Myanmar needs regulatory reform

As Myanmar continues its surprising path to reform, legal changes are needed to prevent imperialist development schemes.

As Myanmar opens up, it must be careful to impose proper policy and oversight on foreign companies [GALLO/GETTY]

Some of the many causes ascribed to the financial crisis in the United States are improper regulation, deregulation and inadequate enforcement by regulatory agencies.

More recently, this regulatory tale has been supplemented with a structural economic narrative. A vein of literature and public discourse has shed light on a phenomenon David Simon’s second season of The Wire presciently explored years ago – technology and labour offshoring eating into jobs and contributing to the decline of the American middle class.  These developments – the untrammeling of the financial sector, technological advances increasing productivity without attendant increases in labour, the shift to a postindustrial, information services economy – are purported to work in tandem to enervate the American republic and precipitate its fall from grace.

Myanmar (also known as Burma) is coming at its regulatory and economic issues from the other end of the burning candle, but they involve similar foundational questions:

  • How should Myanmar draft its laws and order its enforcing institutions to attract businesses and best promote economic growth without giving market forces so much freedom that they become destructive?
  • How should Myanmar reconsider its industrial policy so that it creates higher income jobs and improves education opportunities for the Burmese people such that they can attain value-added skills and thus enable them to compete on a global scale?  

Of course, Myanmar vastly differs from the United States in many ways. An important one is in its domestic capacity. The US has some of the most talented people in the world. By contrast, Myanmar lacks even the most basic know-how in many industries and quality and innovation have been stifled by its brand of military crony capitalism, which rewards close connections to the military with access to lucrative government contracts.  

Reform revives Myanmar’s tourism

The task, therefore, is for Myanmar to attract multinational corporations (MNCs), international financial institutions (IFIs), regional allies (eg, ASEAN countries), and other technocratic organisations (eg, universities, the UN) with their know-how, rich talent pools, and deep pocketbooks. These entities can finance commercial and educational projects where their talented representatives pass on the technical skills needed to create prosperous and high-quality institutions to the Burmese people.

Failure in this task will result in a perverse outcome that will bring imperialism to Myanmar once again, this time of the capitalist vintage. Foreign companies will be brought in, but without proper policy and oversight they can be expected to act only in profit-maximising self-interest, using Myanmar as a resource extraction base and an emerging market to bolster their internal growth projections.

Indeed, from a realist perspective one could argue that this is why Myanmar began liberalising in the first place: the government had grown tired of Chinese capitalist imperialism and did not want to become a de facto annex of the People’s Republic, and so the generals sought to bring the West into the picture as a counterweight. A 346-page internal military report entitled “A Study of Myanmar-US Relations” circulated in 2004 corroborates this line of thinking.

According to Bertil Linter, an experienced academic on Myanmar who has read the report, its main thesis was that “Myanmar’s recent reliance on China as a diplomatic ally and economic patron has created a ‘national emergency’ which threatens the country’s independence.” Further, “Myanmar must normalise relations with the West after implementing [a development] roadmap and electing a government so that the regime can deal with the outside world on more acceptable terms.”  

The technocratic chicken or egg?

Myanmar suffers from the proverbial chicken or the egg problem: the country needs a sound regulatory and economic base to induce, enable and create technocrats to add value to Myanmar’s rudimentary and primary industry-focused political and economic system, but Myanmar lacks the technocrats to actually create a friendly environment for technocrats. Since 1988, military leaders have intentionally weakened Burmese education, spreading out university campuses to prevent the agglomeration of students necessary for proper activism and civil disobedience. 

The military has also slashed budgets in law, philosophy and social sciences faculties. The educational infrastructure is not in place to create Burmese technocrats to lead Myanmar into the 21st century. As a result of the misguided campus dispersion policy and jobs shortfalls due to the economic stagnation created by state socialism, over the years the best and the brightest of Myanmar have packed up their bags and moved elsewhere. Doctors, engineers, scientists, IT professionals and public health experts have left for the West or other ASEAN countries. Indeed, 200,000 Burmese are purported to live in Singapore, and Thailand has roughly 3 million Burmese workers.

Expat Burmese have expressed a desire to come back and work for the benefit of Myanmar, but they will only come if there are jobs available for them. The government took a good first step by removing taxes on Burmese nationals working abroad last year. It will likely be through the proper structuring of laws where the most short-term incentives can be made.

First, start with the laws

In 2012, it looks like the execution of the ideas in the 2004 report is well underway. However, while the junta has made progress on the quasi-parliamentary edifice of its new political system, it has an enormous amount to do as regards creating a regulatory and economic environment suitable for growth and prosperity. In fact, British risk analysis group Maplecroft recently declared that Myanmar has the “world’s worst legal system” for business.

Extensive work is required on drafting sophisticated new laws. As of this writing, Myanmar has a seriously outdated foreign investment law (FDI law), outdated food and drug laws, outdated private enterprise and banking laws, no securities laws, no environmental laws, no mergers and acquisitions (M&A) laws, no derivatives and no commodities exchanges. There are no or very weak environmental, competitive, judicial, legislative, financial, labour, securities, banking and corporate regulatory institutions. So even if there were appropriate laws in place, enforcement and oversight would be all but impossible. Bribery and corruption are reported to be widespread in the country.  

The government is at least aware of the foreign investment issue. The government has recently passed a brand new special economic zones law (SEZ law), defining three specific zone types: special economic zones, export processing zones and sub-trading zones. The presence of these zones indicates that the government is serious about developing manufacturing, improving modes of transportation and integrating Myanmar into global supply chains by developing an export processing sector. The SEZ law provides for tax relief for new investors, has onshoring provisions requiring that investors employ local Burmese as a percentage of their workforce and requires training and skills-building of said workers.  

Careful and vigilant governance is required

The SEZ law is a good start, appearing to balance the national interest in attracting foreign firms to boost GDP with the domestic concern that the Burmese people will not greatly benefit from the arrival of MNCs by having provisions requiring the employment and training of locals. A new FDI law is reported to be introduced very soon, within the next few weeks. Eleven Media reports that the FDI law plans to “offer the incentive of tax exemption for eight years to the investors”.

Additionally, the government will need to draft several more laws, especially business laws – M&A laws, banking laws, securities laws (several people on the ground have commented that a stock exchange is planned to be set up this year), IP laws (to some extent, since Myanmar likely wants to copy China’s reverse-engineering regime to tech up quickly), contract laws, land reform, anti-bribery/corruption laws and environmental laws. The chief director of the Ministry of National Planning and Economic Development, Aung Naing Oo, told the Myanmar Times in September 2011 that “[i]f the present situation continues, local small- and medium-sized enterprises [SMEs] will find it hard to survive when AFTA begins but joint ventures will help us.” 

Joint ventures would be a far preferable situation to many SMEs rather than M&A activity or simply being put out of business by MNC entry. Consolidation of traditional trade is likely inevitable with MNC entry and not necessarily a bad thing, but the government may want to draft laws or contracts to promote SME growth – such as providing similar SEZ and FDI law tax breaks for SMEs, subsidising modernisation for SMEs, and subsidising retraining of SME workers – in order to develop robust homegrown businesses.

There are concerns that if a preexisting regulatory structure is not in place beforehand, entering firms could simply expand upon the Chinese precedent, carving up the country without regard to environmental, labour, displacement, human rights or domestic capacity issues.

In such an event, President Thein Sein may have to continue his piecemeal cancellation approach, but that ad hoc method creates market uncertainty, which may scare off investors. 

The gaps in these laws will need to be filled, and filled with the often incommensurable qualities of care and speed. If the government’s ambitious goal of having US and EU economic sanctions removed soon this year is achieved, then the MNC floodgates will be opened. It would be wise for Myanmar to make sure that it has the proper safeguards in place before the MNCs descend on the country.

Myanmar should ensure that it reaps the benefits from opening up – more jobs for the Burmese people, modernisation of its agricultural, manufacturing and service sectors, immense quality and scale improvements, increased consumer demand and purchasing power, lower prices and better products for consumers – while minimising the negatives. Thein Sein has said that the “future of Myanmar lies in peace and stability, while economic development is a secondary priority for the country”.

Let us hope that this vision of Myanmar’s future prevails.

Michael Lwin is a lecturer at the Peking University School of Transnational Law.  A longer version of the views expressed in this piece, How Aung San Suu Kyi Can Free Burma From Fear, is published in the Columbia Journal of Asian Law.

Wang Yongzhe, Bin Chuan, and Kangzhuang contributed research to this article.