Myanmar - Economic Activity - Dec 06 2011
BMI View: On the heels of recent
surprisingly fast-paced reforms, potential opportunities for Myanmar's
economy are perhaps the highest they have been in over five decades.
Moving forward, the economy could be set for a boom period in real
estate, tourism, construction, and exports, but much will depend on the
government's continued push towards reform and the eventual lifting of
stifling US and EU sanctions. We see the Myanmar economy growing by
5.0% in 2012 following a 6.0% performance in 2011 even as growth in the
rest of the world falls more sharply given the country's unique
prospects of economic liberalisation.
One of Asia's best educated and wealthiest states prior to a
military coup in 1962, Myanmar is now bereft with a cumbersome dual-rate
exchange system, a major infrastructure deficit, and heavy sanctions
from the US and EU following almost five decades of failed economic
policy. However, on the heels of an election that was widely derided as
a rigged handover of power from the military to its own factions in
2010, change may finally be coming in earnest to the beleaguered
resource-rich state.
The culmination of recent (and surprisingly strong) reform efforts
was US Secretary of State Hillary Clinton's November 30 visit to
Myanmar, during which she met with President Thein Sein and political
activist Aung San Suu Kyi. The visit represented the first time such a
high level official from the US had visited Myanmar since 1955 and
heralded a major thaw in relations between the two countries. Following
such an extended period in isolation, the recent pace of change has been
relatively breakneck and could open up myriad opportunities for
Myanmar's struggling economy.
Dependence On China To Wane
Myanmar's sudden shift towards political reform is highly
indicative of its intentions to stem its growing reliance on giant
neighbour China. Over the past 18 months, Myanmar has received 20% more
foreign direct investment inflows than it had over the preceding 20
years combined, with China responsible for 70%. President Thein Sein's
September decision to halt the China-backed US$3.6bn Myitsone dam
project signalled that the new government is serious about balancing the
playing field with China, and to do so, Naypyidaw has now turned
towards the West.
| Shooting Higher |
| Myanmar - Stock Of Foreign Direct Investment, US$mn |
|
|
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| Source: BMI, UNCTAD, Myanmar CSO |
This is not to say that Myanmar's relationship with China is
likely to deteriorate precipitously. Given China's thirst for Myanmar's
natural gas and copper resources, and Myanmar's continued need for
Chinese investment, the two countries' mutual interests promise to keep
relations close. Moving forward, China is very likely to remain
Myanmar's closest ally and largest investor as was indicated by head of
Myanmar's armed forces General Min Aung Hlaing's auspicious visit with
putative future Chinese president Xi Jinping just days before Clinton's
arrival.
Lifting Of Sanctions Could Usher In New Era
Still, détente with the US in particular could present monumental
economic opportunities for Myanmar. Since 1997, the US has forbidden
all new investment by American companies into Myanmar as well as most
Myanmar exports to the US. While the US has repeatedly stated that
Myanmar's government will have to show considerably more progress on the
political reform front before it can consider reducing or lifting
sanctions, Clinton's visit is a major step forward, indicating that the
US is likely to reward Myanmar further if the reform process moves
ahead.
The lifting of sanctions by the US and EU would solidify Myanmar's
re-emergence into the international economy and could eventually set
the stage for the country to build its own economic miracle. Rich in
natural gas, timber, gems, metals, and myriad other valuable natural
resources, Myanmar could potentially become a resource exporting
powerhouse. Furthermore, with a literacy rate near 85% and at least 5mn
English speakers nationally (most of whom live in Yangon) out of a total
population near 60mn, Myanmar possesses considerable human capital.
| Secondary Axis Required |
| Asia - Annual Exports Of Goods, US$bn (Myanmar RHS) |
|
|
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| Source: BMI |
Still, it should be noted that corruption remains extremely
widespread across Myanmar and will continue to plague its poor business
environment for an extended period despite even swift wide-ranging
reform. Myanmar's current state is underscored by Transparency International's
most recent Corruption Perceptions Index rankings, which place the
country second worst in the world, tied with Afghanistan and above only
Somalia.
Real Estate, Tourism Set To Boom?
In the short term, Myanmar's real estate and tourism sectors stand
to gain immensely from an opening of the economy. In stark contrast to
just one year ago, when struggling local hoteliers were converting
chronically vacant rooms to office space, room shortages are already
cropping up in the country's largest and most economically active city,
Yangon, as businessmen and tourists alike are drawn towards the
country's rapidly changing atmosphere.
In the real estate sector, even though prices have risen for every
year for the past 20 years (according to media and anecdotal reports),
the hopes that reform will lead to reduced limitations on foreign
ownership should keep already lofty prices underpinned through 2012.
With cash being far too risky for most wealthy Burmese to hold and
foreign banking not an option for almost anyone holding a substantial
amount of wealth, rich Burmese have plunged their capital into real
estate, sending the market surging over the past few years. Prices have
been reported as high as US$1,245 per square foot in the most sought
after locations in Yangon, with properties in some upscale
neighbourhoods hovering around US$375 to US$625.
Still, if and when serious economic reforms take place, foreign
demand could lead to massive speculation in the market, driving prices
even further skywards over the medium term in what remains an
exceedingly underdeveloped market. Furthermore, whereas booming
property prices have thus far been restricted to a very limited section
of Yangon, they could begin to spread rapidly should economic reforms
move ahead as hoped. In such a scenario, a lack of office space in
Yangon (where there is only 540,000 square feet of office space, or the
equivalent of one New York skyscraper) and across the country is also
likely to portend a construction boom.
Kyat Could See Further Strength
Despite having the brightest outlook in nearly six decades, the
Myanmar economy still faces major challenges before it can enter the
pantheon of South East Asian miracle countries like Vietnam and
Thailand. Standing in its way is a dilapidated exchange rate mechanism,
where the black market rate of the Myanmar kyat to the US dollar is
more than 120 times greater than the official government rate. As the
official government rate of MMK6.4355/US$ is rarely (if ever) used to
settle transactions, the black market rate, currently at MMK776.00/US$,
is the effective exchange rate.
Although the government is working with the IMF in order to move
towards a single-rate mechanism, it lacks the ability to control the
currency in a meaningful way. In light of the suddenly reform-minded
government, as well as historic communication with the US, we now see
the possibility of continued strength in the kyat despite it having
appreciated more than 20% over the past two years. As the economy opens
up, foreign demand for the kyat will surge, underpinning the currency's
already strong historical price.
Significant Upside Risks To Growth Forecast
Despite the growing chance of renewed recession in the US and EU,
Myanmar's starting position as a nearly completely isolated economy
means that it bears little exposure to the global economy's woes. As a
result, risks to our growth forecast of 5.0% for 2012 are weighted
heavily to the upside. Should either the US or EU ease sanctions
considerably, we would consider revising our forecast upwards.
| MYANMAR - ECONOMIC ACTIVITY |
|
2011 |
2012 |
2013 |
2014 |
2015 |
2016 |
| Nominal GDP, MMKbn 1 |
45,024.2 |
f |
51,648.3 |
f |
59,247.1 |
f |
67,963.8 |
f |
77,963.0 |
f |
89,433.3 |
f |
| Nominal GDP, US$bn 1 |
55.5 |
f |
60.9 |
f |
67.1 |
f |
74.0 |
f |
81.6 |
f |
90.0 |
f |
| Real GDP growth, % change y-o-y 1 |
6.0 |
f |
5.0 |
f |
5.0 |
f |
5.0 |
f |
5.0 |
f |
5.0 |
f |
| GDP per capita, US$ 1 |
890 |
f |
956 |
f |
1,033 |
f |
1,117 |
f |
1,207 |
f |
1,305 |
f |
| Population, mn 2 |
62.4 |
f |
63.7 |
f |
65.0 |
f |
66.3 |
f |
67.6 |
f |
68.9 |
f |
Notes: f BMI forecasts. Sources: 1 Asian Development Bank. 2 World Bank/UN/BMI. |
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