by Michele Boario, United Nations Industrial Development Organization (UNIDO)
Evidence suggests some level of convergence in economic growth within Association of South East Asian Nations (ASEAN). The newer members are catching-up to the economic conditions prevailing in ASEAN founder countries. Myanmar is not an exception; the country is one of the fastest growing economy in the region. Despite a significant economic slowdown in 2017, the IMF considers the country as an emerging market, and many investors continue looking at Myanmar as Asia’s final frontier. Should we conclude that Myanmar is an emerging economy? The answer depends on how an emerging economy is defined. To the extent that irreversibility of growth is part of the definition, the presence in Myanmar of growing inequality and polarization compounded with a conflict trap, make it problematic to include this country into the group of the emerging economies.
The strong Myanmar economic growth is the result of several market-oriented reforms and a resolute processes of opening up. Important steps have been taken toward creating an environment conducive to private investment. The government has unified the exchange rate and liberalized the foreign exchange market, and passed new advanced Investment and Company Act laws. It has also introduced an open tender system for public procurement, started opening the financial sector to foreign banks, and enacted Special Economic Zones helping investors to overcome infrastructure bottlenecks. These reforms have contributed to a surge in foreign direct investment (FDI), particularly in telecommunications, and oil and gas.
A significant transfer of know-how already started, yet much more is needed to integrate the economy in the regional and global value chains. Moreover, in spite the new Myanmar Government led by Aung San Suu Kyi is committed to an equitable development, most of the institutions and the public administration are very weak and the pace of the reform process slowed down in 2016 and 2017. On a positive note, the country looks firmly future oriented with a rising level of savings and investment. Overall is a mixed picture, in particular taking into consideration the polarization of the country at ethnic, religious and gender level and the deep divide between urban and rural living conditions.
A better understanding has been sought through a comparative analysis with Vietnam and Thailand which are considered as two clear examples of emerging economies in the region. Success factors and weakness in both countries are interesting lessons to be learnt for Myanmar and point at what is still missing in the golden land to be considered as an emerging economy.
After a decade of unsuccessful command economy, in 1986 Vietnam started the “Doi Moi” a “renovation” based on reforms to stabilize and open the economy, and trade agreements, which resulted in strong economic growth, export and investment boom, and dramatic human development improvement. Success factors are: pragmatic leadership and effective policy making cycle; strong institutions and broad foundation for infrastructure; equitable initial investment in human development; successful combination of internal and external resources; land and agriculture sector reforms; pragmatic and sequenced trade liberalization; continued investment in human development; social solidarity and equity in policy and implementation; future orientation; political stability; and a pragmatic leadership based on trial and error methodology, consensus based decisions, and political support to implement policies. As of 2018 the “renovation” seems losing momentum, some of the possible reasons are: limited technological spillovers from FDIs, limited productivity improvement, failure in providing medium and high skills.
On the south-eastern border of Myanmar, Thailand has undergone major industrial and social transformation amid rapid economic growth and development for over half a century. It is now the second largest economy with the 4th highest income per capita in the Association of Southeast Asian Nations. It has successfully shifted its economy from agriculture to export-oriented manufacturing, while integrating key production, particularly automobiles and electronics, into regional value chains. It has also been quite successful in attracting FDI, particularly in export-oriented sectors. The key factors behind this success story are a dynamic group of entrepreneurs and supportive state, political and macroeconomic stability, openness, export orientation and FDIs, future orientation, and a very high labour force participation of women. The miracle ended in 1997 with the Asian Crisis, the country is currently facing a middle-income trap, with some clear structural weaknesses, encompassing: aging population, not enough investment in secondary education and research, high inequality, and pollution.
Taking into consideration the time series of key variables for economic emergence, such as the GDP per-capita, FDIs, exports, savings and investment, and human development index, Myanmar seems on the right path to follow the success stories of Thailand and Vietnam. However, Myanmar is still facing a number of daunting political challenges, including the reform of the constitution, the relationship between the ruling party, the Army and the oligarchs, the lack of local representation in the regional governments, and above all the difficult process for the National League for Democracy (NLD) to move from opposition movement to ruling majority without any previous government experience. The peace process is not improving, many ethnic armed groups are still fighting with the Army and the international criticism on the treatment of Muslim minorities is growing. The risk of a major civil war or a new coup is still there, not only due to a constitutional clause giving the Army the prerogative to declare the state of emergency and get back power at any time, but also because a number of conflict risk factors still characterize Myanmar: low income, primary commodity export, the coexistence of one large ethnic group and a multitude of smaller ones, previous coups and civil wars.