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1 st International Conference on Government and Politics March 20, 2015, Rangsit University, Thailand

The Impact of ASEAN Transition to ASEAN Economic Community on Myanmar Economy

Nang Hseng Noan *

Abstract

The instability of Myanmar’s economy is causing due to the instability of political in 1962 and many foreign investors withdrew from the country. Since the reformed in 2011 Myanmar is trying to improve the economy environment by reforming foreign investment law to attract foreign investors and the reform draws attention of international community. This study analyzes the relationship between the development of the ASEAN Economic Community (AEC), the prospects for Myanmar to benefit from this development, and how Myanmar has to adjust itself in order to gain the benefits thereof. The purpose of this study is to identify the impact of economic development in Myanmar due to the transition of ASEAN to ASEAN Economic Community that will create the opportunities and challenges for Myanmar’s economy and the improving of foreign direct investment (FDI) from 2009 to 2014. This paper is based on qualitative approach to specify the problems via in-depth interview with five entrepreneurs randomly and the research will be very depend on secondary sources such as books, journals and online news. The research found out that the reconciliation of political stability in Myanmar is one of the key to improve development. Moreover the investment environment, monitoring the investment policy, and the financial support for small and medium businesses is an important sectors that the government should improve. And the researcher concludes that Myanmar needs time to improve the stability of intra-conflict, transparency and gain the trust of international community for the advantage of economic integration.

Keyword: ASEAN, ASEAN Economic Community, Impact, Myanmar Economy, Foreign Direct Investment,

Introduction

According to the statement of the ASEAN community’s roadmap “the ASEAN Political-Security Community Blueprint, the ASEAN Economic Community Blueprint, the ASEAN Socio-Cultural Community Blueprint and the IAl Work Plan 2 (2009-2015), as annexed, shall constitute the Roadmap for an ASEAN Community (2009- 2015), and each ASEAN Member State” shall ensure its timely implementation. The ASEAN Economic Community (AEC) is one of the important pillars for ASEAN economic integration in Southeast Asia. The AEC

* Student, Master of Arts in Diplomacy and International Studies Program, College of Government, Rangsit University; Email:

hseng.n55@rsu.ac.th

1 st International Conference on Government and Politics March 20, 2015, Rangsit University, Thailand

is to be established by 2015 to narrow the development gaps between Indonesia, Malaysia, the Philippines, Singapore and Thailand (the original founder of the ASEAN) plus Brunei Darussalam and Cambodia, Lao PDR, Myanmar and Vietnam (CLMV) through the regional connectivity. The ASEAN Member States will benefit from increasing trade, investment, capital development by opening as a single market and production base. The transition of ASEAN to AEC will improve the chance for sustainable development in ASEAN member states by reducing tariff and nontariff barriers for border trade and investment, improving rules and regulations and trade facilitation, liberalizing and facilitating Foreign Direct Investment (FDI) via ASEAN Comprehensive Investment Agreement (ACIA), benefiting for people to people connectivity (free flow of skilled labor), supplementing infrastructure and communication connectivity by promoting the other ASEAN members economies to have equal development, ASEAN is able to become competitive in trade and investment on the international level. The development of the AEC involves (1) free flows of goods, (2) free flows of services, (3) free flows of investment, (4) free flows of capital, and (5) free flows of skilled labor. Since Myanmar is located in the middle ASEAN region and the giant economy gain like China and India, Myanmar can expect to benefit from all these developments. However, this study focuses specifically on the free flows of investment: the crucial issue for Myanmar is thus how, or in what way, it has to adjust itself in order to benefit from regional integration in this particular area. Additional the paper will study some of the positive impact that open opportunities and negative impact that create challenges for ASEAN and Myanmar in the transition period of ASEAN economic community.

Objectives

1. To study the evolution of ASEAN and Asean Community and the connection with Myanmar

2. To study how ASEAN economic integration will benefit on the Myanmar economy and ASEAN region

3. To study how Myanmar need to improve its economy more efficiently in developing foreign investment and the advantage of skilled labor.

Method

This paper will be based on qualitative approach to specify the problem. The methods of collecting information divided into two parts: primary and secondary sources. The primary sources are based on interviews business people in Myanmar randomly. The paper will very much depend on the secondary sources because of the limitation of time. The secondary sources will be from relevant books, internet/web-site results, journals, newspapers and government official documents will be included possibly. The contents of analysis for this paper will depend on the history content, statements, general description of the experience of people (who are chosen to interview). It will be clearly explained by the researcher’s knowledge based on the fact of research and the analysis will maintain a balanced approach aside the topic interest.

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1 st International Conference on Government and Politics March 20, 2015, Rangsit University, Thailand

Results

The brife history background of Myanmar

Myanmar is the largest country in mainland Southeast Asia, stretching over 2,000 km from the north to the south. The total land area is 676,577 sq. km (261,228 sq. miles). It shares a total of 5,858 km of international borders with China, Laos, Thailand, India, and Bangladesh and has over 2,800 km of coastline.

It is twice the size of Vietnam and more than a quarter larger than Thailand (Thein, 2004). The population of

Myanmar is estimated to be over 60 million with 130 ethnic groups that are living in seven states and seven divisions. Moreover, in Myanmar, there are a variety of ethnic groups with the majority of the groups being Kachin, Kayah, Kayin, Chin, Mon, Bamar, Rakhine and Shan (Than, 2005: 67). These diverse group live in the biggest area in Southeast Asia with fertile soil, significant untapped agricultural potential and a rich endowment of natural resources (the World Bank) such as minerals, natural gas, oil, jade and gems, hydropower, oil, coal and copper. And a large part of the populace in the area depends on agricultural products such as rice, beans, and coffee. Myanmar is basically an agricultural country which used to be one of the top exporters of rice in the world (by the World Bank).

Myanmar in ASEAN

Myanmar became a member of ASEAN in July 1997 (Thein, 2013) which was strongly advocate for Myanmar’s membership by Malaysia’s Prime Minister Mahathir and he said of Western opposition “ASEAN must resist and reject such attempts at coercion” (Weatherbee, 2008: 95). ASEAN received a lot of criticism and pressure from the international community when they accepted and granted membership to Myanmar in 1997 because of many reasons, including human rights concerns. Because of Myanmar membership, there were a lot of problems for ASEAN diplomatic relations with Europe and other Western countries who are concerned about human rights record of Myanmar (Burma) (Debbie Stothard, interview) 1 . Having Myanmar as

a member, ASEAN have slowed progress in ASEAN-EU free trade agreement, because EU refused to include

Myanmar. However Myanmar participated in almost all activities at various levels as required by ASEAN (by Mya Than & also cited in Certo and Lwin, 2014). The fact that Myanmar decided to join ASEAN was mainly due to political and economic reasons; politically to build peace and stability in the region as an ASEAN member (Thein, 2013) and economically the country needed development assistance and economic cooperation and increased trade and investment links with the other regional countries as well as culturally to promote its traditions through ASEAN (Than (2005): 84-85; Thein, 2013). Even though there are a lot of criticizing Myanmar as an ASEAN member, Myanmar has changed because of the international pressure and the ASEAN pressure.

1 Debbie Stothard, Coordinator, Altsean-Burma and Secretary-General, International Federation for Human Rights:

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1 st International Conference on Government and Politics March 20, 2015, Rangsit University, Thailand

Thus the ASEAN leaders allowed Myanmar to be a chairperson 2 of ASEAN in 2014. By the Statement H.E. U Thein Sein at the 24th ASEAN Summit Opening Ceremony on (11 May 2014, Nay Pyi Taw) “The priorities will also support the theme of: “Moving Forward in Unity, to a Peaceful and Prosperous Community.”

Myanmar Reformed Since 2010 the political and economic in Myanmar reform transforming military rule to a civilian-democratic governance (The nation, 2014). The reform in 2011 has been drawn attention to international community to engage and reinvest in Myanmar. In April 2012, the EU lifted all non-military sanctions on Myanmar and offered the country over US$100 million in development aid later that year. According IMF April 2014, the Emerging in 2013, and economic growth was estimated at a robust 7.5%, up from real GDP growth rates of 7.3% in 2012, 5.9% in 2011, 5.3% in 2010, 5.1% in 2009, and 3.6% in 2008. The countrys inflation rate has also moderated in recent years, at an average of 4.4% from 2009 to 2013, a remarkable decline from an average of 20% from 2005 to 2008. Market and Developing Economies real GDP is being improving due to increasing gas production, services, construction, by the opening foreign direct investment. According to the nation release, 2014, FDI in Myanmar grow up US$45,327.83 million (Table 1). Myanmar development ranks 182 out of 189 economies reporting by World Bank, 2014. Furthermore, Myanmar was considered the “rice bowl” of Asia in the 1930s but the agricultural productivity has been suffered since the military control prices and monopoly on export and only public and private under invest in the sector. It caused agricultural low develop. Looking the foreign investment in Myanmar in the oil and gas sector and power sector are the most attractive for foreign countries to invest in Myanmar. According to Irrawaddy report Myanmar FDI reach US$4.09 billion by the end of September and it expect to growth US$5 billion by the end of this year and the growth of investment received in the telecoms sector 31 %, in oil and gas 23.8%, in real estate 18.7%, in hotels for 13.3% and 8.1 % in manufacturing especially garments factor. Overall, the country economic environment is developing step by step and it could reach the goal of ASEAN perspective to reduce the poverty and development gap between its member states.

2 According to Article 31 of the ASEAN Charter, the Chairmanship of ASEAN sha ll rotate annually, based on the alphabetical order of the English names of Member States.

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Table 1 Myanmar FDI growth

By Country

US $ million

County

No

Approved Amount

%

China Thailand Hong Kong Singapore UK Republic of Korea Malaysia Vietnam France Japan Others Total

56

14227.599

31.39

70

9,995.071

22.05

68

6477.275

14.92

103

3802.415

8.39

67

3149.349

6.95

86

3047.303

6.72

46

1625.861

3.59

7

513.186

1.13

3

474.360

1.05

43

321.339

0.71

106

1604.072

3.74

655

45237.830

100.64

By Sector

US$ Million

Sector

No

Approved Amount

%

Power Oil & Gas Manufacturing Mining Hotel & Tourism Real Estate Transport & Communication Livestock & Fisheries Agriculture Industrial Estate Other Services Construction

7

19284.432

42.54

115

14372.272

31.71

312

3710.349

8.19

69

2862.424

6.31

51

1797.921

3.97

22

1229.150

2.71

18

1217.016

2.68

28

365.974

0.81

13

203.020

0.45

3

193.113

0.43

15

54.392

0.12

2

37.767

0.08

Total

655

45327.830

100

Source: Ministry of National Planning and Economic Development (the nation publication in 2014)

The Opportunities and Challenges of the Impact of Economic Integration The ASEAN Economic Community (AEC) will offer opportunities for ASEAN members to be the right choice for investors worldwide especially for remote area especially for Myanmar. Some of the positive impact of AEC transition that can open opportunity for the Myanmar are be able to access a large market in the region, to expand trade and investment, to increase the capacity of countries to negotiate on the world stage and to prepare for the risks of social and environment for the region because between ASEAN members there will be without tariff.

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To be more attractive for foreign investors, since 2011, Myanmar has reformed the policies regarding foreign investment laws that was published on 30th November 1988 and the new law version revised was enacted on 2 nd November 2012, signed by the President. The revised laws are:

Cooperate ownership: Foreign Owned: 100% Joint Venture: foreign investors can propose a 50-50 Exemptions and Reliefs: Minimum 3 years to 5 year tax holiday Customs duty free import of machinery and equipment, raw material, Right to carry forward losses for 3 years Land Lease: Investors are allowed to lease the land either from the government or from the private. The period of leasing land from 50 years as initial to be extended 2 times, each time allow 10 years. Appointment of employees and worker: in appointing local workers, experts, and personnel for the areas that need special skill must employ local citizens 1) First period 2 years: 25 % 2) Second period 2 years: 50 % 3) Third period of 2 years: 75 % The investor shall:- draw agreement with the stipulations in appointing employees and workers - ensure the rights such as basic salary, leaves, holidays and overtime pays, compensation, social security, and other insurances in the contracts. The allowance of 100% ownership for foreign company are such as on the sector of oil and gas, mining, transportation, banking, telecommunication and power. In addition, Myanmar is developing three special economic zones at Dawei, Thilawa and Kyauk Phyu for international investors and multinational companies as partners. AEC transition can create some of the negative impact that it could make Myanmar economy faces some challenges such as agricultural sector, financial sector, infrastructure and the labor standard. According to the interview with Debbie Stothard, Many company see Myanmar as a gold mine. If we look at ASEAN economic integration, we would see that, it mostly about giving company of business people with excess to capital and the biggest benefit. It does not necessary to protect the livelihood rights of local community. It is more about capitalism and business. There is not any rules and law to protect environment for local people.This means that when the AEC economic integration, Myanmar people will be in danger because there is not the law to protect their land and environment. To sum up with the opportunities and challenges, Myanmar needs to revise the rule of law, improve the educational system, and provide financial support for SMEs. SMEs is the most important sector for the government to attract foreign investment, by doing so this could reduce poverty, those working at small enterprises will not lose their jobs. On the other hand even human resources are growing in Myanmar, their skills need to be improved, if not, the local people will not be able to work in foreign-owned companies.

Conclusion and Recommendations

According to current research, Myanmar is the country which rich in natural resources, and most of the foreign country wants to invest in Myanmar for their benefit. Because Myanmar is the key country to

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connect western and eastern especially China and India. Myanmar can benefit from allowing or holding hub of manufacturing and logistic. However the ability and law of Myanmar are still weak which they are not able to protect the small and medium enterprise if they allow the huge company to invest in the country. Myanmar should support and promote SMEs to have a competitiveness with other region. Myanmar needs to especially take into account and solve the different improvement levels, so they should take more seriously the issues listed below:

1) The most important issue is that Myanmar political reform or inter-conflict need to be resolved even though ASEAN does not interfere with its members domestic problems. The member states should impose pressure on the government regarding the peace talks. In that way people will be able to think of their economy. So people will have time to learn more deeply about AEC economic integration and they can overcome the challenges of the competitiveness with ASEAN region. 2) The government should raise awareness among businesses about the benefits of the AEC especially for small and medium enterprises so that they can prepare to participate in the regional and international level. 3) Foreign investment law still have many word to spread out such as land law that are allow foreign investment own 100% and if it is a joint venture the foreign investor can also buy the company. This is very dangerous for the small and medium companies in Myanmar because they can lose their company as they lack financial support. 4) There should be more budget allocated for education, workshops and media publication about ASEAN Community in the local language that can support everyone in the ASEAN region as a whole. 5) Myanmar has opening and allowing new banks such as a central bank, private banks and foreign banks but there are many steps in the process to loan money and if a small company wants to borrow, it is very difficult for them. Thus the government should have closely working with the banks and local entrepreneurs for the benefit of sustainable economic growth in the country. For example in Myanmar the government should support microeconomic by supporting financial and technology that people will be able to develop domestic production to have a competitive with the other region. 6) To invest in Myanmar there are a lot of steps that has to be approved to allow Foreign Direct Investment into the country and this also makes the investor and some enterprises hesitate to invest. A number of steps in the investment registration process should eventually be merged or removed and according to the reform of administrative steps to invest in Myanmar in non-resource sectors. Overall, Myanmar has the advantages on “new opening up” which attract the foreign investors to reinvest and increased more investing. On the other hand, the political situation in Myanmar has not been stable and according to research, many foreign investors hesitate to reinvest and to make new investment. The country can flip it political economy all the time as the country is still under 25% military rule in the parliament even though the country has been ruled by an elected government. Myanmar has to make an acceptation of the ASEAN regional and international level on the rule of law. It has to conclude the peace talks as soon as possible. If not, the country will be in danger in terms of economic development. If the country is willing to join on the regional and national level then it must reconcile the rule especially the 2008 constitution which it the bias of the public. In 2015, not only will Myanmar have to improve rule to join AEC, it is also election time. If Myanmar solves the unrest and political conflict in the country and make an economic

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development by giving people as a center power, the country will benefit the most from the transition of the ASEAN Economic Community. Additionally, this researcher had time limitation to collect the data on the economic development in Myanmar, it is unable to see the entire picture of development and progress in Myanmar under the master plan of ASEAN and Myanmar itself. Thus the paper can only look through investment and some labor productivity under one of the pillars of AEC, single market and production base. The researcher wants to encourage other scholars to do more research on Myanmar about the economy developing in relation to other sectors. On the other hand, as Myanmar lacks statistical data, the researcher would like to see the government of Myanmar to develop and encourage more research on Myanmar international relation in the future. Hence the researcher believes that Myanmar has to make some improvement but the country will need time to shape the country back as it was before post-independence.

Reference

Association of Southeast Asian Nations. 2014. ASEAN Annual Report 2013-2014. Than, M. 2005. Myanmar in ASEAN: Regional Cooperation Experience. Singapore: Institute of Southeast Asian Studies. Than, T. 2005. Dreams and Nightmares: State Building and Ethnic Conflict in Myanmar (Burma), Retrieved November 1, from Ethnic Conflicts in Southeast Asia. The Nation. 2014. Myanmar What the World is Reading. Thein, K. 2013. Myanmar in ASEAN: Working Toward the ASEAN Economic Community. Retrieved September 21, 2014 from www.uschamber.com/sites/default/files/legacy/international/files/(25-2-2013)%

20Myanmar%20in%20AS.

Thein, M. 2004). Economic Development of Myanmar. Singapore: Institute of Southeast Asian Studies. Weatherbee, D. 2009. International Relations in Southeast Asia: The Struggle for Autonomy. New York:

Rowman & Littlefield. World Bank. 2014. Myanmar Overview. Retrieved September 21, 2014 from www.worldbank.org/en/country/ myanmar/overview World Bank. 2014. East Asian Economies Expected to Grow at a Stable Pace in 2014. Retrieved September 24, 2014 from www.worldbank.org/en/news/press-release/2014/04/07/east-asian-economies-

expected-to-grow-at-a-stable-pace-in-2014.

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