While the COVID-19 pandemic is still creating economic and trade disruption across the globe, Myanmar is slowly and cautiously opening up its economy in order to get back on the rails.
The economic disruption across all sectors of the economy and society is palpable with the forecast of lower growth, closure of private sector units and increase in unemployment. Measures for protecting vulnerable population through increase in social protection spending, stimulating growth in demand, augmenting the supplies and promotional measures for private sector to resume production and business activities has been the essence of the COVID-19 economic recovery plan. There have been mixed reaction on this recovery plan, with some sections indicating its inadequacy and others identifying it as a spring board for accelerating reforms and recovery of the economy.
It is in this context, IFC’s diagnostic report on private sector, ‘Creating Markets in Myanmar: Building Markets for Sustainable Economic Recovery’, provides crucial insights on what ails the private sector, its challenges, prospects and how government can provide a policy environment. This report takes a short term as well as medium term view on private sector growth in the country which has its complex history.
Growth of markets and private sector in Myanmar has its peculiarities, enduring through colonial extractive businesses; long periods of, and continuing, military dominated economic enterprises; and the current phase of business tycoons and joint ventures in free market transition. Decades of isolationist policies, close nexus of business enterprises with the military establishment, opaque economic policy making and implementation has led to development of complex network of interests that hindered level playing field and healthy growth of private enterprise with capitalist ethos. The scenario continues with some level of cosmetic changes and reforms during the past decade. There have been several reports over the past decade by International Finance Institutions on how Myanmar can address reforms that can promote private sector growth.
The economic path adopted during the past one decade has also been ‘market-oriented economy’ and the governments have been making efforts to create conditions for markets to develop. However the question is how can they contribute to a fair and just society? There seem to be an acknowledgement that ‘trickle down’ has not really occurred and the private sector growth has not been smooth with large number of bottlenecks to be addressed. In its diagnostics, IFC points out “To unleash the potential of the private sector, the country will need to foster a stable macroeconomic environment, improve the business environment, fill the large physical and digital infrastructure gap, close the skills gap to move up the value chain, and integrate into the global economy. A thriving and competitive private sector will stimulate innovation and widen the tax base, allowing the state to make the development process more inclusive”.
“With the right policy choices, Myanmar could, in a high-case scenario, achieve upper-middle-income status in 15 to 20 years”
It has been articulated in many forums during recent times that inclusive, competitive and responsible private sector development in Myanmar hinges on a departure from the past. Reforming public sector, financial sector and the human resource sector are three critical aspects. Rightly, the IFC analysis points out that infrastructure development (connectivity), skill development, and ease of doing business are critical for the private players to take risk and invest in the businesses. These are the most often cited areas by many analysts. They form core of several policy documents of the government as well. However the pace of reforms is slow and needs acceleration.
Market led growth strategies require institutions and governance arrangements that regulate functioning of the markets. This is one area that government of Myanmar needs to take significant steps and it has to be a departure from the past practices of controls and opaque decision making. IFC report identifies “Beyond the technical aspect of the content of the reforms, success in their implementation will largely depend on the capacity of the authorities to structure markets that will clarify the relationship and establish synergies between the different levels of government (central, subnational, agencies) and the various segments of the private sector (for example, large domestic firms, foreign investors, small and medium enterprises [SMEs], and microfirms)”.
Another critical area identified by IFC is to address issues of foreign trade sector. It is critical for private sector, especially foreign investment to come into the critical export oriented sectors of the economy. It would enable Myanmar to integrate with the global trade. Simplifying tariff structures, easing non-tariff barriers and government procurement policies, shortening negative list for exports, quick and easy trade facilitation processes, modernizing customs procedures are some of the areas to be considered. “The Myanmar government should consider a coordinated effort to review business processes in key government agencies (for example, the MoPFI, the MoC, and the Ministry of Industry) to reduce the amount of paperwork, delegate decisions, allow full online payments, and introduce registration systems for traders based on their compliance record”.
IFC report emphasizes on ‘establishing a new governance framework for infrastructure development’. Policy reforms are suggested in the areas of transport, energy, digital infrastructure along with the need for improving the governance of infrastructure. Private sector in most developing countries has been harping on these aspects as they are seen as public goods on the back of which private sector thrives. However it is critical that the social externalities of such infrastructure works positively for large sections of the people. Models like PPPs for road and energy projects have to be negotiated with social and environmental externalities. There have been concerns on investments of this nature due to large scale disruptions in lives and livelihoods of people in terms of displacement and land alienation. These are the issues that Myanmar is facing and need to navigate with considerations for broader public good with transparency and accountability.
Final set of recommendations from IFC relate to integrating Myanmar private sector with the rest of the world in terms of fostering market contestability, easing foreign investment, and integration into global value chains. Here too, the need for retaining policy space and safeguarding the interests of the domestic private sector is critical.
While all the policy recommendations proposed by IFC need serious consideration by the government and other stakeholders, there are some missing elements which need to be factored into while formulating a holistic policy environment for an inclusive private sector development.
Given the nascent private sector especially with large number of SMEs, there is a need for nurturing and providing handholding support for them. Fostering entrepreneurship, information and knowledge sharing, networking among private firms, linking them with external markets, are all important in order to develop a healthy growth of sectors. With few firms in each sector, there is a need for strengthening networking among the private sector players through export facilitation processes. There is a critical role for strengthening trade and investment support institutes, trade and market intelligence efforts. Similarly there is a critical role for strengthening capacities of trade associations and development partners can contribute in this respect. Global partnerships with specialized technical agencies in trade facilitation and promotion is important. There is also increasing recognition in Myanmar on the importance of state and regional governments in promoting trade as several of them have borders with other countries and cross border trade has been in vogue for many decades. Measures like trade promotion fairs, investment summits at state/regional level which are being organized in recent years need support and encouragement for encouraging domestic capital to come forward.
At the same time, across the developing countries, and even in the developed economies, the limits of private sector led economic growth have been understood, especially so in delivering the benefits of the growth to the larger sections of the society. Recent developments of COVID-19 economic disruptions and even the previous 2008 economic crisis has exposed vulnerability of private sector as a whole (both organized and informal sector) without the role of the government. This complementarity need to be appreciated this would mean developing a fair and progressive policies that balance private sector and the public service obligations of the state sector. IFC recommendations have to be taken with this spirit of fostering a clear and critical role of the government’s economic policies in addressing the needs of the large masses of people, not just private sector entrepreneurs. Another missing element is the ability of the private sector to adopt an inclusive approach in terms of labor and employment. Promoting decent work agenda and fair labor practices becomes sine qua non for a responsible private sector and regulatory measures in this respect have to be stepped up in order to be globally competitive.
Increasingly green technologies, sustainable and renewable energy use, triple bottom line in businesses are coming to the fore in order to promote sustainable development. There is a need to foster private sector that is conscious of their role in the society by investing and adopting these practices. While most global agencies including the World Bank Group and WTO identify these as emerging issues, they need to be translated into policy actions by the government. Agencies like IFC need to promote them aggressively in order to contribute to a sustainable future. It is heartening to see the recent country partnership framework of the World Bank Group commits to move away from coal based energy power projects. Environmental and social Ideas like corporate citizenship and responsible social responsibility have to come to play major role in Myanmar in the future. Global value chains are increasingly recognizing the need for sustainable business models that promote social good. Ethical sourcing, and social compliance standards, human rights promotion in business practices are part of responsible private sector development and Myanmar needs to adhere to these practices in order to promote inclusive development.
