Myanmar: Asia’s next rising star

Tuesday, 01 March 2016

Myanmar is one of the remaining frontier markets which is expected to become Asia’s next rising star. Over the past five years, the government has established the necessary fundamental building blocks to tap into the country’s true potential and multiple changes in regulations are already being undertaken to support the economy. Prior to the elections in November 2015, the economy was already projected to grow at a rate of 7 to 8% annually and broad market sentiment is hoping that this can further improve with the National League for Democracy (NLD) winning the elections and about to come to power.

The demographic profile of the country is a strong enabler for this economic expansion – more than half of Myanmar’s 51 million population is under the age of 27; and within this group, a significant proportion is in the 5-14 age range, signalling a potential ‘demographic dividend’ for the nation. However, for this fast-growing nation to reap the benefits in the next 10 to 15 years, future investments have to be targeted and work opportunities have to be created for young people when they enter the working age. In the medium term, investing in a highly educated workforce as well as creating equal job opportunities for all should be at the forefront of Myanmar’s ongoing social and economic transition.

More immediately, traction is expected to be seen in the infrastructure sector across multiple focus segments. With a new economic plan to build critical infrastructure, the pace of urbanisation is expected to grow at a faster rate in the coming years. Some major projects in the pipeline are highlighted below:

  • A Word Bank-aided power supply project is expected to start next year (providing electricity to 125,000 households)
  • Marubeni plans to build a 1,800–2,000 megawatt coal-fired power plant in Myanmar in a joint venture with Thai utilities, for a total investment of around US$3 billion
  • The state-owned Myanmar Railway is to become a public company to attract local and overseas investment
  • The inland port of Mandalay will be handled by Kerry Logistics Network and a local company, Resources Group of Logistics
  • Axiata’s edotco has drawn up a $200 million telecom tower infrastructure investment plan in Myanmar
  • Myanmar recently awarded the contract for Kyaukphyu SEZ, a 1,600 hectare (4,000 acres) Special Economic Zone (SEZ). This SEZ which is currently being developed will house an industrial park, a deep-sea port and a housing project.

Foreign direct investment (FDI) in Myanmar has also risen sharply in past years. The country attracted an FDI of US$3.4 billion in FY 2012-13, US$4.1 billion in FY 2013-14 and subsequently US$8 billion in FY 2014-15. FDI inflows for the current year will probably be lower than 2014-15 but may pick up once the government transition is completed. Going forward, some of the sectors which are well-positioned to attract more investment include Real Estate, Oil & Gas, Telecom, Financial Services and Retail & Consumer.

Key economic reforms

In November 2015’s watershed general election, the National League for Democracy (NLD) won 80% of seats in the new parliament. NLD’s current focus is to create a conducive environment in order to achieve Myanmar’s economic ambitions. Key highlights of NLD’s Economic Plan are fiscal prudence, monetary and fiscal stability, a lean and efficient government, functioning infrastructure, and revitalising agriculture. These in turn are expected to translate into positive macroeconomic trends in the next five years (Figure 1).

Figure 1: Major macroeconomic trends expected to impact Myanmar in the next five years


One key economic reform of the NLD could be to consider the broadening of Myanmar’s tax base. Myanmar’s low tax revenues suggest that the government would only be able to fund the most basic of public services, and hence, would be unable to provide the people with universal access to healthcare, education and infrastructure. Through regulating marginal rates of taxation and introducing new kinds of tax measures to increase the tax base, government revenue could increase and more funding would then be possible for key investments and projects. This will in turn provide a huge support to Myanmar’s economic development.

While the new changes in tax laws may be able to address tax issues, there is still much uncertainty for taxpayers. Tax rules in Myanmar are generally thinly defined and open to interpretation by the tax authorities and taxpayers. This weakens transparency in the tax assessment process, resulting in uncertainties over the tax treatment, further creating opportunities for corruption.  In this regard, the NLD may face challenges and there may be a need for the government to increase its current tax administration through reorganisation of tax administration, training of tax officers and the application of technology.

Another immediate priority that the new government will tackle is reforming the bureaucracy, including streamlining ministries. The Thein Sein cabinet consists of 31 ministries, 37 ministers and numerous deputy ministers. Government administration is currently inefficient and lacks collective control and coordination, creating conditions which could potentially lead to widespread bribery, corruption, and illegal collection of fees between government servants and the public. Under the NLD, government operations are expected to be simplified and streamlined by removing rigid controls. This reformative process will then lead to a lean and efficient administration. It is hoped that NLD’s policy objectives will create foundational institutions, transparency and accountability, in order to foster inclusive and sustainable growth.  

Over the next five years, the macroeconomic environment in the country is set to significantly improve and the overall outlook for Myanmar is quite positive. However, there exist some critical risks and dependencies which need to be addressed for the country to achieve its true potential. The starting point here is a smooth and complete transition to the new government – which seems to be well on track. Thereafter, a holistic focus on driving inclusive growth and prosperity is needed. This is already part of NLD’s election manifesto, but it is the implementation of this manifesto that will be challenging and critical to success. 

Jovi Seet | Partner, PwC Myanmar


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