Myanmar: The Continued Rise of an Emerging Economy
Back in 2011, Myanmar experienced a transformative political election which resulted in significant economic strides. In 2015, power changed hands once again. Under the stewardship of the newly elected party, the National League for Democracy (NLD), the country seems poised to continue along its path of steady and impressive growth.
Myanmar’s economy experienced setbacks in 2015 as a confluence of factors seemed to be working against it. Most notably, severe flooding caused a chain of supply shocks in one of the country’s central sectors, the agricultural industry. Throughout the summer, a series of floods caused a decrease in production of important exports such as rice and teak. Although the service sector overtook agriculture as the dominant industry around 2011, the agricultural sector still accounts for roughly 40% of GDP and employs nearly 70% of the labor force. Thus, the adverse climate conditions of 2015 had a noticeable impact on GDP growth, income growth, and the employment rate throughout the country.
Overall GDP growth decreased to 7% year-on-year, compared to the 8.5% growth rate that Myanmar sported in 2014. Through the first three quarters of 2015, nominal exports decreased by nearly 12% year on year, while, simultaneously, inflation rose to 16%. Despite these setbacks, though, forecasters expect that the economy will resume its pre-2015 rates of steady growth in the following years. The Asian Development Outlook predicts that Myanmar’s GDP will rebound to a growth rate of 8.4% in the fiscal year of 2016 – a rate faster than any other Asian country.
Yet, in order for every sector of Myanmar’s nascent economy to unlock its full potential on a global scale, it must overcome a series of infrastructural hindrances. Despite its advantageous geographical position in South East Asia, Myanmar lacks a sophisticated network of roads and ports to efficiently facilitate the movement of goods. This poses significant challenges for profitable investments as well. In 2014, only 38% of its roads were paved, and the situation has improved only marginally since. In the following years, Myanmar must divert more resources toward developing its roads, highways, and ports.
Undoubtedly, though, Myanmar has made some significant infrastructural headwinds since 2011, particularly in regards to telecommunications and internet connectivity. In 2010, mobile phone and internet usage were virtually non-existent: a paltry 1% of the population had access to mobile phones. Now, nearly 50% have mobile phone subscriptions. Moreover, 3G networks emerged in 2015, greatly increasing the accessibility of higher-speed data and of the country’s bandwidth potential as well. Circumstances are only set to improve. In early 2016, the government approved contracts for the construction of an undersea fiber-optic cable that will connect Myanmar, Malaysia, and Thailand. Once functional, this cable (known as MYTHIC) will provide Myanmar with 300 gigabits per second of bandwidth – a tenfold increase from the 2013 connectivity capacity. In a mere six years, the internet and telecommunications have improved exponentially. However, the picture is not necessarily as rosy as that data suggests, and the country certainly has lots of room for improvement. Although an increasing percentage of the population can now access the internet and utilize mobile phones, intermittent power and data shortages occur frequently. Moreover, a staggering 75% of the country’s youth reside in homes that lack electricity, according to the Economist. Evidently, though the country is developing at an impressive rate, a great deal of development is still necessary. As connectivity and the power capacity continually improve in the following years, Myanmar will certainly find itself more easily integrated into the global economy.
The story of Myanmar’s financial sector follows a similar trajectory, marked both by significant progress and persistent impediments. After the political regime change in 2011, the government took steps to liberalize the banking system, allowing the central bank to manipulate interest rates in response to economic fluctuations. Furthermore, they loosened banking regulations, permitted the use of ATMs, and allowed for foreign banks to take a small, albeit highly regulated, role in their domestic banking system. Such changes have helped spur foreign investment, though a myriad of problems still remain. At a 2016 international conference of economists in Myanmar, many investors and analysts noted that stifling regulations impede banks’ ability to extend credit and make loans. Many concluded that, although opportunities for growth are positive, the financial sector needs further liberalization in order to stimulate entrepreneurial activity and allow more businesses to flourish. Nonetheless, the country is certainly moving in the right direction and foreign investment is expected to increase. In September of 2016 the government ratified a bill on the Myanmar Investment Law, which simplified the regulatory mechanisms that approve foreign investment applications and encouraged foreign companies to take a bigger role in Myanmar. This landmark legislation should have a significant impact on the amount of Foreign Direct Investment in Myanmar and provides yet another example of the new government’s commitment to developing the economy in a global context.