It was not long ago that a visitor to Yangon would have to navigate the city’s largest market, weighing up which whispering street banker one trusted the most, just to change money. The currency, the kyat, was pegged by the then government to the ludicrous rate of 6.4 Kyat to the dollar, when in actual fact, the market rate fluctuated around 1,000.
The government, which is now nominally civilian, accepted the folly in this charade and floated the currency. This move, economically at least, breaks with a half century of destructive denial. The International Monetary Fund (IMF) attributed Myanmar’s progress to an “ambitious reform programme” that is now “bearing fruit.”
Despite Myanmar’s new-player status, its economy bears significant resemblances to that of Bangladesh, though there are important differences that give Bangladesh Plc. reason for concern.
Both countries have GDP growth rates of around 6%, which is generally healthy in a global context. Myanmar’s, however, appears to be rising while Bangladesh’s has fallen in the short term. This could be a cyclical issue: Myanmar is “novel, and constitute[s] for a while, a more attractive narrative to sell to shareholders” according to Professor Sean Turnell of Australia’s Macquarie University. Bangladesh is currently plagued by what Turnell describes as an, “increasingly insufferable ‘governing’ apparatus.”
The 5-year cycle
Bangladesh has weathered storms before, or, as Shadab Sajid of W&W commodities traders describes, “We weather them every five years.” It is a cycle whereby every time there is an election, political instability causes Bangladeshi economy to slow in growth as investors take fright at the sight of our leaders’ attempts to grab power for whatever financial or political gain it can offer.
Garments
Bangladesh, of course, has a trump card: the garments sector. The tragedies of Rana Plaza and Tazreen fashions, however, raise fears that investors may be wary of the image that brand Bangladesh’gives to their products. This is especially so as Bangladesh labours with implementation of regulations and basic legal cases; there have been no arrests made in either the case of the murder of labour organiser, Aminul Islam, or in the case of the owner of Tazreen Fashions, Delwar Hossain. While orders for garments were, according to the Financial Express, down by 30-35% for the spring/summer season, the EU has awarded Myanmar GSP status. The EU is Bangladesh’s single biggest export destination for RMG. Myanmar also possesses extremely low labour costs, which is possibly the single biggest consideration for the international trade. Moreover, there is concern that with expected wage rises and new compliance obligations, prices in Bangladesh will soon start to rise, as savings are not added as wages go up.
Infrastructure
The garment sector cannot set up in Myanmar over night, and many of the challenges that plague Bangladeshi manufacturers similarly plague Myanmar, namely, as Turnell states, “infrastructure (the world having decided it can live with the country’s politics). Electricity is the big issue here, of course. The cost of generating it privately (very necessary to maintain the production lines required) fast erodes labour cost advantages.”
In essence then, both countries now have a challenge: to provide their countries with electricity and transport. As a result, the Padma Bridge experience is worrying. Corruption is a major issue in Myanmar too, but foreign stakeholders have not had their fingers burnt yet, since the Myanmar government stopped servicing loans from the Asian Development Bank (ADB) in the late 1980s (which resulted in a freeze in lending from the major multinational financiers such as the World Bank and the ADB).
The enthusiasm for Myanmar has meant that a slew of foreign governments and corporations have stepped in to look at infrastructure, a move that could see Myanmar not only possessing similarly cheap labour costs, but also working systems and services. It is early days yet for Myanmar, but a comparison between a proposed Tata industrial estate in Bangladesh, which was shelved in 2008, and projects such as the Thilawa port near Yangon, are worth making.
The Tata project would have been one of Bangladesh’s largest foreign direct investments, with a steel plant, two power plants and a fertiliser plant. It was shelved, allegedly, because of an anti-India bias here. The Thilawa port and the proposed Dawei project are two foreign-led port and industrial estate projects that aim to produce transport hubs in Myanmar. Thilawa is Japanese-led and Dawei Thai-led, with potential Japanese funding. While Myanmar and Thailand share neighbourly rivalries and a troubled history, Dawei is not being stifled by such animosities, but rather the over ambition of its Thai creators.
Good neighbours?
Myanmar has a large advantage here. Her neighbourhood, while far from being a bed of roses, is far more functional than Bangladesh’s. Myanmar, for all its political problems, does not have political parties that are defined by their animosity to its neighbours. There is a common suspicion of China, but Myanmar can play that huge power in the north off against countries within the ASEAN bloc. Thailand, Malaysia, and Singapore, for instance, offer huge potential for FDI, not least because the ASEAN free trade area will take root in Myanmar as of 2015. While this may cause longer-term internal deficiencies, in the medium term, this will provide steady and potentially decisive investment. Myanmar planners confide that it will be a race against time to equip the country’s businesses to be ready for this transition; Myanmar companies are hungry to absorb skills and capacity ready for this new-found exposure to one of the largest single markets on earth.
India, for its part, is not an ideal neighbour to either country. However, Bangladesh is much more wedded to it by geography and history. Indicative of it being a poor neighbour is the relative speed with which Indian hydro projects have progressed in Myanmar compared to their Chinese counterparts, and India’s flip flopping with regards to their Myanmar stance. In the 1990s India supported Myanmar’s democracy movement, but over night, in 1998, became accustomed to working at the behest of the Myanmar military intelligence to ruthlessly suppress opposition. Regressive trade policies between ASEAN and Myanmar, and India and Bangladesh also stand in stark contrast. While Bangladeshi politicians block Indian transit to their northeast, Indian politicians place prohibitive non-tariff barriers on Bangladesh, which sees a huge trade deficit in favour of India; the World Bank estimating that much bilateral trade may be illegal.
Tourism
Tourism is another sector where Myanmar will likely see double-digit growth while Bangladesh will lag. Myanmar’s tourism sector has boomed since the country had its apparent opening to the world. The country is far less densely populated than Bangladesh, and so has more of the rural idyll to offer. Though Myanmar has bigoted politicians, it does not have parties or mass movements that call for men and women not to mingle in public: which would be an obvious joy kill for any family holiday. The country’s acceptance meanwhile of leisure activities such as drinking or peacefulness, also gives it an edge over Bangladesh. Tourism may not seem like a decisive industry but can be extremely potent for developing economies, offering it, mass, low-skilled employment and export earnings with little complex planning needed.
Remittances
Bangladesh, of course, has an answer in the form of remittances which keep Bangladesh’s current account rosy, even as we experience capital flight equivalent to about double yearly FDI inflows, partly a result of our five-year cycle of political instability. Remittances also help Myanmar, but are, until now, largely off the books, partly as a result of the lack of financial institutions which say the IMF is another sector in which Myanmar will experience double-digit growth. However, the Bangladeshi tradition of exporting labour will take some catching up to, particularly given the strong and organised links that the country has to the Middle Eastern petro states; relationships that Myanmar has still to foster.
Natural resources: curse or cure?
Myanmar has been kept afloat by an enviable natural endowment in the form of natural gas, timber, gems, and other minerals. Much of this has been wasted already. The Yadana pipeline carries gas to Thailand, yet much of the profits have been spent on building the new capital, Naypyidaw, and the military, which numbers around half a million men. Profits were allegedly pilfered via a scam involving the country’s fake exchange rate: in the books, the gas profits were accounted for at the rate of 6.4 Kyat to the dollar, when in reality it was sold for the more realistic market exchange rate of around 1,000.
However, this exchange rate scam has now ended and according to the US Energy Information Agency, Myanmar has 10 trillion cubic feet of proven gas reserves whilst Bangladesh has 6.49. This has meant an in-rush of foreign multinationals into Myanmar, eager to exploit the reserves, contrasting with a slowing of enthusiasm toward Bangladesh. This will only be decisive if Myanmar can now equitably spend those profits, by no means a given, even in a democracy.
The example of the UK and Norway is salient. While they split the same hydrocarbon bounty in the North Sea, the UK has suffered growing inequality, de-industrialisation, and two recessions since striking oil. Norway, by comparison, has attained the highest living standards on earth, and its state pension fund is the largest owner of equity in the EU. The challenge therefore, for both countries, will be management of natural bounty. This could be decisive and, in this respect, Bangladesh could learn from the mistakes Myanmar has already made: spending money on infrastructure for the gas or electricity industries, as opposed to a submarine for the vanity industry, for instance.
Reality check
The picture for Bangladesh can at times appear gloomy, but there are bright spots. Arguably, Bangladesh has been through the worst of its troubled birth. The World Bank notes, for instance, “remarkable progress,” in eliminating extreme poverty. The same apolitical efforts must now be applied to attaining middle-income status. There are green shoots in this respect; in the diversification in manufacturing, ships have quietly left Bangladeshi shipyards, heading to foreign buyers, while the pharmaceutical sector shows growing promise, and the prospect of electronics assembly also rears its head. Success in manufacturing is a tribute to the country and its workers, and this must be built on to move up the ‘food chain’ and has been the classic route that Asian economies have developed to reach the top. This will be the best way to face stiff competition from our neighbours, but it will take a shift in political leadership to move beyond the bargain basement.
The IMF predicts that Bangladesh’s GDP growth rate will slip below 6%, while the ministry of finance predicts it will reach over 7%. If there wasn’t the scent of a power struggle in the air, Finance Minister Muhith’s prediction could be plausible. This is perhaps indicative of the problem: in the same way the Burmese generals pulled up their boots and admitted that their currency wasn’t worth 6.4 to the dollar, it is time for Bangladesh’s politicians to sell economic reality, as opposed to vindictive squabble.
source: Dhaka Tribune
http://www.dhakatribune.com/foreign-affairs/2013/oct/11/myanmar-next-great-economic-challenger
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