Suu Kyi's Myanmar Problem: Where's the Economy?

YANGON, Myanmar -- Aung San Suu Kyi came to power last year with a laser focus on ending the insurgencies that have dogged Myanmar for decades. The consuming nature of that goal has led to a new problem for the Nobel laureate: falling investor confidence in her ability to manage a fast-opening $67 billion economy.

A business slowdown in long-isolated Myanmar, also known as Burma, has exposed Ms. Suu Kyi's early limitations in running an economy that many had hoped would boom after her civilian-led government replaced a military regime and the U.S. removed longstanding sanctions.

"Myanmar has great potential if it's managed right," said Kiwi Aliwarga, chief executive of Yangon-based conglomerate UMG. "The problem now is that the economy is not a priority of the leadership; they still believe they have to push reconciliation first."

A growing chorus of investors are questioning the inexperienced government's strategy after Myanmar's rate of economic expansion in the latest fiscal year fell to its lowest point since 2011, when the Southeast Asian nation was first emerging from decades of isolation under military rule. Foreign direct investment dropped 22% to $2.2 billion in 2016 from a year earlier, according to the United Nations Conference on Trade and Development, though it is still more than twice the 2011-14 average.

Part of the slowdown was intentional. New leaders halted a dizzying construction boom in this former British colonial capital to review compliance issues and pushed investment away from petroleum and mining to diversify the economy.

And while political transitions often lead to economic uncertainties, investors say more is at stake in here, in a country desperate to shake off decades of isolation and underdevelopment. Some of the malaise lies with the 72-year-old Ms. Suu Kyi's management style and her arm's-length discussions with the private sector, investors and political analysts say. They point to a forum in March where business leaders appealed to the leader for small workplace reforms in the country, which is ranked 170 of 190 nations in the World Bank's ease of doing business index.

She advised them to instead think about how they could contribute to the peace process. "The message was, 'you're on your own,' " one attendee said.

Other investors point to circling discussions on electricity investment in a country where blackouts are common and the appointment of key ministers lacking economic backgrounds.

"We've lost some trust in the government," said Myo Thet, chairman of wood-furnishings producer Pacific Woodmark Co.

Zaw Htay, a spokesman for Ms. Suu Kyi, said ongoing reforms in areas such as debt governance and mobile money are "taking us from an economy based on connections, relationships and speculation to one based on competition and equal opportunity." He added: "Business is certainly not on its own in this transition.

"It is important to remember where we were when we began this work. Decades of mismanagement and isolation left us with a deteriorating economy when we took office," he said, adding that the government had "stabilized the situation and set the stage for growth."

Myanmar was one of the wealthiest countries in Southeast Asia following World War II, but became one of the poorest under decades of military rule, crony capitalism and economic sanctions imposed by the West. The regime began opening in 2010, ultimately allowing elections in 2015 that swept Ms. Suu Kyi, a democracy activist and daughter of Myanmar's independence leader, into power.

Ms. Suu Kyi spent her first year trying, with limited success, to resolve longstanding insurgent conflicts, some of which date back to the end of World War II.

The country's de facto leader, she has developed a reputation as a micromanager in a top-down bureaucracy, serving as foreign minister, minister of the president's office and state counselor in a cabinet comprised of largely aging freedom fighters, many of whom spent years in prison.

"The decision-making process has been slowed down dramatically," said Eric Rose, who opened the first American law firm in Myanmar several years ago. "With a few notable exceptions, at the macro level this government doesn't have the talent of the old government, unfortunately."

Aye Lwin, a senior member of Ms. Suu Kyi's political party and a member of the government-appointed Myanmar Investment Commission, said a weak bureaucracy was partly to blame for slow reform, and that Ms. Suu Kyi "cannot focus on all things."

The military, meanwhile, continues to control the defense, home and border affairs ministries, which are the administrative spine of the country. It has drawn international criticism for its heavy-handed treatment of the ethnic-Rohingya Muslim minority. At least 65,000 Rohingya have fled across the border to Bangladesh in recent months, according to the U.N.

People close to Ms. Suu Kyi say she has begun placing more priority on the economy, and that changes are in store.

"The next three months, certainly six months, will see that switch to more growth-enhancing policies," said Sean Turnell, a professor at Macquarie University in Australia and an economic adviser to Ms. Suu Kyi. "She completely gets that this really matters."

There have been signs of a nascent turnaround in economic policy. The government recently issued clarifying investment regulations, cut the number of sectors requiring foreign investors to join with local companies to 22 from 90, and shot down a bill that would have imposed travel and other restrictions on foreigners. In a cabinet reshuffle this week, the government replaced the energy minister and made a well-respected former central banker the deputy finance minister.

Singapore's Puma Energy in May became the first foreign company allowed to distribute fuel in a market dominated by a state-owned company, and Visa and Mastercard were given the green light to issue credit cards here for the first time. The International Monetary Fund, meanwhile, forecast that the country will return to higher growth rates of around 7.5% this year, after last year's 6.3%.

Yet American investors have approached Myanmar warily despite the lifting of U.S. sanctions and the market potential of a population of more than 50 million. Only two major investors have built up more than token investments in recent years: Coca-Cola, with an outlay of more than $170 million so far, and Colorado-based Ball Corp., which opened a $45 million can-making factory last year.

Some local businesses and entrepreneurs say they are trying to move ahead without government help.

Zaw Moe Khine this month opened the first stage of a $20 million pharmaceutical factory on the outskirts of Yangon -- the first such private factory in the country -- after paying $300,000 for a high-tension cable to connect him to the main grid. He also pressed on despite the previous government's decision to raise sales tax on his manufacturing and increase duties on imported packaging he needs, things he had hoped the new government would change.

"Friends in pharma say I'm crazy," he said, adding that eight others with permits to build drug factories canceled their plans. "But I'm a long-term player. It might take years to change [the system], but somebody must prove to them that...Myanmar can have an international-standard factory."

It would be easier if the government had a clearer economic plan, Mr. Zaw added. But that, he said, "depends on Suu Kyi."

(END) Dow Jones Newswires

August 03, 2017 05:44 ET (09:44 GMT)