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A long and painful journey awaits Myanmar s new government
Apr 2nd 2016 | YANGON
SPEND a day in Yangon, shuttling among new high-rises and bars before
retreating to your boutique hotel, and you can almost believe that after
decades of isolation, Myanmar is squarely on the road to prosperity. Spend more
than a few days, however, and the cracks start showing: intermittent power
cuts, ancient sewage systems, insufficient housing for an influx of migrants
from the countryside.
The situation is worse in rural Myanmar, where much of the population lives not
just in extreme poverty, but also mired in debt. Bad roads make it costly to
get goods to market and impede investment. Around three-quarters of the country
s children live in homes that lack electricity. Myanmar s voters hope their
first freely elected government since the 1960s, which took office this week,
will change things for the better.
The task ahead is daunting: within South-East Asia, only Cambodia has a lower
GDP per person. Its infrastructure (both physical and financial) is somewhere
between crumbling and non-existent; its laws are archaic and, after decades of
isolation and underinvestment in education, its skills base is woeful.
Government revenue is another problem: corporate and individual tax rates are
high, but few people pay. The incoming government of Aung San Suu Kyi s
National League for Democracy (NLD) will inherit high inflation, sizeable
budget and current-account deficits, a volatile exchange rate and institutions
both ossified and hollow after decades of corruption, stagnation and top-down
rule.
Still, potential abounds. Myanmar has a young and cheap workforce, a long
coastline, abundant agricultural land and an ideal location, wedged between the
massive markets of China, India and South-East Asia. Expatriate Burmese are
returning in droves, bringing enthusiasm and professional expertise with them.
Meanwhile, the baby steps taken under the outgoing government of Thein Sein
have become a proper toddle. Preliminary figures show that GDP grew by around
8.3% in 2015; the Asian Development Bank forecasts much the same this year.
Yangon s new stock exchange saw its first listing on March 25th; as many as ten
other companies may list this year. Foreign investment, particularly in
telecoms and energy, is flowing in. Thanks to Miss Suu Kyi s election victory,
Myanmar has the world s goodwill.
Miss Suu Kyi s government says that agriculture will rank among its top
priorities, which makes sense: directly or indirectly the sector employs around
70% of the labour force. Before a military junta seized control of Myanmar in
1962 it was the world s leading rice exporter a title many believe it could
reclaim. But most farmers grow low-value crops without decent fertiliser or
seeds. Bad infrastructure and Byzantine internal trade rules keep the domestic
market fragmented and productivity low: in 2012 average annual income from
agriculture in Myanmar was $194 per worker, compared with $507 in Bangladesh
and $706 in Thailand.
In the near term, making it easier for farmers to get affordable credit would
help. The main (and for decades, the only) source of rural credit is the
state-run Myanmar Agricultural Development Bank, which provides only tiny
loans. This sends farmers into the arms of informal moneylenders, who charge as
much as 10% a month, fuelling a cycle of debt that often ends with farmers
losing their land.
Myanmar s new government will also have to tackle land rights: confusing and
poorly enforced land-use laws impede foreign investment and leave rural farmers
vulnerable to confiscation. The NLD s election manifesto promises land reform,
but given that it will require the new government to confront the
still-powerful army, that is easier promised than delivered.
That hints at the first of two huge questions hanging over Myanmar s economic
reform: will the army and the NLD, inveterate foes until recently, be able to
work together? And after 50 years of military rule, will the creaking
bureaucracy be able to adapt and at least try to meet the citizenry s high
expectations? As one foreign investor in agriculture notes, The ministers may
understand what needs to be done. But there are so many layers below of people
who have been living differently for so long that [change] will take a long
time.