Myanmar, or the Republic of the Union of Myanmar (formerly Burma), is the second largest country in Southeast Asia, with a population slightly over 51 million. Administratively, Myanmar has seven states and seven regions, many of which are divided along ethnic lines.
Since Myanmar’s transition to a civilian government in 2011, the country has embarked on an ambitious economic reform program aimed at attracting foreign investment and reintegrating into the global economy.
Reform measures, largely aimed at removing economic distortions, have focused on floating its currency (the kyat), introducing new fiscal regulations to rationalize taxes, liberalizing the telecommunications sector, and enacting a series of new laws to develop the private sector and attract foreign capital.
Chief among these are the 2012 Foreign Investment Law, the 2013 Anti-corruption Law, and a 2013 law granting the Central Bank operational independence. As of early 2015, the government was in the process of preparing a competition law, a consumer protection law, and comprehensive IPR legislation.
An important economic milestone took place in October 2014, when the Central Bank granted operating licenses to nine foreign banks. While the banks are only permitted to open one branch and are limited to lending in foreign currency to foreign companies, the move represents the first time in 50 years that foreign banks are able to provide services in Myanmar.
This commitment to reform and the subsequent easing of most Western sanctions are beginning to pay dividends for the economy.
Myanmar’s economic growth accelerated in 2012, reaching over 8% annually in both 2013 and 2014. The IMF has assessed that Myanmar has “high growth potential” that can be sustained at or above 8% per year through 2018. Key economic drivers have been construction, manufacturing, and services, together with strong growth in gas production and investment.
Foreign direct investment reached $49.4 billion in August 2014, with China, Thailand, Hong Kong, and Singapore being the main sources. Approximately 70% of FDI stock in Myanmar is tied to energy, oil, and gas, while manufacturing and hotel/tourism account for 9% and 4%, respectively. The other main sectors attracting foreign investment are the garment industry, information technology, and food and beverages.
While the outlook for Myanmar remains positive, sustained reform efforts will be required if the country is to maintain its upward trajectory. The 2015 World Bank annual report on the ease of doing business puts Myanmar 182nd out of 189 economies, a stark reminder of the country’s long road ahead to economic viability.
One critical challenge going forward will be reforming Myanmar’s agriculture sector, which accounts for about 30% of GDP and 60% of the labor force, but where labor productivity remains less than one-third of the rest of the economy. A high labor/low capital structure made up of small farms and little mechanization is the main cause of the sector’s low efficiency. Even a modest introduction of modern farming would have a big impact on farms and the country’s labor productivity as a whole.
Reforming Myanmar’s services sector will be another key challenge. While the sector makes up almost 40% of the country’s GDP, it is dominated by state-owned enterprises and hindered by restrictions on private sector and foreign involvement. While FDI in services is not entirely prohibited, no foreign companies are currently able to conduct full-scale banking or insurance business.
To support an efficient services industry, Myanmar will also need to develop a well-trained workforce, something that will take years of massive investment in education. The average child now spends on average only four years at school.
While Myanmar enjoys good economic relations with its neighbors, particularly China and Thailand, further improvements in its business and political climate will be required if it is to attract long-term investment from economies beyond Asia.