Is Myan­mar still an at­trac­tive in­vest­ment des­ti­na­tion?

The Myanmar Times - - International Business - PA­TRICK COOKE Pa­trick Cooke is Asia Re­gional Ed­i­tor at the Ox­ford Busi­ness Group.

DE­SPITE fierce do­mes­tic and in­ter­na­tional head­winds that have threat­ened to blow Myan­mar’s fast­grow­ing econ­omy off course, ex­ec­u­tives who par­tic­i­pated in Ox­ford Busi­ness Group’s lat­est Busi­ness Barom­e­ter: Myan­mar CEO Sur­vey re­main broadly con­fi­dent about the in­vest­ment cli­mate in South­east Asia’s last great fron­tier mar­ket.

Of the 100 re­spon­dents, 77pc in­di­cate their firm in­tends to make a sig­nif­i­cant cap­i­tal in­vest­ment in the year ahead, while 64pc have pos­i­tive or very pos­i­tive ex­pec­ta­tions of lo­cal busi­ness con­di­tions.

The sur­vey was con­ducted faceto-face in Yan­gon at a time when Myan­mar was fac­ing in­ter­na­tional scru­tiny into the un­rest in Rakhine State, as well as se­vere pres­sure on its cur­rency stem­ming from the tight­en­ing of US mon­e­tary pol­icy, mod­er­at­ing for­eign di­rect in­vest­ment (FDI) in­flows and un­der­per­form­ing ex­ports.

Sen­ti­ment has shifted in some­what con­tra­dic­tory ways since OBG pub­lished the re­sults of its pre­vi­ous Myan­mar CEO Sur­vey in Jan­uary 2018. Back then, 60pc of CEOs ex­pected their firms to make a sig­nif­i­cant in­vest­ment in the next 12 months, while 70pc had broadly pos­i­tive ex­pec­ta­tions for busi­ness con­di­tions.

Nev­er­the­less, the fact that sen­ti­ment has largely re­mained pos­i­tive de­spite sig­nif­i­cant chal­lenges will be seen by the Na­tional League for Democ­racy-led govern­ment as an endorsement of its ef­forts to open up the econ­omy and stim­u­late pri­vate sec­tor de­vel­op­ment.

On this front, its most sig­nif­i­cant achieve­ments since the re­lease of our last sur­vey in­clude the pub­li­ca­tion of en­abling rules to im­ple­ment the long-awaited Mines Law and Com­pa­nies Law. In par­tic­u­lar, the lat­ter is set to help make the coun­try a more at­trac­tive des­ti­na­tion for FDI and joint ven­tures, as it al­lows in­ter­na­tional in­vestors to own up to 35pc of a Myan­mar firm with­out it be­ing con­sid­ered a for­eign en­tity.

The Myan­mar In­vest­ment Com­mis­sion is hope­ful that the up­dated Com­pa­nies Law will be im­ple­mented with greater ef­fi­ciency and trans­parency than was the case pre­vi­ously, fol­low­ing the in­tro­duc­tion of an on­line reg­is­tra­tion sys­tem. Credit ac­cess dif­fi­cult Op­ti­mism for eco­nomic prospects re­mains tem­pered by con­cerns over ac­cess to credit and skills gaps.

Ac­cess to credit is a peren­nial prob­lem in Myan­mar: the cen­tral bank main­tains strict lim­its for in­ter­est rates on bank de­posits and bor­row­ings, which con­strains fi­nan­cial ser­vice providers’ ca­pac­ity to price risk. Fur­ther­more, as Myan­mar re­mains a heav­ily cash­based econ­omy, few small and medium-sized en­ter­prises or in­di­vid­u­als can pro­vide the nec­es­sary credit his­tory or meet the col­lat­eral re­quire­ments to ob­tain a bank loan.

Some im­prove­ments have been made in re­cent times, in­clud­ing the li­cens­ing of the coun­try’s first credit bureau in May 2018. When it fi­nally be­comes op­er­a­tional, this should make it eas­ier to con­duct risk as­sess­ments on per­sonal and cor­po­rate loan ap­pli­ca­tions, as well as lessen the need for large col­lat­eral com­mit­ments.

How­ever, ac­cord­ing to our re­spon­dents, progress re­mains un­sat­is­fac­tory: 83pc de­scribe ac­cess to credit as dif­fi­cult or very dif­fi­cult.

On this in­di­ca­tor, Myan­mar is the worst per­former out of all sur­veyed ASEAN coun­tries by some dis­tance. In re­cently pub­lished sur­veys in the re­gion, 61pc of Thai­land-based and 59pc of Philip­pines-based CEOs de­scribed credit ac­cess in their mar­kets as easy or very easy.

Ex­ec­u­tives seek lead­ers Look­ing at the ma­jor long-term struc­tural chal­lenges fac­ing Myan­mar, the coun­try con­tin­ues to grap­ple with low labour pro­duc­tiv­ity and sig­nif­i­cant skills gaps in the work­force fol­low­ing decades of un­der­in­vest­ment in ed­u­ca­tion dur­ing mil­i­tary rule.

First-time in­ter­na­tional vis­i­tors to Yan­gon are of­ten en­am­oured with the charm, cour­tesy and drive of lo­cal cit­i­zens, even as they strug­gle to make them­selves un­der­stood in ba­sic English. In our ef­forts to pin­point the most sig­nif­i­cant gaps in the labour mar­ket from a cor­po­rate per­spec­tive, we asked CEOs to iden­tify which skills are in great­est need.

Over­whelm­ingly, the most pop­u­lar choice is lead­er­ship, with 45pc of re­sponses, fol­lowed by re­search and de­vel­op­ment (15pc), en­gi­neer­ing (14pc) and busi­ness ad­min­is­tra­tion (9pc).

The per­cent­age of ex­ec­u­tives opt­ing for lead­er­ship has in­creased dra­mat­i­cally since our pre­vi­ous sur­vey, in which 30pc chose this op­tion. This per­haps sug­gests a grow­ing frus­tra­tion among busi­ness lead­ers: while the coun­try has so many in­her­ent strengths that can be har­nessed for long-term eco­nomic de­vel­op­ment, progress is not hap­pen­ing as quickly as many would like, and there are con­cerns that mo­men­tum is be­ing stalled by in­ter­nal con­flict away from the main ur­ban cen­tres. In­fra­struc­ture gaps Delv­ing fur­ther into growth con­straints, 30pc cite in­fra­struc­ture gaps as the fac­tor most likely to weigh on eco­nomic de­vel­op­ment if not prop­erly ad­dressed, closely fol­lowed by the bu­reau­cratic ca­pac­ity of the pub­lic sec­tor (29pc) and the ca­pac­ity of the fi­nan­cial sec­tor to meet the needs of the econ­omy (22pc). With an as­pi­ra­tional pop­u­la­tion of ap­prox­i­mately 54m, a me­dian age of 27, an abun­dance of high-value nat­u­ral re­sources, and a strate­gic geo­graphic po­si­tion be­tween the emerg­ing su­per­pow­ers of In­dia and China, Myan­mar holds vast po­ten­tial to be­come a lu­cra­tive pro­duc­tion base and con­sumer mar­ket.

How­ever, un­less it finds a way to catal­yse the nec­es­sary in­vest­ments in hu­man cap­i­tal de­vel­op­ment and in­fra­struc­ture projects, there is a risk that the coun­try’s im­mense prom­ise will re­main un­ful­filled.

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