent and there is no credit information available in the market (Charts 4,5).
“It is very difficult to get loans in Myanmar because the interest rate is too high. So, starting a business is very difficult. Without solving this issue, businesses will not be able to do proper business,” Myanmar Rice Federation executive member U Thaung Win said.
“Myanmar must reduce its interest rate on loans. To do so, it must reduce the interest rate on deposits. Inflation must be low and stable. When inflation can be managed, it will be easier to reduce the interest rate on loans,” said economist Dr. Aung Ko Ko.
Chart 5. Economy scores on depth of credit information index. Myanmnar has a score of zero, implying no information is avaialble for lenders.
Cross border trade
In most economies, trading across borders has become faster and easier over the years as governments introduce processes like risk –based inspections and electronic data interchange systems to facilitate trade and competitiveness and reduce illegal dealings.
But Myanmar is at the bottom of the list when it comes to trading across borders. In 2017, it actually made cross border trade more difficult with delays and higher process costs for incoming cargo at the Yangon port, according to Doing Business. Illegal trade is also a big issue for the countr (Chart 6).
Chart 6. Summary of Myanmar on the ease of trading across borders. It’s getting harder to engage in cross border trade with the country. Source for charts: Doing Business
From 170 to 100
So can Myanmar hit its target rank of 100 or less in ease of doing business? What needs to be done? Here’s what some experts told The Myanmar Times:
Vice President U Myint Swe at the Republic of the Union of Myanmar Federation of Chambers of Commerce and Industry (UMFCCI) office on July 20:
“Some [countries] may have good rankings but their prospects are not good. For example, in our neighboring countries, there are frequent damages to assets due to floods. Although Myanmar is low in the ease of doing business ranking, our prospects are better. We have fewer natural disasters, cheap labor and talent. Some are very eager to invest in Myanmar.”
Dr Soe Tun, local businessman:
“To raise our rank in the ease of doing business, problems with basic infrastructure, transaction cost and bureaucracy must be resolved and legal and systematic border trade must be established. Everything can’t be done at once, but we should solve what we can first.”
Dr Aung Ko Ko, economist:
“It’s great that there’s an ambition to do something. We won’t know exactly what the improvements are going to be. But, I’m sure that it will be better than the current situation. The constitution will have to be changed. Every sector will have to be reformed. If we do these things, I think things will improve gradually.”
U Tun Tun Naing, permanent secretary of the Ministry of Planning and Finance:
“The submission of work approvals takes a long time, so we can set up a faster one-stop service than the previous one. But, there are still many other things left. For example, getting electricity, and submitting the recommendation letters. The plans are set in motion and all the ministries are also cooperating.”
Source: http://www.mmtimes.com/index.php/business/27082-can-myanmar-make-it-easier-for-smes-to-do-business-locally.html