Dec 31, 2013

Myanmar - AEC SPECIAL REPORT - MYANMAR: Getting ready for the major league

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Of all the uphill battles Myanmar expects to face in the near future, surely one of the steepest will be meeting expectations to increase its Gross Domestic Product (GDP) by the time the Asean Economic Community (AEC) is launched in 2015.

The government is working hard to establish the necessary fundamentals and framework to achieve this goal. As one of the least developed countries in the region, however, Myanmar continues to be plagued by disunity and lack of cooperation between government ministries and public and private sectors.

According to a recent survey, Myanmar possesses the lowest per capita GDP among the10-member Asean bloc, at US$875 (Ks 850,753), while Singapore tops the group at $50,130. Malaysia, Thailand, Indonesia, and the Philippines are the mid-ranking countries, with GDPs of $9,941, $5,116, $3,563, and $2,341 respectively. Vietnam and Laos, at $1,403 and $1,279 respectively, still score higher for GDP than Cambodia and Myanmar.

Since President Thein Sein’s quasi-civilian administration took office in 2011, the country’s political environment has seen many liberal changes. These changes have prompted Western nations to lift economic sanctions and provide support through financial aid, thus helping Myanmar rebuild as a democratic nation and strengthening its ability to participate in AEC.

However, basic sectors such as health, education, social services and the economy continue to struggle. These and other challenges have raised the question of whether the country is truly ready to join the big club.

Economic reform: a work in progress

Officials from every department and ministry have worked hard to prepare for membership in the regional cooperation. There have been workshops and economic forums and work committees established to address AEC-relevant issues. The Ministry of National Planning and Economic Development has facilitated AEC-type actions such as economic blueprints on such themes as Single Market and Production Base, Free Flow of Goods, Investment Capital, and Skilled Labour.

Last November, the government passed the new, more flexible Foreign Investment Law. In April, it began floating the official currency. A stock exchange is now being implemented and should be running by 2015. Many macro and micro investment laws have been amended. On the ground, missing infrastructure, and energy and water supply deficiencies are being addressed with the help of foreign countries.

China, India, and Southeast Asian countries like Thailand, Cambodia, and Vietnam are being targeted as key trading partners, with special economic zones (SEZ) and deep-sea ports as part of the strategy.

Aiming to reach Cambodian and Vietnamese borders, Myanmar and Thailand are working closely to develop the Dawei SEZ and Deep Sea Port, which will eventually include a highway system and express railways to encourage trade. The Thilawa SEZ and Sea Port, located in Myanmar’s commercial hub of Yangon, is expected to usher in the country’s dawn of industrialisation. The Kyaukpyu SEZ and Deep Sea Port will be a centre of outsourcing to China and India.

In June, Myanmar hosted the World Economic Forum on East Asia for the first time. The event’s impact was enormously positive, prompting multinational corporations from the US, Europe and Asia to invest in Myanmar.

The public: changing a national mindset

Although it seems that Myanmar is making progress, in real terms very little has been done effectively because of the country’s financial and trade deficit.

“Lack of collaboration is the biggest issue in our country. Every sector has to work together with a good mindset. Collaboration is needed between the government and private sector, between private and public; and between the public and the government,” said Myo Thet, vice president of the Union of Myanmar Federation of Chamber of Commerce and Industry (UMFCCI).

If the government doesn’t wish to cooperate with the public for the sake of the country’s business, it will still be hard to participate in AEC by 2015, he told Eleven Media.

Economists point out that most of the country’s businesses are still run by cronies while others lack transparency in financial transactions, taxation, and revenues. The most important thing that has to change, they say, is the people’s mindset.

A small percentage of the country’s population believes that AEC is all about free trade. They are unaware of the grouping’s other functions, despite the government’s efforts to raise awareness on AEC. In some ways, AEC awareness is class-based. Naturally, business people are aware of it, but even this knowledge is not in-depth. Most confuse AEC with the Asean Free Trade Agreement.

“People in towns and cities apart from Yangon have less awareness about the Asean community. Many local business people are afraid of AEC. They assume it will threaten them, as multinational corporations will enter our country with better quality goods and more reasonable prices,” said Kyaw Lin Oo, coordinator of the Myanmar People’s Forum.

As one high government official told Eleven Media: “Actually, we are not ready for the AEC; we are just pretending to be ready. The percentage of people participating [in awareness forums], including both public and private sectors, is very low.”

Boosting skills training and technological know-how

Economic analyst Geoffrey Hoffman said Myanmar should be more successful, given its rich natural resources, but mismanagement has driven the country into poverty.

“Centralisation and monopolising of the country’s businesses are other factors,” he said, adding that the country needs to boost capacity building, human resources development, skills training, and education. On the other hand, he says, Myanmar could increase its technological know-how through joint ventures with foreign entrepreneurs. For instance, adopting the BOT system (Build-Operate-Transfer) would be very useful for a country like Myanmar.

“We will get technology assistance and skills. That’s crucial for us. If we barred those foreign investments due to fear of their influence in our market, then the market wouldn’t be taken seriously in the long run,” said Than Htut, deputy director general in the Foreign Economic Relations department of the Ministry of National Planning and Economic Development.

The new foreign investment law is said to be liberal for foreign trade, permitting a fair percentage of joint ventures depending on the nature of the business. It relaxes taxation and allows other incentives for foreign investment. Local economists and officials say the law is a win-win for both locals and foreigners.

International investors prefer doing business in countries with strong intellectual property rights (IPR) laws. Myanmar and other countries with “least developed” status recently received an extension from the World Trade Organisation on international standard requirements for Trade-Related Aspects of Intellectual Property Rights (TRIPS). The deadline was extended to June 2021 from July 1 this year, according to the Myanmar Times.

Trade volumes: becoming a global player   
During the 2012-13 fiscal year, total trade volume for Myanmar was $18.42 billion. Of that figure, the import volume was $9.34 billion and export accounted for $9.08 billion. This year, Myanmar has so far earned $5.68 billion from exports, up from $4.69 billion during the same period last year. Strong agricultural and industrial exports are among the key factors behind the surge.

During the first half of this fiscal year, the country earned more than $2 billion from exporting industrial products, $1 billion from agricultural goods, $1 billion from mineral exports, $360 million from timber and wood products, $270 million from marine products and $5 million from animal products.

Currently, Myanmar is drafting a national strategy to boost exports and build its competitive advantage.

“The national export strategy should comply with our national all-round plan. This is an important step towards the mainstreaming of trade and the country’s national development plans,” said Deputy Minister for Commerce Pwint San.

The new government strategy prioritises export goods such as rice, beans, marine and wood products. Tourism, too, has been mentioned as a prioritised service, and rubber cultivation is seen as having good prospects. The country currently relies on a few key export products, such as rubber, beans and grains.

While the strategy aims to develop priority sectors, it will also explore the growth potential for new and existing products. These steps are in line with the government’s objective of supporting traditional export sectors, such as agriculture, while promoting export diversification.
The strategy also aims at improving small- and medium-sized enterprises (SMEs), providing them access to finance, trade information, export facilitation and logistics.

As a developing country, Myanmar’s national economy depends heavily on its export earnings.

“We can achieve greater export earnings and also greater employment opportunities if we can export value-added products. We need to find new export markets. But in order to achieve this goal, we need to become more competitive,” said Win Aung, president of the Union of Myanmar Federation of Chambers of Commerce and Industry (UMFCCI).

Tourism promotion—preparing for the deluge

Implementation of AEC will undoubtedly provide a boost for Myanmar’s tourism industry.  An agreement between regional partners to provide free entry visas is sure to draw more tourists. Even the government’s changing policies in the past two years have contributed to the increase in tourist arrivals.

“Myanmar is now working to relax more of its visa regulations for tourists. The Asean free visa system will be implemented by the end of this year,” Tourism Minister Htay Aung noted.

Myanmar has recently signed an agreement with most of the region’s countries, including Indonesia, the Philippines, Vietnam and Thailand, to provide free entry visas in order to boost tourism development.
As a new source of wealth, tourism is seen as a critical sector for poverty reduction and job creation in Myanmar. During June’s World Economic Forum on East Asia held in Naypyidaw, the government announced its first master plan to promote sustainable tourism.

Whatever Myanmar’s charms as an unblemished “final frontier” for tourism, changes seem inevitable with the growing numbers. The government projects 7.5 million tourist arrivals per year by 2020. According to a tourism ministry report, last year’s tourist arrivals stood at 1 million for the first time, and tourism revenue accounted for $700 million.

“Last year, about 1.06 million foreign tourists visited the country. The number of tourists visiting the country in the first eight months of this year passed the one million mark—an increase of 58 per cent. The country expected 1.8 million to 2 million tourists to visit this year,” Vice President Sai Mauk Kham told the media on World Tourism Day on September 27.

Ready or not, here comes AEC

It doesn’t matter whether Asean countries are ready or not: AEC will be introduced in 2015.

“Myanmar is getting ready for this opportunity because the country has been left behind for half a century,” an official from the Ministry of National Planning and Economic Development said, adding that the economic community will have a major impact on every sector and will boost Myanmar's development.

Myo Thet, vice president of the UMFCCI, says Myanmar is preparing for a 360-degree turn once AEC is launched.

“We are taking two chairmanships concerning the AEC: the Asean Business Advisory Council and the East Asia Business Council. The former will be chaired by UMFCCI president Win Aung,” he said.

Myo Thet said Myanmar has scheduled to convene many Asean summits, forums and meetings since the Asean chairmanship was transferred last month.

Being part of AEC will create much needed opportunities for investors and employees alike. Myanmar is a country that has badly suffered from “brain drain”, with her nationals scattering to many countries in Southeast Asia, especially Thailand, Singapore and Malaysia. Some live abroad to further their studies, while others have left—legally or illegally—in search of better employment opportunities.

Advocates of the grouping say AEC hopes to create an atmosphere in where all employees will get equal opportunities with standard wages and no discrimination. It also expects to terminate the cross-border scourge of human trafficking.

Nyeinchan Win and Thet Mon Htun

Asia News Network

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