Myanmar: the new Asian investment frontier

MasterCard and Visa have already entered the country, together with multinationals such as Nestle, CocaCola, Uniliver, Total and Suzuki.

When Nobel prize laureate Aung San Suu Kyi arrived at the Italian ministry of foreign affairs this week after visiting the Pope, she walked into the room with six little roses in her hair and many question marks over the future of her country of 60m inhabitants. She always calls it by the pre-regime name of Burma, crystallising in five letters her role as opposition leader and her 15 years spent under house arrest.

Only a week before, a delegation of the country’s officials that included foreign minister Wunna Maung Lwin were in the same building to illustrate the economic reforms aimed at attracting much-needed foreign investments into the nation they instead called with the official name of Myanmar.

The different choice of name was echoed in the western suits and ties of the government representatives, followed by the traditional Burmese dress worn by Ms Suu Kyi. “It is easier to change dress than mindset,” she said, stressing that “there are no economic reforms without political reforms”.

So, what’s for foreign investors out there? The pile of papers illustrating the economic measures enacted since 2011 contained the CVs of the delegation, with no intention to hide their links to the military.

Nobody seems to be too bothered either by the call by international observers in the room to link reforms with a fully democratic process. According to a representative of the Organisation for Economic Co-operation and Development, a member of the delegation defined The Lady – Ms Su Kyi - “an inspiration”.

The source of the inspiration, however, warned the international community over the danger of overestimating the democratic opening the country is experiencing and urged to call on the  Myanmar government to change the constitution, which prevents her from running for president as a mother of foreign children. Currently, 25 per cent of seats in Parliament are reserved for the military.

For now, the government has set a target of almost 9 per cent growth by next year, saying it will prioritise poverty reduction, industrialisation, the development of the energy sector, telecommunications, education and the health sector.

MasterCard and Visa have already entered the country, together with multinationals such as Nestle, CocaCola, Uniliver, Total and Suzuki.

Italian energy giant ENI was among the winners of several onshore energy blocks and is already considering  Myanmar  its “new Asian frontier”, thanks to its strategic position and richness in raw materials, especially natural gas.  

“There have been only 150 explorations in the country so far, as much as in the  US  every two days,” ENI ‘s chief executive Paolo Scaroni said during the conference.

“Half of the population has no electricity and there is no economic development without it. Now, after decades of isolation,  Myanmar  could become a bridge between Southern Asia, the Asiatic Southern East and  China,” he added.

The main challenges however relate to uncertainty over future political stability and the possibility to proceed with the creation of a safe business environment. Doubts that have only began to ease following the endorsement in 2011 of the United Nations Guiding Principles on Business and Human Rights.

Myanmar delegation presented its packet of certainties offering a five-year tax holiday, the same rate of income tax between foreigners and  Myanmar  citizens, no taxes on imported machinery or raw material. The government also ticked the box of no nationalisations or expropriations, together with the right to repatriation.

Enough for the multinationals that have already expanded into Myanmar, while the challenges are still significant for smaller enterprises and range from an undeveloped banking system and a lack of capital market, to poor infrastructures and an inadequate insurance system.

In the words of the Myanmar delegation, this is not a nation ready-made for investors, but a bet on the future. A bet that UK investors are already supporting: if China tops the ranking, Britain is the fifth foreign investor and the first Western country, with twenty times the enterprises of the second foreign investor France and some 7 per cent slice of the total cake. 

As more stakeholders take the first steps into post-sanctions Myanmar, the focus ahead of the 2015 elections is not so much if the name, but if the mindset will change and who will benefit most from the forecast economic growth. 

 

Aung San Suu Kyi during a press conference in Italy. Photo: Getty

Sara Perria is the Assistant Editor for Banking and Payments, VRL Financial News

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The 2017 Budget will force Philip Hammond to confront the Brexit effect

Rising prices and lost markets are hard to ignore. 

With the Brexit process, Donald Trump and parliamentary by-election aftermath dominating the headlines, you’d be forgiven for missing the speculation we’d normally expect ahead of a Budget next week. Philip Hammond’s demeanour suggests it will be a very low-key affair, living up to his billing as the government’s chief accounting officer. Yet we desperately need a thorough analysis of this government’s economic strategy – and some focused work from those whose job it is to supposedly keep track of government policy.

It seems to me there are four key dynamics the Budget must address:

1. British spending power

The spending power of British consumers is about to be squeezed further. Consumers have propped up the economy since 2015, but higher taxes, suppressed earnings and price inflation are all likely to weigh heavily on this driver for growth from now on. Relatively higher commodity prices and the sterling effect is starting to filter into the high street – which means that the pound in the pocket doesn’t go as far as it used to. The dwindling level of household savings is a casualty of this situation. Real incomes are softer, with poorer returns on assets, and households are substituting with loans and overdrafts. The switch away from consumer-driven growth feels well and truly underway. How will the Chancellor counteract to this?

2. Lagging productivity

Productivity remains a stubborn challenge that government policy is failing to address. Since the 2008 financial crisis, the UK’s productivity performance has lagged Germany, France and the USA, whose employees now produce in an average four days as much as British workers take to produce in five. Perhaps years of uncertainty have seen companies choose to sit on cash rather than invest in new production process technology. Perhaps the dominance of services in our economy, a sector notorious hard in which to drive new efficiencies, explains the productivity lag. But ministers have singularly failed to assess and prioritise investment in those aspects of public services which can boost productivity. These could include easing congestion and aiding commuters; boosting mobile connectivity; targeting high skills; blasting away administrative bureaucracy; helping workers back to work if they’re ill.

3. Lost markets

The Prime Minister’s decision to give up trying to salvage single market membership means we enter the "Great Unknown" trade era unsure how long (if any) our transition will be. We must also remain uncertain whether new Free Trade Agreements (FTAs) are going to go anyway to make up for those lost markets.

New FTAs may get rid of tariffs. But historically they’ve never been much good at knocking down the other barriers for services exports – which explains why the analysis by the National Institute for Economic and Social Research recently projected a 61 per cent fall in services trade with the EU. Brexit will radically transform the likely composition of economic growth in the medium term. It’s true that in the near term, sterling depreciation is likely to bring trade back into balance as exports enjoy an adrenal currency competitive stimulus. But over the medium term, "balance" is likely to come not from new export market volume, but from a withering away of consumer spending power to buy imported goods. Beyond that, the structural imbalance will probably set in again.

4. Empty public wallets

There is a looming disaster facing Britain’s public finances. It’s bad enough that the financial crisis is now pushing the level of public sector debt beyond 90 per cent of our gross domestic product (GDP).  But a quick glance at the Office for Budget Responsibility’s January Fiscal Sustainability Report is enough to make your jaw drop. The debt mountain is projected to grow for the next 50 years. All else being equal, we could end up with an incredible 234 per cent of debt/GDP by 2066 – chiefly because of the ageing population and rising healthcare costs. This isn’t a viable or serviceable level of debt and we shouldn’t take any comfort from the fact that many other economies (Japan, USA) are facing a similar fate. The interest payable on that debt mountain would severely crowd out resources for vital public services. So while some many dream of splashing public spending around on nationalising this or that, of a "universal basic income" or social security giveaways, the cold truth is that we are going to be forced to make more hard decisions on spending now, find new revenues if we want to maintain service standards, and prioritise growth-inducing policies wherever possible.

We do need to foster a new economic model that promotes social mobility, environmental and fiscal sustainability, with long-termism at its heart. But we should be wary of those on the fringes of politics pretending they have either a magic money tree, or a have-cake-and-eat-it trading model once we leap into the tariff-infested waters of WTO rules.

We shouldn’t have to smash up a common sense, balanced approach in order for our country to succeed. A credible, centre-left economic model should combine sound stewardship of taxpayer resources with a fairness agenda that ensures the wealthiest contribute most and the polluter pays. A realistic stimulus should be prioritised in productivity-oriented infrastructure investment. And Britain should reach out and gather new trading alliances in Europe and beyond as a matter of urgency.

In short, the March Budget ought to provide an economic strategy for the long-term. Instead it feels like it will be a staging-post Budget from a distracted Government, going through the motions with an accountancy exercise to get through the 12 months ahead.

Chris Leslie MP was Shadow Chancellor in 2015 and chairs Labour’s PLP Treasury Committee

 

 

 

Chris Leslie is chair of Labour’s backbench Treasury Committee and was shadow Chancellor in 2015.