Extending Pragmatic Engagement to the Private Sector in Burma/Myanmar
In announcing U.S. reengagement with Burma/Myanmar in September 2009 Secretary of State Hillary Clinton described the Obama Administration’s approach as “pragmatic engagement.” Volumes have been devoted to explain what this approach does and does not entail. In the simplest of terms, pragmatic engagement essentially means that the Burmese political system may not be where we would like it to be, but we are willing to work with what we have got. This does not suggest acceptance of regime excesses, institutional failings or governance weaknesses. Rather, it is a recognition that recent steps towards political reform could augur well for the opening of political space and the institutionalization of political will for much-needed change. Such political reform could neither be attained nor sustained if it is not underpinned by tangible, equitable and sustained economic progress. So the question becomes, what could be done to promote concomitant progress with private sector-led economic development in Burma/Myanmar? The Burmese economy is fraught with myriad problems, which though seemingly intractable are by no means insurmountable. Challenges include high levels of inflation, inefficient economic and trade policies, pervasive corruption and an opaque and uncertain business environment, dramatic inequality, limited access to credit and weak infrastructure. In spite of these challenges, there are many opportunities for broad-based and sustainable economic growth. Extending ‘pragmatic engagement’ to Burma’s private sector would entail a judicious balance between challenges and opportunities, as well as an acknowledgement that consistent support for regulatory and institutional reform could lead to lasting change in the country’s economic fortunes.
Like most fragile states, markets in Burma/Myanmar are fragmented. Official markets are primarily made up of state, state-owned and state-influenced entities which generally benefit a few. This market is sustained by a complex political economy involving long-standing vested interests. Non-official markets are either licit or illicit. Most economic actors operate in licit, non-formal markets. They receive minimal support or access to essential services, even though they involve the bulk of the labor force. Lucrative cash flows allow illicit markets (e.g. the narco-economy) to build their own support structures. According to some estimates, Burma’s narco-economy generates between $1 billion and $2 billion per year in exports. Pragmatic engagement in Burma’s private sector would involve immediate steps to gradually dismantle the illicit markets, reduce barriers to entry in formal markets, increase support to those operating in licit non-formal markets, increase the costs of negative behavior in licit markets and reward true entrepreneurship.
The Burmese economy is expected to grow by over 6 percent, annually, for the rest of this decade and GDP should double to $124 billion by 2020. Although much of this anticipated growth is attributable to the country’s petroleum sector, significant growth is also expected in tourism, agriculture and manufacturing (textiles). This creates a lot of opportunity for both foreign and domestic investors. In addition to these investment opportunities, Burma/Myanmar is paying attention to some of the barriers to private sector growth. The country’s new draft investment bill allows for repatriation of profits, provides a five-year tax holiday for foreign investors, provides guarantees against nationalization, allows investors to lease land and encourages employment creation for Burma’s skilled and unskilled labor force.
A combination of the country’s immense investment potential, a possibly improving regulatory climate and the promise of continued political openness could be important prerequisites for private sector development in Burma/Myanmar. Extending ‘pragmatic engagement’ to Burma’s private sector would involve the following. First, foreign assistance should be re-balanced to ensure adequate support to the country’s burgeoning entrepreneurs. This would help reduce the footprint of the state-led enterprise model and build critical capacity, particularly in the areas of business licensing and access to credit. Second, measures could be taken to expand domestic and foreign market access for Burmese entrepreneurs. For example, programs could be put in place to mitigate the negative impacts of the protectionist policies that are adopted by Burma’s main trading partners. These could include preferential trade agreements. Third, more pro-active strategies could be designed to more fully integrate local economic actors into the supply-chains of major investment projects. A “resource corridor” approach is worth considering. Fourth, mapping and analyzing the complicated Burmese political economy could be instrumental in dismantling predatory tendencies in official markets and in de-linking licit and illicit markets. This would provide valuable insights on how best to sanction spoilers and incentivize conflict-sensitive entrepreneurs.