jp verbiest myanmar 19 july 2012

1

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.

5

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).

12

Key Challenges

I. Strengthening Institutions and Governance Systems

II. Strengthening macroeconomic management and reforms

III. Diversifying and developing the agricultural sector

13

IV. Fostering human capital

V. Diversifying economic sectors and build an industrial base

VI. Developing economic infrastructure

14

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.

15

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

17

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

18

Voice and Accountability Index Rule of Law Index

Governance Indicators (World Bank Data)

2009 point estimates


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)

19

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

20


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.

21

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).

22

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

23

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

24

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.

25

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.

26

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)

27


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

28

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.

29

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

30

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

31

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

32

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


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)

34


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)

35


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

36


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

37


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.

38


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.

39

Thank YOU

JP Verbiest

[email protected]

[email protected]

[email protected]

40

mailto:[email protected]

mailto:[email protected]

jp verbiest myanmar 19 july 2012

Technology