The Economic and Political Environment of Myanmar
War and instability have largely shaped Myanmar and its economy over the years. In the 19th century, three Anglo-Burmese wars led to the integration of Burma into the British Raj of India. Britain colonized the country until 1948.Myanmar gained independence after the anticolonial resistance, disintegration of the British empire, and occupation by the Japanese (Stokke et al. 2).Upon gaining independence, Burma had a democratic government until 1962. The democratic phase was characterized by the domination of government by partisanshipleading to political instability. The leadership squabbles mainly comprised of power-sharing disputes that led to the creation of a military caretaker government from 1958-1960 followed by an army coup in 1962. Myanmar remained under military rule until 2011.
The ruling class headed by General Ne Win governed the state using Soviet-style nationalization of private companies, strict government control, economic isolation, and central planning. Under General Ne Win’srule, Myanmar became one of the world’s poorest countries. The citizens held protests against the military, and the armedforces responded with the violent suppression of the riots(Stokke et al.3). The army oppressed the people and lacked proper leadership strategies to improve the business environment in the nation as well as the overall economy.
Since 1948, there have been several civil wars in the country between armed ethnic groups and the military rulers. Armed ethnic groups have been gunning for self-determination while the military rulers want uncontested authority in the state. The leading causes of the conflict arepolitical, economic and social grievances. A mixture of the issues that both groups are fighting over has led to disputes that have resulted in human rights violations, displacement of families, and death of civilians. Attempts to end these hostilities have been made through ceasefires and granting ethnic groups economic concessions(Stokke et al.4). However, the mitigation approach failedto address the critical political issues that cause wars. Therefore, none of the strategies employed were efficient in ending the conflict.
In 2011, Thein Sein,who had been at the forefront of spearheading reforms in the country,was elected the president of Myanmar. After nearly 50 years of military rule, 2011 marked a series of political changes. The country started creating institutions that support a democratic government. The reforms included giving more freedom to the press, opening up the internet, and nurturing an open economy. In his inaugural speech in 2011, President Thein reached out to the military dictatorship, which had ruled the country for almost 60 years, emphasizing the need to work together for the good of the nation. He set Aung San Suu Kyi after 15 years of house arrest. Moreover, Aung’s National League for Democracy was registered as a political party(Stokke et al.5). In February 2013, President Thein Stein approved the nomination of five civilians to the cabinet. It was the first time a politician who wasn’t a had the chance to hold power in government.
Thein Sein took over a broken economy, which was destroyed by decades of rampant impunity, mismanagement, corruption, and sanctions from America and Europe, which stifled the growth of business. Myanmar’s Central Bank floated the Kyat hence setting its value of 818 against the US dollar. In November of the same year, the country passed the Foreign Investment Law allowing foreign companies to do business in Myanmar. The new regime has also provided employment opportunities to locals(Chalk 5). Besides, the president is working towards addressing rural development and poverty through land reforms. Aside from infrastructure development, the leadership also plans tointroduce a universal medical cover in collaboration with the private insurance and health sectors.
Significant Areas of Business Opportunities for Firms in Specific Industry (S) in Myanmar
Between 2017 and 2018, Myanmar’s economy performed better in the face of domestic and global uncertainty. The national income increased, inflation reduced while there was an improvement in the fiscal and external balances. The Kyat also appreciated due to FDI flows and strong exports. Between 2016-2017, Myanmar’s GDP increased by 5.9% while in 2017 – 2018, its GDP grew by 6.4%(Lynn). The growth in production was a result of an increase in crop farming, growth in the manufacturingindustry, and a reliable service sector. In 2017, Myanmar’s GDP per capita was $1,278 as compared to $1,147 in 2015. Therefore, the government stability and political situation in the country is conducive of economic growth and trade.
Myanmar’s foreign direct investment policy changed from a centrally planned economic system to a market-oriented one in 1988. The move was enabled by the foreign direct investment law, leading to an increase in investments from 1989. On August 3, 1994, Myanmar formed an investment commission (Myanmar Investment commission) to oversee and implement the Foreign Investment Law. Thelegislation allowed several types of investments such as businesses wholly owned by foreigners, joint ventures with Myanmar citizens, private companies, cooperative societies, and state-owned enterprises. Foreign entrepreneurs enjoy benefits such as 50% waivers on income tax on profits gained from exported goods. Moreover, the investors are also allowed to pay income tax for foreign nationals at the same rates that Myanmar citizens pay. The foreigners were also exempted from paying taxes and customs duty on the machinery they import, equipment, instruments, and spare parts. Another incentive was that they were allowed to deduct research and development expenses from assessable income (Nyein 3). The relatively Laissez-faire approach was incorporated to allow investors from other regions to transact, trade and run businesses in Myanmar.
Requirements of foreign workers is also a key concern for an international business that is planning entry into a country. Foreigners working in the state need a business visa in Myanmar, which is valid for 70 days. They can get multiple entry business visas if they’ve had two single entry visas before. The government only needs the employer to write a recommendation letter and an invitation letter from a registered company to apply for the visa (Fitch Solutions). In the case of foreigners working for extended periods, they are allowed to apply for a stay permit. The permit eliminates the inconveniences caused by the 70-day limit, multiple applications for documents, and business visa requirements. The system allows foreigners to stay in the country for three, six or 12 months continuously. With such an environment, investing in the country is ultimately profitable given the economic incentives, and requirements for foreign workers are not restrictive. Besides, Myanmar is a growing economy, and as long as they have political stability, the companies that are in the country will continue to thrive.
Challenges Foreign Companies mayFace in Myanmar
Myanmar has a democratically elected government, which is stable – a key propeller of economic prosperity. However, the military still wields strong political influence and holds key positions in government. For a business that is entering Myanmar, one of the challenges is the fact that some of the sectors in the economy have high barriers of entry to protect local businesses that have links with the political or business elite. Consequently, a firm from the US or any other foreign country may face many challenges if it plans to expand its business into Myanmar. The foreignfirms would also find a challenging working environment in the country in any industry where there are vested interests from the political and military elite in the nation.
Despite Myanmar’s efforts to encourage direct investment from foreign corporations, there is a lack of experience in governance, which delays the implementation of such policies. Additionally, there is a huge gap in capacity to handle enforcement of the drafted policies. As a result, implantation is slow, or the plans may fail to materialize in the end. In July 2016, for instance, the government created a 12-point economic policy four months after assuming office. For firms planning entry during the period when the government was elected into office, business was marred by uncertainty as the company leadership was torn between planning the way forward and waiting until the new regime had gained stability.
Besides, Myanmar’s economic policy ties back to national reconciliation goals; one of them are reaching a lasting peace deal with ethnic groups. The reconciliation process is underway, but there is one group which had refused to sign the document. A delay in reaching a lasting peace agreement increases the potential for fighting arising in some regions of the country (IHS Country Risk). Even if a firm would like to invest in the country, there would be a challenge in having to conduct their activities peacefully without disruptions from infighting. Besides, the state is also encouraging investors to invest in the less developed which is risky due to the intertribal fighting.
Recommendations on Potential Trade and Investment in Myanmar
For potential trade and investment into Myanmar, it is advisable to avoid making significant investments in the short term. Firms should instead focus on increasing the amount invested in improving the company’s presence in the country in the long run.Substantial investments in the longterm are risky because a country that has a powerful military is not as stable as a fully democratic state. Such as situationis volatile and it may potentially detonate anytime leading to loss of money and resources invested.A short-term investment where cash and other resources are transacted gradually means that the company has a chance to understand the county’s challenges and will be prepared to take necessary preventive measures against political instability. Such contingency plans include stopping production and closing factories for a while or negotiating for security with the government.
Besides, I would come up with a raft of suggestions that would give our firm and the government a win-win situation. The recommendations would help bridge the gap that has been created by a lack of capacity by the Myanmar government to implement the economic policies they draft. For instance, if the régime cannot legal framework on a specific sector that our firm is interested in (e.g., tourism), I would look for experts from the country to assist them to formulate the laws. In this case, the corporation can proceed with business as usual after ensuring that the legal framework that allows the firm to operate is in place.
The social, political, and economic situation in Myanmar is improving daily. However, the process is slow and painful due to the military authority that influences politics in the country. Besides, the nation still faces challenges that prevent it from making significant progress in pursuit of economic prosperity. The government is young, and the political class needs a number of years even decades to gain the experience needed to steer the country forward economically.
Chalk, Peter. “On the path of change: Political, economic and social challenges for Myanmar.” Special Report. 2013.
Fitch Solutions. “Hong Kong Trade Development Council: Myanmar: Market Profile.”19 January 2019. 20 February 2019.
IHS Country Risk. Myanmar – Business Environment & Risk Analysis. June 2018. Webpage. 20 February 2019.
Lynn, Kyaw Soe. Economy Grows Amid Uncertainty in Myanmar. 17 May 2018. 20 February 2019. <https://www.worldbank.org/en/news/press-release/2018/05/17/economy-grows-amid-uncertainty-in-myanmar>.
Nyein, Khin Thida. “Influx of Foreign Direct Investment into Myanmar.” Journal of Economics and Finance, vol. 9, no. 1, 2018. pp. 01-08.
Stokke, Kristian, Roman Vakulchuk and Indra Øverland. “Myanmar: A Political Economy Analysis.”Oslo: Norwegian Ministry of International Affairs, 2018.
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