Myanmar the new Asian Lion?

31 August 2012

Myanmar the new Asian Lion?

 

From ancient Buddhist temples to newly built pagodas, everywhere you look in Myanmar, you will see Chinthes, symbolic guardians of temples and worshippers alike. These are the mythical lions; protectors of good against evil. So well recognised is the symbol that General Orde Wingate used them for the regiment called the Chindits; daring British soldiers sent behind enemy lines.

So is Myanmar set to be the next Asian Lion?

Up until April of last year, many doubted that Myanmar could ever catch up with the rest of South East Asia. Right up until the resounding success of the Aung San Suu Kyi’s National League for Democracy in the April 1 by-elections, winning 43 seats out of 45, the thought on most people’s minds regarding reforms was that the Army would come rolling back. However, that perception, although not completely disappeared, is fading and calls are now coming in from ASEAN, China and elsewhere in the world that sanctions should now be removed to encourage and reward the reform process. David Cameron on his historic visit to Myanmar (the first by a British Prime Minister), considered the reforms encouraging enough to recommend to the EU the suspension of sanctions.

So what makes me confident that reforms are genuine and the country could take off?

First and foremost, to quote from an observation by the Nobel laureate economist, Joseph Stiglitz, “Myanmar has done well in having chosen its location.” Nestled between over a billion in India, a billion and half in China and just under a billion in South East Asia, it is well positioned to be the centre of trade routes between these fastest growing economies of the World. British Airways (then called B.O.A.C.) used to stop over in Rangoon (now Yangon) on the way to Australia in the 50’s. Already airlines are looking at direct routes to Yangon and if they are not, then that should be part of their strategy. Tourism will boom and already hotels are full. A Panama type canal to by-pass the Malacca straits, from Myanmar to the Gulf of Siam, was proposed over a decade ago. The cost was prohibitive and countries like Singapore could be affected if that came to pass and Myanmar’s gain. Watch this space.

Secondly, Myanmar is blessed with abundant natural resources including oil and gas:  Burmah Oil (now Castrol) started in Myanmar. I once gave a talk at the Institute of Petroleum and the contrast between hand dug wells during the times of the Burmese Kings to a valley completely covered with nodding donkeys introduced by the British after colonialisation, was striking. There is less oil these days but plenty of gas; over 19 trillion cubic feet so far discovered, onshore and offshore; which is attracting attention from energy companies from across the world.  The country also has rare earths, uranium, gold, jade, silver, tungsten, zinc, tin, rubies (Burmese rubies are the best in the world), sapphire, painite (world’s rarest gem, discovered by a British mineralogist), pearls, platinum, diamonds, emeralds, coal, limestone, gypsum, teak and other hardwood, softwood of every kind, pristine beaches and over 300 islands off its coastline, not forgetting snow-capped mountains in the North and diverse fauna and flora.

Thirdly, Myanmar has a population of 60m of which 62% are of working age; the working population under age 40 amounts to approximately 42%; male: female ratio of 50:50 and a population growth rate of 1.1%. Under 15s amount to 19m. (source: Ministry of National Planning and Economic Development). The people are hardworking, adaptable and quick learners, so will not  take long for them to catch up with standards of the developed world; with the added advantage that the country has never been under a communist system of rule.  However, education has suffered due to schools and universities being periodically closed by the Military, but the literacy rate is 90%. The diaspora of Myanmar expatriates, many highly educated, are being welcomed back to Myanmar to help develop the country.

Fourthly, in the minds of the Military it is now time. They have seen how the rest of ASEAN has forged ahead; how far they have fallen behind. Furthermore, with the Chairmanship role in 2014 and a free trade area in the Association of Southeast Asian Nations (ASEAN) in 2015, they have now realised they need to boost the economy and improve  efficiency; otherwise their businesses will not be able to compete with those from their neighbours. The Generals are now MPs and they need to win votes. There is the added factor that the Generals as well as most business people I talked to, are fed up with the Chinese influence. They take much but give little back. Some consider it to be a Faustian arrangement.

What do others think?

The IMF and the World Bank visited Myanmar in January of this year and pronounced: “Burma has a high growth potential and could become the next  economic  frontier in Asia.” At this juncture a quick note about the name. Since ancient times, in the Burmese language, the country has always been called Myanmar (this is akin to United Kingdom: representing the whole). When the British took over the country after three successive wars, it was renamed Burma by the British. The country was subsequently renamed Myanmar by the Military Government, who like all military men everywhere have a nationalistic world view as would be expected.

New reforms are proceeding at break neck pace.

The new government that took office in March 2011 has invited world renowned economists to advise them and President Thein Sein has appointed Presidential advisors on politics and economics. For the latter, U Myint a highly respected economist who served with the UN has been very active in encouraging change. U Myint is also close to Aung San Suu Kyi. After more than 50 years of stagnation, the people of the country has long awaited for these reforms. On April 2, the authorities took steps to unify the multiple exchange rates involving a managed float and according to the Asian Development Bank (ADB) are preparing other reforms, including a new national development plan. Other reforms include relaxing exchange restrictions on current international payments and transfers, are being worked on. There is currently a grey market with only two companies but the  Japanese stock exchange and Daiwa Securities is assisting in the formation of a fully-fledged stock exchange by 2015.

Among planned reforms is a land law giving farmers the right to own, sell, and mortgage their land. A microfinance law was approved in November 2011 to expand microcredit to farmers.

The government is preparing a new foreign investment law that is expected to offer tax breaks (five years tax free) to investors and allow them to lease private land and repatriate investment proceeds using market exchange rates. Such sound investment laws and rules however, need a good judicial system.

With these and other reforms to come, there is a danger of burn-out and how will the civil service cope? There are very few trained and experienced civil servants, the result of past isolation. The recent reforms will stretch capacity to breaking point. This is where I believe Britain and other countries can help.

Special economic zones in Dawei in southern Myanmar, Thilawa near Yangon, and Kyaukphyu on the Bay of Bengal have already been approved and established. GDP growth edged up to an estimated 5.5% in FY2011 (ended 31 March 2012), from an average of 4.9% over the previous 4 years, based mainly on investment in hydropower, natural gas, and oil. Agriculture remained subdued owing to flooding and currency appreciation that hurt exports (source: ADB).

GDP is forecast to grow by about 6.0% in FY2012 and 6.3% in FY2013 (source: ADB). According to the ADB this could be a very conservative projection. Today exports are only US$6bn compared to Thailand of $150bn; you could therefore say Thailand earns 25 times more. From my perspective this means there is only upside for Myanmar, as it catches up with its neighbours; it has after all more natural resources, land mass and motivated work force.

The top four exports for 2010 – 2011 are: natural gas at US$2.5bn, jade US$2.2bn, beans at US$0.5bn and garments at US$0.4bn. Major imports are petroleum products, machinery and spare parts, iron and steel construction materials and plastic raw materials.

Myanmar has the advantage of being late; given its late start, it has the benefit of learning from the mistakes of other countries and the potential to leapfrog development to shorten the difference with its neighbours. Take for instance Germany compared to Japan. The latter a late comer. Or for that matter, compare Japan with Korea. Now a number of Korean products are household names. Although there are advantages, the people of Myanmar must be willing to learn and take action. I am convinced they are and will.

The economists I met are frantically working to copy the economic model of the 4 dragons (South Korea, Hong Kong, Taiwan and Singapore) and focus on export-led growth. A new foreign investment law is about to be approved in the Parliamentary session starting on April 23.

Certainly the people are looking forward to that and many well trained Burmese professionals overseas are looking to return and help develop the country; negating the need for too many expatriates of other nationalities. I for one am packing my bags.

©Keith Win BSc, FCA

April 2012

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Keith Win is a Chartered Accountant of Burmese and English heritage. He is fluent in Burmese and is establishing a private equity firm to help bring financial expertise, jobs and investment in Myanmar. Keith is also the Chairman of Myanmar Britain Business Association and Deputy Chairman of ASEAN UK Business Forum. He helped a group of aviation enthusiasts to secure a first ever deal to search for Spitfire fighter aircraft on military land, believed to have been buried in Myanmar; raised bank funding for a telecoms project in Myanmar, advised on strategy and setting up of a costing and accounting system for a manufacturer amongst other projects, advise a foreign cement and mining conglomerate on setting up operations, JVs and Ministerial meetings.

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