After emerging from decades of isolation, Burma remains one of the most difficult countries in the world in which to do business, according the World Bank, which has included the Southeast Asian nation in its annual “Doing Business” report for the first time.
Burma’s first appearance in the report reflects liberalizing economic policies advanced by the quasi-civilian government that took power in 2011. Reforms have been accompanied by talk of investors rushing into the resource-rich nation’s underdeveloped market.
However, the report—which compares the obstacles to starting and operating a business in 189 countries—may dampen the hype. It ranks Burma at 182, judging that only a handful of economies, including Chad, the Central African Republic and Eritrea, offered a worse environment for business.
The report looked at different areas where bureaucracy or over burdensome regulations can stifle entrepreneurs. There was some praise for Burma, particularly for the government’s decision to reduce its corporate income tax rate. Under the 2012 Foreign Investment Law the income of local branches of foreign enterprises are taxed at 25 percent, the same basic rate as locally incorporated companies.
But the country was ranked bottom of the global table for the ease of starting up a business, largely due to the high cost. Starting a business involves 11 different procedures, takes 72 days and costs nearly US$1,500 in Burma, it said. And a deposit of more than $58,000 is required to start a business—higher than in any other country—the report said, pointing out that such requirements in general “signiﬁcantly slow entrepreneurship.”
Burma ranks especially poorly for “protecting investors” (182 out of 189) and “enforcing contracts” (188).
The report also highlighted Burma—alongside other new entrants in this year’s rankings South Sudan and Libya—as countries emerging from conflict or isolation.
“This is the right time to improve business regulations,” it said of the three countries.
“Old laws and regulations still apply in Myanmar [Burma], including the Companies Act of 1914, the Code of Civil Procedure of 1908 and the Evidence Act, 1872,” the report said, while noting that in all three countries new laws being discussed to replace old ones would have an impact on the ease of doing business.
Despite the difficulties outlined by the World Bank, healthy rates of economic growth are widely predicted for Burma, and many foreign companies have announced plans to invest in the country. A separate World Bank report issued earlier this month reported that foreign direct investment had grown to 5.2 percent of gross domestic product in the 2012-13 fiscal year, compared with 3.7 percent the year before.
“In many ways [it’s] all to be expected—and part of the ‘messiness’ of any country in transition, but especially one so entrenched in which one can say that ‘unease’ in doing business was the motif for 50 years,” economist Sean Turnell, co-editor of Burma Economic Watch, said by email.
However, Turnell said that, as well as the problems noted by the World Bank, investors also face high real estate prices and a local financial sector which could not support local entrepreneurs because it is “not yet a vehicle for allocating capital to business.”
He also highlighted a trend of populism in Burma’s Parliament—which has manifested to slow down reform in the telecommunications sector and to influence budget allocations—that “appears now to seemingly all liberalizing measures.”
“Of course, not all of this is sinister—but it is not helpful in terms of the business climate,” he said.
(This is reprinted from the Irrawaddy, with which Asia Sentinel has a content-sharing agreement.)