Fitch Solutions downgrades Myanmar’s construction outlook on Rakhine and reform inertia

Consulting firm Fitch Solutions Macro Research downgraded the growth forecast for Myanmar’s construction industry, saying economic reforms which would boost infrastructure development had been knocked off course and the northern Rakhine crisis would weigh on the economy.

Fitch Solutions Macro Research, a unit of London and New York-headquartered Fitch Group, on Friday cut the expectations for construction growth for 2017 from 18.5pc to 10.3pc year-on-year (y-o-y). The forecasts for 2018 and 2019 were also revised down to 13.3pc y-o-y and 13.8pc y-o-y, respectively, from 16.5pc and 14.7pc.

It said Myanmar remains a high-risk location for investment, with ongoing security and business environment risks deterring foreign investors and dampening growth. In particular, the government is under fire from the international community due to the ongoing humanitarian crisis in northern Rakhine, leading to concerns over reputational risks for Western firms. Other ethnic conflicts and armed clashes also “undermine investor sentiment”.

However, politics are not the only key factors. The company – formerly known as BMI Research – said the outlook for infrastructure had weakened significantly as reforms to liberalise and encourage foreign investments have stalled.

“On top of these [political] issues, investors are concerned that required reforms to the business environment, such as boosting bureaucratic efficiency, opening up the economy to foreign participation and improving government coordination and capacity, will not move forward as quickly as planned,” it said, warning that “any backsliding on reform momentum would act as a barrier to foreign investment, which is crucial for infrastructure development in the country.” The revision was also based on new data releases and the government’s decision to scale back the China-backed Kyaukphyu Special Economic Zone (SEZ) at central Rakhine.

Fitch Solutions’ verdict will be grim reading for the National League for Democracy-led government, which has been criticised at home and abroad for its handling of the economy as it approaches midpoint through its five-year term. Approved FDI for the last six months has not lived up to the government’s own estimates, while tourist numbers in the country grew by only 2 percent this year. Sectors such as insurance remain largely sealed off from foreign players. Meanwhile, there are strong perceptions domestically of economic malaise and government failure to deliver on people’s basic needs – including jobs and electricity and other services, according to a report from the International Crisis Group.

Methi Pieper, co-chair of EuroCham’s construction advocacy group, commented that the absence of policy clarity is deterring investors in the construction sector. “Other than the obvious major risk at this moment of the unclear economic and political future of Myanmar, lack of clear and concise rules and regulations is also a major deterrent. This deficiency creates uncertainties about the execution of projects but also results in unlevel-playing fields,” he told The Myanmar Times.

Another key issue, the co-chair added, is the lack of resolve to increase price of utilities. If this is changed, it will render large-scale infrastructure projects more financially feasible and therefore attract more investments.

Fitch Solutions also stated that the World Bank’s growth estimate for the construction industry – 7.6pc y-o-y for 2017-18 – was lower than initial expectations. The government is hoping that the upcoming Myanmar Sustainable Development Plan (MSDP), published last month, would improve commercial viability of infrastructure projects and therefore boost investments.

In the long run (to 2027), the sector’s growth “remains robust”, with construction industry expansion averaging 9.5pc y-o-y, Fitch Solutions Macro Research said.

Source: Myanmar Times

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