1. Myanmar-Magic or Miscue Dr Jean-Pierre A. Verbiest Sasin Centre for SustainabilityManagement, 19 July 2012 1

2. IntroductionMyanmar: twice size Viet Nam; largerThailand;Population : 61.2 Million, slow growth(around 1 %)Central location in AsiaBut 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 3. IntroductionFour 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 stateintervention (1997-2010)New phase in 2011: Reforms and return tointernational community 4. Introduction2008 New constitution/2010 Elections/2011President policy statementVery explicit and strong change message: Marketbased economy; monopolies, pricing collusion,nationalizations, demonetization not allowed.Improvements in peoples living conditions thepriority.Path breaking statements: Difficult and timeconsuming concrete actions and reform processmainly due to institutional capacity (staff,institutions, legal)4 5. IntroductionMagic ?Miscue ?Definitely NOT MISCUE !But NOT MAGIC !JUST HARD WORK AND POLITICAL COURAGEPRIVATE SECTOR DOMESTIC AND FOREIGN NEEDTO GIVE RIGHT SUPPORT THRU RESPONSIBLEBEHAVIOR. 5 6. SWOT - StrengthAbundant natural resources (agriculture, gas,oil, minerals, precious stones)Less population pressure on land (Land-population ratio is relatively high.)Half of arable land area fallowAbundant trainable labor force with basiceducationWell connected to major Asian market: ASEAN,China and India 7. SWOT Strength (Cont.)Strategic location: Geopolitical importance forregional connectivity as the tri-junction ofEast Asia, Southeast Asia and South AsiaBenefit of late comer in development: canleapfrogSignificant foreign exchange reserves 8. SWOT WeaknessMacroeconomic instability associated with anumber of policy inconsistencies and weakinstitutionsLow saving and investment ratesLack of implementing capacity and governanceissueUnderdeveloped banking and financial systemHigh dependence on natural resource extractionand agriculture sector 9. SWOT Weakness (Cont.)Poor infrastructure, institutional and businessenvironmentHigh poverty, low HDI, low income and highoutmigration rateLack of comprehensive approaches andappropriate funding to human capital formationAbsence of accurate and reliable economic datato provide exact diagnostics of the economy 10. SWOT OpportunityRegional hub for multimodal transportation anda potential supply route bypassing the MalaccaStraitSole land-bridge between two giant economies;China and IndiaHigh potential to be a food basket and energysource for AsiaHuge industrial potential for FDI from ASEANand global supply chains 11. SWOT ThreatResource Curse: lack of balancing economicgrowth and environmental sustainabilityDanger of Dutch diseaseSocial and Spatial inequalityIncrease in corruptionPolitical instability and ethnic insurgencyInternational pressures and economic sanctionsStrong influence of China 12. Growth Potential to 2030Baseline: 7.5-9% GDP to 2030; Per capita GDPgrowth: 7-8.4% :High scenario: Higher than 10 %Low: 5-6 %At Baseline: GDP in 2030 around $4000,Middle income country. GDP per capita higherthan Indonesia today, higher than Thailand in2005).12 13. Key ChallengesI. Strengthening Institutions and GovernanceSystemsII. Strengthening macroeconomicmanagement and reformsIII. Diversifying and developing theagricultural sector 13 14. Key ChallengesIV. Fostering human capitalV. Diversifying economic sectors and build anindustrial baseVI. Developing economic infrastructure14 15. Institutions and GovernanceMajor capacity constraints in all areasCore economic institutions need immediatestrengthening: MOF, CBM, Ministry of Planningand Development, plus all line ministries: IFIscan help in this but will take time.New institutions to be created: Board ofinvestment, environmental protection agency,Social impact assessment/protection agency.Major legal overhaul required. 15 16. Governance IndicatorsTable 4.2 Governance Indicators Political Stability andGovernmentRegulatory Quality Voice andEconomies Absence of ViolenceRule of Law Index Effectiveness IndexIndexAccountability IndexIndexRankPoint Est.RankPoint Est. RankPoint Est.RankPoint Est.RankPoint Est.Brunei Darussalam75.2 0.8795.31.3582.91.1172.2 0.79 27.5-0.79Cambodia 25.7-0.74 25-0.63 39-0.37 16 -1.05 23.7-0.88Indonesia46.7-0.2124.1 -0.6442.9 -0.2834.4-0.56 47.9-0.05Lao PDR14.8-1.0343.9 014.3 -1.0518.4-0.944.3-1.71Malaysia 79.5 0.9946.70.07 60 0.3365.1 0.55 31.3-0.53Myanmar1 -1.85 6.6 -1.721-2.31 3.8-1.520.5-2.17Philippines 50 -0.1410.8 -1.4252.40.0235.4-0.5345 -0.12Singapore1002.1990.11.15100 1.8492.5 1.61 34.6 -0.4Thailand 59.5 0.1514.6 -1.1161.90.3750.9-0.13 34.1 -0.4Viet Nam 46.2-0.2651.40.19 31-0.5641.5-0.437.6-1.52Note : 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 inunits 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". WorldBank Policy Research available at http://info.worldbank.org/governance/wgi/index.asp 17. Human Development Index2010 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 17 18. Governance Indicators(World Bank Data) 2009 point estimatesVoice and Accountability IndexRule of Law Index18 19. Institutions andGovernanceWeak capacity of public sector needs to be supportedby responsible and self regulating private sector.This will not come naturally but good players willgainRole of civil society (SEE LATER)19 20. Institutions andGovernanceMajor reforms have started already: NewCBM law, FDI law, SEZ regulation, FOREX law,FDI promotion agency, Environmentprotection agency, etc. Most of these laws arein final stages in national assembly.A lot of other legal work on-going mostlywithout external assistance 20 21. Macroeconomic ManagementFiscal policy and monetary policy need to bealignedExchange rate unification was preconditionfor any economic reform and done on 1 April.Full unification will happen once interbankmarkets function and restrictions on FOREXaccess for imports is lifted (new FOREX law).11 private banks already given foreignexchange dealers authorization.21 22. Macroeconomic ManagementLifting of sanctions are essential formacroeconomic management and success ofreforms. E.g. Myanmar private banks cannothave overseas correspondent banks, noSWIFT, no access to FOREX. Only SO Banks canoperate (limited) with the outside.Macroeconomic stability (inflation, exchangerate, etc) is essential but not easy in contextof strong growth and inflows from naturalresources exports (Dutch disease).22 23. AgricultureSector which as in Viet Nam can jumpstarteconomyHuge potential (rice, beans, rubber, sugar,coffee, etc)Half arable land fallow; abundant water;diverse climateWill give highest returns in short termincluding in terms of poverty reduction23 24. AgricultureLarge potential in fisheries and sustainableforestryCountry needs technology to raiseproductivity in all agricultural areasRapid diversification possibleHuge potential for agro-industry and for FDI inthe sector24 25. Human CapitalHuge neglect and demandStill amazing good capacity at senior level andselected fields (engineers)Need combine public and private sector butgood regulations: Capacity MOE !Import education is an optionThis is key for Myanmar to acceleratedevelopment.25 26. Diversify and BuildIndustrial BaseEssential to avoid Dutch diseaseCannot be a dual economy based on extractiveresources and agriculture.Myanmar will benefit from third wave FDIrelocations from East Asia. Also relocationswithin ASEAN.Huge potential but need appropriate climate:macroeconomic stability, deregulation andinfrastructure; set up industrial zones. 26 27. Diversify and BuildIndustrial BaseLabor intensive and natural resources relatedindustries and services will initially be mostattractive [garments and textiles, agro-industries (fisheries and food processing),furniture, construction industries, tourismrelated industries, gems and jewelry)Infrastructure development (ports, airports,urban development (Yangon rail) 27 28. Diversify and BuildIndustrial BaseHeavier industries related to oil and gas andmining (fertilizer, petrochemical, etc)Power sector development (IPP, hydro butneed careful environmental and social impactassessment, complicated by ethnic issues28 29. Economic InfrastructureMyanmar is at center of East Asia, only ASEANcountry with borders with China and India.It has a unique position no other ASEANcountry possessesMajor investment in power, infrastructure(roads and ports), telecommunications andurban infrastructure neededGood connectivity will benefit Myanmarhugely, and also make ASEAN very different.Myanmar will be a key shaper of how 29 30. Looking Forward: Miscue?No !Political will is there both from most formerregime members and oppositionReached a point of no return domestically andinternationally.But challenges and tasks ahead areformidableBut still some strong fundamentals fromcolonial period30 31. Looking Forward: Miscue?Compared to Viet Nams situation in 1986-1993: World has changed and become muchmore globalized.Information technology revolution hasoccurred and makes communications andinformation available nearly everywhere inreal time.This has changed the context of developmentfor Myanmar31 32. Looking Forward: Magic ?NO ! Just hard work and politicaldetermination ahead.Myanmar is country with enormous potentialin terms of resources and its people.History of country suggests last 3 decadesonly a parenthesis in a long remarkablehistory. Myanmar will take back its rightfulhistorical place 32 33. Looking Forward: Magic ?Faced with formidable challenges ofglobalization, regionalization (ASEAN) andeconomic and political reforms at home,Myanmars public sector institutionsweakened by years of underfunding and weakstaffing, will need strong backing from aresponsible private sector.From its history, country will take strong leadin its socio-economic development, and willnot be imposed by outside.33 34. Looking Forward: Magic ?Successful reform and development willdepend on a strong public-private sectorpartnership.Successful FDI will have to be responsibleFDI.Successful domestic investors/businesspeople are responsible investors (Fertilizers) 34 35. Looking Forward: Magic ?Great opportunity for Myanmar: Strong civilsociety.Because of isolation and developmentpartners engagement with NGOs and civilsociety only, Myanmar has a stronger civilsociety than any other country had whenundertaking major economic reforms(VietNam, China, etc)35 36. Looking Forward: Magic?With political reforms and freecommunication, civil society has become verypowerful.Facebook, Tweeter, etc extensively used bycivil society groups all over the country(Rakhine state, Dawei, etc)Government and investors will face strongscrutiny on environmental and social issue 36 37. Looking Forward: Magic?Dawei coal fire power plant, NorthernAyawadee dam, Chinese port and pipelineconstruction in Rakhine state all under closescrutiny.Good thing although it will keep FDI underhigh scrutiny. Investors need to factor in thoselimits and be responsible investors 37 38. Looking Forward: Magic?Because of failure of state to provide publicgoods, infrastructure and social services(Health and education) and because of strongBuddhist culture, private Myanmar sectoroften very much involved in CSR programs.Remarkable development.38 39. Looking Forward: Magic?For instance, Myanmar Awba Group, largestproducer and importer of fertilizers, workswith farmers and local communities to buildsmall infrastructure, schools and organizefarmers groups to better utilize fertilizers andnot overuse! Remarkable.Many examples of this type.Foreign investors who relate well to theircommunities will gain a lot. 39 40. Thank YOUJP Verbiestjpverbiest@hotmail.comjpverbiest@gmail.comjp@westindochina.com 40