Myanmar Business Guide: Economic Overview

A brief overview the Myanmar economy

 

6.1 Overview

Since late 1988, the Government has moved away from central planning and adopted market oriented and open trade economic policies. Some of the specific pro-business moves introduced by the Government at the outset of reforms included:

  • a. revoking a number of laws protecting the socialist economy and abolishing state monopolies;
  • b. establishing the Companies Registration Office;
  • c. promulgation of the Foreign Investment Law and the formation of the MIC;
  • d. legalisation of border trade with neighboring countries;
  • e. formation of joint ventures between the State and foreign oil companies for on-shore and offshore oil and gas exploration;
  • f. simplification and reduction of taxation;
  • g. relaxation of the extremely rigid Foreign Exchange Laws;
  • h. introduction of Foreign Exchange Certificates and the legalisation of US Dollar holdings;
  • i. promotion of the hotel and tourism industry;
  • j. enactment of rules relating to the Financial Institutions Law paving the way for the emergence of private, local and foreign banks;
  • k. initial steps taken for the privatization of some of the State Owned Economic Enterprises; and
  • l. reinstitution of the Union of Myanmar Chamber of Commerce and Industry as the country’s leading chamber.

These initiatives resulted in the growth of private business activities which at the end of June 1997 totaled 21,519.

Table 1: Private Business Activities

Activity Amount
Exporters/Importers 7,799
Foreign Business Representatives 2,015
Partnerships 1,181
Myanmar Limited Companies 9,341
Foreign Companies and Branches 1,042
Joint Venture Enterprises 107
Chambers of Commerce 34
Total 21,519

6.2 Economic Growth

Developments during the early 1990’s were facilitated by the fact that the Government was fairly cohesive in terms of its policy. During this period, Brig. General David Abel held six of the most important economic portfolios in the country. However, the fall of SLORC chairman General Saw Maung in April 1992 precipitated political changes that fragmented the Government’s economic policy and implementation thereof. Sen. General Tan Shwe assumed the chairmanship of SLORC and used the economic portfolios to build his patronage. The result was a fragmentation of policy as well as coordination between institutions as individuals worked to fortify their positions within the various portfolios. It is too early to tell whether this problem will be remedied by SPDC, however there are no indications that changes will be forthcoming.

The Government has implemented two short-term plans intended to guide the development of the nation's economy. The first short-term plan, which ended in 1995/6, was successful in meeting many of the goals that had been set. The second short-term plan was launched in mid-April 1996 and is set for a five-year term. At the heart of the second short-term plan is the expansion of the agricultural sector. The Government is optimistic that the agricultural sector can develop to assist the expansion of the economy and provide much needed foreign currency. Thus, while the fisheries and mining industries are expected to contribute to economic growth, the primary goal is to double the yield of the agricultural sector. The Government, under this second short-term plan, anticipates annual growth of the economy to be about 6%.

Table 2: National Provisional and Planned Growth Rates for years ending March 31: (% Change)

  1991/92 1992/93 1993/94 1994/95 1995/96 1996/97
Consumption -4.9 10.3 8.7 2.5 6.4 2.5
Investment 3.6 4.1 -9.2 23.5 28.2 20.5
Exports -2.8 39.9 7.5 4.8 -22.4 5.5
Imports -8.7 13.7 11.9 -6.0 19.8 0.02
GDP -1.0 10.9 5.8 5.5 4.9 3.9
National Income -1.0 11.6 5.6 6.2 5.3 3.9

Source: Ministry of National Planning and Economic Development, Review of the Financial, Economic and Social Conditions for 1996/97.

The Government estimates the 1996/97 GDP to be 715,437.7 million Kyat. Economic growth has been hampered by a lack of aid and funding from bi-lateral and multi-lateral donors following the suspension of western economic assistance and cooperation in response to the suppression of the democracy movement in 1988. However, foreign investment has been growing annually and has contributed significantly to the expansion of the economy. A consequence of the increase in foreign investment has been a shift in the private sector’s contribution to GDP. Government estimates now place the private sector’s contribution to be roughly 75% of GDP.

6.3 Foreign Investment

Much of the initial Foreign Direct Investment (FDI) was concentrated in the oil and gas and mining sectors. However the range of investments which foreign capital has been attracted to is beginning to diversify. The hotel and tourism sector experienced a surge of growth in anticipation of the increased numbers of travelers expected for the “Visit Myanmar Year” which began in 1996. However, the numbers of tourist were not as large as expected and subsequent growth in this sector has tapered off. The manufacturing sector has been steadily increasing in importance despite the withdrawal of several large European and U.S. companies.

Table: 3 - Foreign Investment In Myanmar By Sector (as of July 31, 1997)

Sector Number of Permitted Enterprises Foreign Capital (US$ million)
Oil & Gas 45 2,295.92
Manufacturing 91 1,155.72
Real Estate 14 874.95
Hotel & Tourism 39 762.56
Mining 42 498.03
Transport & Communication 12 275.09
Livestock & Fisheries 17 269.54
Industrial Estate 3 193.11
Construction 1 17.27
Other Services 4 10.58
Agriculture 2 8.68
Total 270 6,361.45

Table 4: Foreign Investment By Country Of Origin (as of July 31, 1997)

Country Number of Investments Foreign Capital (US$ million)
UK 30 1,321.92
Singapore 56 1,223.81
Thailand 41 1,132.80
USA 16 582.07
Malaysia 23 524.17
France 3 470.37
The Netherlands 5 237.84
Indonesia 8 236.37
Japan 15 195.89
Hong Kong 18 107.44
Australia 13 76.26
Republic of Korea 14 72.62
Austria 2 72.50
Canada 10 34.83
China 8 28.76
Germany 1 15.00
Denmark 1 13.37
Philippines 1 6.67
Bangladesh 2 2.96
Macao 1 2.40
Israel 1 2.40
Sri Lanka 1 1.00
Total 270 6,361.45

6.4 International Reserves

Since the termination of foreign assistance in 1988, Myanmar has had to continually struggle to maintain its foreign currency reserves. Historically, servicing of foreign debt obligations has placed the greatest amount of pressure on the foreign reserves. Prior to 1987/88 deficits of the overall balance of payments where financed primarily by drawing down on official reserves. In 1987/88 the first arrears on the servicing of debt payments of US$73 million occurred in order to maintain foreign currency reserves at US$78 million (1.7 months of merchandise import). Recent figures put the government debt at US$6.6 billion with US$2 billion being in arrears. In addition to the demands created by the servicing of external debt, the recent increase in consumption of capital goods and military equipment in the past several years has placed further demands on foreign currency reserves. Recent estimates as of July 1997 put the foreign reserves at US$80 million. An important consequence of the recent imbalance of foreign currency reserves is the devaluation of the Kyat and recent imposition of restrictions on the import of goods into the country.

6.5 Foreign Economic Assistance

The political events that transpired in August 1988 were to have serious repercussions on the foreign assistance that Myanmar had been receiving. Foreign assistance into Myanmar came to a standstill shortly after the August 1988 political events. Since then no new loans or technical assistance have been approved for projects in Myanmar. Humanitarian aid and bi-lateral assistance from China, and to a lesser extent the Republic of Korea, have been the only official sources of assistance. The UNDP maintains an annual assistance program relating to humanitarian projects and has been conducting sector studies in coordination with the Government and such organizations as the World Bank, the Asian Development Bank and UNESCO.

There have been no new loans processed by any of the major multi-lateral institutions such as the World Bank, the IMF and the Asian Development Bank. Much of the existing medium to long term debt is exclusively public debt, arranged between 1983/84 and over 90% is on concessional terms. Of this amount, 75% of the concessional debt consists of bi-lateral loans with Japan and to a much lesser extent Germany, with the remainder of the obligations being owed to multi-lateral institutions.

The release of Daw Aung San Suu Kyi on July 10, 1995 has prompted some countries to begin to soften their position on financial assistance to Myanmar. Japan has resumed assistance for humanitarian projects and it is anticipated that countries including Australia may soon follow suit.

6.6 Economic Sanctions

6.6.1 The United States

There are two sources of economic sanctions that have been imposed by the U.S. First, Executive Order dated May 20, 1997 applies to all U.S. citizens engaging in business activities with Myanmar. The executive order prohibits U.S. persons from entering into the following types of activities subsequent to the issuance of the Executive Order:

  • a. entering a contract that includes the economic development of resources located in Burma;
  • b. entering a contract providing for the general supervision and guarantee of another person’s performance of a contract that includes the economic development of resources located in Burma;
  • c. purchasing a share of ownership, including an equity interest, in the economic development of resources located in Burma;
  • d. entering into a contract providing for the participation in royalties, earnings, or profits in the economic development of resources located in Burma, without regards to the form of the participation;
  • e. facilitating transactions of foreign persons that would violate any of the foregoing prohibitions if engaged in by a United States person; and
  • f. evading or avoiding, or attempting to violate any of the prohibitions contained in the Executive Order.

The Executive Order appears to allow a limited range of activities. For instance, it appears that U.S. persons are permitted to exercise such activity as may be required to implement an existing contract or to exercise options signed before May 21, 1997. Moreover, the Executive Order also permits U.S. persons to enter into, perform, or finance a contract for the purchase of goods, services, or technology with some restrictions. Finally, the Executive Order does not apply to non-profit educational, health, or other humanitarian programs.

The second form of sanctions have been implemented at the municipal and state levels. These sanctions generally take the form of selective purchasing ordinances and legislation which essentially bans the city council/state government from purchasing goods and services from those companies that are conducting business in Myanmar. Presently, the following cities/state have implemented selective purchasing ordinance and legislation:

  • a. Berkeley, California;
  • b. Madison, Wisconsin;
  • c. Santa Monica, California;
  • d. Ann Arbor, Michigan;
  • e. San Francisco, California;
  • f. Oakland, California; and
  • g. The State of Massachusetts.

6.6.2 The European Union

Under European Law, trade benefits which are unilaterally granted to developing countries can be withdrawn. On March 24, 1997 the European Union (EU) withdrew the generalized system of preferences (GSP) benefits applicable to agricultural and industrial products that were exported to the EU. The GSP benefits were withdrawn primarily due to claims over the use of forced labor and to a lesser extent the use of child labor.

It is estimated that there are approximately US$47.2 million of EU exports annually, about a quarter of which receive the GSP tariff benefits. In real terms, Myanmar stands to lose about US$4 million annually due to the EU restrictions. A Commission spokesman has indicated that the benefits created by the GSP will not be reinstated until SPDC can prove that there is no forced labor being used in Myanmar. There appears to be little incentive for SPDC to make the effort to change in the near future due to the small amounts of trade presently being carried out.

6.7 Trade

6.7.1 Overview

Most private enterprises in Myanmar are involved in farming and trading. Cross border trade particularly with China, Thailand and India, legalized in 1988, is booming, conducted either in local currencies or on a barter basis while smuggling persists. Two way trade with China (official and unofficial) is estimated at about US$ 1 billion a year and continues to increase.

Myanmar is a natural regional hub for trade involving southern China, Thailand and India and, in fact, Yunnan and other land-locked southern Chinese provinces are starting to make use of Myanmar export routes and ports. The city of Mandalay is a major beneficiary of this growing trade activity and an expanding and diverse commercial sector is emerging there.

Myanmar has been strongly influenced and encouraged by the experience of its major trading partner, China, in the opening of its economy to foreign investment while at the same time adhering to its political structures. With the military fearful of losing political control, much of the rigid socialist system remains in part acting as a brake on economic development. Nevertheless, the private sector has responded well to the opening up of new opportunities.

The Indian government, probably out of concern for the strengthening influence of China on its neighbor, moved to increase its trade with Myanmar.

Myanmar remains a net importer in terms of trade and the gap between imports and exports has registered a positive increase in each of the years between 1992 and 1996 with the exception of the year falling between the 1993/94 to 1994/95 fiscal periods. Even taking into account the 20.8% negative growth rate of this period, the gap has increased at an average rate of 72.5% between 1992 and 1996.

6.7.2 Major Trading Partners

Table 5: Destination of Myanmar’s Exports by Geographic Region In (%)

  1992/93 1993/94 1994/95 1995/96
ASEAN Countries 34.9 40.9 43.9 41.9
Other Asian Countries 48.6 42.5 32.1 41.9
The Middle East and African Countries 0.4 0.6 0.4 0.3
North American Countries 2.1 3.8 5.3 5.2
EEC Countries 2.9 2.9 1.8 3.0
African Countries 4.0 4.4 5.4 0.6

In 1995/96 Myanmar’s six largest trading partners, in terms of the destination of its exports, were as follows:

Table 6: Myanmar - Major Destinations of Exports - 1995/96 (Provisional/Actual)

Country Value of Exports (Kyat m.) % of Total
India 1,036.8 20.7
Singapore 986.8 19.7
Thailand 533.7 10.6
Hong Kong 321.1 6.4
Japan 256.3 5.1
PRC 195.2 3.9

Source: Review of the Financial, Economic and Social Conditions for 1996-97, Ministry of National Planning and Economic Development

In 1995/96 the major sources of Myanmar’s imports were as follows:

Table 7: Myanmar - Major Source Of Imports - 1995/96 (Provisional/Actual)

Country Value of Imports (Kyat m.) % of Total
Japan 2,505.8 24.3
Singapore 1,819.7 17.7
PRC 1,433.8 13.9
Thailand 1,318.8 12.8
Malaysia 615.9 6.0
Republic of Korea 402.6 3.9
India 344.8 3.3

Source: Review of the Financial, Economic and Social Conditions for 1996-97, Ministry of National Planning and Economic Development

Table 8: Myanmar Major Exports - 1995/96 (Provisional/Actual)

Product Kyat m.
Agricultural Products 2,321.0
Animal Products 7.2
Marine Products 614.9
Forest Products 1,275.1
Minerals and Gems 212.9
Others 575.0
Re-Exports 11.1
Total Exports 5,017.2

Source: Review of the Financial, Economic and Social Conditions for 1996-97, Ministry of National Planning and Economic Development