In the Golden Land: Myanmar’s Economic Regeneration
Myanmar, an economy of 48 million, belongs to the world’s least developed countries. With an annual growth rate of about 4.5% and income of roughly 400 U.S. dollars per capita, the country is one of the region’s slowest growing economies.
Historically Burma, as it was formerly called, constituted a trade route between India and China. After it had been conquered by the British in 1824, the traditional Burmese economy of redistribution was abandoned and the country became tied to the global markets through colonial trade. Thus, Myanmar eventually became the world’s biggest producer of rice and a major exporter of teak.
In 1948, the newly elected government introduced the policies of nationalization, under which it tried to implement eight-year economic plans. As a result, exports of rice, timber and other natural resources were curbed to the minimum. Economic prospects worsened in the next decade, when a coup d’état launched the so-called “Burmese Way to Socialism,” which implied further nationalization, this time of all industries. Years of economic mismanagement, controlled economy, poor allocation of resources, and low levels of industrialization have left the country bereft of trading partners, a solid private sector and, importantly, financial architecture.
As such, however, Myanmar is an economy rich in natural resources, like gas, gems and possibly oil although it still remains heavily dependent on its agricultural sector (rice), forestry (teak and timber) and fisheries. Once the world’s major rice exporter, Myanmar’s share on the world’s rice market is still negligible. Manufacturing, as opposed to agriculture, accounts for a very small share of the economic activity with state companies still playing a decisive role.
These improvements have been possible thanks to Myanmar’s new President Thein Sein, who is believed to have changed the politics of transition as well as political winds themselves. Since his election in 2011, he has embarked on sweeping reforms, with the aim to re-integrate the country with the global markets – a connection which was cut off partly due to long-lasting Western sanctions. Myanmar is slowly (re-)gaining international partners that help to conduct its political and economic transition processes. For instance, in April 2012 the European Union suspended all its sanctions but the arms embargo, after which the United States followed with an alleviation of selected financial and investment sanctions. The World Bank has been present in Myanmar since the beginning of the reforms, and it has just launched its new “Interim Strategy” targeted at private management, that would transparently link the budget with development strategies as well as private sector development and accompanying access to microfinance and other types of loans. The Bank also serves as the major data collector as the closed character of Burma’s economy disabled observation of its socio-economic indicators, which is the main reason why economists find hard to track the developments of the Myanmar economy. While institutional reform is naturally a long-term process, the aid and interest from the side of the international community helps to build confidence in Myanmar’s future economic prospects.
Expectations seem to be crucial in attracting international investors that bring jobs and money to the still fragile economy. Myanmar’s stake in foreign investment was demonstrated by the “New Myanmar Investment Summit” in July 2012, which was organized after the Foreign Investment Law Bill, for corporations and multinationals, had been amended (small and medium enterprises operate under the Myanmar Companies Act). Investors are now allowed to establish a hundred percent foreign-owned company, or a joint venture with a Myanmar partner.
The investment summit indeed attracted attention of many interested companies that are tempted by an access to the potential key sectors in a resource-rich economy. In fact, Myanmar drew about 660 million U.S. dollars in investments in the first half of 2012 – the gas and oil industry account for more than a half of the amount, followed by electric power, manufacturing and mining. Major investors are China, India, Malaysia, Hong Kong, and Singapore. The second biggest investor after China, the United Kingdom, is the only European representative in the group. In light of Myanmar’s ongoing gas supply projects, it is believed that many more investments will kick in during the first quarter of 2013.
Doing business in Myanmar is, however, far from easy. Every investor must carefully investigate about infrastructure, access to electricity and telecommunications, office spaces and the labor market. Myanmar’s score of 1.5 out of 10 on Transparency International’s Corruption Perceptions Index, placing it at number 180 out of 183 in the rankings, points out the early stages of the transition process. Needless to say, the institutional change – so vital for economic development – along with the evolvement of new legal systems securing property rights, is a continuous, long-term and laborious process.
Katarina Kobylinski is a PhD student in Economics at CERGE-EI (Prague, Czech Republic), and a former Visegrad Fund student holding a Master’s Degree in Development Economics from the University of Warsaw (Poland). Earlier, she attained a Bachelor’s degree in International Studies and Diplomacy from the University in Economics, Prague. Katarina is a columnist of the North Africa Post and a project assistant at the think-tank ‘Global Europe’. Her professional interests include development economics, institutional economics and political economy of development.