The second Myanmar business confidence survey conducted by Roland Berger in partnership with Union of Myanmar Federation of Chambers of Commerce and Industry in the latter half of 2017, shows a significant drop in short-term business sentiment from (73 percent) a year ago to (49 percent) this year. The core reason for the drop in confidence is lack of a clear economic policy and plan, cited by 77 percent of companies as a significant or very significant issue. However, 88 percent of companies remain optimistic about Myanmar's mid- to long-term outlook.
In December 2016, Roland Berger published the first Myanmar business survey. The results showed an enormous sense of optimism among both local and international investors: 73 percent of business people expected the business landscape to (rapidly) improve. This optimism, which was arguably unparalleled worldwide, resulting from the political and economic changes the country had recently undergone. These included economic reforms particularly in the telecom sector, and democratic elections and a peaceful transition to a new government, as well as the subsequent lifting of US sanctions.
A drastic decline in short-term optimism – primarily due to lack of clear government economic policy
The survey results show a drastic decline in short-term business sentiment, with only 49 percent of executives expecting the business landscape to (rapidly) improve within the next 12 months, compared to 73 percent in 2016. The drop is consistent across local companies (from 76 percent to 50 percent) and international firms (from 71 percent to 49 percent). It should be noted that the survey was conducted before the latest developments in Rakhine state, which is likely to have further reduced investor confidence in Myanmar.
All companies in Myanmar face a long list of issues and difficulties. The four most significant ones are lack of trained staff (found by 77 percent of companies to be a significant or very significant issue), no clear government economic policy (77 percent), unpredictable legislative environment (72 percent) and selective and unpredictable enforcement of regulations (72 percent). The lack of trained staff is a well-known problem for companies and is nothing new – in fact, the issue has decreased in importance compared to last year (-3 percentage points). In contrast, the lack of a clear government economic policy has become an increasing bottleneck for both local and especially international firms (+11 percentage points). It is now found to be a significant challenge by 86 percent of the international firms (of whom 53 percent find it a very significant challenge), and the number one challenge overall. Hence, this is likely to be a root cause of the failure of FDI to grow significantly.
It is not that companies do not appreciate the positive economic steps the government has taken in the last 12 months. For example, the new Investment Law and rules are found to have had a positive impact on the business landscape by 64 percent of local companies and 62 percent of international companies. Also, the further development of the special economic zones (in particular Thilawa SEZ) is seen as a positive development. Improving the rule of law is found to have positively impacted the business landscape by 41 percent of international firms. Naturally, the removal of US sanctions is also seen as a very positive development for economic growth. In addition, companies believe that the government has started to address the long-term fundamentals of a sound economy. For example, 45 percent of companies consider that corruption has reduced in the last 12 months.
Thomas Klotz, Managing Partner of Roland Berger in South-East Asia said, "Companies are aware of the positive steps taken by the government in terms of economic policy. The government's 12-point economic guideline launched in July 2016 is a good example. Subsequently, several ministries have clarified certain positions in their sector developments on an ad hoc basis. However, what the private sector has been looking for and what is missing so far is the communication of an overall economic transformation roadmap, with clear targets, timeline and quick wins, followed by clear, comprehensive and consistent sector policies, at least for key sectors such as financial services, electric power & energy, agriculture, transport infrastructure, tourism and manufacturing. A myriad of reports by international organizations has been issued, covering many of the above topics. However, what the private sector seems to be looking for are much more specific plans, endorsed by the government."
Indeed, many companies are highly confident that the government has the potential to boost economic growth. The most crucial government measure, as proposed by the business community, is the provision of stable electricity supply (96 percent), not unexpected in a country where only 35 percent of the population has access to electricity and companies face frequent black-outs. Other measures cited by companies are, as noted above, transparent policy making and implementation (95 percent), rule of law (94 percent), transportation infrastructure (94 percent), simplification of licensing and regulatory procedures (92 percent), regulatory capacity building (90 percent), financial sector reform (90 percent) and education reform and training (88 percent).
Business remain bullish about Myanmar's long-term outlook
Despite the short-term challenges that companies face in Myanmar, they remain bullish about the country's mid-to-long-term economic potential. 93 percent of local companies are either optimistic or very optimistic about Myanmar's longer-term potential. The long-term confidence among international companies is lower (82 percent), but still very high.
Indeed, the reasons for companies to enter the Myanmar market are more fundamental in nature, such as the country being one of the last frontier markets (86 percent), having a potentially large domestic market (85 percent) and boasting a strategic location (60 percent).
"It is our firm belief that stronger sustainable economic growth will also facilitate other government priorities, such as healthcare, education and the peace process."
"So more and faster will hopefully be the motto for the government's economic agenda in 2018," Mr. Klotz concluded.