The Irrawaddy Business Roundup (Mar. 7, 2015)

By Simon Lewis 7 March 2015

UN Handbook Calls for Reforms to Improve Business Environment

A new United Nations policy handbook says impediments to doing business in Burma are holding back growth in the private sector and must be eased if the country is to develop.

The publication, titled “Business and development in Myanmar: a policy handbook for private sector development”, was released by the United Nations Secretariat of the Economic and Social Commission for Asia and the Pacific last month. It aims to identify challenges to conducting business in Burma, and offer ideason how the government can improve the environment for commerce.

“This handbook reveals that the current institutional and regulatory environment in Myanmar continues to limit the potential of the country’s private sector,” it says.

The detailed guide runs to 72 pages and includes sections on fostering small- and medium-sized enterprises, arbitration for business disputes and transparency in government regulations.

It identifies as a key problem the difficulties faced in simply establishing and registering a company for trading.

The handbook cites World Bank research indicating that starting a business in Burma costs more than six times as much as the average for Southeast Asia. It takes on average 72 days to set up a business in the country, compared a regional average of 46 days.

Such impediments contributed to Burma’s ranking of 177th out of 189 countries in the World Bank’s ease of doing business rankings last year.

“Regulations regarding starting and running a business in Myanmar make the process lengthy and costly, while the lack of institutional capability of law enforcement creates legal uncertainty,” the new handbook says. “Thus, cutting the ‘red tape’ and building institutional capacity are crucial for enhancing the business environment. Improving the tax system and the country’s financial sector as well as introducing mechanisms to eradicate corruption are also indispensable to facilitate private sector activity.”

It calls for “a strong commitment” from Burma’s government to address the issue, and says the right policies to improve the business environment will be vital for the country’s development.

“Finally, further reforms towards trade liberalization and facilitation are highly recommended too,” it says. “They could improve Myanmar businesses’ access to both foreign markets and cheaper resources.”

Experts Warn on New State-Owned ‘Policy Banks’

The Burmese government should take measures to minimise risk as the country’s financial sector develops and new state-run banks begin lending, experts have warned.

“The track record of such institutions is not good—they tend to be just ‘soft’ sources of credit for government enterprise and the politically connected,” Sean Turnell, an economist from Macquarie University in Sydney, told The Irrawaddy by email.

“Capital is often misallocated…likewise, bad debts tend to soar, given the widespread (and reasonably accurate) belief that loans don’t really need to be repaid.”

A statement issued last month by the International Monetary Fund noted that “modernization of the financial sector is making headway” and that mechanisms to supervise the sector are being strengthened.

But the IMF also issued a warning over potential risks in the establishment of new state-owned banks to provide funding in specific sectors. Such institutions, known as policy banks, have been formed in sectors including housing and construction, small- and medium-sized businesses and microfinance.

“The issuance of new domestic licenses for policy banks should be carefully controlled to minimize risks,” the IMF statement said.

The IMF statement also warned over risks as foreign banks enter the market. Nine overseas banks have been awarded licenses to conduct limited operations in Burma.

“Implementing modernized prudential regulations that apply to all banks is particularly important given the expected entry of foreign banks,” the statement said. “The [Central Bank] should employ measures that would prevent excessive capital flows and implement rules on foreign exchange lending that avoid excessive risk-taking.”

More Than 100 Firms Apply to Provide Services for New Bourse

With a new stock exchange set to open in Rangoon in October, more than 100 companies have already applied to provide underwriting, trading, brokerage and consultancy to listed companies and investors, according to state media.

The Global New Light of Myanmar reported this week that a February 27 deadline for applications had been extended, and that the Office of the Securities and Exchange Commission would continue accepting applications until Friday.

Local firms were invited to apply to offer the services on the new exchange either on their own or in joint ventures with foreign companies. The report said that the winners would likely be announced in mid-April.

A New Ring Road for Rangoon?

Burma’s biggest city already has a circular railway line, but it may soon also have a “circular raised road route,” if a report this week on the website World Highways is to be believed.

The website claimed that talks were underway involving Rangoon’s City Hall that could see a private company construct the ring road under a build-operate-transfer agreement. The price tag for the project was quoted as around $2.5 billion.

The city has seen a massive influx of cars in recent years after the Burmese government relaxed auto import restrictions. Some flyover bridges have been built, and more are under construction, to ease traffic at major intersections, but gridlock has become part of everyday life for Rangoon’s more than 5 million residents.

“The aim of the project would be to cut congestion by constructing a new elevated road network,” the World Highways report said.

International contractors have already been in talks with city authorities over the project, the report said, adding that feasibility studies and a tendering process were expected this year.

“Various entrepreneurs from Myanmar itself as well as a major firm from…Malaysia have also been in discussion with the Asian Development Bank and [City Hall] with regard to the project,” the report said.

Rangoon Ranked Among the Worst Cities to Live In

Burma’s commercial capital is among the worst world cities in terms of quality of life, according to the results of a survey released this week.

British consulting company Mercer published the results of its annual

Quality of Living Survey, placing Rangoon in 201st place out of 230 cities, mostly national capitals.

The firm conducts the survey to inform international companies about the living standards their expatriate workers will face in different locations.

Burma’s result is the worst for all the cities in the region included in the survey. Singapore was the best-ranked Southeast Asian city, placing 26th. Manila ranked 136; Ho Chi Minh City and Hanoi ranked 153 and 154, respectively; Vientiane ranked 171, and Phnom Penh ranked 195.

While the firm did not give details on the reasons for the rankings, for low-ranking Asia-Pacific cities, it said, the “main challenges to improving quality-of-living standards are clean water provision and air pollution.

“However, advances in the telecommunications and consumer sectors have had some positive offsetting effects on their ranking.”

Although Rangoon residents will recognise that the city’s ever worsening traffic (see above), inflated housing prices and frequent power outages make life a challenge, many will find the ranking harsh, especially when they see who their city ranks beside: Rangoon placed only marginally ahead of Ethiopian capital Addis Ababa and Zimbabwean capital Harare in the rankings.