Gavin McGillivray, Head, UK Department for International Development (DFID), Myanmar: Interview

Interview: Gavin McGillivray

How has the private sector developed during the political and economic restructuring that has taken place in Myanmar in recent years?

GAVIN McGILLIVRAY: Since 2010 Myanmar has seen striking progress, including the unification of the dual exchange rate; independence of the central bank; increased freedom of movement; an explosion of mobile connectivity; and a 10 place jump up the World Bank’s “Doing Business” country rankings in terms of ease of doing business. Private enterprises are responding to this. Myanmar’s economy grew 8.5% in fiscal year 2014/15 and foreign direct investment reached a record $8bn. Oil and gas were the main drivers, but there were also large investments from Korea, Hong Kong and Singapore in the garments industry. A rush of construction is changing Yangon’s skyline, and dozens of international service firms have opened offices in the city.

In terms of the number of people employed, the largest part of the private sector by far is farming, yet agriculture contributes only 31% to GDP, and a large part of any profit tends to be captured by middle men. Not many farmers would say they are fundamentally better off, and people continue to leave the land. Some factors holding back farming relate to agriculture, but other constraints are common to most businesses in Myanmar: difficulty in accessing finance; poor infrastructure; a scarcity of skilled workers to add value to basic produce; and red tape. Progress needs also to happen to end the conflict and inter-communal strife that currently thwarts healthy private enterprise, particularly in the border regions.

Despite its 10-point advance this year, Myanmar is still ranked 167th in the World Bank’s rankings. Firms have been crying out for finance. Regarding access to credit, Myanmar fell in the ranks. International capital and know-how should play an important role. Myanmar is approaching this step cautiously. This partly reflects a legitimate desire to build Myanmar’s regulatory and supervisory capacity before further liberalisation takes place, and may be also partly due to lobbying by Myanmar’s banks.

In banking, as in transport, energy, mining and manufacturing, ownership has for decades been dominated by a few groups, many of which are associated with the military. That Myanmar’s main sources of wealth have for years been controlled by the few has had ruinous consequences for the many. Without competition, the few have had no need to innovate, and the many have had no incentive to do so.

The difficulty new investors have breaking into business has held back the diversification of the economy. Myanmar still depends unduly on extractive industries which generate too little employment or stimulus to the rest of the economy. This limits the options for those wishing to move out of farming and the potential for this movement to be a driver of prosperity. In richer countries, development has been driven in large part by rural dwellers moving into more productive work outside farming.

How can reforming state enterprises act as a catalyst to private sector development?

McGILLIVRAY: State enterprises illustrate this narrative where a few firms dominate large swathes of the economy. This includes systemic sectors – banking, transport and energy – in which dynamism is vital but will not happen under public ownership. The government does not yet have the laws or the capacity in place to undertake extensive privatisation in ways that are transparent and ensure fair value. While the government builds up its capability to divest, regulate and supervise there will be opportunities to introduce transparency and competition. DFID seeks to help create an enabling environment for business and build equitable markets that foster inclusive and responsible private enterprise. We back the reform of business laws and push for greater transparency.