Charting Myanmar’s Economic Reform Process

By Dylan Kean

World Bank president Jim Yong Kim meets with Thein Sein, president of Myanmar in May 2013. The World Bank Group began reengaging with Myanmar in response to the “people-centered” development agenda put forth by Thein Sein. Source: World Bank Photo Collection's flickr photostream, used under a creative commons license.

World Bank president Jim Yong Kim meets with Thein Sein, president of Myanmar in May 2013. The World Bank Group began reengaging with Myanmar in response to the “people-centered” development agenda put forth by Thein Sein. Source: World Bank Photo Collection’s flickr photostream, used under a creative commons license.

Myanmar, now that it has concluded its term as ASEAN chair, faces the task of getting its economy in shape to prepare for the planned ASEAN Economic Community (AEC), which will be implemented at the end of 2015.

Since President Thein Sein’s reforms began in 2011, Myanmar’s economy has changed in important ways. According to the International Monetary Fund’s 2014 World Economic Outlook, Myanmar’s gross domestic product growth rate jumped from an average of 5.4 percent between 2009 and 2011 to 7.8 percent in 2014. The foreign investment law, passed in 2012, has helped spark some of this growth. That year, the United States lifted most of its sanctions on Myanmar, paving the way for U.S. companies like Coca Cola, Pepsi, General Electric, and Microsoft to begin venturing into what was a previously a closed market.

To a considerable extent, this optimism has continued. Since 2011, over $9 billion of investment has flowed into Myanmar. According to the 2014 ASEAN Business Outlook Survey conducted by the American Chamber of Commerce in Singapore and the U.S. Chamber of Commerce, Myanmar was the 4th most popular choice for business expansion in ASEAN.

The government has done a decent job of opening up the bidding processes for large telecommunications and energy projects in Myanmar. Earlier this year, it granted licenses to telecommunications giants Telenor and Ooredoo, both of which have begun providing services in a country where fewer than 10 percent of people have mobile access.

A remaining roadblock for U.S. businesses looking to invest in Myanmar is the risk of associating with companies and businessmen who remain on the U.S. Treasury Department’s specially designated nationals list. Americans are prohibited from dealing with anyone on the list, including individuals and business groups with ties to Myanmar’s former military regime. Secretary of State John Kerry caused a stir during his trip to Naypyidaw in August when he unknowingly stayed at a hotel owned by a blacklisted businessman. This highlights the difficulty in avoiding interactions with sanctioned individuals in Myanmar, many of whom play an important role in the economy.

U.S. companies remain cautious, even beyond dealing with sanctioned companies. No U.S. banks have taken the plunge into Myanmar although the prohibitions against financial services have been lifted. They seem still to have concerns about political risk and uncertainty about returns on their investment, at least in the near term. U.S. companies involved in any investment that requires access to land are also cautious because of the lack of clarity about future land reform. U.S. firms are required to report how they attained land use rights to ensure farmers were not kicked off their land in the process.

The difficulty of navigating sanctions is made worse by the pervasiveness of corruption. Transparency International’s latest corruption index ranked Myanmar one of the most corrupt countries in the world. Its most recent ranking showed slight improvement, putting it on par with Zimbabwe and Cambodia. In September, the Yangon government was forced to withdraw its award of an $8 billion contract to a local company due to public outcry over a lack of competition and transparency, and decided instead to turn the massive construction project over to an open bidding process. This change of heart, which would have been unlikely before 2011, shows Myanmar still has a long road ahead.

A long-time expert on Myanmar has characterized Myanmar’s economic reform process as the long-term demilitarization of the economy. The effects of decades of military control over the economy cannot be erased overnight, nor will the influence of the military ever disappear completely. But by supporting free market behavior, the United States might begin to see the military gradually pulled into a free market system.

Myanmar is among the ASEAN countries that face the greatest challenges next year in meeting the goals of the AEC. Poor infrastructure, corruption, and the risk of political instability are major causes for concern for investors looking to take advantage of the country’s potential. However, it will be through greater engagement with the world that Myanmar will begin to see a more liberalized economy.

Mr. Dylan Kean is a researcher with the Sumitro Chair for Southeast Asia Studies at CSIS.


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