Myanmar's CEOs have their say on the country's economic outlook

Citizens received their last taste of participatory democracy in 2015 with general elections that resulted in a civilian government, although the military maintained control of several key state institutions and still has a strong presence in the national parliament under the constitution. Hopes were high then that the government, led by the National League for Democracy (NLD) and its revered figurehead, Daw Aung San Suu Kyi, could usher in a new era of prosperity, taking advantage of the country’s wealth of natural resources and favourable demographics, as well as the goodwill of international partners keen to do business with South-east Asia’s last great frontier economy.

In OBG’s latest Myanmar CEO Survey, published in July 2019, participants are largely positive about the short-term prospects for growth, with 65-70% indicating a positive outlook for business conditions and signalling their intention to make a significant capital investment in the year ahead. Although business sentiment on these issues has dipped slightly since our first survey in 2017, it has remained remarkably resilient in the face of strong internal and external headwinds that have buffeted the rapidly growing economy in recent years. This is good news for the NLD as it seeks a fresh mandate to govern in 2020 amid the emergence of new opposition parties and alliances, some of which carry strong regional grievances.

International Investor Appetite Wanes

Our latest survey of around 100 C-suite executives was conducted faceto-face in Yangon between September 2018 and June 2019, at a time when the military and political response to unrest in Rakhine State continued to come under international scrutiny. As the goodwill of the international community – particularly Western countries – began to ebb in response to reports of human rights violations, foreign direct investment (FDI) also declined, although investment from Asian partners has remained largely robust.

Official figures show FDI inflows of $5.7bn in FY 2017/18, down on both the $6.6bn of the previous financial year and the record $9.5bn received in FY 2015/2016. In addition, the country faces the threat of losing preferential trade access to the EU under its Generalised Scheme of Preferences, a loss that would have a particularly detrimental impact on the textiles sector.

A correlation between investment flows and global sensitivities was identified by a majority of CEOs who participated in our survey, with 70% saying FDI in their sector had been impacted by the international community’s perception of Myanmar’s internal affairs. In response to the waning appetite of investors, the government has accelerated the process of liberalisation in key sectors and unveiled some bold strategies for attracting more FDI. For example, the Ministry of Investment and Foreign Economic Relations was created in late 2018, while a new Myanmar Investment Promotion Plan was launched with the headline target of attracting $200bn in inward investment over the next 20 years.

As part of these efforts the retail and wholesale trades have been opened to 100% foreign investment, while five international insurers have been granted licences to operate freely in the life insurance market for the first time. In tandem with these liberalisation and regulatory measures, it is hoped that sincere efforts towards reconciliation, accountability and inclusive dialogue can refocus international attention on the country’s considerable potential as a lucrative destination for trade and investment.

Long-Standing Challenges Persists

Despite the recent reform momentum, our survey results suggest that long-standing obstacles to commerce in Myanmar remain a concern for executives. Over 80% deemed the level of transparency for conducting business to be low or very low, reflecting the often lengthy and labyrinthine procedures for acquiring licences and permits.

Problems remain despite the commendable efforts of the Myanmar Investment Commission to streamline and digitise investment approval processes in line with the new Companies Law. Anecdotally, international investors often bemoan the lack of experience of scrutinising committees’ members, as well as frequent, unpublicised changes at senior levels of government agencies and ministries, which can make it difficult to develop long-term relationships or meaningful dialogue with key officials. Another frequent complaint relates to the difficulties in accessing important information from the different levels of government, such as tender requirements or regional and state budgets. To some extent, such problems are to be expected in a country in which lawmakers and administrative officials were not exposed to international best practices until recently. The business community hopes that reforms are backed by concerted efforts to raise standards at public institutions involved in facilitating commerce.

Myanmar continues to be a predominantly cash-based economy in which distrust of the banking system is deep-rooted, and many citizens still lack the required credit history, collateral or financial literacy to access formal financial services. This is evidenced in our survey, with 82% of respondents characterising access to credit as difficult or very difficult, representing by far the most negative sentiment among all ASEAN countries covered by OBG. However, reforms are taking place in this area, too. While the central bank continues to cap at 13% the interest rates that financial institutions can charge on loans, constricting their ability to adequately price credit risks, it issued a directive in 2019 permitting banks to extend the rate to 16% for borrowers unable to provide the necessary collateral requirements.

Furthermore, restrictions have been eased on the market participation of foreign banks, which are now allowed to own up to 35% equity in Myanmar banks. Taking into account the fact that Myanmar’s first licensed credit bureau is expected to be operational in 2020, we expect sentiment to improve on this indicator in our 2020 survey. This should have a positive multiplier effect on the country’s economy, as the expansion of financial inclusion holds the potential to raise living standards, generate new markets for goods and services, and unleash the entrepreneurial potential of Myanmar’s young and aspirational population.