Saturday, September 21, 2013

20-9-2013 Overview of Trade and investments and economic development in Burma

Presentation by Dr. Tint Swe
Roundtable Conference on “India’s Response to a Changing Burma”
20-9-2013

I will begin with some good news which will be followed by real state of Burma’s economy. Economy of Burma is emerging with an estimated nominal GDP of $51.93 billion, a purchasing power adjusted GDP of $83.74 billion and the real growth rate is estimated at 5.5% for the 2011 fiscal year. In that year Burma embarked on a major policy of reforms including currency exchange rate, anti-corruption, foreign investment laws and taxation. Foreign investments increased from $300 million in 2009-10 to a $20 billion in 2010-11 i.e. about 667%. The government also relaxed import restrictions and abolished export taxes.
According to Burma Foreign Investment Law (2012 Union Parliament Law No XXI)
• For the first 5 years of operation, you will not be required to pay income taxes
• Tax exemption on reinvested profits (those reinvested within one year)
• Accelerate depreciation of assets
• 50% reduction on taxes if your goods are produced for export
• You can deduct research and development expenses
• No customs duties on materials used for initial construction
• No taxes on raw materials imported in the first three years
• No commercial tax on goods produced for exporting

Burma’s economy can be basically termed as of “Oil-and-Gas”, which was preceded by “Narcotic-generated” economy.

Opium propelled economy
• Burma is the largest producer of methamphetamines, a psycho-stimulant drug in the world.
• Illegal narcotics have generated $1 to $2 billion USD in exports annually, with estimates of 40% of the country's foreign exchange coming from drugs.
• The major drug traffickers are allowed to penetrate other sectors of the Burmese economy, including the banking, airline, hotel and infrastructure industries.
• Their investment in infrastructure have allowed them to make more profits, facilitate drug trafficking and money laundering.

Oil and gas
• The Myanma Oil and Gas Enterprise (MOGE) is the sole operator of oil and gas exploration and production, as well as domestic gas transmission through a 1,900 km onshore pipeline grid
• The Yadana Project is a project in the Andaman Sea and to carry natural gas to Thailand
• Sino-Burma pipelines links Kyaukphyu with Kunming in Yunnan province, China
• Burma exported $3.5 billion worth of gas, mostly to Thailand up to March 2012
• Initiation to bid on oil exploration licenses for 18 of Burma’s onshore oil blocks has been released on January 18, 2013

Foreign Direct Investment
• In the first nine months of 2012-2013, Burma has received investment of USD 794 million. China has biggest of investment commitments for this fiscal.
• Total foreign trade for 2012 was recorded to USD 13.3 billion. It was 27% of GDP.

Macro-economic trend
Though foreign investment has been encouraged, it has so far met with only moderate success. This is because foreign investors have been adversely affected by the government policies. The public sector enterprises remain highly inefficient and also privatization efforts have stalled. A major ongoing problem is the failure to achieve monetary and fiscal stability. Thus Burma remains a poor country with no improvement of living standards for the majority of the population over the past decade. The main causes for continued sluggish growth are poor government planning, internal unrest, minimal foreign investment and the large trade deficit. Currently, Burma has attracted investment from Thai, Malaysian, Filipino, Russian, Australian, Indian, and Singaporean companies. Trade with the US amounted to $243.56 million as of February 2013, accounting for 15 projects and just 0.58 per cent of the total, according to government statistics.
I will continue with ground reality.
• In a first ever countrywide study the Burma government found that 37% of the population are unemployed and an average of 26% live in poverty.
• Inflation is a serious problem in Burma. Inflation averaged 30.1% between 2005 and 2007.
• Burma currently had a dual exchange rate system with the market rate around 200 times below the government-set rate in 2006. In 2011, the government enlisted the aid of IMF to evaluate options to reform the current exchange rate system, to stabilize the domestic foreign exchange trading market and creates economic distortions.
• The major agricultural produce is rice which covers about 60% of the country's total cultivated land area and it accounts for 97% of total food grain production by weight. Rubber plantations are being promoted. But the lack of an educated workforce skilled in modern technology contributes to the growing problems of the economy. The private sector dominates in agriculture, light industry, and transport activities, while the military government controls energy, heavy industry, and rice trade.
• Today, Burma lacks adequate infrastructure. Railroads are old and rudimentary, with few repairs since their construction in the late nineteenth century. Highways are normally unpaved, except in the major cities. Energy shortages are common throughout the country including in Rangoon. More than 45 million of the country's population is without electricity, with 70 per cent of people living in rural areas.

Facts for those who want to do business in Burma: Cost of Labor in Burma (2012 Labor cost in Rangoon)
• Blue Collar Unskilled Workers = 100 $
• Semi-skilled Workers = 150 $
• Supervisors / Team Leaders = 200-300 $
• University Graduates with knowledge of computers and English = 300-500 $

Average rent per month in Rangoon for prime property:
• Apartment 1 br, city center: $570
• Apartment 3 br, city center: $970
• Average apartment price per square meter in Rangoon downtown: $1,230

Cost of Office Space in Burma
• There are only 3 office towers in Burma: Sakura Tower, FMI Centre, and Centre point. Sakura Tower is completely occupied
• Property reserved for future business districts is going at $4,000 per square meter
• Rangoon’s total stock of office space is only 63,000 sqm, which represents less than 1% of 8.1mn sqm of office space in Bangkok
• As demand by foreign companies increased, the average rental rates for office space in 2012 year-to-date jumped 50%. In the downtown area, office rental rates currently exceed $50 per sqm/month. The retail supply in Rangoon is also very low compared to its peers in Asia-Pacific, although at over 150,000 sqm it is significantly more than office space

Cost of Construction in Burma
• Burma’s construction sector grew at an average rate of 11.5% annually from 2007 to 2011
• Performance in the infrastructure and residential over 2007-2011 and account for 78 % of total construction value
• Construction industry was estimated at value close to $ 3 Billion US. There are expectations for the sector to reach $ 4.2 Billion US in 2016
• Residential construction was the largest market in the Burma construction industry with a value of $1.5B, and accounting for 51% of total Burma construction output in 2011
• The average residential property price in Rangoon has surged +39% during 2011-2012, increasing from $61 per sqf ($657/sqm) at the beginning of the year to $85 per sqf ($913/sqm)
• Construction sector average salary $130/month


Banks in Burma A major banking crisis in 2003 shuttered the country's 20 private banks and disrupted the economy. Though the Burmese government has good economic relations with its neighbors, better investment and business climates and an improved political situation are needed to promote foreign investment, exports, and tourism. The level of international aid to Burma ranks amongst the lowest in the world. Burma receives the $4 per capita in development assistance, as compared to the average of $42.30 per capita.

Burma will likely allow international banks to operate by 2015 as it revises laws to attract foreign investment. The authorities plan to complete amendments to laws on banking, insurance and foreign exchange operations. Burma's financial system remains primitive by international standards, and the country only recently got its first ATMs. The country also employs a confusing multiple exchange-rate system, though Burma's government is widely expected to change that system in favor of a single exchange rate soon.

List of Government Banks in Burma (7)
1) Central Bank of Burma
2) Myanma Agriculture & Dvpt. Bank
3) Myanma Economic Bank
4) Myanma Economic Bank
5) Myanma Foreign Trade Bank
6) Myanma Inv. & Com. Bank
7) Sibin Tharyar Yay Bank Ltd.

List of Private Banks (11)
1) Co-operative Bank Ltd. (CB Bank)
2) First Commercial Bank
3) First Private Bank Ltd. (HQ)
4) Innwa Bank Ltd.
5) Kanbawza Bank Ltd. (KBZ Bank)
6) Myanma Livestock & Fisheries Development Bank Ltd.
7) Burma Citizen Bank Ltd.
8) Burma Industrial Development Bank Ltd.
9) Burma Universal Bank Ltd. (MUB)
10) Myawaddy Bank Limited.
11) Tun Foundation Bank Ltd.

Bullet points
• Burma's foreign trade hit nearly $5 billion in the first three months of the fiscal year 2012-13
• Of the foreign trade, over $1 billion were gained through border trade
• Of the total trade volume, the exports amounted to $2.37 billion, while the imports amounted to $2.41 billion
• Natural gas topped the country's exports with nearly $800 million, followed by agricultural produces, gem, forest and marine products.
• In the fiscal year 2011-12, Burma's foreign trade reached $18.15 billion, of which the export took $9.09 billion, while the import accounted for $9.053 billion.
• Gross Domestic Product = $ 54.416 billion (2010 estimate)
• GDP (Purchasing Power Parity) 88.751 billion of International dollars (2010 estimate)
• Real GDP growth 2009 (5.1%), 2010 (5.3%), 2011 (5.5%), 2012 (6%)
• Inflation 2009 (8.2%), 2010 (8.2%), 2011 (4.2%), 2012 (5.8%)
• Current account balance $ -2.3 billion (2010 estimate)
• Current account balance by percentage of GDP -4.3% of GDP (2010 estimate)
• Exports - major partners Thailand 37.1%, China 19%, India 12.3%, Japan 6.7% (2011)
• Imports - major partners China 39.2%, Thailand 22.9%, Singapore 9.8%, South Korea 5.4%, Japan 4.1% (2011)

Conclusion
Figures are data for consumption of the people sitting in AC room. But the people on the streets, in the fields and at the work sites consume the real eatable rice and food. The quality and quantity of food Burmese people are having today is more or less the same as those of years ago. The investment in education and heath sectors are marginal. Even five-star hospitals and advance learning institutions built by foreign countries may not really help the health status and education level of general population in Burma.

When we have more physically healthy, mentally strong and intellectually competent people who are living in an environmentally friendly houses provided that the pregnant mothers die less and infants survive more than before, I would say economy becomes better whoever rules in Burma.

Thank you very much!

Dr. Tint Swe
Burma Center Delhi (BCD)