How Myanmar Could Win the Future

Like China in the 1980s, Myanmar is moving toward “special economic zones.” After almost half a century of isolation, it could emerge as Asia’s next tiger – with right policies.

After meetings with government representatives, senior executives and think-tank leaders in Myanmar, I spent some time exploring the beautiful nation.

In Yangon, Myanmar’s window to the world, you quickly get an idea of the debilitated infrastructure, the poverty and the 40 Celsius heat – and the ingenuity of ordinary people and their dream of a better future.

Since taking office, President U Thein Sein has significantly improved Myanmar’s ties with Washington and European countries, which has unleashed a rapid inflow of Western capital. In the Traders Hotel favored by foreign execs, the cheapest overnight stay will easily cost more than $300 – even as ordinary people struggle to live on $1-2 per day.

Myanmar is the last frontier of emerging Asia.

A history of pain

Geopolitically, Myanmar is at the crossroads of China in the east, South Asia (India, Bangladesh) in the west, and Southeast Asia (Laos, Thailand, Cambodia) in the South.

The earliest inhabitants of its recorded history were the Pyu who entered the Irrawaddy valley from Yunnan. By the latter half of the 18th century, the Konbaung Dynasty, generated one of the most literate states in Asia – but no match to British cannons.

The British rule brought several enduring social, economic, cultural and administrative changes that transformed the once-agrarian society. With the “divide and rule” policies, British imperialism took advantage of differences among the myriad ethnic groups, which unleashed long-running civil wars and ethnic animosity – which the West is eager to attribute to Myanmar alone.

After colonial terror, things got a lot worse. As a major battleground during World War II, the country and its infrastructure were devastated by both allied offensives and Japanese terror.

In1947, the legendary Aung San ensured the country’s independence, while negotiating an agreement with ethnic leaders. Months later, he and several cabinet members were assassinated. In 1962, the military led by General Ne Win took control of Burma in a coup d’etat. In the next 12 years, the country was ruled by a revolutionary council and its “Burmese Way to Socialism.” In 1974 came the new constitution of the Socialist Republic, which subjected the Union of Burma to a one-party system, until the late 1980s.

In the 1990 free elections, the National League for Democracy, led by Aug San Suu Kyi, won 80% of the seats. Nonetheless, the military leadership continued to rule Myanmar until its dissolution.

Since the 2010 election, the government has embarked on a series of bold reforms to direct the country toward democratization, a mixed economy and reconciliation.

The cost of a lost half century

After political reconciliation in April 2012, international community has suspended most sanctions against Myanmar. Despite bitter ethnic tensions that continue to escalate, the reform momentum remains strong. However, the transition will take time and is not devoid of risks.

Economically, Myanmar has lost half a century of progress and prosperity. In the 1960s, it was a major rice exporter, with average prosperity 10% higher than in China, as measured by GDP per capita. By the onset of the global crisis of 2008, the same figure was 55% lower than in China.

In the past four years, Myanmar’s real GDP has been growing at an estimated 5-6%. In the next half a decade, it could sustain a growth rate of close to 6-8%. However, the starting-point is very low. Myanmar’s per capita GDP is barely US$1,400, and nearly every fourth of some 60 million people live below the poverty line.

With underdeveloped institutional capabilities, poor revenue performance has led to persistent fiscal deficits, which have been financed by the central bank. As a result, volatile inflation averaged 23% between 2001 and 2010, which hit the poor hard, undermining domestic confidence in the kyat.

Myanmar is as large as France, but has a young labor force, abundant natural resources, including natural gas, copper, timber and gemstones. Nonetheless, given high reliance on natural resources and low productivity in agriculture, the economy remains vulnerable to shocks.

The next Asian tiger

Despite the recent influx of Western money and speculators, China remains Myanmar’s largest foreign investor. Naypyidaw, the country’s political capital, is engaged in a delicate balancing act between the old Chinese investment and the new Western capital.

What’s worse, Myanmar is opening in an era of low interest rates and massive liquidity injections in the west, while Japan, its greatest creditor, has initiated a massive gamble of monetary expansion, and growth is slowing in emerging Asia.

Like China in the early 1980s, Myanmar cannot establish quickly institutional capabilities that would have the confidence of foreign investors. As a result, it is moving toward “special economic zones.”

If such SEZs can be established near major urban centers, such as Yangon and Mandalay, they could accelerate economic growth and attract more foreign multinationals and investors.

If the current and achievable growth goal of 7.7% could be sustained in the coming years (and if the country can sustain social cohesion despite historical ethnic frictions), Myanmar would emerge as the next Asian tiger – but not without inclusive growth.

This commentary first appeared in the South China Morning Post print edition on May 14, 2013 as “Reformed Myanmar could be next Asian tiger to roar”

One Response to "How Myanmar Could Win the Future"

  1. Tom   May 24, 2013 at 5:00 am

    Just wrapping up my own visit, and frankly it's a hard road ahead. It's hopeful that the biggest growth industry is hosting business visitors and expats – hotels, conferences, serviced apartments, international schools. The huge amount of oil and gas exploration getting underway is also a reason for hope, and a couple older projects are just about to come online. But it's not easy to draw in other kinds of FDI. The basics of how power will be supplied to industry aren't worked out, and generous blanket subsidies of power tariffs to current residential users, mostly in Yangon and other big towns, are preventing both delivery of power to industry and expansion of the power grid to the >70% of the population who aren't yet on it. Lots of things are happening, but I doubt GDP figures are informative. Before talking about tigers keep in mind that this country is well behind Bangladesh or Cambodia. It's great to see it reforming but it has a very, very long way to go.