Myanmar on “Fast Track” to make doing business easier & Philippines “Target” to be more business friendly

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1)

Ease of doing Business? Myanmar & Philippines 

Myanmar has had a spectacular 2011, even with expatriates complaining that doing business in Myanmar is expensive and regulations difficult to navigate.

  • Comparing the ease of doing business rankings in ASEAN; Malaysia 12, Thailand 18; Brunei 79; Vietnam 99; Indonesia 128; Cambodia 133; Philippines 138; Laos 163.

Clearly, Philippines, a major ASEAN economy, ranks poorly.

Indeed, Myanmar is so new to the business world, there is no ease of doing business ranking for Myanmar as yet. But great hope sits with Myanmar. Already endorsement as chair of the Association of South-east Asian Nations for 2014 and a visit from United States Secretary of State Hillary Clinton last November marked a new chapter, following reforms that have elevated confidence in an economy barely emerging from years in the dark.

Mr Andrew Rickards, CEO of Yoma Strategic, a Singapore-listed firm, said:

“The country that was held back in terms of development for the last 40 or 50 years, suddenly tries to reintegrate with the world economy; there’s an awful lot of catching up to do. So, the challenges range from basic infrastructure, mobile telephones and Internet access to hotel rooms and getting flights. You can imagine that the whole place is creaking a little bit at the seams as it is suddenly on people’s radar for the first time.”

Businesses are set to benefit from further reforms. However, the question is to what extent the reforms will lead to a substantial improvement in the business environment. With Singapore being Myanmar’s fourth-biggest trading partner in 2010, industry leaders say business ties count for a lot. Mr Ho Meng Kit, CEO of the Singapore Business Federation, said:

“In the case of Myanmar it will be more difficult, a little bit more unknown. Then again, there are a lot more opportunities, so for some companies which do have links, the intelligence there, the partnerships, those risks can be managed.”

2)

Asian Development Band helps Myanmar:

The nearly century-old Burma Companies Act will be revamped and an online system for registering companies will be installed with assistance from the Asian Development Bank, the director-general of the Investment and Companies Registration Department,  Aung Naing Oo, said.  The ADB will contribute US$150,000 to the online system, he said.

Aung described the Burma Companies Act, passed in 1914, as outdated and inappropriate for modern business. The ADB would help draft amendments.

“The Myanmar Companies Act has been around for nearly 100 years … it’s inappropriate for the current environment. Plans are being made to amend it and the ADB will help,” the director-general said, adding:  “If the company registration is shifted online it can be done from home.” ADB would also help set up an online registration system.

3) 

World Bank “Interim Strategy”

Reaffirming support for reforms, the World Bank on Thursday approved a new interim strategy.

“I am heartened by the reforms that have been taking place in Myanmar, and encourage the government to continue to push forward with their efforts,” the World Bank President Jim Yong Kim said after the strategy was approved by the institution’s board of directors.

Under the interim strategy that will guide the World Bank in Burma for the next 18 months, the Washington-headquartered financial institution will help the Naypyidaw government improve economic governance and create conditions for fiscal growth and social improvements.

4) 

Public Financial Management:

This will be achieved through policy advice and technical assistance in three main areas of public financial management—regulatory reform, private sector development to promote broad-based economic growth and job creation.

“Our strategy has a strong focus on inclusive development and reforms that create real opportunities for all the people of Myanmar,” said Pamela Cox, World Bank East Asia and Pacific Regional vice-president.

The World Bank opened an office in Burma’s commercial hub of Rangoon in August and is reengaging with the military dominated nation after a gap of two decades. This comes as President Thein Sein’s nominally civilian government undertakes economic and political reforms, shifting from a half-century of catastrophic junta rule that left it one of Asia’s most impoverished nations.

5)

IFC, Involved:

Observing that developing Burma’s private sector will be important to generate concrete benefits for the citizens of the country, the International Financial Corporation (IFC) Vice-President for Asia Pacific Karin Finkelston said the institution is seeking to improve access to finance in the country so that businesses can expand and hire workers.

The IFC is also working together with the World Bank in assessing Burma’s investment climate and infrastructure needs, with an initial focus on helping to connect people and businesses through better telecom services and providing reliable power that will help firms to thrive, she said.

6)

Doubt Remains:

Economist Magazine says, quote: “A new law on foreign investment is not entirely reassuring”

KEEN Western investors call Myanmar the final frontier. That neatly captures the excitement of placing a bet on the last big country in booming Asia to open up to the outside world. After the ending of most economic sanctions against a country that was a byword for repression they are ready to embrace the opportunities in a land of 60m people, tucked handily between India and China.

Yet despite an ongoing transition to democracy, risks abound. The judiciary is as rickety as the ancient British bangers that still lurch around downtown Yangon. The financial system is just as archaic. A big hope has been that new investment legislation will bring some clarity and order.

The law was at last ratified by President Thein Sein on November 2nd after months of wrangling between the cabinet and a newly emboldened parliament. A final verdict on the legislation must await the government’s official English translation, which could take months to appear. Unofficial translations suggest that this law is only a modest step forwards. It sends the important message that the government is committed to welcoming foreign investors. But the regulatory environment will stay almost as murky as before.

The new law is at least a victory for the reformers in government. Diehard army officers and their cronies in parliament had been trying to use the legislation to protect their privileged positions in the economy. In the end they lost most of the battles. Under the new law any investment in Myanmar can be up to 100% foreign-owned. Foreign investors will also get a five-year tax holiday and 50-year land leases, extendable by another 20 years, giving them a degree of long-term security.

Certainty and clarity to would-be punters is, nevertheless, still in short supply. Robert San Pe, an Anglo-Burmese lawyer, argues that the Myanmar Investment Commission will have “too much discretion” to rule on whether investments comply with hazily worded guidelines. Its members will be chosen by the government, and the commission may operate with little oversight, democratic or otherwise. It will have to report to parliament only twice a year. This could be a recipe for corruption and arbitrary decision-making.

Mr Pe also frets there is “still no confidence on resolving disputes in the Burmese courts and outside.” The judiciary has lots of problems, such as too few well-trained lawyers. But fears about a legal quagmire for investors could easily be allayed if, for instance, Myanmar acceded to international arbitration agreements. It has not yet done so.

The new law is an advance but foreign cash is unlikely to gush into the country. Too much of Myanmar’s legal and financial landscape is still shrouded in fog. And then there is the possibility of a radical change of government—whether through a coup by anti-reformers or through a victory by Aung San Suu Kyi’s National League for Democracy in the general election planned in 2015.

7)

Philippines perspective:

Philippines ranks at the bottom of ASEAN, on ease of doing business.

Here, a Philippines press reports:

THE International Finance Corp. (IFC) and the World Bank have come up with a report that ranks 185 countries on their ease of doing business in terms of the regulatory environment being more conducive to starting and operating a local business.  The rankings for all these economies were bench-marked to June 2012.  The index was based on the average of 10 factors with each given an equal weight.

Unfortunately, the Philippines had an overall rank of 138 out of 185.  In some specific categories, our rank was even much worse such as 165 out of 185 in resolving insolvency, 161 out of 185 in starting a business, and 143 out of 185 in ease of paying taxes.  What our government should realize is that there is a direct correlation between the ease of doing business and the Gross Domestic Product (GDP) per capita.

Looking at Asean member countries, Singapore which is number one in terms of ease of doing business has also one of the highest GDP per capital on a Purchasing Power Parity (PPP) at US$61,103.  The other Asean members’ GDP PPP per capita in 2011 are as follows: Brunei, $50,506; Malaysia, $15,589; Thailand, $8,703; Indonesia, $4,668; Philippines, $4,140; Vietnam, $3,435; Laos, $2,809; Cambodia, $2,372; and Myanmar, $1,325.

Comparing this with the ease of doing business rankings; Malaysia 12, Thailand 18; Brunei 79; Vietnam 99; Indonesia 128; Cambodia 133; Philippines 138; Laos 163 while Myanmar was not rated since the IFC only opened there recently.   If you compare the order of the countries in relation to their ranking in terms of ease of doing business and in per capita GDP, there are only three countries out of sequence from the 10 ASEAN members.

First is Brunei, which has the second highest per capita in Asean but is only the fourth in ease of doing business.  This can be explained by the fact that the economy of Brunei is driven by the export of crude oil and natural gas which is largely owned by the government.  The per capita of Vietnam is only the seventh highest in Asean but the ease of doing business ranking is number five.  Similarly, the per capita of Cambodia is close to last at number 9 and yet the ease of doing business ranking is at number 7.  In comparison the Philippines per capita is sixth and the ease of doing business is eight.

Perhaps this can be explained by the GDP growth rates of Vietnam and Cambodia in comparison to that of the Philippines where in 2011 Vietnam GDP growth was at 5.8 percent, Cambodia at 6.7 percent, and the Philippines only at 4.7 percent.  Looking at these trajectories, Vietnam and Cambodia may overtake us in per capita GDP in the near future and strengthen further the correlation with the ease of doing business.

Our government should realize that we must maintain our GDP growth rate in relation to our neighboring countries if we want to stay in place or even increase it if we want to move forward.  The only way we can do this is we improve on the ease of doing business in the Philippines.  However, instead of doing this, we have actually become more bureaucratic in the attempt of the current administration to root out corruption and to collect more of the “correct” taxes from the citizenry and businesses.  This sad situation is not helping the vast majority of the Filipinos and the earlier those in charge realize it, the better for all of us.

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