US-China tiff offers opportunity

While strolling around Yangon’s city centre recently and reading news alerts about the US-China trade war, something caught my eye at Kantharyar Centre across from Kandawgyi Lake.

It was a sales gallery at the new shopping centre displaying SUVs and sedans.

What caught my attention was the brand of SUV most prominently displayed: Gold AYA Motors, which is a joint venture formed in 2017 by a Chinese automotive group comprising BYD and Changhe. From production to after-sales service, the brand’s operations are based in Yangon and Mandalay’s Myotha Industrial Park. For the first time, Myanmar is capable of producing fully localised vehicles and establishing a wide network of local auto-parts suppliers, which is a milestone in the country’s industrialisation.

So what’s next for Myanmar?

That brings us back to the US-China trade war. As Donald Trump recently announced an all-out tariff war against Chinese goods and Xi Jinping is enforcing retaliatory tariffs against American products, economists and commentators have started a guessing game as to which countries would gain the most from this process, with many putting their bet on China’s neighbour, Vietnam.

A closer look at the data, however, suggests a slightly different story – a story that is worth studying among Myanmar’s policymakers.

Firstly, Vietnam lacks a skilled workforce and is able to meet Chinese manufacturing standards in spite of a sharp rise in labour costs in recent years.

Secondly, despite the Vietnamese government’s efforts to upgrade the road and port network across the country, the dearth of first-tier infrastructure is all too apparent when compared to China’s efficient and advanced transportation network.

Rising real estate and industrial estate costs add to a long list of challenges facing foreign investors. According to the South China Morning Post, experts are warning that those who have yet to set up shop in Vietnam may have already missed the boat.

Myanmar could step in by leveraging its existing capabilities and promoting more liberal policies.

Firstly, the country has a nascent manufacturing sector based on the assembly lines of Japanese and US carmakers, a production site opened by Chinese original equipment manufacturers, and a well-established garment sector.

Secondly, it has a young workforce, now working mostly in neighbouring countries, that needs upskilling for the sake of the country’s industrialisation, and to avoid the trap that Vietnam has encountered.

Thirdly, the government needs to enact liberal policies. In an era when innovation, technology, and the services sector drive the economic growth of countries, reducing unnecessary red tape and providing a transparent business environment will make things more straightforward, attractive and fairer for responsible foreign investors.

The prerequisite to attract capital and investors from abroad to Myanmar is political stability. The stakes in next year’s general elections could not be higher, since the civilian government may remain in power. The next cabinet could fully implement the legislative reforms that have been enacted in recent years, and will need to provide policy certainty for investors.

Granted, Myanmar needs infrastructure, and it could certainly take advantage of Beijing’s flagship Belt and Road Initiative, provided that it is careful to take into account national interests, but it is not physical infrastructure on which the battle for the future will be premised.

Equally, Myanmar can no longer rely on labour-intensive exports as the key driver of economic development, as automation is swiftly reducing labour costs.

As McKinsey & Company has pointed out, cross-border services are growing 60 percent faster than the trade in goods, and they generate far more economic value than traditional trade statistics reveal.

In other words, global value chains are becoming more knowledge-intensive and reliant on highly skilled labour. It’s quality over quantity. Active learning, critical problem-solving and analytical thinking are the types of skills desperately needed for the next generation of Myanmar’s workforce.

Whenever I met local and foreign business executives in Myanmar, their first concern is about the slow decision-making within their organisations. Any decisions, even those concerning trivial issues, need to go all the way up to senior management, which is frustrating to executives unfamiliar with Myanmar’s corporate culture.

These factors will determine if we are able to take advantage of the ever-changing geopolitical complexities before us.

This will be all the more urgent given the fierce battleground for Myanmar in the context of ASEAN. With the exception of Singapore and, to some extent, Malaysia and Thailand, Myanmar and the rest of the bloc are in the same boat and face the same challenges: ensuring quality education, modernising corporate governance, and upskilling the workforce.

The battle of the future is not about short-term gains, such as which country gets some factory relocations from China as a result of US tariffs. The real battle will be won by the countries that see the need for innovation: artificial intelligence, automation, a service-driven economy, and outsourcing of services. That will be top of the mind for international executives contemplating investment in Myanmar.

Pietro Borsano is a lecturer at the School of Integrated Innovation at Chulalongkorn University in Bangkok and a lawyer with Advising Asia – Business & Legal Consulting Co Ltd.

Source: Myanmar Times

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