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Headwinds in Myanmar

The economic outlook for Myanmar for the coming year looks resilient, but the country faces enormous risks posed by internal tensions and international economic trends, according to the World Bank.

In its latest Myanmar Economic Monitor — released last week and published every six months — the World Bank predicted that the country’s grow domestic product would grow by more than 6% this year, a slight increase over last year. But the country’s conflicts pose a major problem for businesses, the international financial organisation warned.

“Myanmar continues to experience robust growth but as the global economic environment deteriorates, the importance of domestic factors — like the challenges of continued conflict — affects investor sentiment and may hamper the country’s long-term prospects,” Hans Anand Beck, lead economist of World Bank Myanmar said at the launch of the report in Yangon.

The presence of armed groups and conflicts pose additional challenges for businesses in a developing country, he said, as those operating in conflict-affected areas bear additional costs to stay open. Above all, strife discourages increased investment, especially from foreign sources.

“Urgent action is needed to address sources of conflict, improve social inclusion and foster a diversified and responsible private sector to sustain economic performance and set the foundation for Myanmar’s future prosperity,” said Mr Beck.

But other factors, including low private sector productivity and the constraints of finding finance, the lack of a reliable supply of electricity, shortages of skilled workers and land issues are also likely to impede growth, according to the report.

It also warns that global and regional growth has been lower than expected and trade tensions remain, which could affect Myanmar’s future economic growth. Volatility in the Middle East, which could affect oil prices in the long run, and fluctuations in the value of the dollar will also have a potential impact.

The World Bank still expects strong economic growth buoyed by growing investment — public and private — in the transport and telecommunications sector and from planned government infrastructure spending, in the lead-up to the 2020 elections.

Reforms have lifted Myanmar’s ranking in the World Bank Group Doing Business 2020 report, but the overall performance was still a dismal 165th out of 190 countries surveyed, up from 171st a year earlier.

Firms in Myanmar need greater access to finance, land and skills, better connectivity, and an enabling business environment to support a responsible private sector. It recommended that polices should be geared toward private-sector-led growth by fostering market expansion, improving the allocation of resources and developing the capacity of market participants.

The relatively upbeat World Bank assessment seems to be endorsed by many of the European companies operating in Myanmar, though they also share many of the Bank’s concerns. European businesses, according to the annual EuroCham Myanmar Business Confidence Survey for 2019 published in December, are more confident about the long-term potential of the country and the prospects of doing business than they were a year ago.

“The survey showed an improvement of 35% compared to last year in how companies view the current business environment, a positive change mostly due to improvements in the legislative framework,” Gerdien Velink, business development manager of EuroCham Myanmar, told Asia Focus.

More than a third of the companies surveyed said the local business environment had improved over the last 12 months — nearly 20% more than in the last survey. Almost two-thirds believe the business environment in Myanmar has improved or at least not worsened.

“The improved confidence of European business can also be seen elsewhere, with more businesses having expanded their footprint in the country by investing and developing their business in new cities such as Mandalay and Shan State,” said Nicolas Delange, the chairman of EuroCham Myanmar.

The majority of the European companies expect their market share to increase in the coming years. Most expect their profits to increase in the coming years, or at least stay the same.

Despite the increase in European confidence in Myanmar’s potential, further investment is being hindered. Nearly half the companies surveyed do not plan to invest in the coming year. The challenges are perennial and similar to those identified in last year’s survey.

These are predominantly the lack of clarity of regulations and the efficiency of regulatory frameworks. “In addition to the degree of legal uncertainty, European businesses consider the lack of skilled labour as a major factor hindering investment and growth in the Myanmar market,” said Mr Velink.

“However, it is essential to note that a new risk is rising for European companies doing business here: reputational risk related to the crisis in Rakhine, and the human rights situation in the country,” Mr Delange told Asia Focus.

“Addressing these issues is fundamental to unlocking Myanmar’s potential, especially for long-term investors like European companies.”

European businesses all believe the government must do more to improve business sentiment. “The government should promote an open, sustainable, transparent and inclusive business environment,” said the EuroCham business development manager.

Challenges such as poor healthcare, education and the urgent need to further develop infrastructure should be addressed. “But training of human resources should be one of the government’s key priorities.”

This is a view that resonates with local businesspeople. “Skills development is perhaps the most important issue for the country’s development,” Mandalay technology CEO Zaw Naing, one of the new breed of independent Myanmar businessmen, told Asia Focus.

He believes the government should establish and finance a National Skills Development Fund that provides free training for semi-skilled and unskilled workers. “Private skills and vocational training centres should be encouraged rather than the very grand government-owned training centres, where limited skill training is provided free of charge but with limited long-term sustainability.”

The prominent businessmen and entrepreneur, Thu Zaw, who owns the Sithar Coffee company, also believes skills or capacity training must be at the forefront of government policy. This must also include training the civil servants and changing their mindset. He says industry and government need to be overhauled and “new blood” introduced.

“Recruit younger and dynamic talents to all sectors in the country,” he told Asia Focus. This should also involve increased and appropriate remuneration for those are promoted to senior positions.

Most Myanmar businessmen agree that infrastructure improvement and reliable electricity supply are essential for development and attracting investment — locally and internationally. “Without proper and adequate infrastructure, businesses are understandably reluctant to invest,” said Zaw Naing.

Although there is obviously much to be done, Myanmar’s financial reforms have added a new dimension to the economic outlook — and there is more to come.

“Further financial sector liberalisation is in the pipeline,” said Sean Turnell, economic adviser to State Counsellor Aung San Suu Kyi. And this, he believes will lead to a much needed a welcomed “democratisation of finance”.

After the reform of the insurance sector last year, providers are preparing to introduce more policy options onto the market this year. With only one percent of the country’s population exposed to insurance, there is huge potential for growth, according to William Maung, an independent financial analyst and author of two books on the Myanmar insurance industry.

“We are at the beginning of a fast-growing phase, with a surge of interest and enthusiasm at all levels of the market,” he said.

“The market will become more competitive and people will start developing more awareness of the benefits of insurance. This will translate into higher interest and demand, and the rate of penetration in our industry will grow,” Myo Min Thu, managing director of AYA Myanmar Insurance told Asia Focus. His company has several new products in the pipeline that are likely to be launched in the near future.

A further opening of the banking sector — to foreign banks — is expected soon. And digital payment is expected to take off this year — with new technologies and greater public awareness helping economic growth and investment.

But there is no doubt that everything this year is going to be overshadowed by the elections in November. The government, politicians and the civil service will be preoccupied with them — and this may hinder the consideration of long-term projects that are not seen as having an immediate electoral advantage.

“I can’t be bullish about the economic outlook this year,” said Kyaw Kyaw Hlaing, head of the Smart group of companies and a renowned political commentator. “The NLD will get back into power and we will have more of the same: a government that lacks credible policies, vision or an implementation strategy.”

Source: https://www.bangkokpost.com/business/1839444/headwinds-in-myanmar