Myanmar launches new export strategy – Nikkei Asian Review

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http://asia.nikkei.com/Politics-Economy/International-Relations/Myanmar-launches-new-export-strategy

MGMA head Myint Soe speaking in Yangon on March 24 (Photo: Simon Roughneen)

MGMA head Myint Soe speaking in Yangon on March 24 (Photo: Simon Roughneen)

YANGON — Myanmar has launched its first coordinated export strategy, aiming to spur growth in its vast rural economy, cut its dependence on hydrocarbon sales and boost shipments to Europe and the U.S.

The plan, unveiled March 25, could speed up Myanmar’s reintegration into the global economy after decades of isolation. The country’s exports plummeted under Western sanctions.

Since the formation of a nominally civilian government in 2011, Myanmar has actively courted foreign investment; political reforms have led to the suspension of most Western sanctions and the restoration of foreign aid.

The new National Export Strategy aims to capitalize on these developments by focusing on seven key areas: rice, beans and pulses, forestry products, fish and crustaceans, rubber, textiles and garments, and tourism. The country will focus on increasing exports to the U.S. and Europe. The strategy also includes measures to help the private sector benefit from the changes by improving the competitiveness of small and medium-size enterprises and their access to better financing.

Big opportunity

Myanmar’s export industries have significant growth potential. In 2012, overseas sales made up just 10% of gross domestic product, compared with around 70% for similar-sized neighbors Thailand and Vietnam, according to World Bank data.

The country exploited only 15% of its export potential in the five years to 2010, according to a 2013 paper prepared for the Asian Development Bank. The report attributed the problem mainly to weak trade with industrialized countries.

Currently, some 40% of Myanmar’s overseas sales go to Thailand. Total exports for the year to Feb. 28, 2015, amounted to $10.1 billion. However, shipments to the U.S. were valued at just $93.4 million in 2014. In 2013, sales to the European Union amounted to 200 million euros ($215).

Boosting exports will also help counter a widening trade deficit. The shortfall on Myanmar’s current account rose to 7.1% of GDP in fiscal 2014, as the expanding economy sucked in imports, according to the ADB. The lender estimates economic growth will accelerate to 8.3% in fiscal 2015, from 7.7% the previous year. Growth will be driven by the government’s structural reform program and an improved business environment, the bank predicted.

Launching the five-year export roadmap, Commerce Minister Win Myint said that the government wants to diversify away from gas, timber and beans, which account for two-thirds of the country’s exports.

Aung Soe, deputy director general of the commerce ministry’s trade promotion department, told the Nikkei Asian Review that “we are still mainly exporting primary products, but we hope this is the beginning of an increase in productivity and competitiveness.”

In two decades of military rule through 2011, Myanmar became heavily reliant on energy sales for foreign exchange earnings. Natural gas, which is not included in the new export strategy, still accounts for a third of all overseas shipments — $4.2 billion in 2014, equivalent to 7% of GDP, according to the World Bank.

Myanmar also hopes to increase textile and garment exports — sectors that were hit hard by Western sanctions. Since restrictions were lifted and former markets reopened, these industries have revived.

Garment shipments in 2014 doubled from 2013 to $400 million, according to Myint Soe, head of the Myanmar Garment Manufacturers Association. The EU allowed Myanmar back into its preferential trade regime, known as the Generalized Scheme of Preferences, in July 2013. Under the scheme, developing-country exporters pay less or no duties on goods shipped to EU countries.

“Lifting the sanctions and allowing Myanmar into the [Generalized Scheme of Preferences] has helped a lot,” Myint Soe told NAR.

In an effort to gain more ground in western markets, the garment association has been meeting European buyers to discuss a code of conduct that would improve working conditions in clothing factories, where strikes occur frequently. Better conditions, say economic analysts, should help attract more investment and create more jobs.

Uphill struggle

Even so, the goal of boosting exports to developed markets will not be without its challenges. Aung Soe said that increasing trade with Western countries means “we have to overcome quality issues and raise ourselves to meet their standards.”

Rice also figures prominently in the new strategy. Once the world’s biggest exporter of the grain, restrictions set by the country’s military rulers and a decline in farming standards saw exports plummet.

Sales of rice to Japan, now a major investor in Myanmar, only resumed in 2013. Total rice exports rose to 1.3 million tonnes in 2014, chiefly due to Myanmar’s policy changes. If the country is to achieve its export target of 4 million tons by 2020, it needs to modernize its farms and rice mills, and improve rural transport infrastructure while reducing costs and red tape for exporters.

According to a 2014 report by the Livelihoods and Food Security Trust Fund, or LIFT, which aims to help Myanmar’s rural poor, “higher rice exports necessitate providing public services and a favorable investment climate to all farms, small and large, that would improve farm productivity, efficiency of milling and trade logistics serving both export and domestic markets.”

At present about 90% of Myanmar’s rice is classified as low quality. Foreign consumers opt for better grades, and other growers, such as Cambodia and Vietnam, are increasing their yields.

“Producing and selling more low-quality rice is not a viable long-term strategy,” noted the LIFT report, which was co-authored with the World Bank.

The government hopes that improvements in rice production and exports would have knock-on benefits for the vast rural economy, which accounts for around 70% of Myanmar’s 51 million people and 37% of GDP.

But just as increased exports will boost the wider economy, the government first needs to overhaul the country’s creaking infrastructure, including the roads and mills that rice growers need.

“Export potential can be further increased by easing infrastructure bottlenecks such as transport and electricity, as well as reducing costs to business by streamlining regulations,” said Peter Brimble, a Myanmar specialist at the ADB. Another urgent task for the government is to improve access to capital and finance for businesses, which in turn requires an overhaul of a banking system that stagnated during army rule and favored Myanmar’s bigger, army-linked businessmen.

Black markets

Some of those same businessmen dominated the murky but lucrative trade in timber, gems and narcotics — billions of dollars worth of which have been smuggled out of Myanmar in recent decades. Such smuggling further distorted one of the world’s poorest economies but guaranteed huge wealth for connected elites.

Owners of small and medium-sized enterprises have typically found it difficult to get bank loans due to stringent borrowing requirements, denying them vital funds to grow their businesses or to finance exports.

“We intend to support the capital needs of SMEs,” said Aung Soe, pointing to how the new export strategy might assist the 43,000 mostly smaller businesses listed by the national chamber of commerce.

“SMEs are the economic tissue of the country,” said Arancha Gonzalez, executive director of the International Trade Center, a joint agency of the World Trade Organization and the United Nations. She expressed hopes that the new export strategy will help smaller businesses obtain bank loans and make them more aware of how to sell their image overseas.

“There are difficulties in accessing trade finance, and export opportunities such as duty free are not known to the SMEs that make up the bulk of the economy,” Gonzales said.

Myanmar’s trade promotion will require an overhaul too, with only seven staff at the commerce ministry working in the department, which was established just two years ago. “We need to establish other support institutions,” said Aung Soe.

Getting Myanmar’s embassies more involved in trade promotion will also help implement the strategy, according to Gonzales. “Economic diplomacy is key,” she added.

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