Myanmar’s Economic Battle; COVID 19 and How Do We Mend the Broken Hearts?
By Richard Dagun (aka) Takhun
Economic Impact of Covid 19 in Myanmar
Rather than claiming many people's lives by Coronavirus in Myanmar, the economic perfect storm swept the entire country away and left her so frail. Even after the cautious reopening in the beginning of June, supermarkets seemed quite empty and airports looked like scary places with no visitors. Many small businesses and some manufacturing factories were utterly bereft of hope for revenue and support and began to file for closure. Sadly, they had to lay off workers. Workers faltered to return home to villages and added the pressure of financial difficulties for the village families. Eventually most of them might surrender to the lowest paying jobs in neighboring countries after the crisis.
Uncertainty is the principle of life but recently found more pronounced in Myanmar aftermath of the virus. With uncertainty of tourists ever coming back to Myanmar after their own struggles in their countries, doubts began to creep into the nerves of Tourism SME owners and most positions felt unsecured. Uncertainty of supply and demand in the garment and apparel industries compelled some factories to shut down and at least 100000 people lost their jobs in a massive layoff. Uncertainty of exports and inefficient borderline policies led to fruits, vegetables and many other products gone stale at the expense of many farmers' yearly wages, efforts and economic wellbeing. Uncertainty of job securities and fear of the havoc caused by the virus, (probably close to 400,000) local migrant workers chose to return home and added the value of unemployment. Uncertainty is the fashion of the time for almost all Businesses in Myanmar. From the point of outbreak of the virus to the end of May, some businesses collapsed while many are at the brink of shutting down; almost all are suffering and millions of Myanmar people's lives shattered.
Definitely, COVID 19's aggregate shocks immensely wounded businesses, households and individual incomes. The scale of the shock’s ability to damage the economy’s supply side for Myanmar industries was enormous. Most of the supply for industries such as garment and apparel came from China and others from different countries such as Thailand and Singapore. After re-opening of the border with China, some supplies were back to normal in April, but the demand for Myanmar garment and apparel products deteriorated. Capital formation was also very low and credit intermediation was disrupted. Perhaps, the most prolonged severe impact would be on the visitor economy. As both inbound tourism and outbound tourism came to a standstill with zero revenue, so owners and management of hotels, restaurants, tour buses, river cruises, travel agents, horse carts, boats, souvenir shops, and related businesses began to wonder listlessly how to withstand the challenges of daily operating cost, monthly salaries, and monthly bills. Nearly two-fifth of small and medium-sized businesses are unlikely to get the cash (as they are mostly ineligible for any loans by any Myanmar banking standard or even by the stimulus package) they need to survive another four month despite promises of unprecedented government support. It is also inevitable that the foreign private sector may be unable to provide the desired investment flows. Most projects valued in the billions of dollars are likely to be paused or reconsidered with Virus Outbreaks in countries of key investors.
Possibly the pain of the economic struggle is even more devastating than the virus itself for millions of people in Myanmar. World Bank issued a statement that COVID19 crisis will herald the worst economic contraction in Myanmar. It will force to cease more than 20000 SMEs and some factories out of 100000 formal and informal firms and the unemployment rate could be up to (20% to 30%) 2 million with the addition of home returnees from overseas amid the crisis. Even though it was the first ever attempt of the Myanmar government since independence, Economic consequences of Covid 19 could easily outweigh and undermine the well-intended stimulus plan with such a tremendously high unemployment rate. Just as workers are exiting the workforce, their contribution to GDP is lost and productivity is down. If this pattern persists, the economic shock of COVD 19 in Myanmar could become structural (Fig 1).
Myanmar Government's Approach to Covid 19 Crisis
A graceful commitment of the young democratic government of Myanmar to support SMEs and poor households is unprecedented. It sets up a fund of 100 billion kyats (USD 71.43 Million) for local businesses, which might be increased up to 200-500 billion kyats, depending on the demand and helps each poor household with rice and beans and 40000 kyats (USD 28.6). On the other hand, the performance of central banks of Myanmar during the COVID19 crisis deserves a round of applause for reducing 3% interest rates in total and keeping the exchange rate more or less stable by buying out millions of USD reserves that was probably an unpleasant necessity. But when the circulation of finance is perceived to be so disrupted and weak, it signals a hard time ahead on the market.
About the pain of cash flow deficiency, nobody knows better than small business owners of Myanmar. Myanmar has 65808 registered companies and probably more than 40000 unregistered SMEs and MSMEs and only a fraction of the total amount are chosen for support by the stimulus plan through the laborious application processes with piles of documents including taxation and many others. Despite all the government support with COVID 19 business loans promised for the hardest-hit sectors such as garment, retail, leisure and hospitality, the real number of businesses tormented by a cash-flow crisis is much wider. In a recent nationwide survey conducted by the Asia Foundation with 750 local businesses participation clearly highlighted the need to direct all the government's efforts towards reliving the plight of Myanmar businesses on the threshold of shutting down. Surveyors found out that 29% of Businesses already closed down while 50% of all the businesses are re-structuring (meaning lay off workers) or having hard time to go on as shown in Figure 2.
Recently released COVID-19 Economic Relief Plan (CERP) unfolded seven goals, 10 strategies, 36 action plans and 76 actions with a glorious aim to stimulate economic activities by stimulus packages for employees, businesses, households and easing banking regulations. For an economic recovery plan written in such a short notice, this plan is the light at the end of the tunnel. It has detailed on many great points such as fiscal spending, banking regulations, and monetary instruments, however, still miss to address check and balance mechanism on awarding permissions, establishments of tax breaks, tax holiday, import substitutions and forward looking export oriented strategies, more importantly neglected to stimulate or evoke the sense of production in Myanmar SMEs. For example, production of needle, candle, spade, pitchfork, spade, shovel, trowel, hoe, fork, and such basic necessities in the farm do not need a lot of innovation and initiative to produce because human beings are capable of producing such things since the Stone Age. Surprisingly, Myanmar has to import such things from China and Thailand only to drain the national income. Some neo-classical economists might argue that the market will correct itself, if they are cheaper because of the economies of scale in China, it is better to import. Well, without any initiative of government's intervention with subsidies and financial support, Myanmar economy is never likely to achieve the desired level of production in the future because Myanmar people are habituated to consider short-term gains for many decades.
Well may there be an historical economic playbook for handling financial crises. However, even in most advanced economies such as the UK and USA are not lucky enough to have off-the-shelf policies and comprehend the extent of such a large-scale real economy freeze. Myanmar's well intended stimulus packages were definitely very hard to launch after decades of deeply dysfunctional economic practice, even harder to get through the layered bureaucratic systems deeply rooted in the authoritarian tradition where the officials decide who get the limited resources, not the one in need, but probably the hardest to reach the targeted bottom of the pyramid and the most vulnerable ones - therefore, far away from igniting the economic engine that is in dire need of activities and circulation. Definitely, Coronavirus Pandemic will continue to impact life and economy until we find the means to cure it. Its economic impacts are truly unprecedented and, therefore, realistic estimates of the depth and length of its impact are much needed for policy responses.
Timeline and Covid 19's Possible Impact in Myanmar
Myanmar is habituated to catching up pretty late in most cases such as market economy, democratic system and technology - COVID 19 was no exception. The virus came late in March to Myanmar, has no will to spread enormously (fingers cross) and claim many lives but brings out a catastrophic impact on the economy. Recently, Myanmar has experienced unprecedented free fall in almost every component of aggregate demand such as exports, capital spending, and consumption. Its most positive timeline of economic recovery may be in the second quarter of 2021 or, in the worst case scenario, the recovery might be prolonged up to the middle of 2022. The most positive view of recovery is a V-shaped, with output falling sharply for half a year and then rapidly recovering the next, say in March 2021or the W shaped (which seems more realistic now) with longer time of economic inactivity which might drag recovery dates further into the fourth quarter of 2021.
The consumer confidence 's in the economic future of Myanmar is definitely not bright, likely to be represented by a downward trend with 15% to 30% less, at the same time, with the additional shock's impact of the mass unemployment up to 10% to 20% will result in a dramatic drop in aggregate demand. Real estate sector in Myanmar also gets some delay in developments of residential and commercial properties due to shortage during this crisis which may result in evoking the ‘force majeure’ clause for real estate developers along with payments and bank interest cycle disruptions and apprehend an acute financial crunch. On the other hand, the sad truth about Myanmar's tourism sector, which employs more than 700,000 employees, is that it will hardly be a comeback for, at least, two years. The fiscal responses of the various stimulus packages coming from governments could drive up inflation, while not being particularly effective. Aggregate economic impact began to disrupt Myanmar’s labour participation, capital formation, and productivity growth. Myanmar's GDP projections by World Bank have already been amended downward, driven by sharp declines in the business activities with shocks to both domestic demand and supply.
Winners and Losers Aftermath of Covid 19
It is true that crisis picks some people or industries and magically turns their sales volume up. E-commerce, Online payment provider, Medical services and equipment, Medicine, Telecom, communication providers, Food deliveries, door to door deliveries, Internet service provider, Rice and Bean Traders, Retail for Essentials suddenly found themselves receiving tons of orders during COVID 19 lockdowns and came up afresh with new investments (amid lockdowns, financial service provide, Wave Money announced USD 50 million partnership by Ant Finance). In contrast, with social distancing, lockdowns, and travelling restriction measures, the industries such as Entertainments, Tour Agencies, Lodging, Hotels, Tourist Transport, Cruise Lines, International Flights, Cinema, Automotive Manufacturers, Car Dealers, Car Brokers, Garment Manufacturer, Apparel Manufacturer were among the most severely hit sectors in Myanmar. Some of them might be eligible for government stimulus support to some extent. Myanmar companies hardly have contingency plans except for natural disasters and power outages but never take the widespread quarantines, extended business closures and travel restrictions into consideration with added financial pressure. It's much like a little bit of heaven falling on Manufacturers and tourism sectors and stirring up with major global supply chain disruptions along with shrinking demand, revenues and production, accompanied by probabilities of bankruptcy and closure.
Soaring Unemployment and who gets hit hardest
No words can adequately portray the painful hearts of many employees recently terminated amid the crisis. Their moral degradation blended with insecurity of life (as more than 90% of them do not have saving accounts) was immense. So who gets hurt the most and falls preys to this crisis in Myanmar? Thorough and urgent analysis is much needed for effective support and regulations. Crisis always hits the bottom of the pyramid hardest. As shown in Fig 4, about 4000 local companies were lucky enough to receive the stimulus support out of almost 100000 formal and informal firms.
Those who get loans with 1 % interest may extend their benefits to their employees while many other firms have no other choice but to lay off workers. The figure 5 unveiled that the red arrowhead lines received some support but there are many layers of workers who will not get any benefits out of the COVID relief plan. Regarding the volume of tourist arrivals in Myanmar which was already falling short year by year even before the crisis, the future looks bleak with no prospect of (valuable) tourist arrivals for, at least, two good tourist seasons. For instances, in tourism sector the following people who fall outside the regular employment contracts are in dire need of financial assistances more than anyone; Local freelance tour guides, tourist transport drivers, horse/bull cart drivers from Innwa, Mingun and Bagan, Boat drivers of Inle lake and Taungthaman lake, souvenir vendors of touring villages, village trekking guides and service providers in Pindaya, Kalaw, Thibaw, Chin state, Loaikaw, Tachilake, Kyaingtong and so on.
As shown in Fig (4),
1. the employees of the hardest hit industries in Myanmar
2. Informal economy workers,
3. casual and temporary workers,
4. Young workers, whose employment prospects are more sensitive to fluctuations in demand;
5. Older workers, who even in normal times face difficulties in finding decent work opportunities and are now burdened with an additional health risk;
6. Home returnees (local migrant workers)
7. Micro-entrepreneurs and the self-employed – particularly those operating in the informal economy, who may be disproportionately affected and are less resilient.
How do we mend the broken hearts?
Compared to Myanmar, richer Asian economies such as Singapore, Hong Kong, Thailand, and Vietnam could take a stand on the economic issue with generally easing regulation such as lower banking reserve requirements, delayed recognition for non-performing loans and, employing fiscal buffers (tax cuts, subsidy increases) and monetary policy (rate cuts, quantitative easing, direct support for financial markets), without undermining policy credibility and igniting capital flight. However, Myanmar has a significantly low availability of fund and far less certain prospects, with tightly regulated loan products to borrow for SMEs and job markets containing a large number of informal workers ineligible for protection. It is predicted that 20 to 25 percent of all SMEs will not be able to survive the next year if they are not financially aided.
Amid the Covid 19 Crisis, Tourism sectors and factories were experiencing massive layoffs up to a million employees and counting. Those terminated were, at first, shocked, confused, afraid, irritated, and upset as they rarely have any savings. With no expectation of securing another job, they now have to decide whether to go home to villages with the gnawing feelings of worthlessness on the inside. It was even harder for older employees who began to sigh with resentment for the decades of dedication to the company. The negative psychological effects, such as mental distress, losing self-control, financial worries and frustration were solely experienced by the displaced worker and his or her family. Some young workers may resort to alcohol and some might be lured for both violent crimes and drug/alcohol-related crimes. About the laid off workers, non-doom-laden side of the story is rarely the head line these days with financial difficulties, complications and frustrations. Creating Jobs so as to absorb the entire unemployed work force affected by the COVID 19 (2 million jobs) is the single most urgent problem.
Recovery is going to be slow so long as there are no initiatives and formulation of a medium-term economic plan for
1. Creating jobs and Help thriving SMEs and businesses to absorb the unemployment (up to 2 million)
2. Recognizing real problems on the ground is also urgently needed
SME's No1 Problem
(a) Shortage of capital: Central Bank of Myanmar can issues loans to private banks who in turn issue loans to industrial conglomerates, SMEs with least collateral requirements or without any as was the case in Japan after world war two, and authorize banks to fund viable project loans even without collateral
(b) Incentives for local produce and government backing; also by encouraging local SMEs to create products that are imported, get business expansion loans
3. Export oriented and import substitution programs with incentives to local firms
4. Not just by the stimulus fiscal instruments such as government projects, roads, infrastructure but also encouraging local production in large scale
5. clearer and more beneficial tax cuts for local businesses,
6. subsidy increases for farmers and poor households
7. Not regarding innovation in the frame of only eCommerce, and e-payment
8. Can we abruptly become a more business/investment friendly country?
Forget 'business as usual' thinking. Forget the daily normal bureaucratic steps. We have to be proactive in strategically luring the moving manufacturers out of China such as Germany and Japan by offering whatever they need in cheapest possible way
(a) open a new one stop investment department that will not just do the necessary licensing but also give away anything that investors will need such as land, electricity, water
(b) Give Tax incentives
(c) Promise them with protection of their wealth and rights
(d) Strengthen backward linkages from FDI into the indigenous economy
(e) Inform or pitch them professionally, government to government as well as government to businesses.
(f) Setting-up a business-friendly financial system
(g) Set up a vendor development programme to support the matchmaking process between foreign customers and local suppliers.
Coronavirus might have interrupted and degraded almost every aspect of Myanmar economy. However, Myanmar can suddenly come out afresh in the world's stage with such a new look enticing new opportunities if the government is un-corrupted by bureaucratic prejudices and serious about the future of Myanmar that is greatly relying on foreign investment and extracting economy with no value added exports.
About the Author
Richard Dagun (aka) Takhun is an economist, private advisor to a few firms, and industrial researcher. He holds Master Degrees in Economics from Business School of Curtin University of Technology, Australia and Graduate Diploma in Business Administration from University of Canberra, Australia. He owns and runs a SME in Mandalay, Myanmar. He can be reached at [email protected], +95942775773