There's an undeniable buzz about Burma among business leaders these days, with investors betting on the long-stagnant economy becoming the next Asian tiger. But as exciting as this situation is, it helps to recall that it is not unprecedented. The case to study is Vietnam, another once-hot economy that has fallen out of favor, and now offers investors pointers on things to watch out for in Burma, as well as tips to Burma's leaders on traps to avoid.
The recent rush of foreign investors to Burma is reminiscent of Vietnam's reforms of a generation ago. Both countries were similar in their pre-opening phase: politically repressive and economically sealed off from much of the world. And liberalization started in both places suddenly and rather unexpectedly.
In Vietnam, the opening came in 1986 when the Vietnamese Communist Party rolled out its " doi moi, " or "renovation," program. Hanoi reduced barriers to trade and foreign direct investment. Other critical reforms over time included abolishing Vietnam's system of highly centralized management based on state subsidies, and allowing the private sector to compete along with state-owned enterprises in non-strategic sectors.
The policy was an early success. Investment poured in, particularly attracted by the prospect of inexpensive labor, a stable regime, abundant natural resources and a market that at the time consisted of some 60 million consumers. Growth followed the investment boom, as Vietnam became Southeast Asia's fastest growing economy, posting annual growth rates above 5% and in some years above 8%. In 2000, Vietnam signed a free-trade agreement with the U.S., which is now its largest export market. In 2007, it joined the World Trade Organization. From 2005-2010, it was one of the world's top investment destinations.
So far, so similar to today's Burma. Yet, in a cautionary note for Burma, Vietnam has squandered many of its advantages mainly by losing its reform momentum. The government has shied away from banking reforms and a new tranche of tough liberalizations. State-owned enterprises still account for 40% of GDP, yet are characterized by lagging productivity and allegations of corruption.
And while in retrospect, the prospects for political reform in Vietnam alongside economic opening might have been overstated at times, the lack of political liberalization now poses an ongoing threat to the economy. For instance, the regime's inability to foster true rule of law stifles business along with the political dissent the regime targets. And attempts to crack down on online dissent are leading to tighter controls on communications that threaten to dent Internet businesses.
Frustration over lack of progress in key reforms is exacerbating other investor concerns. Labor costs are increasing, and population growth is slowing. Foreign direct investment has dropped far off its peak and shows little sign of coming back.
Burma's leaders should ask how they can avoid that fate. In some respects, they're off to a good start. Burma's economic opening already has been accompanied by a much greater degree of political reform than was ever the case in Vietnam. Burma's first wave of reforms is more aggressive than Vietnam's. Burma's new foreign investment rules allow for 100% foreign ownership in a range of industries, including retail, wholesale, agency, franchising, and most food and beverage outlets
Even in sectors such as construction and real estate, transport, mining and spirits where joint ventures are required, the relatively business-friendly rules allow up to 80% foreign ownership. Vietnam's law, in contrast, still restricts outside investors to 49% foreign ownership in numerous sectors.
Vietnam's story suggests the most important thing for Burma is for leaders to continue and to sustain economic reforms. An early test will be the government's implementation of what President Thein Sein has billed as an aggressive, transparent and competitive privatization strategy for state-owned enterprises. Already Norway's TelenorTEL.OS -1.05% and Qatar's Ooredoo in June were awarded licenses to launch nationwide telecom services after a competitive tender process.
Now the government needs to extend that pattern to other industries, and especially highly lucrative utility businesses such as electricity and other infrastructure. Vietnam's experience shows that if these are not privatized early or effectively, their lingering inefficiencies weigh on the rest of the economy while their patrons within the government entrench themselves, making reform harder later.
At the heart of Burma's reform process must be a sustained commitment to tear down new "bric" walls built of bureaucracy, regulation, interventionism and corruption. The prescription for economic growth is straightforward – improve the bureaucracy, regulate fairly, intervene rarely and stamp out corruption.
The nascent reform process in Burma already has led to increased economic activity and opened up new opportunities. The International Monetary Fund estimates that the country's GDP will grow 6.8% this year, compared to last year's 5.5% growth rate. Ultimately, though, it will be a strong rule of law and a growing private sector that will drive and sustain this budding economic growth. Burma has a chance now to act on a lesson with which Vietnam still struggles.
Mr. Chin, a former U.S. Ambassador to the Asian Development Bank, is managing director of advisory firm RiverPeak Group, LLC. Mr. Collazo is a frequent commentator on Southeast Asia.
No comments:
Post a Comment