covering burma and southeast asia
Thursday, October 02, 2014
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ARTICLE

Waiting for an Industrial Revolution


By Min Zin AUG, 2003 - VOLUME 11 NO.7


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(Page 3 of 3)

Longer rental contracts of three to five years would be more convenient," a Malaysian industrialist told Rangoon’s Dana business magazine. Since the Foreign Investment Law passed in 1988, the military regime has offered incentives such as tax exemptions and lowered duties. The government has also guaranteed that enterprises would not be nationalized. But observers are cautious about what they see as "on-paper" incentives and guarantees. Economist Khin Maung Nyo says that the provision of actual incentives or "pull factors" is the quickest way to foster industrialization. "But actual implementation must not be contrary to the law. In Burma, bureaucracy appears to be an apolitical push factor against foreign direct investment (FDI)," explains Khin Maung Nyo. Corruption in Burma is so widespread that most companies calculate bribes as part of their overhead. Business owners can also count on meddling by the military government, because in Burma foreign firms are always coupled with the government in joint ventures. "The generals want to attach their name as shared partners to an enterprise that has potential for profit. But they just offer their name, not capital," says Khin Maung Kyi. "Rather than being able to save and reinvest their profits, enterprises have to give shares to the most unproductive force of the country—the generals." According to a report by Burma Economic Watch, published by economists at Sydney’s Macquarie University, foreign companies tend to appoint local managers that have good relations with the government and can avoid bureaucratic delays. As long as this remains normal practice, there is little chance that Burma will be able to generate its own entrepreneurs. The Defense Ministry has its own enterprises and a 40 percent stake in the massive UMEH, Burma’s largest state-controlled firm. The UMEH is a key player in more than a dozen foreign joint ventures. It also manages the army’s pension fund and operates Myawaddy Bank. The Myanmar Economic Corporation (MEC) is another firm founded entirely on capital gained from the regime’s sale of state-owned enterprises. MEC is expanding, and in recent years it has swallowed several private domestic firms and signed joint venture agreements with foreign companies. "All major investments have to deal with the UMEH and MEC. The military’s monopoly frustrates FDI potential. It’s an all-in-all exploitative economy," Khin Maung Kyi adds. As long as the military extracts high dues and keeps a stranglehold on the market, big foreign firms are reluctant to make serious investments. But the real problem may be the lack of cooperation between firms. Experts agree that isolated firms need to be willing to forge links in supply and ordering contracts. Only then can they stimulate each other and contribute to cumulative industrial growth. Other analysts have noted weak links between industry and the main productive sector, agriculture. Economic Development of Burma concluded that there was no cooperation in the food industry between farmers, value-added industries and the final consumer product. If Burmese industry is ever to compete globally, firms need to forge links not just within the country but with buyers and suppliers abroad. Nu Nu Yin suggests that Burmese firms need to improve their relations with partners in other Southeast Asian countries through subcontracts. "If the country’s small- and medium-sized firms can provide manufacturing parts for large firms in those countries, the assurance of their survival is promising," she writes. But with increasing economic pressure from the West and brittle relations with the Association of Southeast Asian Nations (Asean) since the violent attack on the opposition on May 30, improved ties now look like an impossible prospect. Moreover, the regime is notorious for ignoring advice on political or economic matters. "We can’t ask the government to facilitate alternative options for us to overcome the impact of US trade sanctions," says the manager at Myanmar Daewoo. "All we can do is pray for an improvement." The manager says he hopes that one day Burma will prosper. And when asked how Burma could improve its dire economic situation he answered: "Of course, it will depend on political change."


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