Alone among post-Covid Asian economies, Myanmar fails to recover under coup regime

Note: Names in this article have been changed for security reasons. Maung Kyaw, a prominent Yangon-based tech executive, argued in the first week of 2024 that Myanmar’s post-pandemic economy would be as strong as its neighbours’ if the military had not carried out a coup d’état three years before. The executive—who asked Myanmar Now not to use his or his businesses’ real names for security reasons—offered this perspective based on many years’ experience in Myanmar’s commercial hub, working in a constantly changing environment for international business. The outcome of the coup, added to the effects of Covid-19, has been to push Myanmar irreversibly down the wrong path, Maung Kyaw told Myanmar Now, ruining a climate of economic opportunity that had been building in Myanmar for more than a decade. “Other countries were able to start from where they left off when the pandemic was finally over, and they have now progressed even further. But our country is still regressing due to the political storm that followed the pandemic,” Maung Kyaw said. Myanmar’s economic plight became even worse when resistance groups began to form throughout the country in response to the coup, he added. The World Bank released a general report on Myanmar’s economy late last year—the latest in a series of reports issued every six months—bearing out some of Maung Kyaw’s views. The report—entitled “Myanmar Economic Monitor”—projected that the country’s recovery would continue to stall for the foreseeable future, with growth in gross domestic product (GDP) unlikely to exceed one percent through the financial year ending in March 2024. Moreover, the report noted that amid ongoing armed conflict and inflation of the national currency, Myanmar remains the only East Asian country that has failed to return to levels of economic performance that prevailed before the February 2021 coup. The World Bank has now released six “Myanmar Economic Monitor” reports since the coup. Earlier reports detailed how Myanmar’s economy, which was growing at a rate of nearly six percent between 2011 and 2019, contracted by an estimated 18 percent in the 2021 financial year following the coup. Freefall of the kyat and the hobbling of Myanmar businesses Inflation was one of the most egregious problems to emerge following the coup. The exchange rate for a dollar—approximately 1,300 Myanmar kyat in January 2021—has shot up to 3,500 kyat in the three years since the military seized power, with junta policies having similar effects on the exchange rates for the Chinese yuan, Thai baht, and Indian rupee. Even if the military regime is not solely to blame for the rapid depreciation of the national currency, its policies have clearly aggravated the problem. The value of the kyat plummeted, for example, after the military council chose to start printing a new 20,000-kyat banknote in July of 2023. There was also a wide difference between official foreign exchange rates for the national currency approved by the military council and the black market rates, which came much closer to reflecting its true value. While well-connected cronies and executives were able to cooperate with high-ranking junta officials to avoid major adverse impacts on their business, the disparity between the kyat's official and real values caused substantial hardship for smaller businesses involved in foreign trade. The military also directly restricted imports, effectively prohibiting ordinary businesses from importing more than they exported on penalty of losing their import licences. This led to massive shortages of raw materials and other essential goods, with commodity prices inside Myanmar skyrocketing as a result. “Whether they granted an import permit to a business depended on its revenue from exports. It became very hard to get a permit, leading to a shortage of imported materials. Sales began to suffer too,” a Yangon-based import business owner told Myanmar Now on condition of anonymity. He added that the auto and other manufacturing industries, as well as the service industry, had experienced some of the greatest difficulties from these practices due to their heavy dependence on imported materials. The regime also severely limited the import of fuel-powered vehicles and their components, only allowing the import of electric vehicles and parts to continue without restriction. Some 30 car companies including Toyota and Suzuki ceased operations in Myanmar amid the draconian restrictions. The pandemic and later political turmoil in the country also delivered a double blow to hotels and the hospitality business—Myanmar’s so-called “smokeless industry”—the import business owner from Yangon noted. Restaurant workers use a mobile phone for light during a power outage in Yangon in September of 2023. (Nyein Chan Naing - EPA) Electrical energy crisis Other businessmen remarked that the problems for Myanmar businesses were exacerbated by the growing energy crisis and increasingly frequent power outages throughout the country. The regime—facing dwindling dollar reserves—has fallen woefully short in ensuring sufficient imports of petrol and diesel, they noted, leaving business owners scrambling to track down their own fuel to power generators and keep their enterprises running. One industrial manager in Yangon told Myanmar Now that each industrial zone uses some 25,000 tons of fuel each month, chiefly due to the unreliability of the power supply under the junta. In comparison, the civilian-led National League for Democracy (NLD) administration that governed Myanmar between 2016 and 2020 succeeded in providing regular electric power to half of the country’s people by February 2020. The military council, which ousted the NLD in February 2021, has only been able to supply electricity to parts of the same population at a given time. Its response has been to impose rolling blackouts, supplying power to different areas on an alternating basis. In a bid to address the fuel shortage and the hardship for businesses caused by power cuts, the military council for a time resorted to using a different exchange rate for fuel imports, converting dollars at the Central Bank of Myanmar (CBM) rate of 2,100 kyat for forty percent of the budget for total petrol imports and 50 percent of the budget for total diesel imports. However, the junta stopped implementing this policy in late 2023. According to S&P Global, which collects data on manufacturers’ output and purchasing power, by October of last year there was a severe drop in performance across Myanmar’s manufacturing sector amid these deteriorating conditions. The Myanmar-Korea Friendship Bridge (Dala Bridge Project) in Yangon's Lanmadaw Township in August of 2022 (Myanmar Now) Harm to foreign trade and investment Another Yangon businessman noted that the military council had not only restricted imports, but had worsened the imbalance for businesses involved in foreign trade through its currency policy, requiring the exchange of dollar revenue from exports into kyat at an extremely undervalued rate. He added that exporters faced further losses when the ongoing conflict in the country cut off crucial routes to the commercial hubs on Myanmar’s borders. The value of Myanmar’s commodities trade with other countries totaled US $23 billion in the 2023-2024 financial year, down from US $25.6 billion the previous year. Income from exports decreased by US $1.8 billion over the same period. There was also an overall decrease in foreign investment in Myanmar following the coup, aggravated by the decision of many foreign companies that had already invested in Myanmar to exit due to the political, reputational, and financial risks following the coup, Maung Kyaw noted. He added that while Myanmar was in dire need of foreign companies’ resources and the technology to boost the country’s economy, investing in Myanmar was simply no longer in most international businesses’ best interest following the coup. “There is hardly any means left to spur the country’s economy from within, so it’s very likely that it will only shrink further,” he said. The junta’s ministry of investment and foreign economic relations only regularly releases data on the total value of foreign investment projects they have approved in the country, rather than the value of investments that have actually occurred. According to this data, over US $3.7 billion worth of foreign investments in Myanmar were approved during the 2020-2021 financial year, and the total value of investments permitted in subsequent years totalled hundreds of billions of dollars. However, of the US $3.7 billion worth of foreign investment permitted in the 2020-2021 financial year, the real amount that flowed into the country that year was only just over US $1 billion—28 percent of the allowed amount, according to data from the CBM. While the same CBM data is not yet available for the 2022-2023 financial year, the real value of foreign businesses’ investments in Myanmar during this period was likely only a fraction of the amounts permitted and disclosed by the junta. According to Thet Shin, an export business owner who also asked that his real identity be withheld, the impact of shrinking foreign investments as well as the impediments to communication and aid from abroad under the junta have been profound. He pointed to Vietnam as a model of what Myanmar might have achieved if the 2021 coup had never happened. “Even a communist country like Vietnam is developing fast. Our country under a democratic government would have been overflowing with foreign investments and business from exports,” Thet Shin said. He also pointed to the United States’ and other foreign governments’ imposition of sanctions against high-ranking individual members of the military council, forbidding any business with them, their close associates, and connected business entities in response to the coup. “It’s hard for a country or enterprise to thrive when it is passed over by the entire world,” Thet Shin said. Maung Kyaw noted that skilled and experienced business people had begun flocking to Thailand, Malaysia, Singapore, Japan, and Korea, resulting in a “brain drain” from Myanmar. “We are experiencing a brain drain and a massive loss of human capital as many entrepreneurs move their businesses to other countries. We might even face capital flight in the future, as people begin to take their mobile assets elsewhere,” he said. The economic isolation of Sr-Gen Min Aung Hlaing’s regime is similar to that faced by the earlier dictatorship under Than Shwe, according to Maung Kyaw. However, after more than a decade of steady integration into the global economy before the coup, Myanmar is feeling the impact of the international community’s shunning far more sharply than before. “We don’t know what is going to happen to the country. We don’t know what’s going to happen to the leadership,” Maung Kyaw added. “We don’t know how far the war is going to spread and we don’t know how long these power cuts are going to last. Overall, it’s an extremely difficult situation for operating any kind of business.”

Alone among post-Covid Asian economies, Myanmar fails to recover under coup regime

Importers, managers and other businessmen spoke to Myanmar Now about the difficulties in operating their businesses amid the stagnation, shortages, and inflation brought about by the junta’s mismanagement

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