Booming Myanmar Gets a Crash Course in Capitalism: QuickTake Q&A
by Karl Lester M Yap
The Sule Pagoda in Yangon.
Photographer: Brent Lewin/Bloomberg
Myanmar’s economy is among the global
pacesetters in terms of growth. By most other measures, it’s one of the
laggards -- a legacy of five decades of isolationist military rule. The
optimism that greeted the Southeast Asian country’s opening up to the world has been tempered by economic realities, even after Aung San Suu Kyi’s party formed a new government last year. Poverty persists, real growth has slowed and the currency has tumbled as foreigners defer their investment plans.
1. What happened to the flood of overseas investment?
Foreigners
pumped in a record $9.4 billion in the year though March 2016, up from
less than $2 billion five years earlier, when the junta began to loosen
the political reins. But the flow has stemmed, with investment down to $5.8 billion with two months
of the current fiscal year uncounted. The main reason: Businesses put
their plans on hold in anticipation of clearer economic policies from
the new government. Some investors were put off by international condemnation
of the treatment of the country’s Rohingya Muslims, which has led human
rights groups to criticize Suu Kyi and is a reminder that the generals
still hold great sway. And there was a backlog in approving investment during the switch of power.
2. So this is just a pause?
Probably. The attractions for investors remain: a low-wage population of 54 million people
hungry for goods, services and better infrastructure, and the proximity
to the giant markets of India and China. Add to that the U.S. lifting
of the last of its decades-long sanctions
late last year. Then there’s Nobel Peace Prize winner Suu Kyi’s star
appeal, which she put to use on a 2016 promotional tour that took in
China, India, Japan, the U.K. and the U.S.
3. Any new legislation coming?
An investment law that will make it easier
for foreign companies to gain tax incentives and a companies law that
will allow overseas investors to buy up to 35 percent equity in local
firms before they’re considered foreign-owned.
4. What about the economy?
Some are concerned whether
Suu Kyi, the de facto head of government, and her National League for
Democracy party are up to the task of managing the $63 billion economy.
But growth continues at breakneck speed: the World Bank forecasts
expansion of about 7 percent per year through 2019. Inflation has wiped off some of the gloss, but is expected to ease.
5. Is life changing for the better?
Not
always. Slums are expanding as villagers flock to the cities for work,
with 41 percent of the urban population now living in shantytowns. And for those with a home or business, soaring rents are squeezing tenants who must pay six months’ or a year’s rent up front. Myanmar scores badly on economic basics such as life expectancy (65.8 years) and child mortality (72 deaths per 1,000 before the age of five versus a regional average of 30). A quarter of the population live below the poverty line.
Substandard road and ports infrastructure and access to electricity
remain challenges in an economy that is reliant on minerals, oil, gas
and agriculture.
6. What should the government do?
The World Bank says the government’s “overarching priority”
is to strengthen the clarity, communication and credibility of economic
policies. It called for the release of an economic vision that balances
fiscal prudence and the need to expand public services. The
International Monetary Fund wants the central bank to phase out
financing of the fiscal deficit and employ more proactive liquidity
management. More broadly, some critics argue Suu Kyi has taken on too much and needs to delegate some of her responsibilities.
7. Why is the currency suffering?
The
drop in foreign investment and slowing exports widened the current
account deficit, plunging the kyat to its lowest level in December since
the exchange rate regime was liberalized in April 2012. The central
bank has little ammunition
to fight the decline, with just $5 billion of estimated reserves. The
difference between the official rate and the informal market rate has
grown and policy makers have reacted by limiting dollar cash
withdrawals.
8. What about stocks and bonds?
The Yangon Stock Exchange, now a year old, is home to just four companies. Foreign
investment in stocks is forbidden (officials plan to change that) and
an investor must physically go to the market or speak with a broker to
execute a trade. Deals worth more than $8,000 have to be approved by the
securities commission, which is known to reject many such trades.
Efforts are underway to develop the domestic debt market, with the
government recently expanding Treasury bill auctions through the
introduction of six- and 12-month bills. Authorities started bond
auctions in September 2016.
9. Can Myanmar overcome the hurdles?
As the U.S. Chamber of Commerce put it: “The
process of registering and operating a foreign entity in Myanmar is
opaque and the legislative and regulatory climate is, at best,
uncertain.” But as Tom Platts, head of Stephenson Harwood LLP’s Myanmar
practice, added: “You cannot revamp the political, legal, social and
economic infrastructure of a country overnight, particularly one with as
many complexities as Myanmar.”
Ref:https://www.bloomberg.com/news/articles/2017-03-07/booming-myanmar-gets-a-crash-course-in-capitalism-quicktake-q-a
No comments:
Post a Comment