CEOs’ Mixed Scorecard for Myanmar During NLD’s Second Year in Government

More than one year since State Counsellor Aung San Suu Kyi took up the reins of a civilian-led government in Myanmar, C-suite executives surveyed by OBG remain broadly positive about the outlook for the country despite significant challenges and risks.

Some 70% of participants in the second OBG Business Barometer: Myanmar CEO Survey described their outlook for business conditions in the coming 12 months as either positive or very positive.

There was a tremendous amount of international goodwill and local optimism when the National League of Democracy (NLD) scored a resounding victory in landmark general elections in 2015, ushering in Myanmar’s first freely elected government since the 1960s.

However, development momentum and burgeoning trade relationships are at risk of contagion from the fallout of ongoing violence in Rakhine State, which is making some international investors wary of exposure.

Moreover, newly elected lawmakers have little experience of governing or policy implementation, and efforts to enact legislation to improve the business climate have often resulted in ambiguous regulations that investors have struggled to interpret. While investors undoubtedly recognise the innate potential of a market of 54m people with significant natural resources strategically situated between China and India, some are delaying investment decisions until there is more regulatory clarity.

The need for further improvements to be made to the business climate is backed up by the fact that 59% of respondents characterised transparency for conducting business as low or very low in comparison to the wider region.

One year on – what has changed?

It’s almost one year since OBG published the results of its last CEO survey in Myanmar. Back then, as the NLD was getting a grip on the complexities of governing a country that had been largely isolated from the world for much of the past six decades, the general sense of optimism among C-suite executives was tempered by a number of concerns, especially those regarding access to affordable credit and skilled labour.

Fast forward one year and we observe that these two areas remain primary sources of concern for the business community. In fact, some 76% of executives in our latest survey described access to credit as difficult or very difficult. To put that figure in context, just 37% of executives in Indonesia and 21% in the Philippines described credit access as difficult or very difficult in our surveys of those markets published this year.

When you take a closer look, it is easy to see why there remains a pervading sense of concern over credit access.

Despite the passing of a new Financial Institutions Law in 2016, Myanmar remains very much a cash-based economy where banks are wary of lending due to the lack of credit history among the populace, while potential clients are deterred by prohibitive interest rates and collateral requirements.

This may change somewhat following the passing of new credit reporting regulations in 2017, which paves the way for the establishment of Myanmar’s first credit bureau, expected to start operations this year, according to the International Finance Corporation.

However, interest rates on bank loans remain capped at 13% by the central bank, while banks can only lend against collateral, usually land, gold or other commodities. These onerous requirements and conditions naturally exclude the majority of the population in a country where GDP per capita stands at $1275 and which is dealing with the legacy of decades of land seizures by the military.

Furthermore, foreign banks, which have operated in Myanmar since 2015, are currently prohibited from offering retail banking services or lending directly to local companies, although they have recently been permitted to open branches in special economic zones in partnership with local financial institutions. Senior central bank officials have mooted further easing of lending restrictions on foreign banks, and this would be a welcome move that could allow for more effective financing of the real economy.

Skilled labour and education remain top priority

Another area of concern for survey respondents remains access to skilled labour. I hosted an investment forum in Yangon in September 2017 where local and international panellists frequently highlighted the urgent need to improve the education system and deepen the local talent pool. Although the government has launched a National Education Strategic Plan that runs through 2021, questions remain over how it will meet the necessary funding requirements for large-scale reform.

In our survey 30% of respondents cited leadership as the skill most in need, followed by engineering (14%), business administration, and research and development (8% each); however OBG’s Editorial manager in Yangon, who conducted the survey in face-to-face meetings with C-suite executives, observed that if there was an option to choose “all of the above”, many respondents would have chosen this. This dispersion of opinion over a broad set of options is indicative of the general lack of expertise and skills in the labour pool.

The way forward

Despite a number of challenges, Myanmar enjoys significant inherent advantages that should allow this frontier market to continue to be the fastest-growing economy in ASEAN in the coming years. The keys to success lie in the creation of a clear and transparent regulatory environment for attracting investment and financing the real economy, while also ensuring the country capitalises on its position between the emerging superpowers of China and India without becoming beholden to either. Also, in a world where rapid technological advances in areas such as artificial intelligence, robotics and 3D printing could conceivably render low-wage, labour-intensive manufacturing jobs superfluous, it is imperative that the government devises a viable strategy to ensure its young population is equipped with the skills and entrepreneurial mindset required to shape the future economy.