Huge challenges but major growth possible

Despite constraints, Myanmar’s economy may quadruple by 2030 if it can win US$650 billion (Bt19.8 trillion) worth of total investment, including $320 billion for infrastructure alone, and overcome many other challenges, according to McKinsey Global Institute (MGI).

For a country whose people receive an average of four years of schooling and incomes 70 per cent below the Asian benchmark, there are opportunities that its gross domestic product will rise from about $50 billion to $200 billion by 2030, four times the current level, the consulting firm said. McKinsey foresees the tripling of consumer spending from $35 billion to $100 billion. This is on the expectation that more than 10 million jobs will be created for the non-agricultural sector by 2030. 

McKinsey outlines opportunities and challenges in a report titled “Myanmar’s Moment: Unique Opportunities, Major Challenges” launched to coincide with the World Economic Forum on East Asia, which will take place in the capital city Nay Pyi Taw from Wednesday to Friday.

In the report, McKinsey highlighted seven potential sectors that could help Myanmar achieve the desirable investment sum. 

At the top of the chart is the manufacturing sector. With actual value of $9.8 billion in 2010, the sector has the potential to raise that figure to $69.4 billion by 2030.

Myanmar’s labour costs today are comparatively low, giving the country an opportunity to boost output in labour-intensive manufacturing sectors such as textiles, apparel, leather, furniture, and toys at a time when some of this is leaving China. However, labour productivity in the sector is also weak. Output per worker was only 70 per cent of that in Vietnam in 2010, 20 per cent of that in China and Thailand, and less than 15 per cent of that in Malaysia.

“To compete in the region, Myanmar will need to improve labour productivity. On the back of that higher productivity, there is scope over time to make the transition to more value-added sectors, following the example of Thailand, Malaysia, and other Asian economies,” the report said.

Another sector where Myanmar trails behind the rest of the region is agriculture. It has 12.25 million hectares of arable land, but output per worker is only $1,300 a year, compared with around $2,500 in Thailand and Indonesia. The sector’s low productivity and low level of inputs such as seeds, fertilisers, water and machinery suggest that there is significant room to grow. 

“There is also large scope to increase the share of fruits, vegetables, coffees, oil palm, rubber and other high-value crops as well as the production of fisheries. Given that agriculture currently accounts for 52 per cent of workforce employment, capturing the full growth potential of agriculture is critical and ensuring that the economy’s growth is shared wildly,” the report said.

Third, the value of the infrastructure sector could rise from $10.5 billion to $48.8 billion. MGI analysis suggests that Myanmar will need to invest $320 billion in its infrastructure if the economy is to achieve GDP growth of 8 per cent per annum. The majority of infrastructure investment, 60 per cent, will need to be in residential and commercial real estate. “But there is also a huge need for power plants, water-treatment plants and road and rail networks,” it said.

Fourth, the size of the energy and mining sector could rise from $8 billion to $21.7 billion. Myanmar current ranks 46th in the world in terms of proven gas reserves. It produces 90 per cent of the world’s jade, and many of its natural-resource reserves are still largely unexplored.

McKinsey foresees that the value of the tourism sector could rise from $600 million to $14.1 billion, financial services from $200 million to $11.1 billion, and the telecom sector from $100 million to $6.4 billion.

It noted that the number of locals with sufficient spending power could rise from 2.5 million today to 19 million in 2030. This could triple consumer spending from $35 billion to $100 billion.

“Achieving this growth will not be easy,” it said. “Myanmar has a monumental task ahead. The country will need to maintain credibility with the international community by demonstrating that it is committed to reform.”

Myanmar also has to show that it is capable of managing change. 

In the transformation period, it will need to work courageously to maintain the speed and course of change and build capabilities within the government. One of the main tasks is to develop quickly the pool of skilled and talented officials who can navigate the country through the many challenges ahead.

McKinsey noted that Myanmar was a highly unusual but promising prospect for businesses and investors – an underdeveloped economy with many advantages, in the heart of the world’s fastest-growing region. Home to 60 million inhabitants (46 million of working age), this Asian nation has abundant natural resources and is close to a market of half a billion people. And the country’s early stage of economic development gives it a “greenfield” advantage: an opportunity to build a “fit for purpose” economy to suit the modern world. 

The report finds that if current demographic and labour-productivity trends continue, Myanmar’s GDP could grow by less than 4 per cent a year. But it has the potential to grow by 8 per cent a year if it accelerates the rate of annual labour-productivity growth to 7 per cent, from 2.7 per cent currently – a difficult but not unprecedented feat.

 

This is the first of a two-part series. The second will be published tomorrow.