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e-Magazine (For the Japanese version of this article)

Myanmar Industrial Development Vision | Akihiro Sato Deputy Director Financial Cooperation Division Trade and Economic Cooperation Bureau Ministry of Economy, Trade and Industry [Date of Issue: 30/October/2015 No.0248-0988]

Date of Issue: 30/October/2015

Myanmar Industrial Development Vision

Akihiro Sato
Deputy Director
Financial Cooperation Division
Trade and Economic Cooperation Bureau
Ministry of Economy, Trade and Industry (METI)

Together with other relevant ministries, the Ministry of Economy, Trade and Industry (METI) has formulated the Myanmar Industrial Development Vision, which lays out both a future vision for Myanmar's industry and priority measures for realizing that vision. On July 3, 2015, Prime Minister Abe hand delivered the Myanmar Industrial Development Vision to Myanmar President Thein Sein, who visited Japan in order to attend the Mekong-Japan Summit Meeting.

Based on Myanmar's comparative advantage of a low-cost, high-quality labor force and actual domestic and foreign demand, the Myanmar Industrial Development Vision (MIDV) proposes an 'Urban-Rural Synergy Strategy' aimed at creating a virtuous cycle between (1) the foreign capital-led development of labor-intensive industries in urban areas and (2) the development of local industries in rural areas, including agriculture, forestry, fisheries and high value-added textiles. To lock in that virtuous cycle, the MIDV calls for electricity and transportation infrastructure development, a predictable and efficient legal system, human resource development, strategic industrial policies, and realization of Myanmar's agriculture, forestry and fisheries potential. Here we overview the MIDV, looking particularly at those sections related to manufacturing and services.

1. Aims of the MIDV
Since its transition to civilian rule in 2011, Myanmar has realized a high level of growth, but this has simultaneously exposed structural issues that will need to be addressed in order for the country to sustain its growth over the medium to long term. First, Myanmar's budget and trade deficits continue to expand, and there is a growing need to boost the international competitiveness of domestic industry and set in place a stable macroeconomic foundation. In addition, as economic growth is currently driven primarily by real estate, trade, logistics and other service industries located for the most part in urban areas, Myanmar needs to realize more broad-ranging economic growth in terms of both regions and industries. This will require designing and implementing appropriate policies across a broad range of areas from infrastructure and legal system development to human resource development, grounding these policies in economic development forecasts at the industry level.

Based on this awareness, the MIDV lays out the following:
(1) A vision for phased industrial development that will enable Myanmar to achieve both geographically-balanced development as well as sustained economic growth; and
(2) Priority industrial development measures which Myanmar should implement over the next five years to realize the MIDV.

2. Urban-Rural Synergy Strategy
The MIDV proposes pursuing an 'Urban-Rural Synergy Strategy' to create synergy between urban and rural development based on the following three approaches.

Figure 1: Urban-Rural Synergy Strategy Here we lay out the reasons for pursuing the Urban-Rural Synergy Strategy, examining why these particular approaches were chosen and how they will be used to realize geographically-balanced development and sustained economic growth.

(1) Synergy between urban development and rural development
Key urban and rural industries have their own particular characteristics and challenges, but focusing solely on dealing with one or the other is ineffective, whereas tackling development in both urban and rural areas simultaneously generates synergy and helps to exploit existing features and resolve issues. Ensuring the effective functioning of reciprocal links between cities and rural areas is extremely important in achieving balanced economic development, and the key to this will be to strengthen connectivity as a vital element in synergy generation.

(2) Industrial development based on comparative advantage and geared to the stage of economic development
Industrial development based on comparative advantage means that, rather than the government deciding arbitrarily which industries should be developed, development takes the direction indicated by the market. Market principles need to be employed to the greatest possible extent to realize the best distribution of domestic resources and stimulate the domestic economy. Myanmar currently has three potential sources of comparative advantage: (a) an abundance of high-quality, low-cost labor; (b) the geographical advantage of adjoining major markets and producing countries; and (c) diverse natural features, traditions and cultures conducive to fostering agriculture, forestry, fisheries, tourism and other local industries.

(3) An environment and society that realizes social harmony and human respect
Rather than focusing solely on economic growth, Myanmar is pursuing a development path that emphasizes human-centric development. Economic growth is certainly not contrary to human-centric development, but if development aimed at economic growth threatens local lifestyles and human rights and destroys the natural and social environment, from a human-centric perspective, its negative impact starts to outweigh the positive. Because infrastructure development projects in particular tend to impact heavily on the natural and social environment, careful attention needs to be paid to these aspects. Development therefore needs to be approached on the basis of international standards and procedures and using appropriate technologies that minimize the environmental impact to the greatest possible extent.

3. Manufacturing vision: Urban clusters and outward expansion
(1) Role of manufacturing and reasons for creating clusters in urban areas
Developing manufacturing clusters in urban areas will be extremely important in achieving geographically-balanced development. The advance of manufacturing provides opportunities for stable employment and creates a comparatively high-level income bracket, which in turn generates the markets to consume locally-produced goods and ensures that the benefits of economic growth permeate throughout society, rural areas included. Over the medium to long term, improving production processes opens the way for ongoing productivity gains and also contributes to the development of finance, logistics, law and other related service industries.

The development of competitive manufacturing industries is contingent on power, transportation, communications and other infrastructure elements, which are currently available primarily in urban areas. Accordingly, particularly with an eye to attracting foreign investment, the most practical approach will be to cluster manufacturing industries in urban areas for the next several years. In so doing, it will be important to (a) attract industries differentiated from those of neighboring countries; (b) analyze actual domestic and foreign demand and carefully examine the possibilities for capturing more of that demand; and (c) consider the importance of the role played by foreign capital.

(2) Specific industry types in which clusters could be developed over the next five years
Over the next five years, further developing the business environment particularly in urban areas should help to accelerate Myanmar's industrialization. Specific examples of industry types include: (a) construction materials; (b) food processing; (c) chemical products (fertilizer, detergent, paint, etc.); (d) plastic processing; (e) textile products; and (f) labor-intensive assembly.

Figure 2: Examples of industries and products (labor-intensive assembly, etc.) (3) Current industrialization issues facing Myanmar and responses to new opportunities
Not only are Myanmar's neighbors further along the development track and actively seeking foreign investment, but formation of the ASEAN Economic Community (AEC) is just ahead. If Myanmar cannot create a more attractive business environment than its neighbors, the bulk of foreign companies, and particularly those with an export orientation, will have no reason to choose to locate in Myanmar. On the other hand, the worldwide division of production processes has also opened the way for greater fragmentation into short-step processes, and this deepening international specialization presents Myanmar with the opportunity to develop its competitiveness by specializing in certain processes.

To encourage this, Myanmar's government will need to channel its resources into creating the necessary conditions for those industries slated for development, paying close attention in the process to requests from foreign companies. Transportation infrastructure and customs systems will also need to be put in place in order to maximize the country's geographical advantage and boost Myanmar's connectivity with its neighbors, as well as developing those areas and industries where partnership is possible with industrial clusters in Thailand and elsewhere.

(4) Industries with good medium- to long-term development prospects given business environment development
Over the medium to long term, it should be possible to attract higher added-value industries to Myanmar using those manufacturing clusters noted in (2) as a base. Because the infrastructure and systems required by industries with good medium- to long-term development prospects are more advanced than for those industries that will locate in Myanmar in the short term, the government needs to listen closely to the former when developing the business environment.

Specific examples of industries likely to locate in Myanmar over the medium to long term include: (a) transportation machinery (motorcycles); (b) electrical and electronics; (c) other machinery (molds, etc.); (d) steel (electric furnaces); (e) non-ferrous metals; and (6) oil refining and petrochemicals.

4. Priority policies for the next five years
This section turns to the package of priority policies which Myanmar should address over the next five years, focusing primarily on priority projects which Myanmar is expected to implement in the various areas with support from Japan.

In recent years, reference is frequently made to Doing Business, a report put out annually by the World Bank Group as a benchmark for business environments particularly in the developing world. The 2015 edition of the report noted that while Myanmar's business environment is improving, more work remains to be done, making the following measures extremely important.

(1) Building industry by improving infrastructure and connectivity
Myanmar has a huge shortfall of electricity and other infrastructure, which is standing in the way of meeting the policy challenges of economic growth and industrial development. Putting the right infrastructure in place to steadily whittle away that obstacle will be also absolutely critical if the country is going to fully exploit its comparative advantage. From a regional perspective too, it will be essential to develop infrastructure in Yangon, Mandalay and other big cities ahead of the population influxes they will experience as labor-intensive industries begin to locate there, while also moving smoothly ahead with expansion out into rural areas as well.

Related priority projects include development of the Thilawa Special Economic Zone (SEZ), the introduction of cutting-edge high-efficiency power generation and environmentally-sensitive technologies along with environmental legislation and administration, and the Yangon-Mandalay rail line. The Thilawa SEZ is located around 20 kilometers south of central Yangon, where yen loans and grant cooperation are being used to set in place the relevant infrastructure around the development of an industrial park and other facilities. Pursuant to the Special Economic Zone Law, which was revised in January 2014, a one-stop service center has been established to serve the Thilawa SEZ, and as of September this year a JICA expert has been dispatched to the service center to expedite the acquisition of licenses and permissions by companies moving into the SEZ.

(2) Laying the systemic foundations for a predictable and efficient business environment
The ongoing expansion of economic activities backed by massive investment will mean creating the business environment to underpin those activities, but having only recently started to liberalize economic activities, Myanmar is woefully lacking in experience in developing and operating business environments. Priority projects such as the development of international-standard one-stop services and other aspects of the investment environment in the Thilawa SEZ and the introduction of an efficient customs system should help to address this problem.

(3) Human resource development to underpin human-centric development
Myanmar's human resources have great basic skills and potential capacity, but insufficient attention has been paid to industrial human resource development (HRD). To date, Myanmar's industrial HRD has only been conducted on a small scale and on a sector-specific basis by regional, divisional and state governments within their own jurisdiction. In addition, because wages are lower and job opportunities fewer than in surrounding countries, many Myanmarese work in other countries, making it difficult to incentivize them to get an education at home.

Looking at human resources from a demand perspective, the shortage of middle management in factories could hamper Myanmar's pursuit of industrialization. Increasing the number of personnel who are viable candidates for middle management positions in factories will also be vital in making Myanmar an attractive investment destination for foreign companies seeking to localize factory management.

(4) Other strategic and cross-cutting policies
Priority projects include attracting foreign investment in the Thilawa SEZ and holding a local manufacturing industry exhibition in Japan in July this year. In addition, to action the two-stage SME loan agreed in November 2014, Japan is making the loan through the medium- to long-term provision of funds to an intermediary financing organization, as well as supporting that organization in enhancing its financing capacity. This project is expected to contribute to building the necessary systems for the smooth implementation of SME financing by boosting the loan application screening capacity of financial institutions while also improving business management accuracy in the SMEs receiving that financing.

(original article : Japanese)
(For the Japanese version of this article)

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