Myanmar: Are the Infrastructure and Economic Reforms Adequate?
31 Jan, 2014 · 4278
Kuhan Madhan analyses whether Myanmar has the potential to cash in on the golden investment climate it has today.
Kuhan MadhanResearch Intern
With chairing the covetous ASEAN group for 2014, the extravagant ceremonies of the 27th South East Asian (SEA) games drum aloud Myanmar’s return from isolation. Myanmar, given its strategic location as the link between the Bay of Bengal and East Asia, has reaped the benefits of development from its neighbours and other multilateral fora. At the core of Naypyidaw’s resurgence lay two factors: China’s energy security, and the West and South Asian nations’ China-containment strategy. Can Myanmar utilise this as a trump card to attain economic prosperity? Or will it trip over on the roadblocks towards the transition?
Is the Infrastructure in Place?
Physical infrastructure in Myanmar is extremely under-developed and unconducive to support economic growth efforts as aspired by the government. With only 33,014 kilometers of paved roads in place and about 70% of the total population living in rural areas, there is a high demand for developing efficient transportation. At present, the railway network covers 5,844 kilometers, and hopefully, the Singapore-Kunming Rail link segment of the Trans-Asian Railway project will bring some development on completion.
At present, Myanmar’s power generation capacity, at 7,346GWh, provides electricity to only 13% of the country’s population. However, the Myitsone dam project, currently undertaken by China, is expected to provide relief to a larger population following completion.
The Dawei Industrial Complex project undertaken by Bangkok has run into inordinate delays due to political strife in Thailand, and the surge of reports citing land grabbing, displacement and hikes in land value has dampened the much-touted Thilawa Special Economic Zone project.
Furthermore, Myanmar has 69 airports, of which only 32 are functional; and with an accident rate that is nine times higher than the global average, the numbers of carriers operating international and domestic flights, are low.
Social infrastructure in the country too, is in a pitiable state. Only five percent of the population has tertiary and higher education credentials, and those skilled, are in the lower end of productivity. Although labour participation is at 50% of the total population, per capita productivity stands at a meager $1500 – which is 70% below the average Asian benchmark. The historically pitiful investment in healthcare is reflected in Myanmar continuing vulnerability to communicable diseases. Despite being the ground zero of the third largest HIV epidemic, and with an adult prevalence rate of 0.6%, no measures have been undertaken to fight the disease. Although the 2013 annual budget allotted a significant sum towards healthcare, it is unlikely to generate a great impact as Myanmar lacks the administrative capacity to direct the resources effectively in its public health sector initiatives.
Reform Measures on the Ground
Naypyidaw, under the Framework for Economic and Social Reform (FESR), has outlined Myanmar’s policy priorities up to 2015, with an aim to achieve the long-term goals of the National Comprehensive Development Policy. The recent telecom licenses awarded to Telenor and Ooredoo mark the beginning of initiatives undertaken to achieve the goals of the Framework. Myanmar’s Foreign Investment Law is also expected to encourage greater direct investment through notable features such as 100% ownership by foreign companies. Naypyidaw’s voluntary signing of the Extractive Industries Transparency Initiative will help regulating the mining industry and the labour concerns that fall under its purview.
One of the most significant developments is the autonomous status granted to the Central Bank of Myanmar. This measure has garnered interest, and numerous banks have set up representative offices in the country. The agreements signed by Naypyidaw with Tokyo and New Delhi, in the education sector, is an effort to improve the skills potential of the population. The $6 billion debt relief granted by Japan and the Paris Club in 2013 has subsequently resulted in improved credentials and has placed Myanmar in a better position for seeking loans in the future. The government has brought about some reforms that were pending for over 50 years, but much is yet to be seen as the transition to democracy completes in the 2015 general elections.
Can Myanmar catch up with the ASEAN Tigers?
At present, Myanmar requires $350 billion in investments till 2030, to improve infrastructure, and to create a sustainable market. The government should clarify the overall direction of its economic policies to the business quarters and communicate an explicit growth and investment master plan.
Today, Myanmar is where China and Thailand stood in the 1970s. Widening the economic base, increasing the levels of contribution by the manufacturing and services sector to the GDP, and increasing per capita productivity should take Myanmar on the same trajectory as its northern and western neighbours.
A complex mix of issues exists in the untangling of Myanmar’s economy, and unless they are addressed, Naypyidaw will stand to ruin the golden investment climate it has today.
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