A long and painful journey awaits Myanmar’s new government
Apr 2nd 2016 Economist
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.”