Fast-tracking Myanmar's reform

By Stephen P. Groff

Over just three years, Myanmar has introduced ambitious reforms that have put it on track toward becoming a modern economy. Against a backdrop of ongoing political challenges this remains an extraordinary and hopeful moment. But bigger challenges lie ahead. To avoid backtracking ― and to realize its full potential ― Myanmar needs to accelerate momentum in its push for reform.

Further reforms must focus on providing more people with better chances to grasp economic opportunities ― and soon. Undue delays risk losing the momentum that is central for reforms to be successful. The key challenge on this front is job-creation. Proper jobs and learning opportunities, especially for youth, are critical not just for sustained growth, development and social stability, but also for the public support needed to drive reform forward.

Growth is imperative for a country with per capita income of about $900 ― making it one of the poorest countries in Asia, along with Afghanistan, Bangladesh and Nepal. Myanmar’s current growth relies on a narrow field of industries, driven by exports of natural resources ― mostly gas and mining products ― construction and tourism.

Time is of the essence for Myanmar. Its window of opportunity is narrowing rapidly.

Market forces unleashed by reforms are already presenting challenges. Faster growth and an influx of foreign investment are fueling inflation, jeopardizing macroeconomic stability. With the financial market still underdeveloped, large capital flows and increased private sector investment put strong upward pressure on prices of real estate and services. This could strengthen the currency, which would reduce export competitiveness. Meanwhile, rising property and service prices could depress foreign investment in other productive sectors such as manufacturing.

Galvanizing reform is essential for building institutional and market capacity to manage these forces. A top priority should be to exploit clear opportunities for targeted investment in agricultural infrastructure, institutions and innovation to spur rapid productivity growth. This will immediately benefit those who depend on agriculture for income and food security, and also contribute to high and inclusive growth. After all, agriculture accounts for 30 percent of Myanmar’s gross domestic product, and more than 50 percent of employment. With relatively abundant land, water and labor, coupled with proximity to the world’s fastest growing markets for food, Myanmar has comparative advantages in this area.

Second, there is great scope for Myanmar to implement policies to improve its business environment. Much progress has been made on removing barriers to business and promoting an investment-friendly climate, but much more needs to be done. The latest World Economic Forum’s Global Competitiveness Report ranks Myanmar 139th out of 148 countries on the Global Competitiveness Index and 141st in terms of infrastructure.

Those rankings must improve if Myanmar’s reform program is to meet expectations. Quality infrastructure is a crucial element to enable better business conditions and will help to unlock the economy’s potential. Myanmar’s infrastructure gaps are massive. A new study by the Asian Development Bank puts investment needs for simply meeting increasing electricity demand at between $15 billion and $30 billion through to 2030. The government also needs to coordinate and calibrate its policies to provide systemic support in the shape of an improved regulatory environment, more investment in physical and social infrastructure, a stronger banking sector and deeper financial markets.

A third pivotal task for Myanmar is the development of a dynamic private to generate adequate employment and sustainable growth. This requires longer-term commitment to skills development and investment in human capital. After decades of underinvestment in education and training, raising educational standards, qualifications and the skills of the labor force ― across the entire country ― is a huge but unavoidable challenge.

Near-term policy measures should focus on upgrading skills and vocational training with targeted financial assistance. But it will take more than money. The education system requires comprehensive reforms at all levels if it is to provide the skilled graduates that Myanmar’s more open and sophisticated economy will require as the country moves up the regional and global value rankings.

Finally, Myanmar needs strong institutions to safely navigate its return to the global economy. Incomplete institutional frameworks, hamstrung by weak human resource capacity, are arguably Myanmar’s biggest hurdles. Basic legal, regulatory and institutional frameworks are being put in place. But new institutions need capable human resources to do their job properly. Strong institutions are about systems and people as much as new regulations and laws.

If designed carefully and managed soundly, reforms across these fronts will generate better human, social and physical capital. Myanmar has made a strong start. It needs to build swiftly on that in order to ensure long-term success.

Stephen P. Groff is the Asian Development Bank’s vice-president for East Asia, Southeast Asia and the Pacific. Follow him on Twitter @spgroff.