New policies unavoidable if Myanmar is to keep up in AEC

With just three months remaining before it is due to join the Asean Economic Community (AEC), time is running out for Myanmar to improve its economic policies and prepare local businesses for foreign competition.

By January 1, 2019, Myanmar, together with the other CMLV countries, which includes Cambodia, Laos and Vietnam, will officially be part of the AEC.

The AEC’s aim is for Asean to operate as a single market and production base with equitable economic development among members. If it is realised, the Asean market will enjoy free movement of goods, services and investments as well as freer flow of capital and skills.

While the AEC will yield new opportunities for growth and development for Myanmar companies, it will also introduce challenges the country is currently far from prepared to face.

It will, for example, introduce a new level of competition for Myanmar businesses as new investors enter the market and traders look at other countries for better deals, especially since there are few good quality Myanmar-made goods and brands fit for exports.

Foreign competition

In fact, foreign competition has already been rising in the country since the government allowed investments in the retail sector in May this year. Now, local retailers say there should be restrictions placed on foreign firms that directly compete with local SMEs and mom and pop shops.

Myanmar has around 3 million small convenience stores that have run in the country for years. “These shops will face no small amount of difficulties if major retail chains like 7-Eleven, for example, are allowed to enter,” said U Myo Min Aung, deputy chair of communications and member affairs at the Myanmar Retailers Association told The Myanmar Times.

Foreign chains have indeed been eyeing expansion opportunities in Myanmar. On September 3, the International Finance Corporation (IFC) said it would loan around US$25 million to Metro Wholesale Myanmar Limited, the 85:15 wholesale joint venture between Germany-based Metro AG and Singapore-listed Yoma Strategic Holdings.

“The [JV] will improve the local distribution and logistics infrastructure, which is expected to result in lower prices of quality products for end consumers,” the IFC said.

Foreign companies have made headway in the logistics sector too, said U Aung Khin Myint, chair of Myanmar International Freight Forwarders’ Association. “The big international freight companies are already operating in Myanmar even as local companies struggle to get loans. So, it is extremely difficult for them to compete. It would be easier to shut down and work for the international companies instead,” he said.

Uncompetitive rates

In light of the current economic conditions, State Counsellor Daw Aung San Suu Kyi met with the local business circle on August 27 to discuss the problems. At the meeting, businesses called for lending rates to be lowered to make loans more accessible to local firms.

In Myanmar, the central bank rate is set at 10 percent, while the maximum lending rate is 13pc. Central bank authorities say interest rates are set at those levels to counter high inflation and any potential reduction in those rates will be a long term exercise.

Daw Aung San Suu Kyi was also urged to lower the country’s high tax rates to make it easier for local businesses to operate given the high level of illegal border trade. In Myanmar, many products are taxed in their raw state and taxed again after they are processed. Meanwhile, residents are obliged to pay a 30pc tax on all undisclosed sources of income.

At the meeting, Daw Aung San Suu Kyi said her government would continue to study and consider potential tax reductions and new incentives but did not offer a decisive answer on when or if that would take place.

Out of time

Against that backdrop, economist Dr Myo Thant said Myanmar has run out of time to get prepared for the AEC. “Myanmar had 3 years to prepare for the AEC yet the situation domestically is such that local firms are not in a position to face competition from international peers. It will be impossible to change much in three months,” he said.

One possible solution for Myanmar firms in the AEC is merging with the businesses that enter the country or with local peers for better scale. “It is likely though, that many firms may well be forced to shut down while those remaining will continue to struggle,” said Dr Myo Thant.

The remaining three months will not be enough for local firms to build sufficient defenses against foreign competition. But with Myanmar’s imminent participation in the AEC, policy changes in taxation, banking and infrastructure will eventually become unavoidable.

Source: Myanmar Times

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