Opinion & Analysis

Rohingya refugee crisis hits Myanmar's economy

6:18 PM, October 30, 2018

Myanmar:When growth falls and investment flees, it's the poor who suffer the most.

File photo.

While the Rohingya crisis and the escalating problems in Kachin and northern Shan State are grabbing headlines, Myanmar's sagging economy and the withdrawal of investment by Western nations threaten to hit the largely impoverished nation the hardest.

The country's budding tourism sector has the potential for much more growth that can only be described as extraordinary.

However, the rising threat of increased sanctions, particularly against military leaders, and the potential for legal action against them in international courts will only serve to exacerbate the current situation.

While the wealthy elite can ride this out, the bulk of the population of 50-60 million people have just emerged from the dark decades of military dictatorship and isolation and are already feeling the brunt.

In early October the World Bank, an organization that tends go as far as it can to not frighten investors, downgraded its forecast for Myanmar for the fiscal year ending on March 31, 2019, to 6.2 percent.

It blamed the change from its original forecast of 6.8 percent on domestic factors such as floods, inflation and the crisis in Rakhine State. But the latter is much more than just a domestic issue.

In tandem with slowing growth, approvals for foreign direct investment (FDI) applications from April-September have almost halved to US$1.7 billion, compared to US$3 billion during the same period last year.

In its update, the World Bank predicted that in the medium term the country's growth would pick up due to "several investment-friendly laws have been passed and are anticipated to be implemented."

Myanmar implemented its new Investment Law last year, and a new Corporate Law in August, but the country's bureaucracy moves slowly and is hampered by a lack of people skills.

Despite the slower rate of growth, inflation is rising and now stands at 8.5 percent, compared to 5.5 percent last year, effectively wiping out any real economic growth as the cost of living surges.

The kyat has depreciated 25 percent in recent months against the US dollar, more than other currency in Southeast Asia.

A lower kyat is good for exports, however, and Myanmar has been emerging as a low-cost garment maker, along with its more traditional resources like oil and gas, agricultural exports like vegetables and sugar, and precious stones and opium (on the black market).

But the strengthening currency is bad in terms of how much locals must pay for imported daily necessities, hence the rising inflation.

The garment-making sector is also under threat now with the European Union reviewing its position on the country. The EU recently withdrew its support for Cambodia's manufacturing sector due to Hun Sen's rising dictatorship.

The sector is now Myanmar's No.2 export after energy. It employs hundreds of thousands of people, mainly in the economic hub of Yangon.

In 2017, garments comprised 72.2 percent of Myanmar's €1.56 billion (US$1.8 billion) exports to Europe, one of the few regions with which Myanmar enjoys a trade surplus, according to Frontier Myanmar.

Myanmar's economic problems are myriad and urgent, yet they have not been prioritized by the government of State Counselor Aung San Suu Kyi.

The reasons for this are wide-ranging: not only does Suu Kyi have no background in economics or business but businesses say she has failed to surround herself with competent advisers.

Overall, Myanmar remains chronically underdeveloped. For instance, only 30 percent of people have access to reliable electricity, while health services are poor.

The government does have programs in place to address these issues, but they are moving achingly slowly.

The basic lack of both hard and soft infrastructure is an example of how slowly the economy is being developed. Key sectors such as retail banking and insurance have yet to be fully opened to competition and external players.

"Protectionism and turbulence in financial markets can hurt the prospects for medium-term growth, but the most adverse consequences hit the poorest and most vulnerable," said Victoria Kwakwa, the World Bank's vice-president for East Asia and Pacific.

The Rohingya crisis is not helping, and neither is the grim reality of a civil war still raging in Kachin and Shan.

That is seeing dozens of people killed every month, with more than 120,000 now living in internal displacement camps. Such issues are further crimping Myanmar's economy and its development.

Tourist numbers are slumping, particularly from Europe and North America, the lifeblood of the industry.

To counter this, the government introduced visa-free tourism for citizens of Japan, South Korea, Hong Kong and Macau from Oct. 1. Officials have signaled they will be adding another 21 countries to this program in the coming years.

Meanwhile, Western nations are starting to line up to hit the military with sanctions over the Rohingya crisis in western Rakhine. Over 700,000 of this ethnic Muslim minority have fled to neighboring Bangladesh amid verified reports of murder, rape and the wholesale destruction of villages.

Australia, a major aid donor to Myanmar, on Oct. 24 became the latest country to slap sanctions on five senior members of the military who were deemed to have directed unspeakable violence against the Rohingya.

The list does not include Senior Gen. Min Aung Hlaing, the head of the military, known in Myanmar as the Tatmadaw. However, the names were culled from a damning 400-page report issued recently by a three-person United Nations Fact Finding Mission.

There are arguments for and against taking legal action.

In favor: military leaders put a system in place in Rakhine in 2012 that recently culminated in their so-called "clearance operations," which senior U.N. figures have compared to ethnic cleansing and even genocide.

Against is the argument that external attacks on the military would only provoke the situation and make Suu Kyi's goal of national peace and reconciliation that much harder to realize.

Some critics say it would also distract her from what should be her top priority: mending and further developing the nation's broken economy in order to improve the livelihoods of the populace in general.

Source: UCAN

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