Download - Jp verbiest myanmar 19 july 2012
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Myanmar-Magic or Miscue
Dr Jean-Pierre A. Verbiest
Sasin Centre for Sustainability
Management, 19 July 2012
Introduction
Myanmar: twice size Viet Nam; ¼ larger Thailand;
Population : 61.2 Million, slow growth (around 1 %)
Central location in Asia
But low GDP per capita $854 in 2012 but was $350 in 2007. In PPP terms $1,394 in 2012. GDP per capita one of lowest in Asia. Cambodia was $931. Thailand $5,850
Four political/development phases:
Parliamentary democracy with mixed economy (1948-1962)
Socialist military rule with extreme state control (1962-1988)
Military with market orientation (1988-1997)
Military with market orientation and strong state intervention (1997-2010)
New phase in 2011: Reforms and return to international community
Introduction
2008 New constitution/2010 Elections/2011 President policy statement
Very explicit and strong change message: Market based economy; monopolies, pricing collusion, nationalizations, demonetization not allowed. Improvements in people’s living conditions the priority.
Path breaking statements: Difficult and time consuming concrete actions and reform process mainly due to institutional capacity (staff, institutions, legal) 4
Introduction
Introduction
Magic ?
Miscue ?
Definitely NOT MISCUE !
But NOT MAGIC !
JUST HARD WORK AND POLITICAL COURAGE
PRIVATE SECTOR DOMESTIC AND FOREIGN NEED TO GIVE RIGHT SUPPORT THRU RESPONSIBLE BEHAVIOR.
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SWOT - Strength
Abundant natural resources (agriculture, gas, oil, minerals, precious stones)
Less population pressure on land (Land-population ratio is relatively high.)
Half of arable land area fallow
Abundant trainable labor force with basic education
Well connected to major Asian market: ASEAN, China and India
SWOT – Strength (Cont.)
Strategic location: Geopolitical importance for regional connectivity as the tri-junction of East Asia, Southeast Asia and South Asia
Benefit of late comer in development: can leapfrog
Significant foreign exchange reserves
SWOT – Weakness
Macroeconomic instability associated with a number of policy inconsistencies and weak institutions
Low saving and investment rates
Lack of implementing capacity and governance issue
Underdeveloped banking and financial system
High dependence on natural resource extraction and agriculture sector
SWOT – Weakness (Cont.)
Poor infrastructure, institutional and business environment
High poverty, low HDI, low income and high outmigration rate
Lack of comprehensive approaches and appropriate funding to human capital formation
Absence of accurate and reliable economic data to provide exact diagnostics of the economy
SWOT – Opportunity
Regional hub for multimodal transportation and a potential supply route bypassing the Malacca Strait
Sole land-bridge between two giant economies; China and India
High potential to be a ‘food basket’ and ‘energy source’ for Asia
Huge industrial potential for FDI from ASEAN and global supply chains
SWOT – Threat
Resource Curse: lack of balancing economic growth and environmental sustainability
Danger of Dutch disease
Social and Spatial inequality
Increase in corruption
Political instability and ethnic insurgency
International pressures and economic sanctions
Strong influence of China
Growth Potential to 2030
Baseline: 7.5-9% GDP to 2030; Per capita GDP growth: 7-8.4% :
High scenario: Higher than 10 %
Low: 5-6 %
At Baseline: GDP in 2030 around $4000, Middle income country. GDP per capita higher than Indonesia today, higher than Thailand in 2005).
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Key Challenges
I. Strengthening Institutions and Governance Systems
II. Strengthening macroeconomic management and reforms
III. Diversifying and developing the agricultural sector
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IV. Fostering human capital
V. Diversifying economic sectors and build an industrial base
VI. Developing economic infrastructure
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Key Challenges
Institutions and Governance
Major capacity constraints in all areas
“Core economic institutions” need immediate strengthening: MOF, CBM, Ministry of Planning and Development, plus all line ministries: IFIs can help in this but will take time.
New institutions to be created: Board of investment, environmental protection agency, Social impact assessment/protection agency.
Major legal overhaul required.
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Governance Indicators
Economies
Rank Point Est. Rank Point Est. Rank Point Est. Rank Point Est. Rank Point Est.
Brunei Darussalam 75.2 0.87 95.3 1.35 82.9 1.11 72.2 0.79 27.5 -0.79
Cambodia 25.7 -0.74 25 -0.63 39 -0.37 16 -1.05 23.7 -0.88
Indonesia 46.7 -0.21 24.1 -0.64 42.9 -0.28 34.4 -0.56 47.9 -0.05
Lao PDR 14.8 -1.03 43.9 0 14.3 -1.05 18.4 -0.94 4.3 -1.71
Malaysia 79.5 0.99 46.7 0.07 60 0.33 65.1 0.55 31.3 -0.53
Myanmar 1 -1.85 6.6 -1.72 1 -2.31 3.8 -1.52 0.5 -2.17
Philippines 50 -0.14 10.8 -1.42 52.4 0.02 35.4 -0.53 45 -0.12
Singapore 100 2.19 90.1 1.15 100 1.84 92.5 1.61 34.6 -0.4
Thailand 59.5 0.15 14.6 -1.11 61.9 0.37 50.9 -0.13 34.1 -0.4
Viet Nam 46.2 -0.26 51.4 0.19 31 -0.56 41.5 -0.43 7.6 -1.52
Note : The 2009 index included a total of 213 countries ranked on a continuos scale from 0 to 100. Higher ranks correpond to a better performance of the country. Point estimate values are measured in
units ranging from about -2.5 to 2.5 following a normal distribution. Higher point estimate values correspond to better governance outcomes.
Source: Kaufmann, Daniel, Aart Kraay and Massimo Mastruzzi (2010). "The Worldwide Governance Indicators: Methodology and Analytical Issues". World
Bank Policy Research available at http://info.worldbank.org/governance/wgi/index.asp
Table 4.2 Governance Indicators
Government
Effectiveness Index
Political Stability and
Absence of Violence
Index
Regulatory Quality
Index Rule of Law Index
Voice and
Accountability Index
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Human Development Index 2010 country rankings
ASEAN has achieved
remarkable progress in
human development, but
progress has been uneven
across ASEAN member
countries
CLMV countries remain at
the bottom of HDI rankings
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Voice and Accountability Index Rule of Law Index
Governance Indicators (World Bank Data)
2009 point estimates
Institutions and Governance
Weak capacity of public sector needs to be supported by responsible and self regulating private sector.
This will not come naturally but “good” players will gain
Role of civil society (SEE LATER)
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Major reforms have started already: New CBM law, FDI law, SEZ regulation, FOREX law, FDI promotion agency, Environment protection agency, etc. Most of these laws are in final stages in national assembly.
A lot of other legal work on-going mostly without external assistance
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Institutions and Governance
Macroeconomic Management
Fiscal policy and monetary policy need to be aligned
Exchange rate unification was precondition for any economic reform and done on 1 April. Full unification will happen once interbank markets function and restrictions on FOREX access for imports is lifted (new FOREX law). 11 private banks already given foreign exchange dealers authorization.
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Macroeconomic Management
Lifting of sanctions are essential for macroeconomic management and success of reforms. E.g. Myanmar private banks cannot have overseas correspondent banks, no SWIFT, no access to FOREX. Only SO Banks can operate (limited) with the outside.
Macroeconomic stability (inflation, exchange rate, etc) is essential but not easy in context of strong growth and inflows from natural resources exports (Dutch disease).
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Sector which as in Viet Nam can jumpstart economy
Huge potential (rice, beans, rubber, sugar, coffee, etc)
Half arable land fallow; abundant water; diverse climate
Will give highest returns in short term including in terms of poverty reduction
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Agriculture
Agriculture
Large potential in fisheries and sustainable forestry
Country needs technology to raise productivity in all agricultural areas
Rapid diversification possible
Huge potential for agro-industry and for FDI in the sector
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Huge neglect and demand
Still amazing good capacity at senior level and selected fields (engineers)
Need combine public and private sector but good regulations: Capacity MOE !
Import education is an option
This is key for Myanmar to accelerate development.
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Human Capital
Essential to avoid Dutch disease
Cannot be a dual economy based on extractive resources and agriculture.
Myanmar will benefit from “third” wave FDI relocations from East Asia. Also relocations within ASEAN.
Huge potential but need appropriate climate: macroeconomic stability, deregulation and infrastructure; set up industrial zones.
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Diversify and Build Industrial Base
Diversify and Build Industrial Base
Labor intensive and natural resources related industries and services will initially be most attractive [garments and textiles, agro-industries (fisheries and food processing), furniture, construction industries, tourism related industries, gems and jewelry)
Infrastructure development (ports, airports, urban development (Yangon rail)
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Diversify and Build Industrial Base
Heavier industries related to oil and gas and mining (fertilizer, petrochemical, etc)
Power sector development (IPP, hydro –but need careful environmental and social impact assessment, complicated by ethnic issues
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Myanmar is at center of East Asia, only ASEAN country with borders with China and India.
It has a unique position no other ASEAN country possesses
Major investment in power, infrastructure (roads and ports), telecommunications and urban infrastructure needed
Good connectivity will benefit Myanmar hugely, and also make ASEAN very different. Myanmar will be a key “shaper” of how ASEAN will look like in 2030.
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Economic Infrastructure
Looking Forward: Miscue?
No !
Political will is there both from most former regime members and opposition
Reached a point of no return domestically and internationally.
But challenges and tasks ahead are formidable
But still some strong fundamentals from colonial period
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Compared to Viet Nam’s situation in 1986-1993: World has changed and become much more globalized.
Information technology revolution has occurred and makes communications and information available nearly everywhere in real time.
This has changed the context of development for Myanmar
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Looking Forward: Miscue?
Looking Forward: Magic ?
NO ! Just hard work and political determination ahead.
Myanmar is country with enormous potential in terms of resources and its people.
History of country suggests last 3 decades only a parenthesis in a long remarkable history. Myanmar will take back its rightful historical place
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Faced with formidable challenges of globalization, regionalization (ASEAN) and economic and political reforms at home, Myanmar’s public sector institutions weakened by years of underfunding and weak staffing, will need strong backing from a responsible private sector.
From its history, country will take strong lead in its socio-economic development, and will not be “imposed” by “outside”. 33
Looking Forward: Magic ?
Successful reform and development will depend on a strong public-private sector partnership.
Successful FDI will have to be “responsible” FDI.
Successful domestic investors/business people are responsible investors (Fertilizers)
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Looking Forward: Magic ?
Great opportunity for Myanmar: Strong civil society.
Because of isolation and development partners’ engagement with NGOs and civil society only, Myanmar has a stronger civil society than any other country had when undertaking major economic reforms(Viet Nam, China, etc)
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Looking Forward: Magic ?
Looking Forward: Magic?
With political reforms and free communication, civil society has become very powerful.
Facebook, Tweeter, etc extensively used by civil society groups all over the country (Rakhine state, Dawei, etc)
Government and investors will face strong scrutiny on environmental and social issue
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Looking Forward: Magic?
Dawei coal fire power plant, Northern Ayawadee dam, Chinese port and pipeline construction in Rakhine state all under close scrutiny.
Good thing although it will keep FDI under high scrutiny. Investors need to factor in those limits and be responsible investors
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Looking Forward: Magic?
Because of failure of state to provide public goods, infrastructure and social services (Health and education) and because of strong Buddhist culture, private Myanmar sector often very much involved in CSR programs. Remarkable development.
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Looking Forward: Magic?
For instance, Myanmar Awba Group, largest producer and importer of fertilizers, works with farmers and local communities to build small infrastructure, schools and organize farmers groups to better utilize fertilizers and not overuse! Remarkable.
Many examples of this type.
Foreign investors who relate well to their communities will gain a lot.
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Thank YOU
JP Verbiest
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