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A middle class may be welling up in Myanmar

by Stephen P. Groff

Asian Development Bank

Just last month I made my first visit to Myanmar, a place Rudyard Kipling referred to as “quite unlike any land you know about”. While decades of isolation have helped this century-old observation hold true, on arrival in July I was immediately struck by the vibrancy and a palpable sense of change in the air.

The country’s immense potential is reflected in the Asian Development Bank’s most recent analysis, which shows that Myanmar has the potential to follow Asia’s fast-growing economies and expand at 7 percent to 8 percent if it continues on the path of across-the-board reforms initiated earlier this year.

If Myanmar stays true to these reforms — and I was impressed by the resolve of many officials I met last month — the country should become a middle-income nation and could more than triple per capita income by 2030.

Half a century ago, Myanmar was the pearl of Asia, one of the region’s leading economies with a per capita income more than twice that of its neighbor, Thailand. While most other regional economies have skyrocketed since that time, Myanmar has languished and today has Southeast Asia’s lowest per capita GDP.

After decades of stagnation, Myanmar has an enormous amount of catching up to do on almost every imaginable front. The recent experiences of Asia’s fast-growing economies are instructive. For Myanmar to effectively capitalize on its potential, the country will need to maintain low inflation — under 6 percent — and better ensure sustainable budgets.

It will also need to encourage greater savings, dramatically bolster the skills of its people, invest heavily in infrastructure, modernize its financial sector, foster job creation and continue with its reform of the foreign exchange regime. No small order, to be sure, but Myanmar’s neighbors have shown dramatic economic transformations are possible in relatively short amounts of time if reforms remain on track.

Nearly everyone I spoke with in July emphasized that maintaining social stability will be crucial as Myanmar embarks on this new course. While economic growth has been the most effective tool for reducing poverty in Asia, it has become less equitable in many fast-growing regional economies in recent decades.

As the economy grows it will be essential for the country to ensure that its poorest and most vulnerable share the benefits of Myanmar’s growing prosperity. Such inclusiveness will enhance and help maintain growth by strengthening social cohesion and contributing to human capital development.

Investment in education, health care and other social services is fundamental for building Myanmar’s human capital. Today, one in four primary school children never move on to middle school, limiting their prospects as the country’s next generation of workers.

Encouragingly, the government has already increased its social sector spending, with the country’s nominal education budget doubling for 2012-2013. It is crucial that this trend continue.

More opportunities also need to be created for people living in rural areas, where 84 percent of the country’s poor reside. The nongovernment organizations I met last month highlighted that rural isolation is exacerbated by poor access to electricity, water and transportation.

Only one in four people have electricity access, and the country’s core road network is limited. Bringing rural communities into the fold and providing them with better transportation, electricity and telecommunications will give Myanmar’s poorest a better chance at grasping the opportunities that recent economic reforms can bring.

Myanmar’s economic potential is immense given its rich endowments and geographic advantages. To maximize this potential, however, the business people I met with stressed the need for more freedom to create jobs and innovate. A further reduction of government ownership and control over certain economic sectors will help level the playing field, spurring competition and bolstering investment.

This is particularly important, as Myanmar is uniquely positioned to tap into Asia’s growing economic strength and prosperity. Better connectivity with other South and Southeast Asian nations will also unleash incredible opportunities for trade and commerce.

With the region’s consumption expected to reach $32 trillion by 2030, accounting for 43 percent of the global total, Myanmar’s affluent neighbors offer vast new markets for a country with abundant natural assets, agricultural resources and low-cost manufacturing potential.

Integration with global and regional markets will also help promote accountability, transparency and respect for the rule of law, fostering an enabling environment for business and foreign investment as the nation finds its place in the Asian Century.

Myanmar’s growth will not come without risks, and it is important for the country not to repeat the mistakes of other resource-rich developing nations — allowing resource revenues to exacerbate inflation and impact international competitiveness through effects on exchange rates — a vicious cycle that can hinder the country’s development in other productive sectors.

Sound macroeconomic management, economic diversification, greater transparency, the development of capable institutions and a strong political commitment to equitably distributing benefits will all be needed to ensure Myanmar avoids the “resource curse.”

While Kipling’s sentiment may still be accurate, there is much Myanmar can learn from its neighbors — lessons that could make the country Asia’s next rising star.

There will be countless challenges along the way, but if the country makes the right moves at the right times and maintains its strong commitment to reforms, a more prosperous future undoubtedly awaits Myanmar’s people.

Stephen P. Groff is the Asian Development Bank’s vice president for East Asia, Southeast Asia and the Pacific.