(EnergyAsia, October 12 2012, Friday) — Myanmar has the potential to triple its per capita income and become a middle-income nation by 2030 through growing its economy at annual rates of 7% to 8% if it continues to implement sweeping reforms, said an Asian Development Bank (ADB) study.
Consultant GlobalData made a similar pitch for the Southeast Asian state to grow rapidly as it develops into a “natural resources powerhouse”.
“Myanmar’s strategic location, rich natural resources and abundant labor force leave it perfectly positioned to prosper from Asia’s dynamic economic growth,” said Stephen Groff, ADB’s Vice President for East Asia, Southeast Asia and the Pacific.
“Myanmar could be Asia’s next rising star, but for this to happen there needs to be a firm and lasting commitment to reform.”
The report, Myanmar in Transition: Opportunities and Challenges, is ADB’s first major assessment of the country since it began political and economic reforms last year.
Emerging from decades of self-impose isolation, the country faces major challenges. Only a quarter of its people have access to electricity and only one in five of the country’s roads are paved to all-weather standard, while its bureaucracy must be reformed to increase transparency and deliver better public services.
Growth will depend on the country maintaining macroeconomic stability – including measures for low (under 6%) inflation and sustainable budgets, encouraging domestic savings, and investing in human capital and infrastructure.
However, the report warns that the country may also face risks associated with economic liberalisation if the process is not managed prudently. Vulnerability to climate change and environmental degradation, as well as ongoing tension from internal conflicts could also derail the country’s future growth.
To strengthen social cohesion and cut poverty rates, the ADB said greater investments are needed in education, health and social services. Although more than half its people rely on agriculture for a living, less than 20% of the country’s farmland is irrigated. The report notes that investment in irrigation and other inputs could dramatically expand crop yields and boost incomes.
Myanmar’s location between China, India, and other South and Southeast Asian nations leaves it poised to benefit from rising regional trade, tourism and investment, and growing demand for energy and natural resources from its wealthier neighbours.
To fully realise its potential, Myanmar must strengthen its connectivity by improving infrastructure in transport, power and telecommunications services as well as modernising its financial sector. Its economic base must also broaden beyond agriculture to the manufacturing and service sectors to meet a growing demand for jobs.
Having recently established an office in Yangon, ADB said it is studying the possibility of resuming operations in Myanmar, which were halted in 1988.
GlobalData said Myanmar’s industrial growth could potentially benefit every strata of society, promoting employment opportunities and economic development, but this would require the country to adopt “holistic development policies” to compete with other middle-income Asian nations.
The consulting firm’s report states that Myanmar has started taking steps to boost economic development following the new government’s decision to end decades of military rule.
It notes Myanmar’s strategic geographical location close to the fast-growing economies of China and India, where raw materials are in huge demand, providing a ready market for its minerals.
Australia and the US have recently lifted economic sanctions previously imposed on the country. New taxes enacted in the mineral-rich economies of Australia and Indonesia have also enhanced Myanmar’s appeal as a destination for foreign direct investment (FDI).
The new democratic government has undertaken several national initiatives to develop Myanmar’s mineral sector. The country will earn high marks if it follows through on its expressed interest to join the Extractive Industries Transparency Initiative (EITI), a global standard for increasing transparency in the extractive sector.
According to the ADB, the mining sector’s contribution to Myanmar’s GDP has increased from MMK15 billion (US$2.3 billion) in 2000 to MMK367 billion (US$56.2 billion) in 2010.
Myanmar holds minerals such as lead, zinc, silver, chromium, copper, gold, and precious gems.
The country also has several major oil and gas fields, but a lack of technology and low participation from foreign oil companies has left most of its hydrocarbon reserves unexploited.
In May 2012, the Ministry of Energy took a big step forward by announcing that foreign oil companies will be allowed to participate in exploring and developing 23 offshore oil and gas blocks.
GlobalData said Myanmar held proven 2.1 billion barrels of oil and 25 trillion cubic feet (tcf) of natural gas reserves as of April 2011. Its energy ministry estimates the country has domestic shale oil reserves to be around 3.3 million barrels.
Foreign investments in Myanmar’s oil and gas industry reached US$13.8 billion for 2011–2012, representing almost 31% of the country’s GDP.
However, GlobalData said the country must implement more investor-friendly policies to increase its share of international investments to help boost its fossil fuel production.
Myanmar faces formidable barriers to developing its economy, said GlobalData.
It struggles with weak governance and corruption, and lacks suitable transport, power and communications infrastructure. Better facilities are required for industry and international trade, and the government must move quickly to develop ports, roads and railways.