As Rakhine issue deepens, Myanmar’s businesses fast losing confidence in economy

As Rakhine issue deepens, Myanmar’s businesses fast losing confidence in economy

Larry Jagan,

Amid the growing international outcry over its handling of the Rakhine issue, the Myanmar government has sought some respite by boosting economic growth. But the country’s business community has been left cold by the government’s recent drive to attract foreign investment.

The government has sought to put up a brave face and launched a diplomatic offensive to improve its international image, although the problems in Rakhine have overshadowed its appeal to western companies.

In the meantime, the country’s businesses are growing disillusioned with the government’s hyper spin and believe that Myanmar is approaching an increasingly desperate future. Besides, foreign investment has plummeted in the last 12 months.

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“The situation is increasingly hopeless,” said Moe Kyaw, head of the Myanmar Marketing Research and Development Company (MMRD), and a leading member of the business federation, the Union of Myanmar’s Chambers of Commerce and Industries (UMFCCI).

“With the plummeting kyat (against the dollar), increasing redundancies and spiraling tax bills, we’re facing an ever-bleaker future,” he told the South Asian Monitor in an interview last week. Business desperately needs help, he added. His views represent the general feeling among the Myanmar business community as the gulf grows between the government’s view and the perception of the country’s business leaders.

“Myanmar is now definitely open for business,” the new chairman of the Myanmar Investment Commission (MIC), Thaung Thun, told a group of foreign businessmen in Yangon recently. This message has been reiterated by the country’s civilian leader, State Counselor Aung San Suu Kyi several times over the last month.

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In August, on a trade trip to Singapore, Suu Kyi addressed an international audience of government officials, academics, businessmen and students, followed by a meeting with the country’s leading businessmen in the capital Naypyidaw a fortnight later. Earlier this month, she addressed an elite international audience at the World Economic Forum in Hanoi.

But the repeated refrain was the same: join Myanmar’s exciting economic developments and take up the investment opportunities that are being created. “I would like to invite our friends to join us on our journey. Our journey is not a simple one; it is an adventure into our unknown future,” she said in Singapore. “We have many challenges to face, many weaknesses that we must address, but we have confidence, confidence in the ability and the capacity of our people to grow into these challenges,” Suu Kyi said.

“I’d like to invite entrepreneurs to invest in our young people and in research, on which we currently spend very little,” she told her international audience in Hanoi. “Unless you work with people, you cannot help a country to achieve sustainable development.”

Her other mantra is with the people, for the people. This is only a slogan, with no substance or commitment, according Zaw Naing of Mandalay Technology. “There is an acute lack of leadership and management on the part of the government,” he said. “They need to bring in new blood at ministerial level: a younger generation, more dynamic, more energetic, with more initiative,” he argued. There are only one or two ministers under the age of 50, with most of them in their 70s and 80s. A more vibrant management is needed throughout the government administration. Otherwise, the future is bleak, he suggested.

But the real problem though, said Zaw Naing, is that the government—and Suu Kyi in particular—is not listening to anyone, and certainly not the business community. In fact, according to Moe Kyaw, she avoids the business community at almost all cost. Access to her is restricted, he added. She leaves it to her “economic team”, especially Thaung Tun who was recently appointed as chairman of the Myanmar Investment Commission.

“Measures to make doing business easier in Myanmar, to attract investment and reduce bureaucratic delays have recently been put into place,” he told Asia Focus recently. Thaung Tun also recently decisively cancelled the use of landing and departure cards in an effort to improve tourism, which has stagnated since Suu Kyi’s government took office in 2016. But the government’s efforts to improve business confidence and attract foreign investment have fallen flat, according to Moe Kyaw.

The national employers’ association, UMFCCI, has been monitoring local businessmen’s attitudes ever since the National League for Democracy (NLD) took office, in a quarterly online survey of its 31,000 members. The latest survey results reveal a strong decline in business confidence over the last two years. In the last three months, those confident about the future fell by over 10 percent, with less than two-thirds of businessmen who responded to the survey confident about the future. It has steadily declined since 2016. Forty percent of businesses reported their pessimism about the future.

Only 16 percent of businesses reported that they were doing well, a fall over 50 percent over the last three months, with a three-fold decline since the NLD took office. “There was incredible euphoria when Suu Kyi won the elections,” said Moe Kyaw. “There was so much hope then but that has quickly given way to despair and hopelessness,” he added. The vast majority of businesses said they were stagnating.

The government has relaunched its drive to boost economic development. With elections some two years away, government ministers understand the political future of the country is on the line. A series of organisational changes have been rolled out to revitalise the government’s economic plans and implement a comprehensive strategy.

This is partly in response to the business community’s increasing frustration with the lack of government direction and policies. For months Myanmar’s businessmen have been complaining that the government has not shown any leadership, its economic policies lack direction and there was an absence of new initiatives on the horizon.

One of these is the new Companies Law that came into effect three months ago. The government hopes this will help kick-start its efforts to attract foreign investment. The law, which took more than two years to finalise, will eliminate layers of bureaucracy and streamline the company registration process, creating greater investment opportunities, especially for foreign businesses. Under the new law foreign investors will also be permitted to trade on the Yangon Stock Exchange (YSX), but officials have cautioned that more time will be needed before this is fully implemented.

“It’s a game changer,” said Aung Naing Oo, Director General of the Directorate of Investment and Company Administration (DICA).“It will support the momentum of economic growth and provide a major impetus for foreign investment, by making it much easier for foreign investors,” he told SAM.

But for foreign companies investing in Myanmar is not without its dangers and pitfalls. “We see that many Norwegian—and other Westerns companies—have entered the market without a good strategy and understanding of the business environment,” said Ola Nicolai Borge, a Norwegian lawyer and business consultant, who has been based in Myanmar for many years, and is also president of the Myanmar-Norway Business Council.

“Those businesses have often failed, while businesses that have done their homework have had very good commercial success,” he warned. “So, I guess the message is: ‘Do your homework!’”

But while the government’s push to boost economic development and attract foreign investment is going full-steam ahead, the Rakhine problems still cast a long shadow over Myanmar’s investment climate, especially in attracting foreign investment. In the interim, Myanmar will have to rely on Asian investors, said Aung Naing Oo. “We cannot expect investment from the West in the near future,” he said. Not for two or three years at least.

“I totally underestimated the impact of the Rakhine crisis on foreign direct investment from the West,” he said. “We don’t expect it to change in the near future,” he lamented. Though the government will try to restore better relations with those countries and, as a consequence, we hope investment from them will come.

Already the currency depreciation—nearly 20 percent in the last three months— has hit many companies, with lay-offs increasing daily. MMRD has had to release around 15 percent of its workforce as a result of the currency’s depreciation. And with this to fall further, MMRD’s boss Moe Kyaw fears he will have to let even more workers go.

The UMFCCI business survey identified the depreciation of the kyat as the main reason for their decline in business, and fear about further currency depreciation remains the biggest concern for the future.

Zaw Naing, reflecting most Myanmar businesses, predicts that nothing is going to happen until after the next elections in November 2020. “We have no choice but to carry on, it’s about survival,” he said.