Tuesday, September 19, 2017

Myanmar has 16 months left to join the AEC. Here’s a checklist of what needs to be done.

Myanmar has until December 31, 2018, about 16 months, to join the ASEAN Economic Community (AEC), which aims to create a single market and production base with a free flow of goods, services, labour and capital across its member states.

The ten member states of the ASEAN Economic Community. Photo - AECThe ten member states of the ASEAN Economic Community. Photo - AEC

The AEC has so far achieved some success in eliminating tariffs and facilitating trade, streamlining capital market regulatory frameworks and platforms, facilitating skilled labour mobility and promoting consumer protection and intellectual property rights within the community.

Over the next few years, it is aiming to foster growth through better productivity, technologies and skills development with the idea of raising ASEAN’s competitiveness in the global value chain.

For Myanmar, being part of the AEC represents a good opportunity for local companies to learn from and adopt the best practices of their peers in the region. The economy also stands to benefit from foreign direct investments and easy trade.

Yet, Myanmar is ill-positioned to enjoy those benefits and has little to offer its own citizens and neighbours in terms of business prospects. Its manufacturing sector still struggles to produce high-quality products, while the banking sector is still unable to provide trade financing support. Meanwhile, businesses continue to face difficulties accessing capital and the country has yet to release the requirements under which new types of businesses can be registered.

“Myanmar needs to be ready when it joins the AEC. As things stand now, when its membership in AEC takes effect, our local businesses may not be able to compete with the region, says AEC economist U Tin Cho.

“Many barriers for Myanmar’s small and medium-sized enterprises (SMEs) still remain and it is difficult to organise trade fairs for market expansion. The steps taken to improve our SMEs are too slow. From January 1 2019, we won’t have any chance to demand further advantages and will have to compete with the other members. Only the government can fix these problems,” he said.

On that front, State-Counsellor Daw Aung Sang Su Kyi said during her government’s first anniversary that she would directly supervise the development of the economy. Meanwhile, vice president U Myint Swe on July 29 met with entrepreneurs and business owners to form a private sector development committee to help local SMEs grow.

Based on the discussions, here are five of the most pressing issues that need to be tackled before Myanmar is worthy of contributing to and benefiting from the AEC:

Access to financing

In Myanmar, SMEs do not have easy access to bank financing and rely heavily on loans from international institutions such as the Japan International Cooperation Agency and the International Finance Corporation. Even here, the monies can only be disseminated through a local bank.

This is because interest rates on local bank loans can be as high as 13 percent, and lowering those rates involves reviewing the central bank’s monetary policy, which states that deposit rates cannot be lower than the rate of inflation. In 2000-2015, Myanmar recorded average inflation of 16pc, although that has fallen to 7pc in March 2017, according to The ASEAN+3 Macroeconomic Research Office (AMRO).

“Because of this policy, money deposited in the bank cannot be freely handled or loaned,” said Dr. Zayar Nyunt, CEO of SME Development Bank.

Myanmar’s banks also lack the initiative to expand their loan books. “When we visited Germany, we saw that their banks go to the wards and study the situations for SMEs so that they can give loans to them if necessary. In Myanmar, banks extend loans from their offices without building relationships with the SMEs,” said Yangon Region Chief Minister U Phyo Min Thein.

Product standards

Myanmar’s exporters are at a disadvantage due to the lack of product standardisation

“Although Myanmar can produce standardised products for exports, it is at a disadvantage because there is no organisation which will standardise the products,” said U Aye Han, member of board of director of The Union of Myanmar Federation of Chamber of Commerce and Industry (UMFCCI).

“We need an organisation to issue acknowledgement certificates for products which meet industry standards so that we have more opportunities in the export sector once we are competing in a free trade environment under the AEC,” said U Aye Han.

“All products manufactured for export must be of good quality and meet industry standards. Likewise, the quality of the products which have entered our country must be examined to see if they meet our quality standards or not,” said U Khin Maung Cho, Union Minister for Industry.

Intellectual property rights

New businesses such as technical software writing are emerging in Myanmar. But some of these businesses are not legally registered simply because they are not yet recognised by the authorities.

“Technical software writing businesses are not identified and there are difficulties in registering it. The government should see to this,” said Dr May Pyae Sone Kyawel, director membership of Entrepreneur Association.

As there is also no protection for intellectual property rights (IPR), entrepreneurs also face difficulties doing business and thus IPR laws are urgently required, said U Khin Maung Cho.

‘’Our country, Myanmar needs many entrepreneurs so that it can catch up with the international market. We have to encourage them. We have to recognise them and protect them. So, we need proper IPR laws,” the union minister said.

The Pyidaungsu Hluttaw has approved sections of a new IPR Law for some sectors but others have yet to be included.

Tax incentives

Although the tax rates in Myanmar are comparable to its neighbouring countries, the cumbersome procedures involved in paying those taxes pose many difficulties to local business owners.

Meanwhile, advance income taxes are very burdensome on small businesses with liquidity issues. There are also products which are taxed as raw materials and taxed again when they have become the final products

“The Internal Revenue Departments assumes that every business is making profits taxes each accordingly,” said Dr Soe Htun, a local business owner. All that eats into the cash flows of many budding businesses, stunting their potential for growth.

“Business operations should be facilitated by granting tax deductions for costs. Also, if a product is taxed in its final stage, the tax at the raw material stage should be removed,” said Dr. Soe Htun.

Better policies

Inefficient, unclear and overlapping policies must also be sorted out at the Union level. “Is it not possible to issue a single license instead of three to four licenses for a single product? Is it not possible to issue multi-year licenses instead of needing renewals every year? These are basic inconveniences that the government must settle,” local businessman U Thaung Win said.

The government must effectively curb illegal goods entering Myanmar. “Because of illegal goods, the conditions are not good for tax-paying businesses. The government should take care of it,” U Aye Han said.

Whatever the case, Myanmar has another 16 months before goods from across ASEAN start flowing into Myanmar under the AEC. “Come December 2018, ASEAN goods will flow in bulk into Myanmar. It is very worrisome. The government should take urgent measures to ensure the survival of our own businesses,” U Tin Cho said.