Rich country, poor people syndrome

Myanmar claims it wants foreign investors, but protective rules and regulations are preventing the economy from really taking off.

Myanmar’s relationship with everything foreign is curious. Xenophobia is a factor not only whipped up by the former regime, but with strong roots in history. Through the centuries Myanmar was frequently overrun by neighbouring kingdoms.

Then again the sparse economic programs of all political parties – including that of the victorious National League for Democracy – all tout the wish to attract foreign direct investment.

Obviously the lifting of sanctions and political stability are important requisites for investors to inject their dollars in Myanmar’s growing economy. When Daw Aung San Suu Kyi waves her magic wand it is to be expected that the US will lift the remaining barriers, a move that the select group of prominent business cronies will welcome. They are the only people around that large foreign parties can realistically do business with.

Problem solved? Not really. Myanmar is still suffering from rich country, poor people syndrome. Economic mismanagement might have ruined the economy all Myanmar are well aware of the potential the country has. Combined with the xenophobic tendencies this has led to the emergence of a regulatory environment that is not really conducive to foreign investment.

Private equity is a point in case. Investors thinking of putting private equity in would usually go for a tried and tested recipe: the money is put on the table, initial losses are made, the investment turns healthy after a couple of years, the company is listed and then the investor will have his money back. Plus a little bit extra.

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In Myanmar the stock exchange, which will make its debut on December 9, will not allow companies with foreign shareholders to list, under the regulations of the Securities and Exchange Law. Little wonder billions of dollars waiting to come in are just sitting there.

Xenophobic restrictions are also holding the property sector back, as foreigners can’t own land in Myanmar and ownership of condominiums is therefore restricted too.

In microfinance regulatory issues are frustrating MFIs looking for foreign debt finance. There is a one billion dollar demand, microfinance institution PACT pointed out, of which only a quarter is met. As a result small entrepreneurs cannot grow and develop their businesses.

In short: Myanmar claims it wants foreign investors, but protective rules and regulations are in practice stifling investment and therefore prevent the economy from really taking off.

Myanmar is not unique in the region in this respect.

Vietnam was suffering from the same syndrome when the tom yam gung financial crisis broke in 1997. As a result foreign investments into the country stagnated. Caught out in the financial desert the Vietnamese government re-thought the regulatory environment, and opened up hundreds of their state owned enterprises to privatization after which foreign investment came back to Vietnam in full force.

Some investors hoping to see progress in Myanmar suggest that policy makers in the Ministry of Finance and at the Central Bank of Myanmar need a wake up call before they will deploy the necessary reforms. For the moment things are not bad enough – there is economic growth and the economy is moving upwards, albeit from a very low base – to spring into action.

The National League for Democracy will face a huge task when it takes power. It will be confronted by a conservative civil service, conditioned during the junta years into thinking that stepping outside the box is dangerous, and a party apparatus devoid of progressive economists. The Lady herself is not versed in economic science either. How will policies that stimulate investment in all the right ways grow on this barren soil?

Let’s hope it won’t take another crash for Myanmar to get its act together.

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