In late November 2015 ASEAN signed the Kuala Lumpur Declaration, formally establishing a single market among the 10 ASEAN member states. Known as the ASEAN Economic Community (AEC), the endeavour aims to integrate the region’s economies into a unified market of 620m people and with combined annual output of $2.4trn.
Taken as a whole, the AEC’s population is larger than the EU’s (by more than 100m people), and also has a significant youth segment, while many European nations are home to ageing populations. Given these advantages, plus the fact that many ASEAN member states are starting from a relatively low economic base, the AEC is forecast to grow by 5% annually over the next decade. Myanmar, which has been a member of ASEAN for the past 15 years, is poised to benefit considerably from the formation of the AEC.
“In my three years here, whenever I have spoken to senior government officials or Cabinet ministers, and the conversation is on development priorities, almost all of them will mention two key aspirations,” Toily Kurbanov, country director of the UN Development Programme in Myanmar, told local media in September 2015. “One is to support ASEAN economic integration, and become a full-fledged member of the AEC, and the second is to graduate from least-developed country status.”
In 1967, the year ASEAN was established, the organisation invited Myanmar – then called Burma – to join, but the nation rejected the invitation on the grounds that it might interfere with the country’s non-aligned foreign policy. Beginning in the early 1990s, however, overtures by a handful of ASEAN member countries – including Thailand and Malaysia – led to Myanmar achieving official ASEAN observer status in 1996 and joining the bloc as a full-fledged member a year later. In the years that followed the country benefitted from its ASEAN member status, seeing increased trade from other member states, including Singapore and Thailand, though strict domestic investment restrictions and international sanctions meant that the nation saw only a slight uptick in overall revenues. For the same reasons, through the late 1990s and the first decade of the following century Myanmar played a relatively minor role in ASEAN activities.
When the new government of president U Thein Sein launched a raft of political and economic reforms in 2011, however, ASEAN moved to signal approval. In November 2011 the group approved Myanmar for ASEAN’s 2014 chairmanship, which was seen as both recompense for 2005, when the country was barred from taking its turn as ASEAN chair, and an acknowledgement of Myanmar’s burgeoning status as a regional player. By most accounts Myanmar’s ASEAN chairmanship was successful, resulting in several critical political and economic agreements, including the Naypyitaw Declaration on the realisation of the AEC, which intensified efforts in preparation for the late-2015 announcement of the formal establishment of the regional economic community.
By The Numbers
Myanmar’s recent economic boom is primarily the result of trade and investment from ASEAN members and other East Asian economies. Data for May 2014 through April 2015 – the most recent period available at time of publication – shows that more than 40% of Myanmar’s exports went to ASEAN member states, and nearly 45% of imports came from the bloc, according to data provided by Myanmar Customs and compiled by AHK (the Delegation of German Industry and Commerce in Myanmar). These figures jump dramatically when trade with China, Japan and South Korea – which account for the additional markets in the ASEAN+3 grouping – is factored in.
During the 2014/15 period around 87% of Myanmar’s exports went to ASEAN+3 countries, while around 90% of imports came from the same group.
Myanmar’s single largest trading partner is China, which accounted for 30.2% of imports and 37.3% of Myanmar’s exports by value in 2014/15. Myanmar’s second-largest trade partner is Thailand, which accounted for 10.1% of imports and 32.2% of exports in 2014/15, according to AKH data. This was followed by Singapore, with 24.9% of imports and 6.1% of exports; Japan, with 10.5% of imports and 4.4% of exports; and India – Myanmar’s largest non-ASEAN+3 trade partner – with 3.6% of imports and 6% of exports. Rounding out the top-10 are Malaysia, South Korea, Indonesia, the US and Hong Kong.
Investment into Myanmar comes from a similar grouping of countries. Singapore dominated in 2014/15, with around $5bn of the total $8.1bn in FDI coming from the city-state. This figure is potentially misleading, however, as the majority of this sum likely originated with firms that are registered in Singapore but based elsewhere. Under the ASEAN Comprehensive Investment Agreement, which came into effect in 2012, firms operating out of an ASEAN member state are granted various investment benefits in Myanmar. Other major sources of FDI in Myanmar were China, Vietnam, South Korea and a handful of Western players including the Netherlands, the UK and Canada.
Regional Trade Framework
According to World Bank analysis, Myanmar’s trade is concentrated in South-east Asia due to the country’s unique historical circumstances, and particularly the long-lasting influence of international sanctions, which continued to impact certain sectors and partners in late 2015, despite the country’s rapid progress over the past half decade. Between 2009 and 2012 more than 95% of Myanmar’s foreign trade was with Asia, according to data from the Asian Development Bank. In addition to its membership in ASEAN and, as a result, the ASEAN Free Trade Area, which came into effect in 1992, Myanmar benefits from the ASEAN bloc’s agreements with a variety of countries. As of late 2015 the association had comprehensive economic cooperation agreements with China, South Korea and Japan, in addition to India; and a free trade agreement with Australia and New Zealand.
Taking into account the recent establishment of the AEC, Myanmar’s trade and investment ties will likely remain heavily concentrated in ASEAN+3 and other nearby markets for the foreseeable future. “Asian investors dominate the market right now,” Daw Khin Thida Maw, Myanmar country officer at the World Bank’s International Finance Corporation, told OBG in October 2015. “We expect this will continue, even if, as is widely expected, an increasing number of Western investors come in after the election.”
Under the AEC Blueprint, the strategy is organised into four pillars. Pillar one covers the formation of the single market and production, which includes the free flow of goods, services, investment and skilled labour; pillar two is the establishment of a competitive economic region, which includes implementing competition and consumer protection policies, plus issues relating to intellectual property rights, taxation and e-commerce; pillar three relates to equitable economic development, which focuses on the development of small- and medium-sized enterprises and ASEAN integration; and, finally, the fourth pillar is aimed at boosting ASEAN’s integration into the global economy. According to recent Deloitte research, none of these pillars have been entirely implemented, with completion rates ranging from around 66-86%.
Myanmar will likely benefit more from the reforms than most other ASEAN nations. Aside from Cambodia, in 2014 Myanmar had the lowest GDP per capita among member states, at $1127, according to data from the IMF, as compared to $2862 in the Philippines, $3524 in Indonesia and $5896 in Thailand. From 2011 through 2014 the nation posted a compound annual GDP growth rate of 8.1%, compared to 3.6% in Thailand, 6.6% in the Philippines and 5.5% in Vietnam. The ASEAN-wide rate for the same period was 5.6%. Myanmar’s relatively low level of economic development as compared to many of its neighbours, plus its competitively priced workforce and vast reserves of natural resources, mean that the country is well positioned to grow under the AEC, which is expected to make trade and investment easier and cheaper between member states.
A key challenge for Myanmar in this climate is to manage trade effectively, and to ensure that the country does not simply rely on raw natural resource exports for too long. The government has worked to encourage valued-added exports across a variety of segments, but a considerable amount of work is still required here. “Our trade situation has completely changed since 2011,” U Maung Aung, an advisor to the union minister’s office at the Ministry of Commerce, told OBG. “Now we have an export-led policy, which better reflects our economic situation. There are still challenges, of course, but trade has more than doubled in the past five years, and it is clear that our neighbours will continue to buy our products.”