Business Environment Index Shows Transparency a Major Challenge to SME Growth

By Nan Lwin 20 June 2019

YANGON—The Asia Foundation recently published its first Myanmar Business Environment Index 2019 (MBEI), offering Myanmar’s Union, state and regional governments a base of information with which to begin pursuing widespread and decentralized economic governance reforms.

With funding from UK Aid and the DaNa Facility, the MBEI surveyed 4,874 businesses in the services and manufacturing sectors across the country, with a particular focus on the experiences of Myanmar’s many domestically-owned small- and medium-sized enterprises (SMEs). The survey aimed to define the constraints in Myanmar’s business regulatory environment and provide a tool for identifying growth-enhancing reform opportunities.

The Irrawaddy spoke with Jon Keesecker, MBEI project manager, about the report’s key findings, the effects of favoritism on Myanmar’s economy, transparency, the significant obstacles to doing business in Myanmar and policy reforms for improving economic governance in Myanmar.

The Asia Foundation is a six-decade-old non-profit international development organization working on critical issues in Asia, including law and governance, economic development, women’s empowerment, regional cooperation and environmental issues.

What are the MBEI’s key findings?

One key finding that really gets at the heart of the MBEI project is that good economic governance and strong economic growth appear to go hand in hand in Myanmar. The MBEI tries to measure local economic governance in Myanmar, which we understand as the elements of the business environment that the government can improve in the short- to medium-term through policy or administrative reform. We measured this in 67 townships and then looked at its relationship to township-level economic performance. What we found suggests that improving economic governance in Myanmar may help improve economic growth, all the way from national to township level.

How does the MBEI measure the core components of good economic governance in Myanmar?

The MBEI measures economic governance by collecting data on 100 indicators, covering concrete policies and institutions related to business that are under the control of government. For example, the length of time it takes to acquire an operating license from the township Development Affairs Organization, the length of time it takes for a business to acquire a land title or the number of inspections a business received in the last year. Broadly speaking, all the things we measure fall into 10 topic areas: businesses startup, accessing land, regulation, informal payments, local infrastructure, access to information, favoritism or competitive fairness, environment, labor quality and safety and the security of business.

As far as I understand, the report found the business environment in Myanmar remains biased in favor of businesses with connections to elite or well-connected businesses. What are the effects of this favoritism on the Myanmar economy?

Reducing favoritism is about ensuring a fair, competitive environment for all Myanmar businesses. This is important for the Myanmar economy because favoritism rewards less productive businesses and distorts markets. For example, 64 percent of businesses we surveyed believe there is favoritism with respect to land access in Myanmar, so if two Myanmar businesses are competing in the same sector and need land to expand operations, businesses feel that the company with the better government connections is more likely get permission, even in cases where it may not be the more productive of the two businesses. This can ultimately prevent Myanmar from excelling in those sectors.

What are the most significant challenges for doing business in Myanmar?

Access to information from the government, such as public budgets, is a major challenge for business in Myanmar. So too are issues of business security. For example, 11 percent of firms reported that they were a victim of a crime last year, which is pretty high by international standards. But, I would add, businesses in different locations face different challenges. One of the strengths of the MBEI is that it shows how business challenges differ by location in Myanmar. Anyone can explore this question for specific locations by viewing the data on their phone at www.opendevelopmentmyanmar.net/mbei.

According to the report, the national level indicators show that Myanmar still has a long way to go in improving transparency. Which area governments in Myanmar need to improve transparency for businesses most?

Yes, that’s true. While businesses in different locations struggle with different challenges, businesses in all states and regions say access to government information is poor. This includes access to government budgets, regulations, licensing fees and more. This information may seem unimportant, but for businesses that are growing, this information is useful for choosing expansion locations, entering new sectors and other financial planning.

What are the major concerns of local business owners in Myanmar? 

Myanmar businesses have a variety of concerns. We were surprised to find how important the environment is to business owners in Myanmar. Only 41 percent of businesses feel government responds quickly to pollution, and only 33 percent received guidance from the government on environmental compliance. Businesses may emphasize this because many deal in food-related products and services where the environment matters.

Did you see centralization remain a challenge to improving the business environment in local states and regions? How? 

Union and subnational policy and administration are both important to business in Myanmar. Without question, many things that matter to businesses are decided centrally, at the Union level. But in other cases, state and regional governments matter as well. Most businesses engage with township-level administrators, so local administration also affects businesses. To the extent that Myanmar has decentralized, this does create opportunities for government to respond to local business needs. But to be clear, our study doesn’t aim to critique Myanmar’s system of centralization.

After having done the MBEI report, can you offer the government a list of the policy reforms to implement for improving economic governance in Myanmar?

The MBEI is meant to be a diagnostic; it takes the measurement of economic governance as it stands now. The next step is to use that to understand why some locations in Myanmar do better than others on certain topics, and we are doing that research now. In the meantime, there are probably some quick wins in areas like transparency. Township offices can publish clear schedules of fees and timeframes for businesses to obtain an operating license. State and regional governments can make budgets and planning documents available in a timely way.

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