Troubled Myanmar’s economy loses its shine

Rising inflation, ethnic conflict are among challenges impeding the potential of ‘Asia’s last frontier’

Troubled Myanmar's economy loses its shine

Workers offload gravel from boats moored on the Irrawaddy River in Bagan in this file photo taken on Nov. 28, 2016. (Photo by Dale De La Rey/AFP)

It’s 5 o’clock in the afternoon when thousands of garment workers of Hlaing Tharyar, an industrial zone in Yangon, end another working day. Slowly the workers make their way to waiting buses, cars, pickup trucks and motorbikes to drive them home.

Lae Lae Tun, 21, is one of them. She works at the SX Factory that produces long-sleeved shirts. It’s hard work and the manager often sets high production targets, she says. But she desperately needs the income. “I’m from a poor family with six members. So we really need the money I make here,” Lae Lae Tun says.

Lae Lae Tun moved to Yangon two years ago to work in the garment industry. For a basic salary of 180,000 kyat (US$135) per month, she works 44 hours per week. “Including overtime I can make 210,000 kyat, but it’s difficult to support my family with such a low income,” says Lae Lae Tun. “I think the basic salary should be at least 250,000 kyat.”

Another 21-year-old garment worker, Nay Soo Win, hopes that her economic situation will improve. She makes 120,000 kyat per month. It’s hardly enough to make a living. “I need about 50,000 kyat to pay the rent and to buy food for myself. The rest of my salary I send to my family”, she says.

Despite her low income, Nay Soo Win remains optimistic, largely because she no longer needs to stay on her family’s farm. “Life is boring there. Life in the city is a lot more interesting.”

Myanmar is no longer the pariah state it once was, a country that was for years avoided by both investors and tourists. After decades of military suppression, the military junta transferred parts of the country’s administration to a civilian government and in 2015 Aung San Suu Kyi won the elections with the National League for Democracy (NLD). International sanctions were lifted and Myanmar was praised for its economic potential, with investors calling it Asia’s last frontier.

But economic progress has been slow. Myanmar struggles with poor infrastructure, deep poverty and violent border conflicts. And despite the high expectations, economic progress has stumbled under the NLD.

Last week the government released a document featuring more than 200 measures to improve the economy, from improving the justice system to reforming state-owned enterprises, reported The Economist. But exact details are unclear and investors have been complaining for a while that the nation’s economic agenda lacks clarity. Meanwhile, at grassroots level many people in Myanmar say they hardly notice any improvement.

In a Yangon construction supply store, hammers, paint brushes and measuring lines hang from the wall while the store’s floor is covered with boxes of nails and screws. In Win runs the store with three of his children. “In the past year my income has increased just a little bit,” says the Muslim man. “It’s enough to support my family, but I’m still hardly able to save any money.”

In Win said he expected more economic progress but it didn’t happen. He pointed towards a nearby construction site where work on a new building halted. “Contractors are walking away and leaving us with unfinished buildings,” he said. “It’s like if nobody cares about it.”

The challenges faced by the country are immense. Bureaucracy and corruption are widespread, education is poor and there’s a lack of skilled workers. Infrastructure is also failing and roads are often in poor condition. Only 37 percent of the country has electricity. A recent study by the Norwegian Institute of International Affairs said that Myanmar has the highest need of investments in electricity in Southeast Asia.

Dealing with inflation

Another challenge is high inflation, something that convenience store owner Mar Mar and her husband know all about. Over the past five years, the prices in their store have gone up sharply but not as much as the rent on the store.

“In 2013 the rent for this building was 140,000 kyat per month. Now we need to pay 250,000 kyat per month,” she said. “And for years the price for a big bag of rice was 35,000 kyat. Now it’s 40,000.”

According to the World Bank, Myanmar’s consumer prices increased 10 percent in the fiscal year of 2015-16 and 6.7 percent in the following year, much higher than Southeast Asia’s average inflation rate of 3 percent. This year’s inflation rate could be 7.5 percent, the Asian Development Bank predicts.

The Norwegian Institute of International Affairs estimates that until 2030 Myanmar needs US$650 billion in investments to achieve its ambition of economic growth of 7.5 percent annually. Almost half of that is needed to improve infrastructure. But fewer investments are coming in. In 2016-17 Myanmar received about US$6.6 billion in foreign direct investment, 3 billion less than the year before.

Partly the investments decreased because one-time investments in the telecom and gas sectors made investments surge between 2013 and 2015. But a recent World Bank report noted that private investors are also holding back because they are still searching for “a comprehensive economy strategy with clear implementation milestones.”

Rakhine State

Another concern is the violence against the Rohingya Muslims, in which up to 700,000 of the ethnic minority fled the country since August last year. In February the C&A Foundation — a charity that seeks to transform the garment industry — paused its work in Myanmar because of the violence in Rakhine State. And just last week U.S. law firm Herzfeld Rubin Meyer & Rose shut down its Myanmar office because it had lost confidence in Myanmar’s economic reform and because it believes that the government lacked a coherent response to the Rohingya crisis.

Miguel Chanco, a Southeast Asia analyst with the Economic Intelligence Unit, said the Rohingya crisis is mainly impacting Western investments. But most foreign investments come from countries such as China and Singapore, said Chanco.

“These are not that sensitive compared with their counterparts in the West,” he said. “What would turn the tide, however, is if the West decides to re-impose broad economic sanctions, but I think we are still a long way from that scenario.”

Sean Turnell, an economic advisor with the Myanmar government, said Western investors will probably hold back for as long as the Rohingya crisis remains unsolved. Nevertheless, Turnell believes investments will soon increase, explaining that some large investments are in the pipeline.

But what’s really important is that the whole economic structure improves, Turnell said. That means more reforms and less bureaucracy. “Now there are so many rules and regulations that things often go incredibly slow,” he said. “It’s very rigid.”

Chanco said he already expected significant teething issues. “In large part because the NLD has never governed, so it has had to deal with gaps in expertise,” he said.

“Aung San Suu Kyi’s main focus has been on advancing the peace process with ethnic-minority armed groups. And to be fair, her administration has passed a few key pieces of legislation, including the new investment law in 2016 and a new companies act late last year.”

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