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Series: The Mekong Region and Japan Part 10: Myanmar (1) Key Hints to Understanding the Myanmar Economy | Yoshihiro Araki, Director, in charge of Mekong Region Overseas Research Department Japan External Trade Organization [Date of Issue: 31/January/2013 No.0215-0877]

Date of Issue: 31/January/2013

Series: The Mekong Region and Japan Part 10: Myanmar (1)
Key Hints to Understanding the Myanmar Economy

Yoshihiro Araki
Director, in charge of Mekong Region
Overseas Research Department
Japan External Trade Organization

Compared to the rapid sociopolitical change occurring in Myanmar, change on the economic front has really yet to come. Myanmar has traditionally been extremely wary of other countries, and revision of Myanmar‘s foreign investment law attracted strong conservative protest. Private enterprise will be critical in driving the economy in the years ahead, but remains a very new phenomenon. With the ASEAN common market about to be launched in 2015, Myanmar urgently needs to address a massive list of tasks, including wages and human resource development.

Myanmar is in the midst of a major revolution on a scale difficult for us to imagine. Since the first sitting in February 2011, the country’s parliament has convened six times in less than two years. During sessions (which run for 40-50 days), restraining orders are placed on all government ministers and members of parliament, with the chamber echoing to the sound of loud and vigorous debate. Even the National League for Democracy (NLD), which until a few years ago had status only as the target of rigorous repression, took 47 lower-house seats in the April 2012 by-elections, ushering into parliament Aung San Suu Kyi, the symbol of Myanmar’s democratic movement. While its 2003 roadmap to democracy was entirely ignored by the West, the former military government pressed steadily ahead despite criticism from around the world, and nine years later, Myanmar finally became a democratic nation with a constitutional assembly. Long under the tyranny of military rule, journalism too has been freed from rigorous censorship, with newspapers, magazines, television and other private media now jostling for attention. Local residents are rising up against the environmental destruction accompanying development, and factory workers have begun to assert their rights by striking for higher wages and better working conditions. At least until three years ago, certainly no one would have even been able to imagine the Myanmar of today.

Local firms’ wariness of foreign investment deeply embedded

In contrast to the rapid change occurring in politics and society, economic reform is making very limited progress. This is epitomized by the uproar surrounding amendment of the Foreign Investment Law.

In 1988, the military junta of the time abandoned its previous ‘Burmese Way to Socialism’ to adopt instead an open market economy. The same year, it formulated a foreign investment law and began to explore the road to economic development through foreign investment. However, while there was a small-scale investment boom particularly from ASEAN investors in the mid-1990s, the subsequent Asian financial crisis and concentrated investment in China, as well as economic sanctions imposed upon Myanmar by the West, kept foreign investment close to zero for many years thereafter.

Trend of FDI to Myanmar
Aiming to make that foreign investment law the centrepiece of its new open policy, the new government put an amendment bill up for parliamentary debate in March 2012 and sought to move it immediately into force, but met with deep-seated opposition from a conservative camp keen to protect domestic industry. As a result, the parliament briefly adopted an amendment bill containing provisions extremely restrictive of foreign investment, including regulations on foreign capital ratios and on participation in small and medium-scale manufacturing and agriculture. Keen to ramp up the country’s policy of greater openness, however, President U Thein Sein did not sign the bill and instead requested parliament to re-enter debate, personally engaging in an effort to win over the conservative camp. A new foreign investment law was finally passed in early November with a lighter regulatory touch, eight long and complicated months after the original bill was introduced.

Why was there such opposition to opening the market to foreign investors? Myanmar has traditionally been very wary of other countries. During the junta era, the state-run daily newspaper ran economic development slogans every day, the first paragraph of which usually called for introducing foreign capital and technologies to advance economic development, but only where control of this rested with the Myanmar government and people. That slogan is still alive today.

During the era of Burmese-style socialism, state-owned enterprises ran all the industries. With the exception of a scant handful of illegal cases, there were no private enterprises. As of the 1990s, when the military government introduced its market-opening policies and began encouraging private firms, many private companies were set up in a wide range of areas including trade, services, construction and manufacturing, and the private sector share of economic activities gradually increased. However, most of this comprised small, medium-sized and micro firms with little capital strength. Because Myanmar doesn’t publish any official business establishment statistics, we can only rely on estimates, but in 2009, 97 percent of the approximately 49,000 firms in the manufacturing industry were small, medium-sized or micro enterprises. That situation persists today.

What happened to state-owned enterprises (SOEs)? At their peak, there were over 1,000 such firms, but a Privatization Commission was established in the mid-1990s, and land, buildings and other SOE assets were gradually sold off to private companies. According to the latest data from the Ministry of National Planning and Economic Development, there are still 230 SOEs under the control of 11 government ministries. The Ministry of Livestock and Fisheries has the most (101), followed by the Ministry of Industry (60) and the Ministry of Electric Power (10). SOEs still dominate basic industries such as power, rail, ship-building, steel-making, automobiles and construction materials. The new government wants to privatize all SOEs as soon as possible, but its duty to create local job opportunities has prevented any wholesale shift toward privatization. Conversely, in the mid-2000s, SOEs were forced to take on old machinery and equipment from China through a loan program in the name of economic assistance, and more than a few SOEs are struggling with inefficient productivity as a result.

For Myanmar, the realization of the ASEAN common market is a major threat. Myanmar imports large quantities of food products and consumer goods from China, India and Thailand through border trade. If zero-tariff imports from Vietnam, Malaysia, Indonesia and elsewhere also shoot up, not only SOEs but also the private-sector manufacturers which are just developing may find their products unable to contend with such fierce competition.

Numbered days for cheap and abundant labor

Young people getting money though TV game repairing workshop in Downtown of Yangon

Young people getting money though TV game repairing workshop in Downtown of Yangon

According to a JETRO annual survey of Japanese affiliates in Asia (published December 2012), the monthly wage for a Myanmarese laborer (base wage only) is US$53, the lowest in Asia, which is Myanmar’s major drawcard for the labor-intensive apparel and IT software industries. However, that wage level will not necessarily continue. Since around two years ago, apparel factories around Yangon have frequently complained about the difficulty of securing new staff. Staff retention ratios have apparently also deteriorated rapidly. One major reason is the wage disparity with neighboring Thailand. There are apparently two to three million Myanmarese laborers in Thailand. The legalization of illegal Myanmarese residents in Thailand pursuant to an agreement reached between the two countries two or three years ago has only lent impetus to that trend. Workers in Thailand are guaranteed a minimum wage of 300 baht per day (around US$10), so they can earn at least double the monthly wage in Myanmar. Last year, Myanmar too began to move toward introducing a minimum wage. The Myanmar government wants to encourage factory workers who have gained a certain amount of training to come home, so it may set the minimum wage slightly on the high side. In Yangon and other major cities, economic growth has meant the rapid advance of hotels, supermarkets and the restaurant industry. Young Myanmarese too are beginning to shun hard labor. For Myanmar’s manufacturing industry to secure employees, the key in future will be to improve staff working conditions.

Boosting employee quality is another urgent challenge. This applies to both office and factory workers. Over the last 50 years or so-from the 1960s through the 80s when Myanmar was closed to the world, and from the 1990s through to two years ago under military government-Myanmar’s level of education was far below the rest of the world with the exception of a few students who had studied abroad. Tertiary education in particular is still very backward as a result of universities being closed for many years in an effort to suppress the democratic movement. Around 60 percent of students enrolled in university attend distance-learning universities, earning their university qualification through approximately one week per year of actual schooling. Because basic education from elementary through to high school too suffers from shortfalls in teacher numbers and ability, many people don’t trust it. Books in libraries are old and in very short supply. The affluent pay thousands of dollars every year to send their children to private schools, and studying at foreign universities is currently undergoing something of a boom. However, many people have little choice but to rely on Myanmar’s own fragile education system.

Number of University Students (FY2008)
Myanmar’s challenges go beyond infrastructure development. Young human resources need to be properly trained now so that they can step in straight away with the necessary skills when Myanmar does get its infrastructure in place and foreign capital floods into the country looking for staff. Rather than chasing immediate profit, Myanmar should perhaps pay more attention to laying the foundations for development in the near future.

(original article : Japanese)

(For the Japanese version of this article)

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