Since seizing power more than two years ago, Myanmar’s top general, Min Aung Hlaing, has made much of a four-letter acronym that could almost be regarded as his own version of Donald Trump’s MAGA. At meetings with business leaders, he has repeatedly chanted the mantra of MSME as his answer to what ails the economy of the country that he professes to rule.
MSME refers to micro, small and medium enterprises, which Min Aung Hlaing claims were completely neglected by the National League for Democracy (NLD) administration that he ousted in February 2021. Especially since last year, he has blamed Myanmar’s persistently high trade deficits and slow pace of industrialisation on the NLD’s alleged failure to support MSMEs.
At a coordination meeting of the military council’s members held last November, he outlined plans to support manufacturing by providing MSMEs with locally-produced raw materials. What he didn’t mention, however, was why this was necessary: Myanmar’s dwindling foreign currency reserves since the coup.
This has been due to a host of factors, including a drop in foreign direct investment (FDI), private capital flight to neighbouring countries, declining remittances, suspension of loans from multilateral and bilateral donors, and a widening current account balance. All of these can be attributed in large part to the instability that has come in the wake of the military takeover.
Even before the coup, however, Myanmar’s economy was plagued by many problems, including its low productivity, lack of capital, limited financial services, poor access to markets, and inadequately trained workforce. In a 2018 report that detailed these shortcomings, the World Bank noted that MSMEs were disproportionately affected by most of these issues.
According to a survey cited in the report, energy is another major concern of the smallest businesses, particularly those operating in the informal sector. “Frequent power outages affect almost 90 percent of micro enterprises, hurting their productivity,” it said, adding that the lack of reliable electricity supplies resulted in an average of two days’ lost production per month.
“This may be particularly important for micro enterprises who often operate outside the law and therefore do not have proper access to electricity and other public utilities,” the report said.
The majority of Myanmar’s estimated 5.4 million micro enterprises are unregistered. More than half are in the service sector and employ fewer than 10 people. Most operate at street level, rely on local customers, and lack linkages to formal sector firms.
To address the challenges that most MSMEs face, there are no shortcuts. They can only be developed if there is a predictable regulatory environment, macroeconomic stability—i.e., moderate inflation, stable exchange rates, and a stable financial sector—and reliable infrastructure. Moreover, for MSMEs to gain access to markets, both domestic and foreign, microfinance institutions and technological and vocational training are also important.
Creating an enabling environment for the digital economy is also crucial for the development of MSMEs in Myanmar, as it will reduce transaction costs. Furthermore, easy access to imported inputs plays a key role for MSMEs, because many are active in the food processing and retail sectors.
But right now, not one of these preconditions for economic development exists. Myanmar’s macroeconomic fundamentals have been very fragile since Covid-19, and the military coup and subsequent banking crisis have only made matters worse. The regulatory regime favours those with access to the powers that be, including crony-owned companies. And the withdrawal of foreign investors and sharp drop in new FDI, particularly since Myanmar was placed on a Financial Action Task Force blacklist in October 2022 for its lack of progress on countering money laundering and the financing of terrorism, have made it very difficult for MSMEs to gain access to new markets and enter global value chains. Meanwhile, micro enterprises can barely maintain their existing customer bases due to the decline in domestic consumption.
Last July, the World Bank produced another report on Myanmar warning that financial sector reforms begun there more than a decade ago have stagnated and were in danger of reversing under the current regime. It also noted that micro finance institutions were particularly impacted by the domestic banking crisis and the pause in foreign lenders to Myanmar’s financial sector, with major consequences for their 5 million customers, including many MSMEs.
Given all of these facts, it is clear that, contrary to his policy agenda, Min Aung Hlaing has done much to damage the economy, with MSMEs taking the hardest hit. So it comes as no surprise that when he met with business leaders in Bago last month, he could do little more than harp on about the importance of raw materials, electricity supplies, inputs, and human resources to the success of MSMEs. Rather that accept any responsibility for the lack thereof, he simply pointed the finger at those opposed to his rule. In other words, he has nothing more to offer than empty promises, and sad excuses.
Leo Min is an analyst focusing on macroeconomic policies and political economy in Myanmar