Quarterly Business Magazine

Political and Economic Challenges of Myanmar’s Future

Posted :
Friday, March 13, 2015

For a while, when Myanmar opened after decades of isolation and sanctions, it seemed the government could do no wrong as American and European governments rushed to embrace the country. Now, according to headlines from the West, little or nothing seems right.  

What was supposed to be a peaceful protest march earlier this week over a proposed new education law turned ugly after Myanmar’s police clashed with student protestors, monks and journalists. Then there was the fierce fighting that broke out in the country’s Northeastern Shan state earlier this month between the Kokang ethnic rebels and the military, which has been prominently featured in the Western media. This follows accusations by the United Nations and others about human rights violations in the government’s dealing with the Muslim-minority in the Rakhine state, or Rohingya.

The criticism goes beyond ethnic issues in remote states to the most central of political questions. Observers are increasingly questioning whether the year-end elections will be truly free and fair, and urge constitutional amendments to lock in democratic reform.

Constitutional provisions disallow the iconic Opposition leader Aung San Suu Kyi from running for the Presidency, and current government leaders and Parliament are reluctant to amend them. Moreover, the military are directly represented in Parliament and show little desire to reduce their role and influence.

Yet, even as negative views mount, there are signs that others are betting the country will continue to open up.  

Investment Gathering Pace

A key indicator is the influx of new foreign investments from the United Kingdom, Netherlands, Norway and Sweden. For instance, Myanmar has approved more than US$3.71 billion of investments from more than 70 UK-based companies, which lifts Britain to the country’s fifth largest investor.

Asian neighbours have also made their moves. While Chinese companies are the front-runners with over US$14 billion in approved investments, Singaporean and Japanese corporate are visibly active, especially in recent real estate deals.

Last December, Singapore’s Keppel Land put in US$47.4 million to develop a 23-storey office tower in Yangon with Myanmar’s Shwe Taung Group. This is a new commitment from the Singapore developer which has been a long-time investor in Myanmar.

Real estate and investment company Rowsley Limited, in which Singapore billionaire Peter Lim holds a stake, will partner a Vietnamese company to build one of Myanmar’s largest integrated projects that will have four office blocks, a retail mall, residential and serviced apartments, and a five-star hotel.  

Japan’s Mitsubishi Corporation will also develop another integrated project worth around US$350 million in downtown Yangon, near the historic railway office. This is in partnership with Yoma Strategic Holdings, which is a Myanmar-focused, Singapore-listed Corporation.

Projects are advancing in other sectors too, such as oil and gas, telecommunications, and infrastructure. This is much needed, given Myanmar’s current state of development.  

No doubt, there are challenges and questions which foreign investors want answers to. But most relate more to economic policy, rather than to ethnic problems and political issues.

Priorities and Pace

One of the recurring questions is about the priorities of government leaders. Besides physical infrastructure – roads, buildings, electricity – there remain gaps in the “software” of the country to facilitate investment. This includes updated and detailed laws, clear regulations and policies. Many government leaders are making every effort to move ahead, but complaints still arise about red tape further down the ranks.

There is also some debate about whether the country’s economic development should rely on plentiful resources like oil and gas and forestry or gear up for industrialization.

Another major concern is finance. While the government has done well to stabilize the management of the Myanmar Kyat since its opening, the country still lacks a modern financial sector that can provide capital and credit efficiently and cheaply. Cash is still king and while some large corporations have the reserves, others struggle, especially smaller and medium sized enterprises.

The government has sought to take the first step by awarding nine foreign banks the first set of foreign banking licenses to operate in Myanmar last October. These are not Western or international entities but major Asian banks – including three from Japan and two from Singapore.

These banks can now lend to foreign investors and help support a second wave of foreign investors. But their licenses do not allow them to offer local loans due to concerns that smaller local banks might end up getting shut out from the banking industry.

Some have argued that developing the financial sector must involve both foreign and local banks. Only then can Myanmar corporations have more access to credit and other financial assistance to be competitive.

Elections and Continuity

Amid this gathering economic momentum, the year-end elections bring much uncertainty. It remains to be seen if President Thein Sein will formally offer himself for re-election, and whether he can gain support.

For many in Myanmar, the Lady remains immensely popular. Yet respect has grown for the effort that the current President and his administration have made. Many in the business community and among foreign investors will be keen to see continuity and stability for reforms, and hope for greater speed in the country’s progress after the elections.

In contrast, others may wish the 2015 elections to deliver change. Some in the West especially expect not only allow free and fair voting, but that the country will emerge as a full-fledged democracy.

Neither view may be correct. Judging the country’s progress purely as being about political change and democracy can be overly idealistic. But emphasizing the path of business as usual may fail to recognize the needs for a more rapid and also steady reform. Myanmar’s opening was always about both political and economic challenges and their interplay will continue.

Simon Tay and Cheryl Tan are, respectively, Chairman and Assistant Director of the Singapore Institute of International Affairs (SIIA). On 23 March, the SIIA will hold an ASEAN-Myanmar Forum in Yangon to discuss the country’s next phase of growth. For more information, log on to http://bit.ly/1M1hpO1.


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