Big ambitions: Can Myanmar take down the economic king of ASEAN?

Photo: Asian Development Bank/CC BY-NC-ND 2.0

Aung San Suu Kyi believes her country could overtake Singapore as the region’s economic leader in 20 years time thanks to its huge potential for investment and young workforce. Reform is underway to make that possible, but the country’s same old ugly issues stand in the way. 


Look out Singapore; Myanmar is coming for you. Investors have long lusted for Myanmar’s natural resources. After all, the country’s workforce is young and inexpensive. Myanmar is also strategically located between Asia’s new powerhouses, India and China.

As the country emerges from decades in the wilderness Aung San Suu Kyi wants her nation to overtake Singapore as ASEAN’s economic engine. For now, she wants more Singaporean businesses to invest. In 20 years time, she wants to leave Singapore in Myanmar’s dust with rapid economic growth and development.

And the stage is already set. Dubbed “Asia’s final frontier” Myanmar has enjoyed an average of 7.5% economic growth every year since 2011, and with strong flows of investments expected in years to come it is likely to remain as a front runner for booming growth in Southeast Asia in the medium term. In fact, despite being the poorest ASEAN member, the Asian Development Bank projects that if Myanmar continues as it is now it will be a middle-income country by 2030, achieving a GDP per capita of between US$2,000 and US$3,000.

Source: Trading Economics/ADB

Source: Trading Economics/ADB

The new Myanmar Companies Act will boost business activity

The new Companies Act allows foreign investors to take a minority investment in local companies. This is core to economic reforms and will likely propel Myanmar forward. For smaller firms, there will be fewer compliance measures, and for larger operations, corporate governance will be improved. This includes improved shareholder rights and detail on the responsibilities of company directors. This could be a game changer.

Aktio Corporation, a Japanese construction rental company, has committed US$7 million. XL Calvin, a global insurance company has invested US$4 million in Stonestep, a technology firm for the insurance industry. Singaporean banking giant OCBC also plans to expand their activities. Samuel Tsien, chief executive of OCBC, says, “We already have a good base of Myanmar customers doing business with us in Singapore. And now, many customers are reinvesting in their home country. And we are following these customers back.”

Foreign companies are pouring substantial investments into the growing market

Other necessary reforms include the Banks and Financial Institutions Law. This lays the groundwork for a more efficient and modern financial sector by imposing harder rules on banks when raising paid-up capital as well as reserve requirements of 5% of customer deposits as cash. In addition, the new Investment Law consolidates overlapping investment legislation, together simplifying banking, finance and investment.

Source: United Nations Conference on Trade and Development

Source: United Nations Conference on Trade and Development

America is optimistic about Myanmar’s future

America has been particularly excited about Myanmar’s potential. According to Charles Rivkin, assistant secretary of state for economic and business affairs, “The election of Aung San Suu Kyi and the easing of almost 80% of those sanctions offer a new opportunity to usher in a new era of American business and connectivity with the United States.”

The Overseas Private Investment Corporation has already invested over US$250 million by partnering with a Yangon-based telecommunications company. This is probably the first move in a larger strategy as the telecom industry is a lucrative market despite less than 10% of the country using mobile phones. This figure will increase as incomes rise and there is huge potential for expansion.

Other notable foreign acquisitions include Colgate-Palmolive’s acquisition of a Myanmar toothpaste company for US$60 million and Kirin Holdings of Japan which took a 55% stake in Myanmar Brewery Ltd., Myanmar’s largest beer producer, for US$560 million.

Myanmar needs significant investments in infrastructure

Decades of economic isolation and underinvestment means Myanmar’s infrastructure is outdated and of inferior quality. This means that enticing foreign investment to move their operations will require significant upgrades to power, transport and communications systems. Meanwhile, Myanmar scored 170th in the World Bank’s annual survey on the ease of doing business, behind countries such as Sudan, Iraq, and Zimbabwe. This implies more reform is needed to make setting up and running a business more transparent.

Myanmar still represents an excellent opportunity for manufacturing giants and labour intensive industries thanks to a large pool of able workers (almost 60% of its almost 54 million population is under the age of 35) and low wage expectations. The problem is that this is heavily weighed with other issues such as a need for investment protection, intellectual property rights, and aligning land and labour issues to global standards.

Suu Kyi seems aware of this, reassuring potential business partners, “Our new investment law is intended to be business friendly, and we hope the new procedures that we are putting in place can make it much easier for you to go about your businesses in security… You will not be deprived of your businesses unjustly, unexpectedly, directly or indirectly.”

The agriculture sector will play a significant role in realising Myanmar’s potential

Alongside private deals, America has pledged US$21 million of state financing to help Myanmar achieve its economic potential, in particular tripling its export market value in five years, alongside modernising its agriculture sector. This industry, in particular, is touted as a significant driver of employment, accounting for 25% of its exports, 40% of economic output and around 70% of jobs.

This creates opportunities for investors to plough money into building agricultural exports and boosting technology. But Myanmar has to be careful to avoid focusing on the agriculture sector too much; it would make the economy vulnerable to natural disasters such as storms, floods, and earthquakes.

Another risk to consider is the 30% depreciation in the kyat after it was floated on the currency market in 2015. Although this bodes well for Myanmar’s exports and tourism sector it can increase the risk of creeping inflation. According to the Asian Development Bank Outlook 2016 report, inflation already surged to 16.2% in October 2016.

The pace of change is quick, but stability and governance are a pervasive issue

However, despite the rapid pace of necessary and useful change Suu Kyi’s government is relatively new and has to demonstrate that it can maintain political stability and implement change effectively. She must also make significant steps in solving the Rohingya crisis for the sake of international credibility, as well as spearheading changes to reduce the influence of the military.

With this full workload, it is practically impossible for Myanmar to overtake Singapore on economic size within just 20 years, but if Suu Kyi’s government can implement its 12-point economic policy she will have taken huge steps along that road. She has to focus on making sure the macro side of the economy is stable by seeing the rule of law is followed, and a sound financial system is in place to boost economic infrastructure. Singapore is safe, for now.