New regulations and improved business conditions stimulating economic growth in Myanmar

Building on positive performance in recent years, Myanmar’s economy is set to continue gaining momentum in the near and medium term, despite concerns over the slow pace of economic reforms and social unrest in Rakhine State. The economy is expected to grow by 6.7% in FY 2017/18, which ends in March 2018, according to an IMF forecast released in November. The figure is significantly above the 5.9% growth achieved in FY 2016/17, and well above the fund’s prediction of 5.1% expansion across South-east Asia in 2017.

Growth Boost

Improved returns in the agriculture sector will play a significant role, as the industry continues to recover from adverse weather in FY 2016/17. Agriculture is of vital importance to the overall economy, accounting for 38% of GDP, 23% of exports and employing some 60% of the national workforce, according to the World Bank. On top of agricultural exports, the economy has been supported in recent years by increased demand for locally made garments and light manufactured goods. Rising domestic demand has also helped boost growth. Asian Development Bank (ADB) data showed that imports of consumer goods and intermediate goods rose by 54% and 20%, respectively, between April and July 2017.

An anticipated increase in public spending in early 2018 on the back of stronger tax revenue was expected to further stimulate the economy; the IMF expects GDP to rise by 7-7.5% per annum in the medium term.

While the macroeconomic outlook is generally positive, there are concerns that ongoing conflict in the northern part of Rakhine State could impact capital inflows and foreign direct investment (FDI). However, the IMF has found the direct economic impact to be largely localised, rather than affecting broader development and investor sentiment.

Business Concerns

Some in the business community have raised concerns over the slow implementation of economic reforms and the impact that may have on the business environment. A December 2017 survey carried out by consultancy Roland Berger and the Union of Myanmar Federation of Chambers of Commerce and Industry found a significant drop in confidence among the business community. The percentage of those with positive short-term business sentiment fell from 73% in late 2016 to 49%, according to the report, with respondents citing a lack of clear economic policy from the government as a significant reason for the decline. Despite these short-term concerns, 88% of those surveyed indicated they were optimistic about Myanmar’s medium- to long-term outlook, noting the strong domestic market potential of the economy.

Sharing this sentiment, Peter Beynon, chairman of the British Chamber of Commerce in Myanmar, told OBG that while progress has been promising, further action needs to be taken to support economic growth over the long term. “In order to improve its business environment, the government needs to accelerate the pace of economic liberalisation. In particular, it should focus on promoting a faster liberalisation of sectors such as insurance, banking, non-banking financial institutions and microfinance,” he said in late 2017. “However, liberalisation has to be accompanied by the implementation of the right set of regulations.”

These concerns were reflected in the World Bank’s “Doing Business” 2018 report, which placed Myanmar 171st out of 190 economies surveyed. Although it maintained the same headline ranking from 2017, the country recorded incremental improvements in six out of the 10 categories covered in the survey, indicating that the pace of reform may be improving.

New Companies Law

A landmark development in this regard is the new Companies Law, approved in December 2017 and expected to be implemented by August 2018. The law will allow foreigner investors to hold up to 35% of shares in a domestic firm before it is no longer designated as a local operator. The authorities hope this will encourage FDI inflows in 2018, and help broaden the base of investment into more sectors.