Suu Kyi’s fading allure repels foreign investors
Laggard market reforms, rising political instability and incipient economic nationalism have all conspired against a democracy-driven economic boom in Myanmar
Soe Lin Htat sold his wife’s jewelry and a condominium to keep his media and marketing business afloat before Myanmar started to open to foreign investment.
A contract his 39 Media & Marketing Services Company won to provide advertising for Norwegian telecom giant Telenor, one of first foreign companies granted a major local operating concession in 2013, quickly reversed his fortunes.
When Aung San Suu Kyi’s National League for Democracy (NLD) won election in 2015, heralding a promised new era of political and economic openness after decades of isolated military rule, Soe Lin Htat diversified into building luxury homes in anticipation of an influx of foreign businessmen entering the country’s ballyhooed “last frontier” markets.
“Democracy had come so we hoped for a lot of foreign investment, a lot of American companies would come, so we could do business with them,” Soe Lin Htat said of his earlier expectation of a foreign direct investment (FDI) boom under Suu Kyi’s elected rule. “But nobody came.”
With such sky-high expectations, FDI commitments and inflows have been disappointing under Suu Kyi’s one-and-a-half year rule. Myanmar Investment Commission (MIC) new project approvals peaked at US$9.5 billion in fiscal 2015/16, a reporting period that ended on March 31, coincident with the previous military-backed quasi-civilian regime’s departure.
Those commitments tapered off to US$6.6 billion under Suu Kyi’s first year in the same fiscal period. More significantly, actual FDI inflows fell from US$2.8 billion in 2015 to US$2.2 billion last year, according to United Nations figures. Vietnam, by comparison, reported US$11.8 billion in FDI inflows in 2015 and US$12.6 billion last year.
In the first four months of fiscal year 2017/18, the MIC approved US$3.0 billion in new FDI projects, led by Singapore and China, but also with US$122 million in new US investment projects.
Former US President Barack Obama pushed through preferential Generalized System of Trade Preferences status for Myanmar last October, his parting gift to a country he twice visited and considered one his administration’s major foreign policy successes.
Current US President Donald Trump’s administration has expressed more interest in the country’s lingering links to North Korea than its democratic and economic progress.
While the Rakhine state conflict and emerging humanitarian crisis has tarnished Suu Kyi’s fast-fading reputation as a democratic heroine, new allegations of extreme rights abuses are not expected to result in a renewal of the US and EU sanctions that for decades crippled Myanmar’s economy.
But rising political instability will not help to attract foreign investment in what was already widely viewed as a high-risk business environment.
Expectations were never exceedingly high for Suu Kyi’s or the NLD’s economic credentials or technocratic capacity to orchestrate a fast economic boom. Upon assuming power, Suu Kyi stressed her main priority would be bringing peace to the civil war-wracked country and promoting health, education and other social concerns of the “grass roots.”
Still, the NLD has concentrated on cleaning up some of the fiscal mess left behind by the nominally-elected regime of former President Thein Sein. “It had to get the economy off what I call the sugar rush,” Sean Turnell, an economics professor at Australia’s Macquarie University who acts as an economic advisor to Suu Kyi, told a seminar last month in Yangon.
Turnell claimed Thein Sein’s regime oversaw a 31% increase in the amount of money printed by the central bank in the 2015 pre-election period, the wonted means successive military regimes used to finance budgets. “The government was pumping unfunded money into the country. One of my messages is that macro-stability is absolutely necessary.”
Since coming to power, the NLD government has reduced the budget deficit from 4.5% of gross domestic product (GDP) in fiscal 2015/16 to 2.5% in 2016/17.
That tightening has helped to bring down inflation from 11.4% to about 6.3% currently over the same period. The World Bank, meanwhile, has forecast the economy will grow 6.9% this year, the second fastest pace lagging only Cambodia in the region.
With that relative macro-economic stability, Myanmar is now better positioned to attract international finance to help pay for the massive infrastructure building it needs to jump start the economy into a higher gear.
Concessionary finance is already starting to come in. The World Bank recently signed a loan agreement to provide Myanmar with US$200 million per annum for the next six years to help finance its budget at 0% interest rates and with a 45-year payback deadline.
That’s a good start, but still a long way from the billions of dollars needed to build the power plants (less than 30% of the population has access to electricity), roads and airports the country needs to grow after decades of chronic military mismanagement of the economy.
“US$200 million from the [World Bank] is a pimple on an elephant’s behind,” said Eric Rose, lead director of Herzfeld Rubin Meyer & Rose Law Firm Ltd, the first US law firm to set up shop in Yangon.
One path towards attracting the amount of international finance and investment the country needs is to secure a proper sovereign credit rating.
US-based Citibank has been providing advice on this procedure for the past three years, but Turnell and Central Bank of Myanmar sources note it has not been not one of their policy priorities. Without a credit rating, there is no benchmark for either the government or Myanmar companies to issue dollar-denominated bonds abroad.
Other items on Western investors’ wish lists include better intellectual property protections, licenses for foreign insurance companies to help develop the bond market, and privatization measures that unwind various pricing distortions in local markets.
Many saw the recent appointment of former deputy central bank governor Set Aung as deputy minister for national planning and finance and the removal of the previous minister in charge of electricity as positive signs.
But there are questions about how much Set Aung, who holds a doctorate degree from Japan and was credited for pushing through market reforms under the former Thein Sein regime, can do on his own.
Some see Suu Kyi’s governance style, where all key decisions must meet with her approval, as an added layer of encumbrance in what was already a labyrinthine and slow-moving decision-making apparatus.
So, too, is an incipient trend towards economic nationalism among local tycoons, many linked to the previous military regime, who view foreign competition as a threat to their interests.
Set Aung’s appointment may be a step in the right direction, but the jury is still out on whether the government is ready and able to launch the various measures needed to orchestrate a foreign investment-led economic boom on the scale many anticipated upon Suu Kyi’s elected rise to power.
Businessman Soe Lin Htat, for one, is still hopeful. “[Suu Kyi] emphasizes peace, which is good, but if business can grow the country will have peace,” he said. “With money you can do anything.”