Clearer skies ahead?
Myanmar faces formidable challenges, but creative solutions exist if the government is willing to explore them. By Tanyatorn Tongwaranan in Nay Pyi Taw and Yangon
From a volatile investment climate to a tarnished international reputation and currency depreciation, there has never been a more challenging time for businesses in Myanmar.
But as the old saying goes, “Every cloud has a silver lining.” Experts believe the country will be able to manoeuvre through its current predicament with the right national strategies, creative public-private collaboration and a government vision focused on long-term gains.
“This is a very challenging time for Myanmar,” said Sean Turnell, special economic consultant to the State Counsellor and director of research with the Myanmar Development Institute.
“The overall apparatus of Myanmar’s political economy is that the country is partly reformed and partly very reform-resistant,” the Australian academic said.
Some of the challenges, according to Mr Turnell, are the ongoing crisis in Rakhine state and human rights abuses that continue to take place, foreign direct investment (FDI) that is still below expectations, short-term repercussions from banking reforms, and weak overall investor sentiment.
Yet amid these challenges, he says, the country still has a remarkably resilient macroeconomy with growth around 6-7% annually, fuelled by solid trade performance with both sides of the balance sheet up 20%.
Filip Lauwerysen, executive director of Eurocham Myanmar, said that the while investments from neighbouring countries in Asia will continue, there is a critical concern when it comes to investment from the West.
“With the Rakhine situation, it is very difficult for the European executives to justify to their shareholders to increase investments in the country, especially when it comes to investments from listed multinational corporations,” he told Asia Focus. “Shareholders in Europe are very sensitive to consumer sentiment.
If the country wants to attract more European investment, he said, it must try to improve its public relations and understand what causes a bad reputation when it comes to business sentiment.
“Managing the reputational damage is key. This can start by trying to find good platform and good advice and allowing the country to have a frank discussion about many problems it is facing,” he said.
Mr Lauwerysen says he sees a much more mature and robust economy in Myanmar these days, with opportunities in a wide range of sectors, as opposed to just oil and gas seen few years ago.
“Myanmar is a very fascinating country and there is so much opportunity. It would be very sad to see this potential growth not being capitalised.”
Most investment and development assistance in Myanmar these days comes from China, Singapore, Thailand and Japan as they are very understanding partners, said Ye Min Aung, vice-president of the Union of Myanmar Federation of Chambers of Commerce and Industry (UMFCCI). He believes Western critics need some additional perspective on the events unfolding in Rakhine.
“Of course we are looking for some investment from European countries and the West, but they may have a different understanding. We don’t want to criticise, but the real situation is totally different from what they understand. It will take time,” he told Asia Focus.
“From our side, we always tell our European friends that this is a very longstanding problem and not a problem created few years ago. It’s a problem that came along with our independence so it will take time. Patience is important. … Otherwise, if the country takes very drastic actions, things can go haywire and things can get worse.”
IMPROVED PLANNING
While Myanmar has been notorious for the control exerted over business and the economy by military tycoons and their cronies, some recent changes are expected to create a more liberal climate and development opportunities.
The Myanmar Sustainable Development Plan (MSDP), for instance, provides an overall framework for coordination across all ministries, states and regions to balance development in all dimensions.
Under the plan spearheaded by State Counsellor Aung San Suu Kyi, major project proposals will be reviewed based on their strategic alignment with the national development agenda as opposed to budgetary considerations seen in the past.
“Although budgetary concerns are important, it is far more important to select and prioritise projects that are truly needed for the country. We should select and implement projects that bring maximum benefit to our people,” the State Counsellor noted in the report.
In accordance with the plan, a Project Bank has been established to facilitate effective, coordinated and transparent implementation of projects — a positive step applauded by many.
“There has been a change of tone where the government realises the importance of selecting and prioritising projects that are truly needed as opposed to project selection that is largely based on budgets. The Project Bank can help align priority projects to viable funding sources,” Mr Turnell said.
Niramarn Laisathit, executive vice-president of Bangkok Bank, said Myanmar already has master plans for the kind of infrastructure it needs including ports, roads, tollways or power generation. But the big question is what will be the priorities and how will projects be financed.
“At the bank, we can support some [projects], but if we look at the existing funding sources now, it’s mostly direct government spending or G2G or multilateral agency funding. These may not be sufficient to meet these huge infrastructure funding demands,” she said.
Public-private partnership (PPP) should be considered to attract more investors and banks, and all parties need to share the risks and rewards alike, she said.
“Previously, we talked a lot about PPP but the actual implementation has been very limited. Now, we have to work and act,” Ye Min Aung of the UMFCCI acknowledged.
Ms Niramarn believes investors can be attracted through tax benefits, reducing exchange rate volatility and lending restrictions, and clarifying ownership rights.
In addition, she says, investors need certainty that a major project, once approved, will not be changed or scrapped if a new administration comes along. Concession agreements should be standardised.
NEW FUNDING APPROACHES
“The MSDP is an amazing step forward in terms of bringing together the projects under the Project Bank and actually analysing these projects as to how they should be funded,” said Jo Daniels, managing partner with the law firm Baker McKenzie.
Once the country can identify how a project could be funded, she said, it’s a question of structuring the deal to attract foreign investment.
PPP is not a rigid structure and there can be an infinite varieties of contracts, she said. “Myanmar should look into models of creative PPP, which is looking at the project itself and how you can have individual projects viable on their own.”
Sometimes that can mean taking a broader view. For example, with toll roads, one can look at the use of land beside the toll roads, with returns from commercial enterprises built adjacent to the roads.
“This could be an excellent model. The idea for investors that this will generate a clear profit is critical to bankability,” she said.
On the financing side, there are other options besides debt, adds Serge Pun, chairman of Serge Pun & Associates Group (SPA Group), a multinational real estate firm, and executive chairman of Yoma Bank.
“Debt is not the only means of making a project viable. There is a lot of interest in equity rather than debt. Myanmar should start concentrating on equity financing,” he said.
Planned projects under t he China-backed Belt and Road Initiative, he said, should focus on equity financing. “If [Myanmar] can attract equity investments, then we can prevent and avoid falling into debt trap. The essence of equity investment is the sharing of benefits.[Myanmar] has to be willing to share the fruits of the investments with the investors.”
Mr Pun said the government needs to look at the long-term benefits from the investment that would flow to other sectors in the economy, ultimately benefiting the country as a whole.
“The government should not look at the projects from a pure profit-and-loss point of view, ignoring the fact that the real fruits of construction come from long-term circulation of GDP, not the specific return that the government can generate from that project,” he said.
THE WAY FORWARD
In any case, much better collaboration and coordination across all ministries, states and regions is needed to get these big projects moving in the right direction, said Ye Min Aung. The private sector needs to have a role in the planning as well.
“The government and the private sector need to cooperate and coordinate in a closer manner in order to understand the present situation and prepare ourselves to bring Myanmar to the next level,” he said.
“Our situation now is very weak. Whether we like it or not, we have to understand the same situation. Once we open up, the effects will be much broader and bigger and those effects will be spread throughout the country.”
He also called for all sides to put aside differences and work together in a practical manner.
“The blame game will end up as a waste of time and energy and lead to a lack of understanding and confidence,” he said. “This is not the time to be blaming and finger-pointing at each other. This is the time to sit down and work together for the interest of the country.”
“With the Rakhine situation, it is very difficult for the European executives to justify to their shareholders to increase investments in the country” FILIP LAUWERYSEN Eurocham Myanmar