U Thura Ko Ko, Managing Director, YGA Capital; and Local Representative, Texas Pacific Group: Interview

Interview: U Thura Ko Ko

Decades of sanctions have held Myanmar back economically. What factors do you expect to enhance the country’s development?

U THURA KO KO: You have to make a distinction. Sanctions have held back certain trade and investment activities, and certain businesses – particularly those linked to the military economic entities – but we must be clear that it was not just sanctions but decades of, effectively, bad policy. To figure out what it is we need to do to bridge that gap, we need to further discover what exactly it was that caused us to fall behind.

There has been huge underinvestment in infrastructure and long-term human capital, particularly in education and health care. When you close an economy off and proceed to come up with artificial costs and command economy planning, you stall the economy and never achieve market prices. Because of this, the average entrepreneur is unable to make decisions based on market figures. When that happens you introduce inefficiencies, and of course when you close the border it is no longer possible to export or do a whole host of other things. When you couple that with the inability to rely on the rule of law, it ends up being every person for him or herself.

We also must recognise the timing as well. When China, for example, suddenly closed its borders and communism came about, it was during a time when the world economy was not as fast-paced in terms of technology and innovation. Their eventual revolution was huge but the rest of the world was just chugging along at a reasonable speed. However, when it happened to Myanmar the globe was progressing at a different pace. Thailand went through a terrible financial crisis in the mid-1990s, but prior to that the country had already begun to spend on all the aforementioned economic aspects; likewise for Vietnam. At a time when we were closed, our neighbours shot up. They were able to use innovations like mobile phone technology, the internet and so forth. We are decades behind on education. Case in point, when I went to university in London and graduated in 1995 there were one or two sponsored scholars from the Central Bank of Thailand. Imagine the capacity the country has built up over the last 20 years.

In your opinion, what measures need to be taken so that SMEs can capitalise on the expansion of Myanmar’s growing economy?

THURA KO KO: SMEs need to figure out what their role is. If you are not going to be able to compete, then maybe look at being a supplier. The big companies will continue to need as much help as possible from SMEs until they develop an entire supply chain. The more City Mart branches there are, the more they are going to need SMEs. They will need help with logistics and packaging and so on. Our country is essentially a collection of a bunch of micro-markets, and SMEs can service those better because we do not have the infrastructure that can connect the entire country fluidly. The market dynamics in Lashio will be very different than those in Yangon.

There is still a lot SMEs can do. Fundamentally, what is holding them back is capital. I do not think capital is flowing across our economy as well as it should. Major reform of the banking sector, including micro-lending, is a must. SMEs struggle to make returns on what little capital they have. For example, most of the lending institutions rely heavily on stable medium- to long-term deposits. We do now have more bank branches open and people find it easier to deposit. However, there is little incentive to deposit when the interest rate is 8% and inflation is between 8% and 10%. I think the whole interest rate dynamic needs to be relaxed. That is not easy to do, as when you introduce a market element to any tariff or interest rate you get winners and losers. Those who are smarter, have more capital and can operate more efficiently will be able to provide the best services at the lowest interest rates.