What the Asian Infrastructure Development Bank means for Asia and the world

Almost exactly a year ago, just prior to the Asia Pacific Economic Co-operation (APEC) hosted in Bali in October 2013, President Xi Jinping announced the proposal for the establishment of the Asian Infrastructure Investment Bank (AIIB). This was a major announcement which was unforeseen and unexpected particularly as no clear plans were outlined at the time.

Since the announcement however, Chinese officials have been very busy in encouraging other fellow Asian partners to be the initial founding partners of the AIIB.

To date, the Chinese Ministry of Finance has convinced over 22 Asian partners including the likes of Singapore and Bangladesh to confirm their participation as founding partners and contribute to the initial funding capital.

Other major partners such India, Qatar and Saudi Arabia have been very bullish about the prospects and the promise of the AIIB and have made very positive overtures publicly about their participation as founding members. Other South East Asia partners such as Thailand and Malaysia remain positive and other major partners such as South Korea and Australia are still studying the Chinese proposals.

 

The Asian Investment Infrastructure Bank

The role and rationale for the AIIB

The mandate of the AIIB, as a multilateral development institution, is to support the financing of infrastructure developments across Asia that supports economic growth and activity nationally and regionally.

Traditionally Asian nations have turned to the Asian Development Bank (ADB), the International Monetary Fund (IMF)  and the World Bank for financial support. However, the level of financial assistance, particularly from the World Bank and the IMF have dropped since the 2008 financial crisis.

The ADB is also being increasingly viewed as a bureaucratic entity which takes almost seven years to launch a project or initiative (from proposal to the approval of funding) which leads to significant delays due to red-tape.

These conditions do not support the urgent need for infrastructure investment by a number of Asian economies. The ADB estimates that Asia needs about US$8 trillion of physical infrastructure investment between 2012 and 2020. The OECD estimates that globally over US$50 trillion of infrastructure investment is required over the next two decades to support sustained economic activity.

The AIIB is expected to have an initial capital of between US$50 billion to US$100 billion with China contributing to half that amount. This will immediately create an entity that is stronger than the Asian Development Bank (which has a current capitalisation of about US$78 billion) and will be around half of the World Bank’s current capitalisation of between US$180 billion to US$200 billion.

 

Implications and impact for major Asian partners

The creation of the AIIB has a number of major implications for Asian economies. Growth prospects With depressed growth prospects – strong investment in infrastructure projects will support the creation of demand and improve production and consumption. The enhanced infrastructure will also support greater trade and economic expansion.

This is certainly the case for India which forecasted a need for approximately US$1 trillion to meet infrastructure requirements under its 12th five-year plan (from 2012 to 2017) but is struggling to meet the investment target. Participation in the AIIB will allow for India to raise greater capital and visibility for some of her public-private infrastructure initiatives. The rest of the South Asian subcontinent, including Sri Lanka, Bangladesh, Nepal and Pakistan have all either signed up with the AIIB or shown strong interest in the initiative. If India chooses to remain on the side lines, her influence across South Asia will further diminish. The AIIB will be a strong platform for India to take on a regional leadership role and be seen to be a partner for the region’s growth and success.

The AIIB will also certainly support a number of smaller Asian economies which have been unable to meet the stringent requirements or payment terms set out by the likes of the Asian Development Bank or the World Bank. This includes the likes of Nepal, Cambodia and Laos.

From a political perspective, the impact for Japan as a result of these developments is significant. The Asian Development Bank has traditionally been led by Japan (who along with the US share the majority voting rights in the ADB) which previously allowed Japan to exert her political and economic influence across Asia. The AIIB will certainly curtail Japan’s political influence across Asia and also strengthen China’s hand in the on-going disputes ranging from the South China Sea territorial issues to legacy World War II disputes.

South Korea on the other hand is trying to navigate its participation in the AIIB tenderly. On one side, Seoul has to please her largest trading partner, China, whom she is working closely with towards greater economic success. On the other side, Seoul’s traditional security partner, the US, remains a critical partner in South Korea’s regional defence strategy.

ASEAN (Association of Southeast Asian Nations) has certainly shown significant support for the AIIB. Indeed Singapore was one of the early founding members of the AIIB as they have a clear stated policy of working with China from the inside rather than remaining out on the side lines looking in. Other major ASEAN economies such as Thailand, Malaysia and Indonesia are likely to sign up to the AIIB to exert greater influence in the way the bank is run and managed which will in turn support their own investment and growth plans. However, there will be concerns, particularly from Philippines and Vietnam, which in recent times have had strong and sharp exchanges with China over the South China Sea islands. Their concern will be that should China take a greater role in economic influencing and funding, it will strengthen China’s hand and erode Vietnam and Philippines’ support in their respective claims in the South China Sea.

Asia has always traditionally had strong savings, currently estimated to be worth over US$3.99 trillion. This supply of savings can meet some of the immediate infrastructure requirements across Asia but there is a mismatch in channelling these savings towards the financing of the infrastructure projects. The AIIB can help resolve this funding gap moving forward.

 

Problems with Uncle Sam?

The US government has not hidden their opposition to the establishment of the AIIB.

Their biggest concerns are around how China will use the AIIB to further project her economic and political dominance across the region. It also gives greater clout to other major Asian partners such as South Korea and India whilst diminishing the influence of the United States’ traditional Asian partner, Japan (who leads the ADB as highlighted above). This does alter the geopolitical realities in the region and softens the US hegemony in the region.

Some of the other concerns highlighted by the US government is that the new bank will not have adequate and robust safeguards in areas such as environmental protection, human rights and a transparent procurement process which will undermine the need for good governance across the region. Indeed, if the AIIB fails to have strong safeguards, it will exacerbate the challenges of corruption, lack of accountability and proper due diligence which have remained endemic problems across Asia (and also around the world). However, it is likely that the AIIB will operate to very high and rigorous global standards when assessing and evaluating projects.

However, it must be noted that China has made it clear from the outset, and also recently at the Boao Forum for Asia, that they welcome the participation of the US and other European Union partners in the AIIB. This will provide an opportunity for non-Asian partners to support the bank and ensure that AIIB’s governance and strategy is in line with global standards.

The US should use this as an opportunity to partake in the region’s continued growth and stability. US participation in the AIIB (which will be subject to lengthy Congressional debates) will certainly do more to support US foreign policy of a safer and prosperous world rather than the current position of dissuading potential partners from participating in the AIIB.

 

The future

The AIIB will need to create strong and close collaborative partnerships with the likes of the World Bank and the ADB so that they are not working to cross purposes. Encouragingly, the World Bank have announced their wish to work closely with the AIIB when they launched the Global Infrastructure Fund (GIF) earlier in October 2014. Similarly, the ADB have also announced their intentions to work closely with the AIIB.

The AIIB will also need to create a viable and sustainable business model which channels funding appropriately towards infrastructure investment.

Recently, the BRICS Bank or the New Development Bank was set up by Brazil, Russia, India, China and South Africa. The BRICS Bank is headquartered in Shanghai and the Presidency is maintained by India for the initial five years. However, the funding from this BRICS bank is only available to the BRICS nations and not to the rest of Asia. The AIIB helps to alleviate this issue.

The AIIB can potentially create a platform that generates economic ties and greater unity across Asia. It provides a strong and credible opportunity for major Asian rivals to become partners towards growth and development. Initiatives such as these will help to provide resolution to tricky issues that always emerge between partners and friends.

 

Myanmar’s Development Agenda – Opportunities and Challenges

I was fortunate enough to participate at the recent Myanmar Development Summit held in Yangon on the 10th of August 2014. I participated in a panel discussion on the opportunities and challenges for Myanmar’s development agenda.

 

Panel discussion: Myanmar's development agenda - opportunities and challenges
Panel discussion: Myanmar’s development agenda – opportunities and challenges (L-R: Dr Thet Thet Khine, U Aye Chan, U Kyaw Tin, Dr Maung Maung Lay, Reza)

The panel was moderated by U Kyaw Tin, Chairman of the Myanmar Institute of Certified Public Accountants and I shared the panel with Dr Maung Maung Lay, Vice President of the Union of Myanmar Federation of Chambers of Commerce and Industry, UMFCCI, Dr Thet Thet Khine, Secretary General of the UMFCCI and U Aye Chan, CEO of IMA Group.

Developments to date

Over the last few years as Myanmar has opened up economically and politically, there have been some major strides made in a number of areas:

1. Social and political reforms:

Politically we have seen a greater freedom of speech, improved press freedom and broader steps towards national reconciliation. The ongoing dialogue with armed groups in a number of states is also a step in the positive direction.

In the last three years government spending on education has more than trebled (it was increased by 30% in the last year alone) and government spending on healthcare has almost increased five-fold (it grew by 78% in the last 12 months alone).

The government has also implemented a strategy for greater public financial management reforms to enhance efficiency and transparency of government spend.

 

2. Improved monetary policy and central bank independence

The monetary policy has improved starting with the unification of exchange rates (there used to be a time where the official kyat to US dollar rate was 8 kyat to a dollar whilst the market rate was closer to 800 kyat to a dollar!).

The regulations governing central bank independence have also been brought more in line with international best practices, granting the central bank greater independence and autonomy.

 

3. Improved tax collection and reforms

With support from the World Bank, Myanmar is also embarking on a series of ambitious tax  reforms to strengthen revenue administration, which will increase the effectiveness of tax and non-tax revenue mobilization.

This was further supported by the passing of the Union of Myanmar Revenue Law of 2014 and four other tax bills in March this year.

 

4. Improving business, investment and trade climate

Approved FDI has increased to US$4.1 billion in 2013/2014 (almost 300% from 2012/2013 when it was only US$1.4 billion). The investment has also been distributed across a diverse range of sectors from manufacturing (45%), telecommunications (30%) and hospitality hotels (10%). This will prove beneficial in the long term as it will increase employability whereas investment primarily in the resource sector would have not necessarily created sufficient job opportunities. The investment has also come from unlikely trade partners including Ooredoo of Qatar and Telenor of Norway (both in the telecommunications sector).

This improved business climate has come on the back of passing of the Foreign Investment Law (FIL) in late 2012 which provided better clarity for international businesses seeking to do business in Myanmar along with the removal of restrictions and barriers to foreign investment. The highly efficient Directorate of Investment and Company Administration (DICA) have also reduced the time for businesses to establish operations in Myanmar (this is also on the back of my own personal experience as we established our operations in Myanmar).

 

5. Progressive financial sector developments

The government is working very closely with industry stakeholders as Myanmar seeks to establish its first stock exchange in Yangon – the Yangon Stock Exchange (YSE).  This is following the passing of the Securities Exchange Law last year.  Japan’s Tokyo Stock Exchange (TSE) and Daiwa Securities Group, a Japanese investment company will supporting Myanmar in delivering the YSE by October 2015.

A microfinance law was also passed last year to improve access to finance for small and medium sized firms and to increase the level of liquidity in the market.

Banks are also being held to more stringent regulations and are required to improve their capital adequacy ratios to be more in line with international best practices.

 

Some key facts to consider:

  •  GDP growth was 7.5% in 2013 (forecasting 7.8% in 2014).
  • Agriculture provides jobs for over 50% of Myanmar’s workforce.
  • Government budget for 2014 was US$ 19.5 billion (a third of Myanmar’s GDP)
  • Inflation has been creeping up and is expected to increase to 6.6% in 2014 from 5.8% in 2013. This is as a result of the weakening of the kyat vis-à-vis the US dollar, increasing wages (both in the private and public sector), a real estate boom/bubble and increased credit.
  • According to McKinsey, Myanmar has the potential to achieve a GDP od US$200 billion per year by 2030 (it was just under US$60 billion in 2013).
  • The average productivity of a working individual in Myanmar is currently only US$1,500 per annum (which is 70% less than other Asian economies including Thailand, China, Indonesia, India, Vietnam, etc). This low productivity also results in the low GDP per capita.

 

Key areas of focus for sustained development and progress:

Below are seven areas I view as critical for Myanmar’s continued development and progress. The achievements to date remain delicate and can be easily derailed if some of the below trends and developments are not addressed sufficiently.

 

1. A need for harmonious development.

One of the biggest perils faced by rapidly emerging economies is a severely widening income gap. It is vital that Myanmar addresses the issue of income inequality by providing broader employment opportunities and increase the number of middle-class Burmese.

It is also important that Myanmar’s leadership resolves on-going ethnic and sectarian tensions and friction in the country. This can severely destabilise the country and reduce the quality of life for Myanmar’s people. There has to be greater social and religious tolerance. Persistent incidences of communal violence between the Buddhists and Muslims are exacerbating the tensions. The government should support further initiatives by centrist leaders of the Muslim and Buddhist communities and support greater dialogue between the various communities. There needs to be greater efforts to reform education starting with the primary levels, to encourage greater tolerance for the different ethnicities and religions in the country.

The role of the military is still not entirely clear and this ambiguity needs to be resolved for a greater entrenchment of democracy taking root in the country so as to produce the optimal opportunities for further growth.

 

2. Improving access to education and creating educational opportunities for all.

Myanmar’s investment in education has increased significantly over the last three years but it still has one of the lowest averages of schooling the world at just four years. The universities and institutions of higher learning remain chronically underfunded and after four decades of neglect, do not yet have adequate infrastructure. However, this is slowly changing with the likes of Yangon University, Yangon University of Economics and Dagon University striking up partnerships with other top universities and organisation. This will help improve the teaching faculty and also provide greater exposure for the students and staff of these universities which will in turn improve overall performance.

A good national education is also essential for enhanced social mobility. The notion of social mobility is critical in helping people move out from the cycle of poverty and in increasing the middle class segment of a nation. Social mobility can only take effect if the right opportunities and education is provided to the people. As Myanmar continues its growth and development, the educational institutions will need to prepare Burmese youth with the right skills and capabilities so that they can gain meaningful employment and support Myanmar’s development.

 

3. Improving employability, productivity and efficiency

For growth and development to remain inclusive and sustainable, it is important that investment continues in the areas of labour intensive industries and sectors such as manufacturing.

The majority of the population still live in poverty (GDP per capita based on purchasing power parity is about US$3.60 per day)

The government is focusing on an export-led growth supported by productivity gains in agriculture and industrial development. President Thein Sein’s ‘Framework for Economic and Social Reforms’ launched in 2011 emphasised the need for a market-driven economy to support economic growth and to provide jobs and opportunities for Burmese.

There must be greater support provided to farmers and the agricultural sector (which as I’ve stated above provides employment for more than half of Myanmar’s working population) to introduce modern practices and improve productivity. Over time, this ensures greater food security for Myanmar and it also helps to boost the export-driven economy which Myanmar is gearing up towards as food production increases. Myanmar’s agricultural sector is also endowed with the 25th largest arable land in the world and has ten times the per capita water endowment of China and India. This gives the opportunity for Myanmar to be a true powerhouse in agriculture and help feed the world’s growing population.

 

4. Increasing access to finance

As Myanmar’s banking sector continues with reforms, increasing access to finance for smaller and medium sized businesses will help increase further growth, productivity and employment. There isn’t sufficient liquidity in the market and SMEs in Myanmar do not yet have the same impact as SMEs in other ASEAN countries. Part of this is due to a lack of sufficient access to finance which will allow for Myanmar SMEs to compete with their regional counterparts.

On an individual level, more than half of Myanmar’s population have no access to financial services, 30% are using unregulated services and only 20% have access to regulated financial services. The limited access to regulated financial services not only impose significant costs on poor people given interest rates of up to 240%-a-year compared to up to 36%-a-year for regulated services, but informal mechanisms also offer individuals limited protection, less choice and lower returns.

 

5. Sustained commitment to reforms and global standards.

Myanmar has adopted international standards in a number of areas. They adopted the International Financial Reporting Standards (IFRS) along with the International Standards on Auditing (ISA). The government, in an effort to boost transparency and greater fiscal control and management have also adopted the International Public Sector Accounting Standards (IPSAS).

Myanmar is also currently reforming the Companies’ Act which is still loosely based around the 1914 Burma Companies Act! This will ensure greater clarity for enterprises operating in Myanmar and also improve business and investor confidence and sentiment.

Myanmar has also recently become a signatory to the Extractives Industries Transparency Initiative (EITI), a global anti-corruption scheme that requires member governments to disclose payments earned from oil, gas and mineral wealth. Burma’s EITI arrangement could also be expanded to include hydropower and forestry.

Such initiatives will support Myanmar’s reform efforts and development and pave the way towards strong frameworks that support sustainable and inclusive growth.

 

6. Greater transparency, accountability and robust governance

President Thein Sein set up an anti-corruption committee to weed out corrupt public officials. Corruption poses one of the most severe threats to Myanmar’s reforms and development. Crony capitalism exacerbates issues of income inequality and social discontent and the government will need to continue to act to curb corruption.

He also implemented various initiatives to improve administrative reform and cutting red tape.

Though efforts have been made to establish a stronger rule of law, the daily papers recount stories of land grabs, ethnic and sectarian conflicts and corruption and the pervasive conflicts of interests across all levels of government and business. There needs to be grater efforts in the areas of establishing an independent judicial system that will allow for a stronger implementation of rule of law. A clear and robust rule of law improves public confidence, enhances investor sentiments and paves the platform for sustainable growth.

 

7. Capacity building with an eye on sustainability

Myanmar has to undertake sufficient capacity building – both in terms of people capacity as well as physical capacity.

Myanmar’s current physical infrastructure is not adequate to meet future growth demands needs. Massive infrastructure investment in the areas of power, water, rail, road are being planned both locally and with foreign investors’ assistance. However, as Myanmar builds more roads, more railway tracks, better power grids and improved water systems, it will be important that there is effective and well-managed town planning and resourcing. We already are witnessing severe traffic congestion and delays, particularly during peak periods, and it this continues, Yangon’s traffic issues could well rival Jakarta’s or Bangkok’s and this becomes a huge social and business cost. Investment in technological upgrades and telecommunications must also continue as Myanmar’s telecommunications and Internet infrastructure still lags that of the rest of ASEAN.

These infrastructure improvements must also consider the wider impacts on sustainability (including social, human and environmental). Myanmar’s decision to suspend the construction of the Chinese-backed Myitsone Dam in Kachin state due to environmental concerns was a step in the right direction. It is important that Myanmar’s leadership consider the longer term impacts over the possible short-term benefits when making infrastructure plans and decisions.

Physical capacity building must be matched by sufficient human capacity building too. As has been described earlier, there needs to be appropriate educational, training and development opportunities for people to ensure that they have the right skill sets, aptitudes and capabilities necessary to support Myanmar’s development. People and physical infrastructure development go hand in hand and a holistic approach needs to be taken to ensure longer term, viable and sustainable development for Myanmar.

Ultimately, it is vital that the right implementation approach is taken to the policy developments taking place in Myanmar. Policy must translate into action or inclusive growth, economic and social progress and sustainable development will merely remain a pipe dream for Myanmar.

 

References:

  1. Myanmar Economic Update, Asian Development Bank
  2. Myanmar’s Moment, McKinsey
  3. Myanmar:  Between Economic Miracle and Myth, Institute of Southeast Asian Studies (ISEAS)
  4. Sustaining Myanmar’s Transition, Asia Society

 

A review of Prime Minister Lee Hsien Loong’s 2014 National Day Rally

It was an interesting National Day Rally session by Prime Minister Lee this year. The Pioneer Generation was saluted, challenges were outlined, the government’s responses to the challenges were highlighted and there was a strong call to action to not forget the past and to reflect on the successes made by Singapore over the last five decades.

Below is a graphic illustration and personal take on the overall session and some of my own interpretations and thoughts. (Please click on image if it doesn’t appear clearly on your browser)

A summary of key messages (and some personal interpretations) of the 2014 National Day Rally by PM Lee
A summary of key messages (and some personal interpretations) of the 2014 National Day Rally by PM Lee

There was an interesting statement on the need to be ‘hard-headed’ in order to be ‘good hearted’ in relation to the need for economic growth to create opportunities. It remains to be seen what these hard-headed options are that are required for economic growth.

The PM’s take on the need to go beyond just academic qualifications and to also focus on relevant skills and qualifications is also an important one. This is what will support the employability agenda eschewed by the government which in turn addresses issues of social mobility and in the process go some way to resolving the widening income equality within the country.

Whilst the emphasis on the ‘Pioneer Generation’ (or PG) is important, it will be vital to support the upcoming ‘Frontier Generation’ (whom I have classified broadly as falling into the 18-35 group) and allowing them to fully explore their passions which are as important as the determination and resolve the PM highlighted in his speech.

On the whole, a thoroughly enjoyable rally with a rousing finale!

Indonesia’s Economy – Opportunities and Challenges – notes from a lecture by Bapak Gita Wirjawan, Minister for Trade, Indonesia

ImageS Rajaratnam School of International Studies (RSIS) Distinguished Public Lecture by Bapak Gita Wirjawan, (GW) Minister of Trade, The Republic of Indonesia. (2nd September 2013, Pan Pacific Singapore) on “Indonesia’s Economy: Future Challenges and Opportunities.”

I had the pleasure of attending the distinguished public lecture by Pak Gita last week and I wanted to share some salient points from the discussions

 

Key highlights and introduction

  • July results for trade is a continuation of the trends observed in June – and are actually worse. (There was a US$2.3 billion trade deficit in July 2013 alone – cumulative deficit of US$6 billion for the whole of 2013). (Click here to see news on the latest trade deficit)
  • Continued outflow of capital resulting in a downward pressure on the currency.
  • The ongoing slowdown in Europe and uncertainty in the US/Middle-east is also having knock-on effects on Indonesia.
  • We are witnesseing a “recalibration of the global economic outlook.”
  • However, Indonesia has seen significant progress made under the Susilo Bambang Yudhoyono (SBY) presidency – Under Sukarno’s era, the GDP per capita was around US$500 per  capita – this went up to US$1,200 under the Suharto era. However the Asian Financial Crisis in 1997-1998 had a catastrophic impact on Indonesia, where the GDP per capital plummeted to US$600 per capita. Indonesia also very narrowly avoided the Balkanisation of the country during that period.
  • After the political reforms post-Suharto, GDP climbed steadily to US$1,100 under the Megawati presidency and today (2013), the GBP per capita has just about exceeded US$5,000 per capita under the SBY presidency. This has also resulted in the increased purchasing power of Indonesia leading to heightened domestic consumption, particularly from a growing middle class.

 

Can Indonesia emerge from the middle-income trap?

  • Indonesia’s improved its policy and position in the fiscal space.
  • However in the social space, the gini coefficient (one indicator of income inequality) has risen, which implies a widening income gap and disparity. This remains a critical issue which the government needs to resolve.
  • Furthermore, there is still an over-reliance on the commodities sector which is prone to very violent swings and shocks.
  • Infrastructure development remains a challenge for the country.
  • The needs to be further work done in the educational space as well.

 

Education and the economy

  • In 15 years, there will be 150 million Indonesians under the age of 30.
  • There remains an urgent need to sharpen the educational infrastructure.
  • As GW says, “It is important that we need a good runway, not just to land, but to also support us in taking off.”
  • Between 2012-2022 – it is estimated that Indonesia’s accumulated GDP be will be over US$60 trillion – on a cumulative basis.
  • There needs to be a supply side narrative to realise this estimated accumulated GDP and that remains the challenge.
  • The SBY government leaves a sustained economic trajectory for Indonesia.

 

The woe of the number of taxpayers (or lack thereof!)

  • For an economy in the top 20 largest economies grouping – the G20 – there are fewer than 20 million tax payers! (comparatively?)

 

Indonesia and her geopolitical relevance

  • GW highlighted the example of how South Korea has used its soft power effectively (from Gangnam style to Samsung products) to drive international trade and economic growth. What can Indonesia do to achieve a similar impact?
  • GW also highlighted that Indonesia has the ability to develop a high degree of political relevance because:
    • Indonesia has the potential to serve as the ‘middle power’ to narrow the gap between the Middle-East and the West
    • Indonesia can also narrow and bridge the gap between China and the US (a slightly debatable claim?!)
    • However, Indonesia needs sustained political order in order to develop and create this geopolitical relevance.
      • Indonesia must engage in Democracy 2.0 – the next iteration of her democratic freedoms enjoyed post-Suharto.
      • Improve her manufacturing and technological sector (invest in high-quality and high-yield technology and sectors).
      • Without Democracy 2.0 – it is highly unlikely that Indonesia will sustain her political and economic reforms and progress. Areas such as corruption must be tackled with and though there has been some good initial progress, this must remain sustained for there to be tangible returns and a progressive shift.

Indonesia as the ‘middle power’

  • Indonesia believes in regional cohesion and solidatiry.
  • ASEAN is a great example of multilateralism – socio-political, cultural and economic solidarity have helped ASEAN overcome initial challenges and be a more cohesive and effective regional bloc.

 

The future of Indonesia

  • Indonesia must continue her path of bundling pluralism and democracy.
  • Economic growth must be achieved hand in hand with economic equity – otherwise the unbalanced growth will have severe social impacts and fractures.
  • Without this economic equity – all of the work being undertaken now will be an exercise in failure.
  • This will take time to achieve.
  • Indonesians have now come much closer together than ever before (Indonesia has the second highest Facebook usage and the third most users on Twitter).
  • Indonesia and Indonesians must have the ability to say and proclaim that they have the wherewithal to move on with the necessary reforms and changes required for Indonesia’s sustained progress.

 

Economic updates from Myanmar: Brief impressions

IMG00465-20110811-1107

Always good to be back in Yangon. So many developments and changes in such a short span of time. I always enjoy coming to Myanmar. I am always treated to the very best of Burmese hospitality and the resilience and entrepreneurial qualities of the Myanmarese continue leaving a deep impression on me.

A few observations from Myanmar on the economic front:

  • Hotels – When I first used to come to Myanmar – I was paying about US$70 for a good room at well-known hotels like the Traders, Chatrium or Park Royal. Room rates now start at US$200 for any of these hotels! And they are all running at above 95% occupancy rates!

 

  • Traffic – The cost of car ownership has gone down dramatically. In the past, to purchase a car required a permit which cost an exorbitant amount (for instance, it used to cost about US$350,000 to buy a Toyota Land Cruiser). However the permit system has changed and now you can purchase any cars manufactured from 2007 onwards. The cost of a Toyota Land Cruiser is now about US$25,000. This has led to newer cars on the roads, but more pertinently, the number of the cars have increased dramatically with no corresponding increase in the roads and traffic infrastructure, leading to snarling traffic jams which were previously unheard of before.

 

  • Capital market development – It is expected that Myanmar will have a stock exchange by 2015. This development is being supported by the Tokyo Stock Exchange and Daiwa Securities Group. This will lead to significant demand for qualified professionals in the finance sector to support the stock exchange and capital market development. Myanmar previously set up a Myanmar Securities Exchange – back in 1996 but trading volumes were extremely low and there was little or no technical or IT infrastructure available for an efficient and effective functioning capital market. However this new development will be significant given the resource and technical assistance provided by the Japanese. With development and effective governance, we can expect the Myanmar Stock Exchange to rival Malaysia’s BURSA, Indonesia’s IDX and Singapore’s exchange by 2030.

 

  • Currency exchange rate – Up until last year, the Myanmar Central Bank had fixed the exchange rate at 6 kyats to the US Dollar. However, the black market rate at the time was about 700 to 800 kyats to the dollar. The Myanmar Central Bank has now implemented a managed floating system – where the official rate is around 850 kyats to the dollar. This has been a signficant development in helping with the modernisation of the Burmese economy and one that will support further investment into the country.

 

  • Adoption of International Financial Reporting Standards – Myanmar has now formally adopted IFRS and have converted them in their entirety to the Myanmar Financial Reporting Standards. This has been instrumental in providing greater clarity and transparency to financial statements being prepared in the country. This will drive further investment into the country as investors have a better view of the financial positions and performance of the firms they are investing in or keen on acquiring.

 

  • Passing of the Investment Law – Myanmar also passed the Foreign Investment Law in November 2012. Some provisions in the law allow for overseas firms to fully own ventures and offers tax breaks and lengthy land leases, amongst other things. However, the bye-laws and regulations to support the Foreign Investment Law have not yet been passed and are still being deliberated by the Myanmar Parliament. However, under the law, details of bye-laws and regulations should come out within 3 months of the law being passed in Parliament so we should expect further developments by March 2013.

 

  • Tax reforms – The government has also announced a slew of tax law and regulatory changes. There is a plan to widen the tax base but also to make it easier for local residents to calculate the tax. The tax-exempt status will also change for citizens at the lower end of the income spectrum. A progressive tax system is in place and is likely to continue.

 

  • Increased foreign investment and donor funding – Myanmar has also benefited from the increased inward investment into the country from multinational firms. Of the accounting firms, PwC, EY and KPMG all have presence now in Myanmar. Coca-Cola has entered into a JV agreement with a local partner. Other MNCs are also increasing their branding and presence in the country. The Asian Development Bank (ADB) and the World Bank (WB) have also approved loans and grants to support Myanmar’s continued economic and social development.

 

  • ASEAN Economic Community (AEC) – There is also a strong support by the Myanmar government and businesses to support the AEC 2015 vision of greater economic integration by all of the members of ASEAN. This requires further development in terms of capacity and capability – and one that will benefit a broad section of the Myanmarese.

 

Exciting times for Myanmar. However, the key thing to address will be to ensure that the economic progress is one that benefits a broad base of the Myanmar population and not one that only serves to widen the income gap between the top earners and the rest of the country. Ignoring the potential consequences of this will only set back Myanmar’s development down the road. It will also be important to ensure that there is continued focus on education and social development. Environmental sustainability also remains crucial. It is easy to ignore the impact of industrial and economic development on the natural environemnt but doing so will again lead to severe consequences for Myanmar in the long run.

However, that said, I am confident that in the years to come, Myanmar will again take leadership within South East Asia both economically and politically like they did back in the day up to the 1960s!