Why Myanmar’s government needs to do more to maintain economic growth

Myanmar’s economy is growing. In particular, the manufacturing and retail sectors are booming. However, the government must address significant challenges to maximise Myanmar’s growth potential.

The manufacturing industry grew dramatically

The government set bold industralisation targets. It wanted to promote manufacturing exports and lessen the country’s reliance on oil and gas. Industry, including manufacturing, contributed to 30% of gross domestic product (GDP) in 2014. In 1999, the figure was an estimated 9%.

The end of the military dictatorship in 2011 led to economic liberalisation. Growth followed. Myanmar now attracts investment with low labour costs, tax incentives and Special Economic Zones (SEZs). Wages in Myanmar are lower than in other Asian countries. SEZs in Thilawa, Kyaukphu and Dawei offer incentives for investors such as income tax exemptions.

Textile and footwear exports were up almost 50% between 2012 and 2017. “We used to see productivity decline every time a new product was introduced,” said Takeshi Iguchi, head of Honeys’ local unit. “Now, we can even handle trench coats, which require the highest level of skill.”

PMI is high, and big brands are heading to Myanmar

Myanmar’s Purchasing Managers’ Index (PMI) rose to 51.6 in November. Analysts attributed the rise to increasing output and new orders.

Nissan is one of many big brands that headed to Myanmar. The manufacturer started selling cars in Myanmar in 2013. In 2016, the company opened up a new factory in Myanmar. Nissan saw an opportunity in Myanmar after demand for their vehicles in Indonesia and Thailand dropped. In Thailand, they fell behind rivals Toyota, Isuzu, Honda and Mitsubishi.

In the retail sector, there has been enormous progress

Rapid expansion in the retail sector followed liberalisation and the lifting of sanctions. Myanmar’s consumer class is growing. International companies invested. There was an 88% increase in foreign direct investment from the fiscal year 2012/13 to 2015/16.

Carlsberg and Heineken both opened breweries near Yangon, Myanmar’s capital. Myanmar’s beer consumption is much lower than neighbouring countries. However, both identified the marketplace as one with strong growth prospects. They still face challenges. Even huge companies must overcome electrical shortages. Heineken had to use backup generators. Customs officials delayed the launch.

“I like the story of the potential of the country more than the [actual] growth,” said Lester Tan, managing director of Heineken’s venture in Myanmar. “It’s a long-term investment.” Companies and individuals in other sectors face similar challenges. For example, they must adapt their marketing and promotional strategies to suit their target audiences. They must compete with established brands that are well connected.

E-commerce is a vast growth area but lacks infrastructure

A quarter of the population regularly uses the internet. Internet penetration and online retail are both forecast to increase in the next three years. E-commerce is, therefore, an area of potential growth in Myanmar, but basic building blocks are missing. “Banks need to invest in technology so that their systems are ready for online payments and online transfers,” urged Sumit Jasoria, from Rocket Internet. “The main thing would be enabling interbank money transfers, which is not happening as of now.”

Businesses cannot take advantage of the e-commerce opportunities. There are no laws governing consumer protection online. Companies have not yet obtained licenses.

“While there is a lot of potential for e-commerce to take off, the lack of regulation is difficult for retailers in Myanmar,” Jasoria added. “The ministries just don’t understand e-commerce enough to build the necessary ecosystem these companies need to expand.” The growth potential is limited. Investor confidence may drop.

Agriculture is vital to Myanmar’s economy, but it needs reform

Despite manufacturing and retail growth, Myanmar remains heavily dependent on agriculture. It contributes to 25.6% of the country’s GDP and around 23% of exports.

Myanmar’s agricultural sector is inefficient. Environmental factors will always affect Myanmar’s agriculture sector. Floods in 2015 led to exports falling.

Producers must focus on quality rather than quantity. The government wants to increase the value of agricultural exports. Myanmar cannot access some export markets because of its poor food safety record. This record is a significant issue the government must address.

“Implementing internationally accepted food safety systems in the country can improve competitiveness among food producers in its export and domestic markets, contributing to a stronger brand and preparing them for new markets,” advised Vikram Kumar, International Finance Corporation (IFC) country manager for Myanmar.

The government must seek solutions to electricity shortages and poor transport infrastructure. The Ministry of Agriculture, Livestock and Irrigation has started the process. It issued guidelines to help farmers produce safer food and use sustainable methods.

The government is aware of the challenges

Ensuring Myanmar’s economy continues to grow is a huge challenge. The government highlighted 11 issues it must overcome. It cited electricity shortages, poor transportation infrastructure, high land prices and a lack of available skilled labour.

Companies need skilled labour as automation increases on a global scale. According to an International Labour Organization (ILO) report entitled “ASEAN in Transformation: The future of jobs at risk of automation,” 56% of workers in the region risk losing their jobs due to automation in the next ten years. It is becoming cheaper for companies to automate rather than relocate.

When compared to the situation 12 months ago, business and investor confidence in the economy has fallen. Businesspeople fear falling investment because the government is not providing clear directions.

Myanmar is full of potential, but the government must capitalise

In the retail and industry sectors, in particular, Myanmar’s growth continues, but there remain problems. Myanmar is a vast country. Distribution, infrastructural and logistical issues are the main barriers to further growth and expansion.

There is still significant potential. Myanmar produces 90% of the world’s jade. Its gas production is set to double by 2019.

The government is working to effect change and remove inefficiencies. It must do more. While there is an economic framework in place, there is little detail. Targets, timelines and policies are absent. As a result, companies are losing confidence in the government.

The government must provide more detail in its plans. Then it must put them into action. Otherwise, Myanmar’s growth may stall.

Source: ASEAN Today

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