Hong Kong Export Credit Insurance Corporation | 30 Sep 2015

Myanmar: Much Economic Reform to be Done

Strengths

• Rich endowment of natural resources
• Geographic location between Mainland China and India
• Young and low-cost labor force

Challenges

• Political and economic reforms
• Ethnic and sectarian tensions
• Limited economic diversification
• Deficient basic infrastructure

Source: Economist Intelligence Unit (www.eiu.com)

Political Trend

Following decades of military rule and isolation from the rest of the world, Myanmar has taken steps in the transition to a more open country and initiated a series of political and economic reforms.

However, Myanmar’s reform process has been slowing over the past three years. The military still dominates key decision-making and the current constitution will continue to entrench the primacy of the military. The authorities announced in late 2014 that a general election would be held in the last week of October 2015 or early November. Even if the opposition wins the election, the military will remain politically powerful.

Apart from the political issues stemming from the liberalisation process, the government also faces other major challenges. Internally, ethnic and sectarian divisions continued. Externally, the relations with the West could still be volatile due to the government’s handling of ethnic, religious and social unrest. Thanks to the political liberalisation, Myanmar has re-engaged with the West. The United States and the European Union have lifted some of their sanctions against Myanmar. A fair election this year would ensure a stronger Western engagement.

Economic Trend

Myanmar's economy is predominantly agricultural, accounts for about 37% of GDP. The country has rich endowments of natural gas, oil, and precious stones. Its Buddhist temples have boosted the increasingly important tourism industry. Since the transition to a civilian government in 2011, the country has begun an economic overhaul aimed at attracting foreign investment and reintegrating into the global economy. Economic reforms included establishing a managed float of the Kyat, granting the Central Bank operational independence, liberalizing the telecommunications sector, and enacting a new Anti-corruption Law. Young labor force and ASEAN's membership have attracted foreign investment in the energy sector, garment industry, information technology, and food and beverages.

The growth prospect of the Myanmar economy remains favorable, should the reforms are sustained. The expectation of interest rate hike by the Federal Reserve and the wide current account deficit will continue to put downward pressure on the Kyat this year. The weaker Kyat suggested imported inflation would worsen. Combined with growing domestic demand, inflation rate would rise to 8.4% in this financial year, before easing somewhat to 7.6% in FY 2016.

Myanmar remains one of the poorest countries in Asia, with GDP per capita of just over US$ 1,200 in FY 2014. From a strategic development point of view, improvements in agricultural productivity is of central importance, as the sector represents the core means of livelihood for the majority of the population.

Hong Kong – Myanmar Trade

Total exports from Hong Kong to Myanmar increased by 43.5% from HK$ 869 million in 2013 to HK$ 1,246 million in 2014. The top three export categories to Myanmar were: (1) telecommunications, audio & video equipment (+59.6%), (2) textiles (+72.7%), and (3) photographic apparatus, equipment and supplies and optical goods, nes; watches and clocks (-20.5%), which represented 61.4% of total exports to Myanmar.

ECIC Underwriting Experience

The ECIC imposes no restrictions on covering buyers in Myanmar with the exception of those under US and EU sanctions[1]. From June 2014 to May 2015, there was no insured business on Myanmar.

[1] EU sanctions: http://eeas.europa.eu/cfsp/sanctions/index_en.htm;
US sanctions: http://www.treasury.gov/resource-center/sanctions/Programs/pages/burma.aspx

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