1 The Myanmar Business Environment Index 2019 Measuring Economic Governance for Private Sector Development Edmund Malesky, Dean Dulay, and Jon Keesecker
Authors Edmund Malesky Dean Dulay Jon Keesecker Graphic Design Elzemiek Zinkstok Photo credits Jon Keesecker The Asia Foundation © 2019 The Asia Foundation All rights reserved. No part of this report may be reproduced without written permission from The Asia Foundation. No. 11, Ko Min Ko Chin Yeik Thar Street West Ngar Htet Kyi Ward Bahan Township Yangon, Myanmar
3 Preface Local economic governance is a critical component of Myanmar’s goal of achieving sustain- able and inclusive economic growth. The Myanmar government can play an essential role in establishing a healthy business environment by educating and training the country’s workforce, maintaining and improving roads and infrastructure, and establishing transparent and efficient business regulations. These and other aspects of economic governance, such as investment laws and business taxes, are key to achieving a strong business environment in Myanmar, and the role of government is central in this effort. In Myanmar’s current reform era, initial steps toward decentralization have created new opportu- nities for the country’s fourteen state and region governments to improve Myanmar’s business environment through better local economic governance. Many key government decisions that influence Myanmar’s business environment remain at the Union level. However, state and region governments play an increasingly important role in ensuring that businesses drive economic growth. Government agencies, working for both the Union government and the state and region governments in Myanmar’s 330 townships, also play an increasingly vital role engaging with businesses. Such agencies exist to support small and medium enterprises, promote investment, and manage local licensing, among other tasks and services. As a result of ongoing decentral- ization reforms, state and region government offices increasingly have the potential to support Myanmar’s local business environment, particularly through administrative efficiency. The first-ever Myanmar Business Environment Index provides a tool for Myanmar government, businesses, investors, and the public to better understand the strengths and weaknesses of local economic governance in Myanmar. First pioneered by The Asia Foundation in Vietnam over a decade ago, and adapted to the Myanmar context in partnership with Duke University’s Development Lab, the Index is designed to objectively benchmark local economic governance. The Myanmar Business Environment Index is a diagnostic tool for Myanmar’s Union and state/ region governments to better understand the local business environment, and it serves as the first step for providing Myanmar’s Union and state/region governments with the data neces- sary to pursue widespread economic governance reforms. The Foundation also looks forward to conducting a second round of the MBEI in 2020 in order to illustrate ongoing changes in Myanmar’s economic governance. We hope The Asia Foundation’s Myanmar Business Environment Index will support the over- arching effort to achieve inclusive economic growth in Myanmar and provide the Myanmar government, businesses, and other stakeholders with a valuable source of information for discussing and designing further economic reforms. The Myanmar Business Environment Index was funded by UK Aid and the DaNa Facility. The opinions expressed in this report are solely those of the authors and do not necessarily reflect those of The Asia Foundation, UK Aid, or the DaNa Facility. Matthew B. Arnold, Ph.D. Country Representative The Asia Foundation, Myanmar
4 Acknowledgements The Myanmar Business Environment Index (MBEI) is the result of a major, ongoing, collaborative effort between The Asia Foundation, the DaNa Facility, and the Department for International Development (DFID). The MBEI is only possible due to the cooperation of the Ministry of Commerce and the Ministry of Labour, Immigration and Population. The implementation of the findings will draw heavily on the interest and support of the Directorate of Investment and Company Administration. We are also grateful to stakeholders in the states and regions who facilitated data collection and will play a critical role in taking advantage of the findings in this report. The research project was developed and implemented under the overall leadership of Dr. Kim N.B. Ninh and Dr. Matthew B. Arnold, Country Representatives of The Asia Foundation in Myanmar, and benefited from assistance and input provided by Peter Brimble, Senior Technical Advisor of the DaNa Facility, Liz Patterson of DFID, Linn Maung Maung, Trade, Competitiveness and Investment Lead of the DaNa Facility, and Tom Coward, Team Leader Inclusive Growth and Livelihoods Team of DFID. Edmund Malesky, Professor of Political Economy at Duke University, led the development of the MBEI’s research methodology and was the primary author for the presentation of its analytical findings. Professor Malesky was supported by a talented research team. Jon Keesecker of The Asia Foundation was the primary leader of the research team and coordinated with the survey team and field researchers. Dean Dulay, doctoral candidate at Duke University, served as research assistant and coauthor of the report. Mi Ki Kyaw Myint, Kyipyar Phyoe Paing, Thu Ta Oo, Naw Janet, and Richard Batcheler were all involved in valuable background research, methodological design, observational data collection, and analysis that facilitated the final report. Finally, the MBEI report would not be possible without a high-quality survey implemented by the Nielson–MMRD Research Services and the able leadership of Aye Aye Min and Kiavin Khor. Please use this suggested citation when referencing the report or data: Malesky, Edmund, Dean Dulay, and Jon Keesecker. 2019. The Myanmar Business Environment Index: Measuring Economic Governance for Private Sector Development. The DaNa Facility and The Asia Foundation: Yangon, Myanmar.
5 List of Acronyms ACC: Anti-Corruption Commission CDC: City Development Committee CEO: Chief Executive Officer DALMS: Department of Agriculture Land Management and Statistics DAO: Development Affairs Organization DFID: Department for International Development DICA: Directorate of Investment and Company Administration DISI: Directorate of Industrial Supervision and Inspection EGI: Economic Governance Index GAD: General Administration Department GDP: Gross Domestic Product ILO: International Labor Organization IRD: Internal Revenue Department MBEI: Myanmar Business Environment Index MOHT: Ministry of Hotels and Tourism MOLIP: Ministry of Labour, Immigration, and Population MSDP: Myanmar Sustainable Development Plan NLD: National League for Democracy PCI: [Vietnam] Provincial Competitiveness Index PPS: Probability Proportion to Size Sampling SME: Small and Medium Enterprise SWOT: Strengths, Weaknesses, Opportunities and Threats UK AID: United Kingdom Aid YCDC: Yangon City Development Committee
6 Table of Contents 3 Preface 4 Acknowledgements 5 List of Acronyms 8 Executive Summary CHAPTER 1 12 Introduction 12 1.1. Why Economic Governance Matters in Myanmar 14 1.2. What is Economic Governance? 21 1 .3. MBEI Focus and Methodology CHAPTER 2 28 Myanmar’s Emerging Economic Governance Framework 28 2.1. Government Decentralization in Myanmar 30 2.2. Economic Governance in Myanmar 33 2.3. Implications for the MBEI Level of Analysis CHAPTER 3 34 The State of Economic Governance in Myanmar 34 3.1. Entry Costs 36 3.2. Land Access and Security 38 3.3. Post-Entry Regulation 39 3.4. Informal Payments 43 3.5. Infrastructure 44 3.6. Transparency 45 3.7. Favoritism in Policy 46 3.8. Environmental Compliance 47 3.9. Labor Recruitment 48 3.10. Law and Order CHAPTER 4 50 Economic Governance in the States and Regions 50 4.1. State and Region Diagnostics 69 4.2. Comparisons of States and Regions CHAPTER 5 74 Governance and Economic Growth
7 CHAPTER 6 76 Variance in Economic Governance by Subgroup 76 6.1. Business Sector and Economic Governance 79 6.2. Gender and Economic Governance CHAPTER 7 80 Policy Considerations APPENDIX A 84 Index Methodology 84 A.1. Collection 93 A.2. Construction of the Subindices 94 A.3. Calibration of the Final MBEI APPENDIX B 97 Description of Indicators Used in the MBEI 97 B.1. Indicator Descriptions and Data for Entry Costs Subindex 99 B.2. Indicator Descriptions and Data for Land Access & Tenure Security Subindex 103 B.3. Indicator Descriptions and Data for Post-Entry Regulatory & Administrative Costs Subindex 106 B.4. Indicator Descriptions and Data for Informal Payments Subindex 108 B.5. Indicator Descriptions and Data for Infrastructure Subindex 111 B.6. Indicator Descriptions and Data for Transparency Subindex 114 B.7. Indicator Descriptions and Data for Favoritism in Policy Subindex 117 B.8. Indicator Descriptions and Data for Environmental Compliance Subindex 120 B.9. Indicator Descriptions and Data for Labor Recruitment Subindex 122 B.10. Indicator Descriptions and Data for Law & Order Subindex APPENDIX C 1 25 Analysis of Strength of Preferences for Clean Environment 128 Endnotes 129 Bibliography
8 Executive Summary The MBEI is based The Economic Governance Index (EGI) is a The MBEI measures ten core components of on a nationwide tool that has become widely accepted by gov- good economic governance. The overall MBEI survey of 4,874 ernments to understand economic growth, score comprises ten subindices. A state or firms—many of attract investors, and engage in public-pri- region that is considered to perform well on the which are small vate sector dialogue. EGIs have been used MBEI is the one that has 1) low entry costs for and medium in Indonesia, Sri Lanka, Bangladesh, Kosovo, business start-up, 2) easy access to land and enterprises— El Salvador, Cambodia, Mongolia, and Viet- security of business premises, 3) limited time in Myanmar’s nam to offer crucial insight into governance requirements for bureaucratic procedures and service and and help guide reform efforts. The Myanmar inspections, 4) minimal informal payments, 5) manufacturing Business Environment Index (MBEI) follows sufficient and well-maintained physical and sectors. in this tradition by adapting the EGI model to telecommunications infrastructure, 6) a trans- the Myanmar context. The MBEI is designed parent business environment and equitable to provide Union and state/region government business information, 7) minimal crowding out leaders, as well as stakeholders such as busi- of private activity from policy biases toward ness managers, with a tool to understand and state, foreign, or connected firms, 8) limited address the challenges Myanmar businesses pollution and environmental damage, 9) sound face, and thereby encourage sustainable and labor training policies, and 10) fair and effective inclusive economic growth. legal procedures for dispute resolution and maintaining law and order (see Appendix A The MBEI represents the voice of private for a full description of the methodology and businesses from across Myanmar. The MBEI Appendix B for a description of all indicators is based on a nationwide survey of 4,874 used in the analysis). firms—many of which are small and medium enterprises—in Myanmar’s service and man- Each state and region in Myanmar demon- ufacturing sectors. It excludes the primary strates different strengths and weaknesses sector (agriculture, forestry, fisheries, and min- with respect to governance. No state or region ing) and foreign firms operating in Myanmar. To stands out as superior to all others with respect capture the views of businesses, the MBEI uses to overall economic governance. When the sub- a two-stage, stratified random sample to ensure indices are simply added together, there is very representation at the state and region level as little difference in governance across Myan- well as the township level. Survey responses mar’s states and regions. None are obvious are combined with objective data gathered stars in providing an environment for suc- from observations of township offices recorded cessful business development, and none are by our field team, from statistical yearbooks, all-around laggards. Most states and regions and from other administrative sources available achieve middling scores across the ten indices from government ministries. This combination or have high performance on some dimensions ensures highly reliable estimates of economic offset by low performance on others (see Fig- governance at the local level that are based on ure 16 for individual subindex rankings). These business perceptions but anchored by objec- results are unusual internationally for most tive measures as well. EGIs and illustrate the difficulties inherent in
9 Myanmar’s nascent decentralization. Localities causality of the relationship, but these initial Each state have not yet achieved the full autonomy for estimates are impressive (see Figure 18). and region stars to emerge. in Myanmar Elements of governance are experienced dif- demonstrates MBEI measurements are weighted to reflect ferently across sectors. Analysis of variance different business confidence and expansion. Weight- in the MBEI reveals that overall governance strengths and ing the index by contribution to private sector does not vary much based on either the sector weaknesses performance, however, offers more widespread of the business or gender of the respondent. with respect and salient divergence. To generate the A detailed analysis in Chapter 6, however, to governance. weights, subindices were regressed on three reveals more subtle differences. First, firms No state or key outcome variables measuring private sec- in the agricultural and natural resources sector region stands tor satisfaction and performance: confidence face greater perceived entry costs (subindex 1) out as superior in local leadership, business performance over than firms in manufacturing, and both believe to all others the past year, and plans to expand in the next market entry is more difficult than in service with respect to two years. Subindices most strongly correlated sectors. Roughly the same pattern is evident overall economic with these measures received higher weights in for post-entry regulation (subindex 3) and governance. the index (see Appendix A.3 for methodological informal payments (subindex 4). Together, details on calibration and regression results). these results indicate significant differences This step allows local leaders to better priori- in the impact of regulator design and imple- tize reform efforts. The three highest weighted mentation across sectors. Second, firms in subindices in the MBEI, each accounting for high-end services such as finance, insurance, 20% of the final index, are Environmental Qual- and telecommunications (other services) are ity (subindex 8), Labor Quality (subindex 9) and significantly more negative about their ability Law and Order (subindex 10). to acquire land than firms in other industries. Firms in food services are the least concerned Myanmar businesses believe their performance about land acquisition. Third and by contrast depends upon a clean environment. Myanmar with the other indices, firms in agricultural and businesses place greater emphasis on prevent- natural resources are less concerned about ing environmental damage than creating jobs bias toward connected firms (subindex 7) and or receiving tax benefits. The research team their ability to access qualified labor (subindex confirmed this surprising preference for envi- 9) than other sectors. Fourth, very little sectoral ronmental quality by using a conjoint survey variation is found in access to information experiment from the marketing literature, where (subindex 6), environmental quality (subindex we probed the true preferences of businesses 8), and law and order (subindex 10). In the case for environmentally friendly investment. We of transparency and law and order, scores are found that most local businesses are willing generally low across the different sectors. In to forgo economically beneficial investment for the case of the environment, firms are more their townships if it is likely to lead to increased positive. pollution and environmental damage (see Section 3.8 and Appendix C for details on the National-level findings point to businesses that conjoint experiment). remain optimistic despite operating in a chal- lenging environment. In addition to describing The MBEI suggests a strong substantive rela- the variance in economic governance across tionship between economic governance and Myanmar’s states and regions, we also detail economic welfare. The analysis in this report national-level findings that apply to all firms in demonstrates that local government perfor- the country. While businesses not surprisingly mance on the MBEI is strongly associated report facing many obstacles, in many areas with local economic welfare, measured by they also show glimmers of optimism and con- luminosity of night lights within townships. fidence in Myanmar’s future. A few highlights We find that just a one unit change in town- from the study’s findings include the following: ship-level governance is associated with a 32% increase in nighttime luminosity. Importantly, zzEighty-five percent of Myanmar businesses research suggests that nighttime luminosity have at least one documented proof observed from satellites is an excellent proxy of formalization. Sixty-five percent of for economic activity and welfare. In short, businesses in the MBEI sample have economic governance and economic welfare obtained only a township-level operating are highly correlated. Well-governed townships license, while an additional 17% possess have more business activity and higher welfare. an operating license from a City Much more work is needed to determine the full Development Council in Yangon, Mandalay,
10 Although most or Nay Pyi Taw. Only 6% of businesses court system, faith in courts bodes well Myanmar possess a registration certificate from the for business confidence and plans for Directorate of Investment and Company expansion. businesses have Administration (DICA). Fifteen percent of obtained only an businesses are fully informal, possessing zzPost-entry administrative procedures are not operating license, neither documentation of registration nor terribly problematic for many businesses, 60% of Myanmar an operating license (see Figure 4). but inspections are still a hassle. Regulation and administrative procedures after entry, businesses zzMany businesses perceive administrative such as recurring administrative tasks and report having procedures for business entry as business inspections, are also reasonable all the required satisfactory. Although most Myanmar in international comparisons. Firms in documentation businesses have obtained only an Myanmar spend less time on paperwork that they believe operating license, 60% of Myanmar and find officials more effective than is necessary to be businesses report having all the required the average Vietnamese firm. However, fully legal within documentation that they believe is Myanmar businesses are twice as likely to three months necessary to be fully legal within three face regulatory inspections and are much of starting the months of starting the application more likely to complain that regulatory process. Only 9.3% of firms complain of fees are not clearly posted in local offices application difficulties in obtaining the necessary than similar firms in Vietnam. process. documentation. However, the data shows that these procedures are still lengthier zzMany SMEs have surprisingly little difficulty and more cumbersome than for firms in with land access, possibly because Vietnam. they largely operate from their homes; however, titling takes too long. Land zzInformal payments may be less problematic access and security is a major policy for service and manufacturing SMEs concern in Myanmar, particularly for than generally perceived. In general, many agricultural communities, areas MBEI enterprises report that informal affected by conflict, and very large payments are infrequent and small. businesses. However, in most states/ Seventy-four percent of firms report that regions, SMEs report adequate land or informal payments are not common for property ownership to provide confidence firms like them, and 79% pay less than for long-term investment. Seventy-eight 2% of their annual revenue in informal percent of businesses in the MBEI survey payments. Using a list experiment to operate on property that is owned by shield respondents, we estimate that the owner of the enterprises. Fifty-six only 2% of respondents paid such percent of businesses operate on family facilitation payments (see Box 10 and property, while 28% operate on property Table 3 for details). In regards to informal purchased from another party. Only payments in procurement, 68% of firms 22% of businesses operate on property that participated in public tenders claim that is leased from government (5.2%) that commissions are not necessary for or from another private party (16.7%). winning government contracts (see Figure Opportunities for improvement remain, 8). Experience with informal payments, however. The land titling process takes however, varies dramatically across states about 90 days after a firm submits all and regions. Moreover, this geographic supporting documentation, which is a variation is correlated with corruption lengthy waiting period by international complaints filed in each state/region with standards. the Myanmar Anti-Corruption Commission (see Figure 9). zzLow quality infrastructure is leading to lost business hours and spoiled products. zzFirms show signs of trust in Myanmar’s Quality of infrastructure is a severe contracting institutions. Eighty-four percent concern for businesses in Myanmar. In of firms believe that the courts judge particular, firms express dissatisfaction economic cases by law. Seventy-six with road quality and electrical power (only percent of firms also claim that legal aid 49% of firms say these features are good supports businesses by helping them with or very good). Firms are more positive legal procedures and dispute resolution. about the telephone (66% report good While many businesses may not have or very good) and Internet (54% report extensive experience with Myanmar’s good or very good). However, even these
11 infrastructure features have problems. zzQualified labor is hard to find. Recruitment The median firm experiences 20 hours of qualified workers, particularly elite of lost telephone and Internet coverage, technicians and managers, is a major and 20 hours of lost electric power in problem for firms in Myanmar. Over the past month; and the median firm half of respondents found it difficult to claimed to have lost 7 days of business recruit manual rank-and-file workers, transport activity due to flooded roads. technicians, accountants, supervisors, and These types of road and power outages managers. Moreover, finding good workers can cost firms tremendous amounts of is expensive. The median firm spends money in lost and spoiled products (see 5.4% of its operating budget on labor Section 3.5 for details). recruitment. Taken together, these results imply that it is difficult and expensive to zzAccess to vital information necessary find qualified applicants (see Section 3.9). for business is extremely low, and major improvements in government zzBusiness owners’ concerns about crime and transparency are still necessary. In security are hurting business prospects. general, businesses have very limited Myanmar businesses feel strongly that access to important planning and legal the risk of physical harm and damage documents provided by the government. to property remains high. Only 37.5% Only 3.6% of firms report having access of respondents believe that their local to the state or region budget, and only security situation is good, while only 44.9% 4.3% of firms report having access of respondents believe that if government to new investment plans. Among the staffers violate the law, they will be application documents reviewed for disciplined. An extremely high 11.2% of all this study, the easiest to access were respondents were victim of a crime in the standard application forms for fulfilling past year. regulatory processes, yet only 26.9% of firms had access to these forms. The data contained in the MBEI provides gov- Only 3.6% of This lack of government transparency ernment, businesses, and other stakeholders Myanmar firms is likely to reduce investment, as firms with a valuable resource for improving eco- report having need to understand how to comply with nomic governance and thereby boosting access to the state government regulations and how to Myanmar’s future prospects for economic or region budget, maximize their earnings potential in line growth. The MBEI serves as a diagnostic tool and only 4.3% with government investment and budget for both Union and state/region governments in of firms report plans. Transparency provides firms with Myanmar to better understand local economic having access to the certainty and stability necessary to governance. The next step is to facilitate dis- new investment do so effectively (see Section 3.6). cussions between government, businessess, plans. and civil society in order to identify solutions zzStrong favoritism exists toward businesses that will improve Myanmar’s business envi- with connections. The business ronment by working to address the challenges environment in Myanmar remains outlined in this report. In addition to providing biased in favor of businesses with lawmakers with insights for future policy and connections to elite decision makers, administrative reform, the MBEI also provides which distorts investment patterns and businesses and investors with a source of infor- reduces business productivity. Sixty-four mation for making investment and expansion percent of respondents claim that the decisions. Finally, it can also be a resource for government has shown favoritism in donors and civil society organizations as they land access for businesses with strong seek to support economic and governance connections, and 44.6% of firms believe reforms. Ultimately, the MBEI is designed to be that there is also favoritism in access to a resource for improving Myanmar’s business loans. But only 19.8% claim that there is environment and contributing to sustainable favoritism in access to information, and and inclusive economic growth. only 25.2% of firms claim that there is favoritism in administrative procedures. As with informal payments, bias varies heavily by state and region (see Figure 12 for details).
12 Chapter 1 Introduction 1 Introduction 1.1. Why Economic Governance Matters in Myanmar Research has Myanmar faces major challenges to achiev- passage of the 2016 Myanmar Investment shown that ing inclusive economic growth throughout the Law and the 2017 Companies Law, increased country. In the past decade, the government of investment in education, new measures to business activity Myanmar has undertaken a number of import- combat corruption, and the development of a is a fundamental ant economic reforms to liberalize the economy digital registry for companies. In 2018, the gov- building block of and spark new economic growth. Fundamental ernment further reinforced this commitment changes in investment promotion, monetary with the release of the Myanmar Sustainable local economic policy, and other areas have helped lay the Development Plan (MSDP), an overarching growth. groundwork for new economic activity. The strategy for achieving sustainable and inclusive resulting economic growth, however, has failed economic growth by 2030. Pillar two of the to reach all corners of the country. In many MSDP specifically emphasizes the importance states and regions, poverty rates remain high, of a robust private sector and the improve- and inadequate employment opportunities pre- ment of Myanmar’s business environment. vent widespread economic improvement. As These and other measures point to a continued Myanmar’s Southeast Asian neighbors have commitment on the part of the Myanmar gov- demonstrated, addressing these problems ernment to promoting reforms that encourage requires government measures to ensure that business growth. local business and environment improve and that a robust and dynamic private sector is Academic research has shown that business able to flourish in all of Myanmar’s states and activity is a fundamental building block of local regions. economic growth. Scholars have demonstrated that subnational economic development is The current Myanmar government has rec- most likely to occur in educated regions with a ognized business environment reform as a concentrated group of entrepreneurs who run major policy priority and a key element of future productive firms (Banerjee and Duflo, 2005; La economic growth. In its 2015 manifesto on eco- Porta and Shleifer, 2008). It is an obvious point, nomic policy and again with the release of its but one that can be easily overlooked when 12-point economic policy in 2016, the National scholars and practitioners take a bird’s eye view League for Democracy (NLD) government has of local economic development, weighing pov- reiterated its commitment to providing a more erty alleviation, inequality, and unemployment attractive and stable business environment. measures in their decision making. Importantly, These documents called for new economic decisions made by businesses in the localities growth built upon a competitive and vibrant influence all of these measures. Businesses private sector. Among the government’s flag- do not include just glitzy multinational corpo- ship achievements in this respect have been rations or lumbering state-owned enterprises
13 Chapter 1 Introduction (SOEs). They run the gamut from small farms support economic growth. By benchmarking The Myanmar to food stands and market stalls, to mom-and- constraints and opportunities in local eco- Business pop operations, to small- and medium-size nomic governance across Myanmar’s states Environment enterprises, to high-tech startups and global and regions, the MBEI aims to help Union and Index aims champions. These are the actors that risk capi- subnational governments identify promising to identify tal in long-term plans, employ workers, innovate policy and administrative reforms and to equip constraints with new goods and services, and pay the bulk local authorities to consider the social and in Myanmar’s of tax revenue used to fund public goods and environmental impacts of business activities in business redistribution programs. their economic planning. Ultimately, the MBEI regulatory is intended to help create a stronger busi- environment and Weak or confusing economic governance ness-enabling environment that is conducive provide a tool for structures often inhibit the ability of Myan- to sustainable and inclusive economic growth. identifying reform mar businesses to thrive and contribute to opportunities that growth. Unclear business licensing procedures The report is divided into four chapters. Chap- spur growth. complicate business planning, inadequate ter 1 is organized around critical questions infrastructure reduces the attractiveness of for first-time users of an economic gover- investing, and small and medium enterprises nance index. First, we explore the meaning (SMEs) lack the capital to expand and inte- of economic governance and the approach grate into regional supply chains. Furthermore, economists and management scholars have opaque and overlapping governance structures used to frame the key issues. Next, we briefly often make it difficult for local administrators describe the MBEI and the features of gover- to implement procedures consistently across nance that it measures. Third, we summarize states and regions. While some business reg- our methodological approach to create the ulatory functions reside with Union ministries, index. Fourth, we describe the legal framework others fall to state/region- and township-level for economic governance in Myanmar and pro- offices. As a result, local economic governance vide justification for our decision to measure in Myanmar is at times inefficient and poorly the concept at the township level and present understood by many of the stakeholders results at the state and region level. Chapter impacted by it. 2 details national-level findings that apply to all firms in the country and describes in detail The Myanmar Business Environment Index the variance across Myanmar’s states and aims to identify constraints in Myanmar’s regions in economic governance. Chapter 3 business regulatory environment and provide provides state and region diagnostics to help a tool for identifying reform opportunities that guide policy and administrative reform of eco- spur growth. The MBEI is an Economic Gover- nomic governance. We also make comparisons nance Index (EGI), or a specialized instrument across states and regions. Finally, Chapter 4 pioneered by The Asia Foundation to measure provides policy considerations that emerge the performance of local authorities and to from the MBEI analysis. assess the local business environment through quantitative indicators. EGIs have been used For those interested in the nuts and bolts of in Indonesia, Sri Lanka, Bangladesh, Cambo- the process, we detail the mechanics of the dia, Mongolia, and Vietnam, and the tool has MBEI methodology in Appendix A. Here, we become widely accepted by diverse govern- explain how we 1) collect data, using a nation- ments to understand economic growth, attract ally and locally representative survey of nearly investors, and engage in public-private dia- 5,000 businesses, administrative data from the logue. In Myanmar, The Asia Foundation carried census and statistical yearbooks, and on-site out extensive desk research, expert interviews, observations of township offices; 2) construct and focus group discussions to adapt the EGI theoretically informed subindices; and 3) cali- model to the specific Myanmar context and to brate those subindices, using weights to arrive find ways to best measure these constraints at the final MBEI scoring of states and regions. through survey and administrative data. Appendix B details the motivation behind all 101 indicators used in the index, providing each The objective of the MBEI is to help govern- subindex ranking and descriptive data on all ment, businesses, and stakeholders understand indicators at the respondent and national lev- economic governance in Myanmar and foster els. Appendix C describes in detail the conjoint reforms that address business challenges and analysis used to explore business perceptions of environmental issues in Myanmar.
14 Chapter 1 Introduction 1.2. What is Economic Governance? Economic Economic governance refers to the set of representation of the business community governance activities policy-makers and administrators in decision making, and allow businesses to refers to the can take to ensure a suitable environment for appeal state actors’ decisions in independent set of activities private business activity. Technically speaking, courts. A great deal of work has shown that policy-makers and economic governance is not synonymous with within states, subnational governments that administrators “business environment.” The business environ- protect property rights experience greater can take to ment consists of many factors, not all of which business entry and investment growth since ensure a suitable are under the immediate influence of govern- businesses feel more confident taking long- environment for ment. For example, proximity to large markets term risks. private business is an important aspect of a company’s business environment, but it is not directly under the In Myanmar, access to land and land tenure activity. government’s control. To some extent, depend- security are the fundamental property rights ing on the circumstance, the same is true of affecting the performance of businesses. Land businesses’ access to finance. By contrast, management in Myanmar is a notoriously administrative regulation and inspections are a thorny issue governed by a variety of old laws, feature of economic governance because this along with several more recent laws and policies element of the business environment is wholly developed under the Thein Sein government. under the control of government. Economic For example, this includes Myanmar’s National governance therefore refers to those elements Land Use Policy, adopted in January 2016. of the business environment that governments Land rights affect the types of investments a are in a position to provide. business will undertake, their profitability, or whether a business can even begin operations Experts and academics have disaggregated at all (Leckie and Simperingham, 2009; Guyitt, economic governance into several key areas 2014). Important studies have demonstrated or themes. In Avanish Dixit’s lecture as presi- the threats to welfare and to poverty alleviation dent of the American Economics Association, that insecure property rights have caused in he defined economic governance as “the pro- Myanmar (Myanmar Center for Responsible cesses that support economic activity and Business, 2018). Insecure tenure of land leads economic transactions by protecting prop- to uncertainty, which means that businesses erty rights, enforcing contracts, and taking will be reluctant to pursue investments that collective action to provide appropriate orga- may greatly improve long-term profitability nizational infrastructure” (Dixit, 2009, p. 5). The because they are not sure if they will be able definition neatly summarizes nine separate to reap the future profits. Taken to the extreme, realms of international academic scholarship potential entrepreneurs sometimes shy away that demonstrates the correlation between from even starting a business if they think the government institutions/policies and business government can simply take away their land. performance. In creating the MBEI, we have tried to adapt these broader findings from the 1.2.2. Contracting Institutions economic, management, and political science literature to the Myanmar context. In this sec- Businesses benefit from reliable contracting tion of the report, we walk through the major institutions that assist in settling business components of economic governance in a disputes with other non-state entities. An country and connect them to current research independent legal system that allows small on Myanmar. businesses and minority shareholders to defend their rights is essential for business 1.2.1. Property Rights growth (Djankov et al., 2008). Without the ability to uphold contracts, businesses will Businesses benefit from property-rights be forced to depend on social enforcement, institutions that protect them from state relying on family, friends, and local notables expropriation of land, capital, or intellectual to shame vendors who refuse to deliver or property (North, 1981 ; Acemoglu and John- customers who fail to pay. This situation will son, 2005; Johnson et al., 2002). Property limit the scope of potential business partners rights cannot simply be promised by fiat; they to those in a firm’s immediate social network. must be ensured by cross-cutting institutions Only with external enforcement possibilities that check the power of the state, provide for will firms be willing to do business outside
15 Chapter 1 Introduction BOX 1 What Is Economic Governance? Economic governance refers to measures taken by governments to support economic activity and transactions. It is generally understood to consist of nine key areas. With respect to each of these, governments have a key function to play through the creation of institutions, design of policies, and implementation of those policies. 1. Property Rights: Facilitating access to, and protecting the security of, property vital for business activity, including land, equipment, and intellectual assets. 2. Contracting Institutions: Providing institutions, such as courts and arbitration centers, that help enforce contracts and adjudicate disputes between business actors. 3. Regulatory Institutions and Post-Entry Regulatory Procedures: Monitoring and regulating commercial activity in compliance with the law. 4. Corruption: Preventing the use of public office for private gain. 5. Transparency and Access to Information: Providing access to public information relevant to business activity. 6. Infrastructure Quality: Ensuring adequate quality infrastructure for conducting commercial activity. 7. Labor Quality and Recruitment: Ensuring the availability of an adequate skilled labor workforce. 8. Policy Bias: Ensuring a fair competitive environment for all businesses. 9. Environmental Health: Preventing environmental degradation from hindering commercial activity. of their social network, allowing for greater Report 2019 enforcing contracts indicator. expansion and growth. The law-and-finance- In survey data, most businesses claim to not nexus literature has further shown that credit trust the court system and to try to avoid markets function best in regions with better it if possible, even when they have serious legal protections (Levine, 1999). Because con- disputes with clients and business partners. tracting institutions require independent courts Few businesses engage in commercial activi- and arbitration centers, which are rarely decen- ties outside of a narrow range of partners within tralized, subnational differences in this factor their immediate locality, and survey research are actually quite rare in the developing world. indicates that this is because they distrust the available formal means of dispute resolu- In Myanmar, businesses face substantial chal- tion. An additional source of uncertainty caused lenges in regard to law and order. Judicial reform by the Myanmar legal environment is threat has been the Myanmar government’s stated of crime and violence. Businesses express priority in recent years. In 2018, it adopted concern about break-ins and theft of equip- its second Judicial Strategic Plan, aimed ment, which increase their business risks and at bolstering judicial independence, promoting raise costs since businesses take on additional professionalism, and ensuring accountability security expenses (Than, 2016). Impor- and integrity in the judiciary. Nonetheless, tantly for our project, the threat of crime on Myanmar currently ranks 188 out of 190 business activity varies heavily by state and countries on the World Bank Doing Business region.
16 Chapter 1 Introduction 1.2.3. Regulatory Institutions and studies have shown that registrations of new Post-Entry Regulatory Procedures companies and of new corporate entities are higher when entry and other more general Businesses benefit from efficient regulatory regulatory obstacles to business are lower. structures. Due to the prominence of the World This is especially true in industries with higher Bank’s Doing Business Index and its more nonregulatory obstacles to entry—for example, recent subnational versions, regulatory burden more expensive equipment or other inputs— has become a focal point of economic devel- and where technology or global demand shifts opment policy. Theoretically, regulations are have occurred. meant to protect the public by ensuring labor safety, safe products, and sanitary food quality, Myanmar businesses may incur regulatory and and to limit environmental damage. In practice, administrative holdups and expenses while however, regulations can tie up businesses in they are starting their operations, which we call red tape, thereby reducing productivity and “entry costs,” or continuously after operations limiting their expansion. Regulations have have begun, which we refer to as post-reg- been shown to raise entry costs, limit entrepre- istration regulation.1 The World Bank Doing neurship, and protect inefficient monopolies. Business Report 2019 ranks Myanmar 152 out Djankov and colleagues (2002) identified a of 190 economies (in the bottom 25%) on their strong correlation between the costs and starting a business measure. However, the Doing time of starting a business and the size of Business methodology focuses on sizable the informal economy. Subsequent microlevel limited liability companies in Yangon, omit- A garment manufacturer in Hlaingthaya Township
17 Chapter 1 Introduction ting the vast majority of smaller enterprises passage of the 2013 Anticorruption Law and outside the industrial capital and neglecting subsequent formation of an Anticorruption the wide subnational variation in the country. Commission for reviewing complaints about In fact, in the World Bank’s enterprise survey, bribery and other malfeasance (see Box 8). respondents reported that regulation was far Nonetheless, the NLD government has contin- less of a burden in getting started (World Bank, ued to emphasize the need for improvement. 2014). Once operations begin, businesses must The country is currently ranked 130 out of 180 renew licenses, obtain forms and supporting countries on Transparency International’s Cor- documentation, comply with regulations, ruption Perceptions Index 2017. By contrast, and undergo regulatory inspections. These however, the World Bank enterprise survey obligations, although important, can often be reported that informal payments were not a sig- arbitrary and impose significant burdens on nificant obstacle for firms in Myanmar (World businesses. For example, Myanmar is ranked Bank, 2014), arguing that fees are relatively 155 out of 190 countries in the World Bank’s infrequent and low. paying taxes indicator. This implies that the process of dealing with administrative require- 1.2.5. Transparency and Access to ments (in this case taxes) is cumbersome, time Information consuming, and inefficient. 1.2.4. Informal Payments Businesses benefit from transparency and access to information. Businesses need access Businesses benefit when there is a reduction in to local budgets, land and infrastructure plans, corruption, or the use of public office for private and legal documents that are necessary to run gain. Scholars distinguish between two gen- their businesses. Transparency has enormous eral basic forms: petty and macro-corruption benefits in its ability to reduce the risk and (Ackerman, 1978; Lederman et al., 2005). Petty uncertainty for investors—allowing them to corruption consists primarily of the informal engage in long-term planning—to predict legal fees incurred by individual citizens as they go and macroeconomic changes that may affect about their normal activities. It also occurs their business, and to reduce adjustment costs when businesses must pay informal fees, above and the need for self-insurance (Aizenmen and beyond legally stipulated service fees, and Marion, 1993). Transparency has import- to facilitate regulatory compliance or receive ant direct and indirect effects on investors’ public services. Macro-corruption takes place decisions to expand their operations (Drabek at the highest levels of national and local gov- and Payne, 2002). Information on land and ernments and consists of activities that are not provincial planning may be legally available to directly observed by average citizens although all, but accessing that information can often be they certainly have an impact on general wel- problematic. This can have a detrimental effect fare. Macro-corruption commonly includes on the growth of the private sector because such activities as 1) accepting kickbacks on firms cannot take advantage of provincial ini- the issuance of government procurement con- tiatives. When changes in the legal regime tracts (e.g., for construction, equipment, or are not readily accessible, a firm may operate technical services), 2) taking bribes for policies successfully for several years, only to find that favor particular economic actors, and 3) itself on the wrong side of the law simply out allocating limited resources (including natural of ignorance. In most cases, such ignorance resources, telecommunications spectrums, will cost the firm little, but there is always the export or production quotas, and high-ranking potential for an unscrupulous official to exploit positions) on a nonmarket basis that benefits asymmetric information about the legal code family, friends, or those with close relationships to his/her advantage. Conversely, a firm may be to the policymakers. eligible for savings, investment opportunities, or tax refunds but never takes advantage of Informal payments negatively affect Myanmar them because it is unaware of these benefits business performance in many ways. Informal (Malesky, McCulloch, and Nguyen, 2015 ). payments raise the costs of doing business, lead to worse public services when less effi- Lack of transparency can also affect invest- cient providers are improperly selected in ment through its impact on predictability, or the procurement contracts, and create costly policy ability of firms to forecast and thus build new uncertainty (Olken and Pande, 2012). Reducing developments into their business plans (Hollyer corruption has been a priority of Myanmar’s et al., 2011). Laws and regulations may or may reform-era government, most notably with the not be implemented in a manner that allows for such planning. With transparency, firms
18 Chapter 1 Introduction can understand the decisions that are made warehousing if rapid delivery of inputs can be and how they will be implemented. This knowl- assured (known as just-in-time management), edge gives them a better chance at predicting and lessening the risk of damaged and spoiled the direction and risk of long-term strategies products (Démurger, 2001; Fedderke et al., and increases their ability to make informed 2006). Connectivity also matters. Poor linkages investment decisions (Gelos and Wei, 2005). between highways, rail, and ports can lead to Transparency can also affect investment indi- major delays in shipping times and possibly rectly through its impact on the equitable use damaged or wasted goods. Telecommunication of subnational resources. Indeed, a lack of infrastructure, including adequate telephone transparency can lead to severe inefficiencies coverage and Internet bandwidth, continues to in such resources—inefficiencies that repre- gain importance, helping businesses connect sent more than a simple transfer of resources with suppliers and customers, expand potential from one party to another. Take, for instance, markets, engage new partners, and acquire the issue of state and regional planning. The new skills and technology (Röller and Waver- impact of infrastructure and land-conversion man, 2001). Commodity producers in emerging plans is limited if the details are available to markets now regularly use technology to stay only a select few insiders. One of the reasons abreast of rapid changes in pricing and weather this impact may be limited is because of the that affect the bottom line. limited transparency of the real estate market. Only a few knowledgeable insiders know the Myanmar faces significant infrastructural location of future infrastructure projects and challenges. The government of Myanmar industrial zones. These insiders can then profit recognizes that businesses require improved by buying the land ahead of time while other infrastructure, and the 2018 MSDP emphasizes, investors in real estate must make large con- in particular, electricity, roads, and ports. To be jectures based on small bits of information. fair, states and regions currently spend large portions of their budgets on infrastructure, Myanmar firms can make more informed often focusing on physical infrastructure such business decisions when they have access to as roads and bridges (Shotton et al., 2016 ). up-to-date information on new government Nevertheless, road quality in both urban and plans, policies, and regulations. The Myanmar rural regions, poor connectivity between major government has recently taken small steps to types of goods transportation (in particular, improve transparency in general. For exam- road to rail and road to port), low capacity air- ple, Union and state/region governments have ports, and limited clean water access remain begun publishing Citizens’ Budgets—nontech- key infrastructure obstacles (Economist Cor- nical documents aimed at conveying public porate Network, 2017). Power and access to finance decisions to the general public—as a electricity remain major concerns. For example, step toward fiscal transparency (Deshpande, the World Bank’s Doing Business Report 2019 2018). Citizens’ Budgets encourage greater has Myanmar ranked 144 out of 190 countries openness about financial decisions and greater on access to electricity (around the 25th per- opportunities for citizens to participate and centile). Again, the infrastructural challenges influence expenditure decisions. The 2018 vary heavily both within and across states and MSDP also proposes using more public and regions (Economist Corporate Network, 2017) open tendering processes for government and appear to be most problematic outside of contracts, such as a new “project bank” for pub- Yangon and Mandalay. licizing new state/region-level infrastructure projects. While these are important measures, 1.2.7. Labor Quality and World Bank’s enterprise survey data suggests Recruitment that many Myanmar SMEs have few sources of information on rules and regulations. Businesses benefit from labor policies that provide for skills training and ease of recruit- 1.2.6. Infrastructure Quality ment. Having access to a skilled labor force can affect the costs of doing business and the Businesses benefit from reliable, quality quality of the firm’s final product. Labor poli- infrastructure. Transportation infrastructure cies ultimately affect a firm’s quality of human includes traditional measures, such as roads, capital; the higher the quality of workers, the bridges, airports, and deepwater ports. more productive a firm will be. Mismatches in High-quality infrastructure improves busi- the labor market affect both worker and firm: ness productivity by reducing shipping and workers end up in jobs that are not suitable for transaction costs, limiting space needs for them, preventing them from maximizing their
19 Chapter 1 Introduction wages, and firms are less productive and have Myanmar has significant problems with bias in to spend more on training workers. Reasonable administration. Myanmar’s history of state-con- and efficient labor policies are therefore an trolled industries has meant that SMEs have important component of a healthy business long faced an uneven competitive field. The environment. In their paper on Latin America, elephant in the room, of course, is Myanmar’s Acemoglu and Dell (2010) further find that long history of rampant cronyism, which has about half of the within-country variation in allowed government officials to show favorit- levels of GDP per capita is accounted for by ism toward businesses with connections to the education. They tie these income benefits to military and government. In the reform era, the Total Factor Productivity growth among busi- Myanmar government has sought to unwind its nesses. state-owned enterprises, yet this process has been a gradual one. Nonetheless, ensuring a Myanmar has made notable changes to improve level playing field for all businesses in Myanmar local labor markets but can do much more. In remains very much a work in progress. the past decade, the Myanmar government has undertaken a number of wide-reaching 1.2.9. Environmental Health changes with respect to basic education, including reforming the national curriculum Businesses benefit when environmental quality and increasing the portion of the Union budget is suitable for their commercial activity. This allocated to education. The NLD government is especially true for businesses that rely on a has also placed considerable emphasis on clean, pollution-free environment for their prod- promoting technical and vocational training as ucts and services, such as firms in agriculture, incorporated in the 2018 MSDP. Nonetheless, food processing, tourism, and other services. serious challenges remain. According to an Complying with environmental regulations is ILO survey, businesses in Myanmar report that essential for both businesses and citizens. around 60% of their production workers are low Poor environmental quality affects the health of skilled and cite poor education as the greatest firm workers and citizens, leading to lower pro- obstacle to business success. Low educational ductivity at work. Some businesses are likely quality forces businesses to engage in-house to pursue environmentally damaging behavior training; this is quite risky, however, as many if left to their own devices. Local governments newly trained employees choose to leave. The must therefore ensure that firms comply with ILO further finds that the average labor turnover the regulatory conditions established in the rate is 57% for garment producers and 39% law. for food processors. This means that an aver- age factory loses about half of its workforce Myanmar faces significant challenges relating annually (Bernhardt et al., 2017). While the to environmental compliance. The negative introduction of a minimum wage law in 2013 environmental impact of new business activity and new rules for severance pay in 2015 may has been the subject of much attention from eventually reduce turnover, retaining high-qual- government and civil society in Myanmar. A ity workers remains a major challenge for many 2015 Asian Development Bank Report notes Myanmar-based businesses. that “the lack of a comprehensive and coor- dinated environmental framework, enabling 1.2.8. Favoritism in Policy institutional and legal structures, expertise, and greater capacity for natural resource man- Businesses benefit from a level playing field agement and funding” is among the country’s and a fair competitive environment. Bias toward outstanding challenges (Raitzer et al., 2015). large or politically connected businesses under- With this in mind, the Myanmar government mines the benefits that meritocratic economic has enacted a number of new laws and poli- competition provides consumers. Competition cies in recent years related to environmental lowers the price of goods and services, leaving protection. The most notable legislation was consumers better off. That said, favoritism the adoption of new Environmental Impact toward certain firms, for example because of Assessment (EIA) procedures in 2016, which personal connections, reduces these benefits. aimed at preventing and mitigating negative Favored firms may therefore be less efficient, environmental and social impacts. While these produce inferior goods, and set higher prices measures are an important step, implementing than competitive businesses. This hurts con- them remains a work in progress. sumers and is an impediment to growth and poverty reduction.
20 Chapter 1 Introduction BOX 2 The Vietnam Provincial Competitiveness Index The Vietnam Provincial Competitiveness Index (PCI) report is part of an ongoing collaboration between the Vietnam Chamber of Commerce and Industry and the U.S. Agency for International Development. Since 2005, the PCI report has been produced annually in both Vietnamese and English. The PCI has a similar structure to the MBEI but differs in terms of the areas and indicators covered, focusing on governance issues that are critical to the Vietnamese reform context. Vietnamese policy-makers and the private business community have capitalized on the report’s insights, and the PCI has played a part in the dramatic changes that have enhanced business development and growth in Vietnam. Over the past decade, the PCI has influenced policy priorities and reform choices, generating momentum for policy-makers to improve reform efforts and improve the daily work and management of local officials. Key achievements of the PCI include the following: 1. Improved Governance: A steady increase in governance across all 63 provinces. The 2017 PCI captured the highest median score achieved since the beginning of the project on the core index, a consistent measure that does not vary over time. Only one province has failed to demonstrate average governance improvements since 2005. In addition, scores have converged over time. The 16th and 48th ranked provinces are moving closer and closer, which is a result of increased learning among lower-ranked provinces. 2. Business Growth: Research has shown that improvements in the PCI are correlated with increases in business activity and economic growth. A summary of research on the relationship between the PCI and growth can be found at http://eng.pcivietnam.org/economic-governance-in-vietnam-reaches-all- time-high/ (April 16, 2018). 3. National Policy Reform: National and provincial leaders use the PCI as an oversight and monitoring tool. The national government has issued multiple documents on improving economic governance on indicators measured by the PCI, including measures of bribery and transparency. Most recently, the Prime Minister’s office issued Decision 19/NQ-CP, entitled “The Tasks and Solutions to Improve the Business Environment and Enhance Provincial Competitiveness.” 4. Provincial Policy Reform: Most localities have targeted ameliorating PCI indicators as the basis for activities to improve the provincial business environment. During the party committee congress of provinces and cities of the last term of 2015–20, 13 provinces and cities included the PCI as a target for improvement in the Provincial Party Committee documents. Since 2005, every province has issued a local action plan on how to improve PCI scores. Many have issued more than one. In order to improve the business environment using PCI survey data through June 2016, provinces and cities have promulgated 315 documents on the PCI, including “Resolutions of the Provincial Party Committee” and “Resolutions of Provincial People’s Council.” 5. Media Coverage: Google trends searches reveal that over one million newspaper and blog posts have been written about the PCI or have used the PCI to analyze local economic issues. For a sample of these articles see the PCI website, at http://eng.pcivietnam.org/category/event-news/. 6. PCI Diagnostics: The PCI research team has conducted 350 workshops around the country with local officials, briefing them on their individual scores and on how to improve subnational governance. The workshops have been attended by nearly 52,200 local leaders. See Malesky et al., 2007, for further details on the PCI.
21 Chapter 1 Introduction 1.3. MBEI Focus and Methodology The Myanmar Business Environment Index land and security of business premises, 3) The ten MBEI measures economic governance as experi- limited time requirements for bureaucratic pro- subindices enced by domestic firms in Myanmar’s service cedures and inspections, 4) minimal informal are built upon and manufacturing sectors. The MBEI does payments, 5) sufficient and well-maintained 101 indicators not purport to cover all business sectors in physical and telecommunications infrastruc- relating to Myanmar, nor does it measure all aspects of ture, 6) a transparent business environment specific features Myanmar’s business environment. The MBEI and equitable business information, 7) minimal of economic includes services (e.g., retail, banking, hospital- crowding out of private activity from policy governance. ity) and manufacturing (e.g., food or garment biases toward state, foreign, or connected production); however, it does not cover the firms, 8) limited pollution and environmental primary sector (agriculture, mining, forestry and damage, 9) sound labor training policies, and fisheries).2 Furthermore, it is focused on captur- 10) fair and effective legal procedures for dis- ing the perspectives of domestic businesses pute resolution and maintaining law and order. rather than foreign enterprises operating in Myanmar. For example, the MBEI measure of The ten MBEI subindices are built upon 101 land access does not include foreign-owned indicators relating to specific features of eco- agribusinesses in Tanintharyi Region, nor nomic governance. Table 1 below provides a does it include domestically owned mining more precise list of the individual, actionable operations in Kachin State. Rather, the MBEI policy indicators that comprise each of the is focused specifically on domestic firms in subindices in the MBEI. Each of these indica- the service and manufacturing sectors, most tors is described in more depth in Appendix B of which are SMEs located in cities and towns below, and the methodology of their selection throughout Myanmar. and incorporation in the index is described in Appendix A. As we describe in more detail in The MBEI is designed specifically to measure Appendix A.1, the MBEI is composed of two governance rather than overall market size types of indicators: 1) perceptions-based data or attractiveness. The purpose of the MBEI that is drawn from a nationally representative is not to assess the overall attractiveness of survey of nearly 4,800 firms in all fourteen Myanmar’s business environments. Rather, the states/regions and Nay Pyi Taw and 2) hard MBEI is focused specifically on one element data collected from administrative records or of the business environment—that is, govern- recorded from observations in the field. ment activities to provide the institutions and policies that facilitate business success. As 1.3.2. Brief Methodology we argued above, governance can be improved in the short and medium term and is linked to The index is produced in a three-step sequence, business performance and growth. referred to as the “three Cs.” These include the following: 1) collect business survey data 1.3.1. Themes and Indicators and published data sources, 2) calculate ten Covered by the MBEI subindices and standardize them on a 10-point scale, and 3) calibrate the composite MBEI as MBEI scores cover ten facets of governance, the weighted sum of ten subindices with a which relate to key themes in economic gov- maximum score of 100 points. The research ernance. We chose the features of economic design also has a number of important design governance that were most important to the elements that make the results easily trans- Myanmar business context and then selected latable into local governance reforms. This measures to track performance on these con- section provides a brief overview of this pro- cepts across Myanmar’s states and regions. cess, while Chapter 2 provides a full discussion We discuss these dimensions chronologically of the methodology. around the issues that business managers encounter as they move through the business COLLECTION – The Asia Foundation collected life cycle from entry to land acquisition to deci- both survey and non-survey data for inclu- sions about expansion and growth. Specifically, sion in the MBEI. First, the survey instrument a state or region that is considered to perform reflected the key issues covered by the subindi- well on the MBEI is the one that has 1) low entry ces and incorporated input from discussions costs for business startup, 2) easy access to with businesses and policymakers. It included
22 Chapter 1 Introduction BOX 3 What Is the Focus of the MBEI? Economic governance refers to measures taken by governments to support economic activity and transactions. Broadly speaking, it is just one component of governance generally, comprising all the functions of government that provide a suitable business environment. It is generally understood to consist of ten key areas. With respect to each of these areas, governments have a key function to play. Some findings of the MBEI may seem surprising or counterintuitive; it is therefore important to keep in mind the population and subject matter on which the MBEI focuses. The MBEI does not measure all aspects of the Myanmar business environment (e.g., access to finance), nor does it survey the experiences of all businesses in Myanmar (e.g., agribusinesses). Specifically, the MBEI covers the following: Economic governance: Domestic firms: The MBEI focuses The MBEI is focused specifically on measuring entirely on the economic governance, or experience of locally the elements of Myanmar’s owned Myanmar firms. business environment that may be influenced through government policy and administration. MBEI Service and manufacturing sectors: SMEs: The MBEI excludes the primary The MBEI sampled sector (agriculture, fisheries, firms of all sizes; mining and forestry). It includes the vast majority of measurements only of service businesses included, and manufacturing firms, many however, are small and of which operate in the food medium enterprises. production subsector. Nationally representative The MBEI compiles data from all states and regions. As such, it reflects the experiences of firms in both urban and rural areas of Myanmar.
23 Chapter 1 Introduction TABLE 1 Key List of All MBEI Indicators by Subindex Survey data Observational or administrative data Subindex 1: Entry Costs Subindex 6: Transparency NNNMDDHNAAuuauuovmmmmOOreebbbblridteeeeechqirrrrefafunooooinicsffffrue3idaddndldaaatmgyyyyddsosssiaotcncicfffootrrrquhooonrumesmmmairl(etiOodhaannboppigtcrsscppeoaeullsmoiinrccmcvfyaapoeesattlrdeneiiedoo)trtmenn(vsOiaciuunbnlennelsisettseuiitdlltrnreverrateepeditlccidsvree)eeniicppedettcoiooepcsfftusddomaoofreccdynuuo(tmm%c(u%ee)mnn)tte((nDCtDA(COD)I)CA) Accessibility of (% that say it is accessible): state or regional budget; Subindex 2: Land Access and Security LCFLNDLSooeahoAonwwiamLrogrMcpebtttooohlsStemthvvotalaeeeipfccdrrtetleyyeionltnaslllwsoosenaewwnidnatnsicgrrcopeilqosanrsnuokuncfticondsoaoeirtlrftadeerilenoruiasex(dnnrkOdepdh(srb(aDoa%(sac%apse)qnyr)raiudsvai)ettrdiiidtoinld)engn((l%oa%nt))denocroeuxnptaenr dainnygdpirfefimcuislteiess(%(%)) township budget; Union laws and regulations; implementing documents of Union ministries; state legal documents; new infrastructure plans; public Subindex 3: Post-Entry Regulation investment plans; land use allocation plans and maps; planning for the Share that spend less than 10% of time understanding and complying with rMGFeiorgemvauenlardnntoimuoemsnesnnbtoeotrfnofiefceiinadslstpoeactraetikoeefnfmsecbatnyivyaeltlr(i%apgsaegtnorceoieeb)stain stamps and signatures PPDdDPDPeerrrAAAeeevrLOLcdddeMMeiiil%ccconSStttptaaaoam%%bbbfgiiikeoollleiiientttffoyyyytkefodoooexOfofffyaSlcmiiiodmmmuScopmpppacdlellllueeeeesemnsmmmcpkteeeeossrnonnnnwwtvtttosaaaiiimtdtttthwhiiieioooeidiitnnnnnshff;fooooooiffffnrrormlllfmtraaaohmawwwaremtstsssiiRooafaaaenonttttcirop(UUUofOnournnndsblpiiiftooosiooelnnnelsfdirntlllAveee(egeOsvvvddrseeebe()elllsOgt(((eus%%%brlsv(apppOeetrrrrdobeeev)rsdddeyeiiidcccpr)vtttraaaeobbbdclll)eeeed))) ures. (PFGGDDDD%eaAAAAAAepOLLOaDDseMMghhhhrarwSSeeeeereellllopppphh)rpffffeekuuuuullppllillbnnsnnffluueeeeiscssssllinnlmssssyeeoooopssliffffsslsetjsjsoouue(eeff%nndnnjsiiuiioo(aooe%nrrgnrrissraiossoettgttraaeraarsff)sefffftffteaa((()f(OOOffOfbbb(b(OsssOseeebebrrrsrsvvvveeeeeerrdddvdv)))e)edd)) Subindex 7: Favoritism in Policy Favoritism of local authorities towards businesses with strong FcFFSoaaaimnvvvooonprrreliiiectttriiitsssiammmonndiiisnnnl(elgaaascrlnslacidnnetitsami%nscegcat-oecgmsorloseinnease)nursaml ienxgpalodimtaitnioisntrliacteivneseprocedures for connected ENEfNiraauumssmmeesbbooeeffrrgaooceffctbMteiansFngsIksstsoptapeitnerefrcoacargampepitaniattcai(oieA(nAsd’fdmocmroinincniotsirstnartnacraettsictvitvefeoe)dr) connected firms firms Subindex 8: Environmental Compliance SCOIPSSGCntteiiouvttaacveliiilzzdttaeureeeeaarstnnilnissetlossyuucenoeppwwonfhppfvfiiparttooipohhrosrroomlttiilnalmmufflumootlnoppitrroeeicrrowwngoonan,vvataalaaeettsianileuddtvuqertestswhushtraeoaeaaaonfrctvltrfiieieitityettniyraccieogestltisrisisono(ort%ueggonnogrono(yc(ti%oAkhoeeededsnsntyi)mvoemf((iiAirsrrsiemno)dvsinemts’seormtyvirbnaaeeguicntrsoseitttvoiar(enoa%dl)ertcisvyvoseeemrs)(y%)psliyeaevnsec)ree)(% yes) Subindex 4: Informal Payments Subindex 9: Labor Recruitment PSUHCAhoegsigraumrcheraemee-lqnlmytuithsaeaksanglniitotteoyhnwwN-aeiivOstxaehpTmNetshOooctaauTtpvetnaenidtnymeogdcuefeetnnblosidtvrspeie“baraIrefryy1ysi0ointfn%aoffatrsoediewnrvmroiabvnfainfrnciilccbeicneieahigsf(la%bcbrorgraienbegatserkreaissec)ttgh(iev%elaanwg(r,%eI eca)agnreaep) peal to a PEaesrceeonftalagbeoorfrebcursuiintemsesnctofsotrs(%speeanstyoonrlvaebroyretarasiyn)i:nmg anual rank-and- Acogmrepeemteenntt person at a higher level for resolution” law are discovered, file workers, technicians, accountants, supervisors, managers/finance with statement “When violations of the Pmearncaegnetar.ge of the population that has completed primary education leaders will discipline offending staff” (PAedrcmeinntiastgreatoivfeth) e population that has completed middle school education Number of corruption complaints per capita (Administrative) (Administrative) Subindex 5: Infrastructure Subindex 10: Law and Order NTIPRPHPHEneleeeoouoetlrrreauumeccccrdrrpteeenbssrshnnnieecoloattttoraaaafnrisolesgggeltofpeeesggosodoooooatfwaoofffrptyeeeddtttsorhhhlgewoorieeeosporrepppohagvvroooddoeeoinpppnrrooiyysuuueldralll,ggbaaavsfoooletttatoriiioorxooomcvyddnnnkaegoe((rnwww%%onyddoiiitgttthaaiIdhhhnnoggto(eaaarre%eedleTtrleeaenac(V))%nlegterdt(rpiAaecshgdeiltior)mdyeneeie(n)Ai(sdAtmrdamitniviisneti)sratrtaivteiv)e) Agreement with statement “If state official breaks the law, I can appeal to a cAogmrepeemteenntt person at a higher level for resolution” law are discovered, with statement “When violations of the PlCVLJCVLeeeueiorracoiggdrumdtyvaagiremietllgenrssajsmocuoyioipdwdaefsdegnltaiirlneectol1cmdmodrbr0uuiygies,mwsr0oncttt0ihoeritlrpils0edeelulasisaccanpsoriossehtetluivsuozyoeerepeletfndsspnfaifsesoespromnrcr(rf(tdo%caoAeibpeinnndryudeogtm(ers%mqotssiiynufn)tiaceaiisrcsgisfegcktfrscrea”hlaeyueststsr)e(ii%vts(aye%nqa)sdaugitgirccuerokaeenlet)yit)or(an%ctasg(r%eea) gree)
24 Chapter 1 Introduction twelve modules that were organized by topic, on policy levers that can be used to increase with a final set of control questions included to transparency at the state/region and township assess the circumstances of the interview. Sec- levels. For instance, the MBEI tells leaders how ond, this “soft” data was then combined with many of their businesses report that operating objective or “hard” data, gathered from obser- license fees are publicly posted in local DAO vations of township offices that were recorded offices and how many businesses are able by our field team, statistical yearbooks, and to easily access local budgets and cadastral other administrative sources available from maps. government ministries. Observational data was collected by our field team, which visited local CALCULATION – MBEI scores are calculated township offices and recorded information on based upon 101 indicators that function as the the type of information available to businesses, combined building blocks of the ten subindi- the assistance provided in local offices, and the ces. This method used the existing literature waiting periods to complete procedures. These on the business environment as a guide and observations were recorded on scales that were incorporated discussions with policy-makers comparable across townships. The hard data and economic analysts familiar with the Myan- was used to address perception and anchor mar context. Considerable effort was made to biases in responses. After all, many SMEs may ensure that these subindices corresponded not have an adequate understanding of other with previous research on the obstacles to locations to rate their home state/region on a private sector entry and growth in Myanmar. five-point scale. Improvement on these subindices is seen as critical for Myanmar continuing to develop and MBEI survey data is built upon a nationally rep- prosper (see Appendix B for a full discussion resentative survey of 4,874 private, domestic of the motivation behind the selection and firms drawn from a sample frame supplied by measurement of each indicator). the Ministry of Labour, Immigration and Pop- ulation (MOLIP). To focus on local economic To create subindices, each indicator was stan- governance, we limited our population of inter- dardized to a scale of one to ten, where 1 is est in two important ways. First, we excluded the lowest score reported by a respondent foreign firms since they are concentrated in and 10 is the highest. This decision is critical only a few states and regions, have limited com- because it implies that we are normalizing parability, and face different regulatory rules the MBEI scores around the best practices and procedures from most domestic firms. already found in Myanmar. Thus, the MBEI Second, we excluded all firms with employment directs state/region governments to improve sizes smaller than four employees, accord- their performance, not against some ideal ing to the MOLIP dataset. This decision was and possibly unattainable standard of good necessary because the sample frame did not governance, but rather against the best per- include a measure of formality, but we worried formance already practiced by their peers that fully informal firms have too little inter- within the same national political framework. action with government to answer nuanced For example, while the MBEI scores for states questions about administrative and regulatory and regions range from 53 to 65, any state/ procedures. We needed firms that had engaged region, in theory, could attain a perfect score in some of the processes. To proxy for for- of 100 by adopting all existing best practices mality, we dropped these micro-businesses. already found in Myanmar. After indicators These decisions left us with a sample frame were rescaled, a weighted average was taken to of 60,000 firms, which we used to select target create the subindex. Weighted averages were businesses through a two-stage randomization employed to better incorporate hard data when process that ensured representative samples available. To limit perception biases, survey at the national, state/region, and township data received a weighting of 60%, whereas levels. For details on the sampling strategy, hard data received 40%. see Appendix A.2 below. MBEI scores are calculated to allow for Each indicator was chosen to provide action- separate analyses of distinct subgroups. able policy information that can easily be Importantly, all subindices were created at the tracked and monitored by local administra- level of the respondent firm. That is, each firm tors and businesses over time. The MBEI had a unique governance score created by its team does not want to simply report that an survey answers and township-level observation abstract concept such as transparency is low; and administrative data. This approach allows rather, we seek to provide clear information us to aggregate individual respondent answers
25 Chapter 1 Introduction to whatever level of governance we deem to be explaining private sector development. Hence, necessary for a particular research goal. While it is important to reweight subindices based on the MBEI focuses on aggregate performance their actual contributions to firm satisfaction at the state/region level, we can also generate with governance private sector development. separate economic governance scores at the To do so, the research team used multivariate township level, by sector of the firm, by gender regression analysis to determine how each of of the business owner, and by a range of other the subindices influenced the key economic features that allow us to track inequality in the performance variables that researchers and application of economic governance. practitioners in Myanmar have deemed the most important gauges of private sector CALIBRATION – Final MBEI scores are cali- development. In particular, we looked at the brated using weights that reflect the relative relationship between the MBEI and average importance of each topic to key economic business confidence in local leaders, perfor- outcomes. A simple summation of the ten mance of the business in the past year, and subindices yields an unweighted index with a willingness of the business to expand its oper- maximum possibility of 100 points. While this ations. is clearly the easiest and simplest method of calculating the final MBEI, it is inappropriate as Weights are applied in order to incorporate the a policy tool for the simple reason that some relative contribution of each subindex to key subindices are more important than others in economic outcomes. After removing the influ- BOX 4 Local Economic Governance and Conflict in Myanmar Decades of armed conflict have left Myanmar among the most conflict-affected countries in Southeast Asia. Active or latent conflicts affect at least 11 of Myanmar’s states and regions, and as many as 118 of its 330 townships. Many of these conflicts have deep roots, dating from Myanmar’s early days of independence. Over the years, they have drawn in a variety of armed organizations and deeply influenced the lives of civilians across the country. They have resulted in thousands of casualties, political instability, human rights abuses, and economic insecurity in countless Myanmar communities. In addition to inflicting deep social and political wounds, subnational conflict takes an additional toll on communities by throttling economic growth. Conflict influences the subnational business environment in a number of ways, many of which are tied to the government’s inability to encourage and promote private commercial activity. It reduces economic opportunity not only by threatening security but also by preventing infrastructure development, inhibiting access to judicial systems, and reducing land access and security. In Myanmar, all of these are challenges which businesses face that are intimately bound up with years of subnational conflict. The impact of armed conflict on business activity in Myanmar is a subject in need of further research. In Myanmar, it is a topic which has proved difficult to penetrate, largely for security reasons. A handful of studies have focused on the intersection of business and conflict in Myanmar. Research has helped to understand the important political and human rights issues related to business activity in mining, forestry, and other sectors involving resource extraction. The MBEI does not delve deeply into many of Myanmar’s conflict-affected areas. Prior to sampling, several townships were removed from consideration due to concerns about the safety and security of the survey field team. While the impact of subnational conflict on local economic governance remains a particularly important question in Myanmar, it is not one which can currently be fully explored through the MBEI.
26 Chapter 1 Introduction ence of structural variables on these measures largest association with private sector growth— (such as distance from markets and the indus- Environment (subindex 8), Labor Recruitment trial sector), we were able to determine which (subindex 9), and Law & Order (subindex subindices were most strongly associated 10)—receive the highest weight class of 20%. with our three outcome variables. In essence, Correspondingly, those that are not strongly we learn which subindices provide business correlated with private sector development with confidence that their business leaders outcomes receive the lowest weight class of are making good decisions that aid their per- 2.5%. These include Land Access (subindex 2), formance, with actual business performance Transparency (subindex 5), Infrastructure (sub- measured by profitability, and with the pros- index 6), and Favoritism in Policy (subindex 7). pects for investment measured by willingness The medium-weight class of 10% is reserved for to expand. This final measure connects our either average correlations across the three out- index to the possibility of future growth and come variables or a large substantive effect on job creation. one outcome (e.g., profitability) but a minimal relationship with the other two. This includes Regression modeling is used to generate Entry Costs (subindex 1), Post-Entry Regu- weights for the ten subindices. Regression lation (subindex 3), and Informal Payments outcomes were then rounded to deliver (subindex 4). basic classes of weights, shown in the final column of Box 5. Subindices that have the Workers assemble a scaffolding at a construction site in Yangon
27 Chapter 1 Introduction BOX 5 MBEI Subindex Dimensions and Weighting Various elements of economic governance contribute in varying degrees toward business success. The MBEI therefore employs a weighting regime to take this into consideration. Weighting the various components of Myanmar’s business environment is unavoidably a contentious exercise since each expert has his or her own prior beliefs about which subindices are most important. These dissenting views are often well informed but based on widely different experiences with business or government. For example, one business may believe that land access, labor, and infrastructure are crucial to success, while another will cite other factors such as law enforcement or entry costs. Because it would be impossible to manually construct a weighting scheme from these myriad views, the MBEI seeks to use the most objective method possible to construct subindex weights and document this process with transparency. The following weights were developed based on MBEI survey responses using regression modeling: Subindex Indicators Dimensions Weight in (Weight within Subindex) MBEI (%) Entry Costs 9 1. Survey Data (60%) 10 2. Hard and Observational 2.5 Land Access and 9 Data (40%) 10 Security of Tenure 10 1. Survey Data (60%) 2.5 Post-Entry Regulation 12 2. Hard and Observational 2.5 Data (40%) 2.5 Informal Payments 6 20 1. Survey Data (60%) 20 Infrastructure 10 2. Hard and Observational 20 Data (40%) Transparency 18 1. Survey Data (60%) Favoritism in Policy 9 2. Hard and Observational Data (40%) Environmental 9 Compliance 1. Survey Data (60%) 2. Hard and Observational Labor Recruitment 8 Data (40%) Law & Order 11 1. Survey Data (60%) 2. Hard and Observational Data (40%) 1. Survey Data (60%) 2. Hard and Observational Data (40%) 1. Survey Data (60%) 2. Hard and Observational Data (40%) 1. Survey Data (60%) 2. Hard and Observational Data (40%) 1. Survey Data (60%) 2. Hard and Observational Data (40%)
28 2 Chapter 2 Myanmar’s Emerging Myanmar’s Emerging Economic Governance Economic Governance Framework Framework 2.1. Government Decentralization in Myanmar Myanmar’s 2008 Myanmar’s 2008 Constitution marked an government below the state/region and did not Constitution important turning point toward greater state overhaul Myanmar’s local administrative struc- marked an and region involvement in economic gover- tures. Township departmental offices generally important nance. Among the many notable features of the report to district offices, which in turn report turning point new constitution was the creation of fourteen to state and region departments, and these states and regions and one Union Territory, Nay departments are part of Union ministries. On the toward greater Pyi Taw, consisting of the nation’s capital city other hand, under the new constitution, these state and region and surrounding townships. Under the new state/region departments are also associated constitution, each state and region has a parlia- with a relevant state/region government min- involvement ment (Hluttaw) with legislative powers and an ister, as per their responsibilities under the in economic executive power, or government, led by a chief constitution. The resulting governance struc- governance. minister and cabinet of ministers. Schedule 1 ture is therefore one of dual accountability, in of the Constitution outlines the respective roles which both Union and state/region govern- and responsibilities of the Union government, ments are relevant to departments operating while Schedule 2 defines the legislative and at the township level. administrative roles and responsibilities of the state and region governments. Schedule The extent to which a particular department 5 further outlines the revenue-raising powers is accountable to the Union or state/region of the state and region governments, includ- government varies by state or region and ing the capacity to impose taxes and fees on even by sector. Generally speaking, there private economic activity.3 As such, the 2008 are three broad types of accountability rela- Constitution marked an important step toward tionships between Union and state/region decentralization in Myanmar and the creation governments and departments in Myan- of new responsibilities as well as new institu- mar (Figure 1). These include the following: tions and actors at the subnational level, which share responsibility for economic governance 1. Sole accountability to the state and region with Myanmar’s Union government. government: This is applicable to departments whose responsibilities fall wholly under Sched- In Myanmar, local economic governance is ule 2. These departments are funded entirely determined by both Union and state/region by the state and region government, and they governments. On the one hand, the Union gov- report exclusively to a state/region minister. ernment has had an ongoing and influential role The Department of Development Affairs, which in local governance, despite changes resulting reports to the state/region minister of devel- from the new constitution. Importantly, the opment affairs, is the only department that new constitution did not provide for levels of currently meets this criterion.
29 Chapter 2 Myanmar’s Emerging Economic Governance Framework 2. Dual accountability: This is applicable to Within this system of dual accountability, evi- departments that receive part but not all of their dence exists that departments are increasingly funding from state and region budgets, and accountable to state and region ministers. The that participate in some activities covered by majority of departments for which state and Schedule 2. In such cases, state and region region ministers are responsible are part of ministers may manage, guide, supervise, and Union ministries. However, departments are inspect the department’s work. The Roads and increasingly accountable to state and region Agriculture Departments, Electricity Supply ministers (Batcheler, 2018, pp. 63–64). State Enterprise, and GAD are notable examples of and region ministers are frequently involved in this type. the work of departments, shaping and influenc- ing their activities and efforts. This is true also 3. Dual, but limited, accountability: This is of departments with limited accountability to applicable to departments that are funded state and region ministers. Even in these cases, solely by the Union and are accountable evidence points to state and region ministers to a Union ministry, but for which there is a cor- playing an increasing role in human-resource responding state/region minister responsible decision making, policymaking, and planning for supervision, inspection, cooperation, and budgeting. To be fair, this trend is neither and coordination of the department’s work. inevitable nor irreversible; however, it points to Examples of this type include the Health, a greater opportunity for policymaking at the Education, and Rural Development Depart- state/region level, which may impact economic ments. governance in Myanmar and the business envi- ronment that companies face. FIGURE 1 Accountability Relationships in Myanmar Administration Sole accountability Dual accountability Dual, but limited, accountability President of the Union President of the Union President of the Union State/Region State/Region Union Minister of State/Region Union Minister of Chief Minister Chief Minister Electricity and Energy Chief Minister Education State/Region Minister for State/Region Minister of State/Region Minister Development Affairs Electricity and Energy of Social Affairs State/Region Department State/Region Electricity State/Region for Development Supply Enterprise Department of Education Affairs Director DAO Executive Officers Key Accountability Union Budget Allocation State/Region Budget Allocation Limited Accountability
30 Chapter 2 Myanmar’s Emerging Economic Governance Framework 2.2. Economic Governance in Myanmar Economic Economic governance in Myanmar is deter- behind economic governance in Myanmar is governance is mined by a variety of government institutions determined by a combination of Union and administered at at both the Union and state/region levels. subnational government institutions. the township level Myanmar has a history of strong central gov- through a wide ernment whose influence grew during many Economic governance in Myanmar is shaped variety of sectoral decades of military control, yet in recent years through multiple levels of subnational admin- and multi-sectoral state and region governments have increas- istration. Below Myanmar’s Union and state/ departments. ingly played a role as well. Under this system, region governments are district- and town- Union and state/region parliaments draft leg- ship-level administrative offices tasked with islation, while Ministers and their appointees implementing policies relevant to business. are broadly responsible for policy and imple- Importantly, the order and efficiency with which mentation. Implementation occurs through these offices administer economic policy at cross-sectoral offices like the GAD and DAO as the local level can have a significant impact well as a variety of ministries relevant to par- on business environment. The township-level ticular business sectors. For example, hotels administration plays arguably the biggest role and travel agencies may be licensed by both a in local economic governance in Myanmar cross-sectoral office and the Ministry of Hotels because most business-government interac- and Tourism. Myanmar has a system of courts tions take place at this level.4 They include at the state/region and Union levels, although the granting of permissions and licenses, relatively few businesses use the court system revenue collection, regulation enforcement, to adjudicate disputes. As such, the policy service provision, and other functions. Indeed, FIGURE 2 Administrative Levels in Myanmar Union Union Government Union Ministries State/region State/Region State/Region State/Region Hluttaws Governments Departments District District Township Departmental Offices Township Departmental Offices
31 Chapter 2 Myanmar’s Emerging Economic Governance Framework businesses have very little contact with offi- FIGURE 3 cials beyond their township and little expertise on the economic services that government Township Department Offices provides (Arnold et al., 2015; Bissinger, 2016). Multisectoral Departments Economic governance is administered at the township level through a wide variety of sec- IRD GAD DAOs Planning toral and multi-sectoral departments. The township-level departments with which busi- Sectoral Departments nesses interact largely reflect the Union and state/region government structures described 40+ sectoral departments per township, such as: above (see Figure 3). Departments such as the DAO, GAD, and Internal Revenue Department Health Education Fire Police Electricity (IRD) have remits across multiple sectors and have regular contact with businesses. As such, they are present in all townships and have the largest role in economic governance, gener- ally speaking. Sectoral departments such as the Department of Forestry, Department of Fisheries, and Department of Livestock imple- ment policy related to their relevant ministries (see Box 6). Due to the variety of departments with relevance to different business activities, administration of economic governance is often fragmented at the local level. Parasols for sale in Bagan, a popular tourist destination
32 Chapter 2 Myanmar’s Emerging Economic Governance Framework BOX 6 Township Level Authorities in Myanmar zzGeneral Administration Department: The GAD’s primary role in economic governance is licensing and certification, including for restricted goods (such as alcohol or property) and for activities such as land transfers and construction. The GAD is also responsible for collecting land, excise, mineral, and irrigation taxes. In addition to these functions, the GAD is also able to shape economic governance through its position as the most powerful township authority, charged with coordinating across all department offices, organizing interdepartmental meetings, and overseeing the collection of population registration data. zzDevelopment Affairs Organizations: DAOs are the primary governance actors in urban areas, performing a wide range of functions across economic sectors. One key function is the issuing of operating licenses, which fall into two broad categories: non-exclusive business operating licenses and auction licenses, which only a limited number of businesses are able to obtain. Auction licenses are a significant source of revenue for DAOs, with the organizations collecting other revenues, such as property tax. In collaboration with other departments, DAOs also approve construction permits. Additionally, DAOs provide a broad range of infrastructure, such as roads, sewers, garbage collection, water supply, and street lighting, which shapes the context in which businesses work. zzDepartment of Agriculture Land Management and Statistics: DALMS play a prominent role in land registration and management. The department administers farmland taxes, with collection overseen by the GAD. DALMS is responsible for the registration and transfer of land and buildings in urban areas. Transfers of land are assessed by the Land Appraisal Board, which determines the value of land, after which taxes and a stamp duty are assessed. zzInternal Revenue Department: The IRD is responsible for the collection of commercial and income taxes, as well as stamp duties and other revenues. zzVarious Departments: The Departments of Agriculture, Livestock, Fisheries, and Forestry each have township-level offices responsible for governing their respective sectors. Functions include, among other things, licensing and registration, taxation, and collection of fees related to commercial activity. zzMinistry of Hotels and Tourism: The MoHT is responsible for overseeing the tourism sector, including licensing for hotels and guesthouses, for transportation, and for tour guides and tourism companies. zzDirectorate of Industrial Supervision and Inspection: DISI conducts inspections and registration of industrial businesses subject to the 1990 Private Enterprise Law. zzTransport Division of Operator License Supervision and Coordination: The department is responsible for licensing commercial vehicles that transport cargo or passengers. For a more detailed explanation of the role of each department, please see Bissinger, 2016.
33 Chapter 2 Myanmar’s Emerging Economic Governance Framework 2.3. Implications for the MBEI Level of Analysis The MBEI is designed to reflect the evolving reasons. The MBEI aims to capture the impact The MBEI is nature of governance in Myanmar and antic- of government policy and administration on designed to ipate emerging opportunities resulting from Myanmar businesses. Although Myanmar’s reflect the increased decentralization. Determining the Union government has authority over broad evolving nature level of analysis is one of the first and most economic policy and expenditure on public ser- of governance important steps in any EGI. In Myanmar, this vices in Myanmar, policy is also implemented in Myanmar task is particularly complicated by the coun- through a cascade of administrative offices and anticipate try’s evolving legal framework with respect to at the subnational level. The MBEI also aims emerging government decentralization, its multiple levels to capture the degree to which economic pol- opportunities of administration (e.g., Union, state/region, icy is effectively administered at these lower resulting from district, township, village tract, and village), levels, in part because most businesses in increasing and the various offices with which businesses Myanmar interact with government adminis- decentralization. interact (i.e., township Development Affairs tration below the state/region level. Business Offices, General Administration Department licensing and regulation often occurs at the offices, and branches of Union ministries). The township level, or in Yangon, Mandalay, and MBEI therefore aims to reflect the cooperative Nay Pyi Taw through multi-township CDCs roles of Union and state/region governments (Ninh and Arnold, 2016). That said, townships in determining laws and policies, the various have little authority to alter policy in Myan- layers of administration through which this pro- mar. The MBEI therefore presents data at the cess is implemented, and the multiple offices state/region level because of the important relevant to various business activities. and growing role of state/region government in policymaking and administration in Myanmar. The MBEI collects data about business expe- Furthermore, because many rural townships rience at the township level and presents this have too few businesses to provide statistically data in aggregate form at the state and region reliable estimates, aggregating to the state/ level. The MBEI is designed this way for several region level increases the sample size and precision of the evaluation. Early evening activity as workers return home
34 Chapter 3 The State of Economic Governance in Myanmar 3 The State of Economic Governance in Myanmar With such a tremendous repository of data and over 100 separate measures of governance to choose from, it is challenging to narrow our focus to only a few key policy messages. To organize our analysis, we focus on a few key observations for each of the ten governance topics or themes identified in the subindices. 3.1. Entry Costs Seventy-nine Business entry costs—and particularly of businesses in our sample have obtained percent of business registration—have received great the township-level operating license (66%), businesses attention in recent years from business and a further 17% in Yangon, Nay Pyi Taw, and possess an government in Myanmar. In some instances, Mandalay possess an operating license from policy-makers in Myanmar have done an excel- the municipal CDC, and only 6% of operations operating license lent job working to streamline registration and possess a DICA registration certificate, either from a township licensing procedures to start a business in as their only document (1%) or in combination Myanmar (Trautwein, 2014). For example, with other entry documents (5%). Finally, 15% authority or efforts have been made to improve registra- of businesses are fully informal, possessing CDC, 15% of tion certification at DICA and even to open an no license or registration documentation for firms remain online portal for business access and registra- their business activities. fully informal, tion. Similar efforts have also been made to and only 6% of improve licensing at some DAOs throughout The period of time required to formalize a busi- firms possess the country, which have endeavored to limit ness varies depending upon the formalization a registration the constraints and waiting periods that are procedure. Our data shows that the median firm necessary to receive operating licenses. in Myanmar requires less than a day to obtain certificate an operating license from the CDC, and about from DICA. Businesses in Myanmar have three main ways a week to obtain one from the township DAO. to formalize their operations. These include 1) DICA registration certification takes about 30 obtaining an operating license at the township days for businesses in our sample; this longer DAO, 2) obtaining an operating license at the waiting period is likely because the relevant CDC in large municipalities, and 3) obtaining a businesses are bigger and in more complicated company registration certificate at the national industries, and they are located far from DICA DICA office (Bissinger, 2016). In addition, some offices in Yangon. All in all, 60% of Myanmar townships have begun to offer an SME card, businesses claim that they have all the required which is not equivalent to formalization but is documentation to be fully legal within three designed to allow business access to special- months of starting their registration or licens- ized services and provides a listing of smaller ing procedures, and only 9.3% of firms complain operations in the locality. Some businesses of difficulties in obtaining the necessary doc- have treated this card as a registration cer- umentation. Visits by our research team to tificate. As Figure 4 shows, the vast majority township DAO and GAD offices confirm this
35 Chapter 3 The State of Economic Governance in Myanmar FIGURE 4 Level of Business Formality Registration Documents Held CDC Operating 17.1% 66.0% License 5.8% DAO Operating License DICA Registration Certificate Only SME Card 1.0% Fully Informal 14.5% 40% 60% 80% 0% 20% Share of Firms (%) analysis. On a score of 1–3, the median state median state/region, about five documents are In Myanmar, long received a three, indicating that DAOs in the required before a firm can even apply to receive waiting periods locality receive applications, process licenses, a DAO operating license in the township. to acquire an and provide guidance and examples on how to The multiple documents include fire safety cer- operating license complete procedures. Having these services tification, health certification, and signatures of are less about close to home with proper guidance is helpful neighbors. This number is similar whether we the application for most small businesses to complete the rely on firms reporting from our survey or on processing than activities efficiently. information collected by our research teams the large number when they visited each locality. Obtaining these of supporting As a point of comparison, Myanmar businesses documents is more costly than the process of documents that require significantly more time than businesses application. are needed to in Vietnam to complete all required documen- begin. tation. Ninety-seven percent of Vietnamese Variation across states/regions in time costs private sector businesses report having all is tremendous (Figure 5). In Sagaing Region, required documentation within three months, the location with the lowest entry costs over- and 88% report having all required documents all, only 23% of firms wait over three months within a month.5 to be fully legal, less than three documents were required on average by township DAOs, In Myanmar, long waiting periods to acquire and the median firm received its operating an operating license are less about the appli- license 21 days after application. By contrast, cation processing than the large number of in Tanintharyi Region, 69% of firms wait over supporting documents needed to begin the three months to be fully legal, and in Mandalay process. As previously noted, waiting periods— Region, firms wait nearly 48 days to receive once an application is submitted correctly and their operating licenses. in full—are relatively short. However, in the
36 Chapter 3 The State of Economic Governance in Myanmar FIGURE 5 Entry Costs Waited over 3 Months to Operate Legally Share of Firms (%) 70 60 65% 69% 59% 50 49% 51% 53% 40 44% 39% 45% 49% 30 38% 20 23% 28% 24% 28% 10 0 Kachin State Kayah State Kayin State Chin State Sagaing Region Tanintharyi Region Bago Region Magway Region Mandalay Region Mon State Rakhine State Yangon Region Shan State Ayeyarwady Region Nay Pyi Taw Wait for Operating License Number of Days 50 40 48 30 25 27 22 22 25 3391% 29 26 24 20 20 18 21 10 00 0 Kachin State Kayah State Kayin State Chin State Sagaing Region Tanintharyi Region Bago Region Magway Region Mandalay Region Mon State Rakhine State Yangon Region Shan State Ayeyarwady Region Nay Pyi Taw 3.2. Land Access and Security Seventy-eight Land access and security is notoriously For SMEs outside of areas directly affected percent of complex and problematic in Myanmar. Land by conflict, MBEI data suggests that concerns businesses access in Myanmar is complicated by a long about land are perhaps less dire than for farm- history of state control, land transfers to private ers or for companies that are larger or operate operate on land companies, and protracted armed conflict in in other sectors. Seventy-eight percent of busi- that is owned by various parts of the country. A great deal of nesses in the MBEI survey operate on land or the owner of the research has studied the severe issues with property that is owned by the owner of the land access and formalization for individual enterprises. Fifty-six percent of businesses enterprises. citizens. There is concern that many citizens operate on family land, while 28% operate on have trouble obtaining enough land to farm land purchased from another party. Only 22% and that, even when they do, the complications of businesses operate on land that is leased and expenses of the titling process remains from government (5.2%) or from another private problematic (Leckie and Simperingham, 2009; party (16.7%). Of those who operate on land Guyitt, 2014). Important studies have also that they own, 69% have a formal land title for highlighted the threats to welfare and pov- the primary piece of land that their business erty alleviation that insecure property rights operates on. Possession of the title was verified have caused in Myanmar (Myanmar Center for by our interviewers, who showed the business Responsible Business, 2018). It is important owner or manager a show card illustrating to remember, however, that this research has the precise depiction of a land document. The largely focused on the perspective of individual vast majority of businesses filed Form 15 at citizens, farmers, and workers, rather than of DALMS to formally title their land. Seventy businesses. percent of firms report that they encountered
37 Chapter 3 The State of Economic Governance in Myanmar no difficulties in fulfilling procedures for land ownership claims that need disentangling, 90 formalization. Furthermore, 95% of firms who days is perhaps not unreasonable, but there had obtained their title report felt little fear that is certainly room for improvement. Another their land would be expropriated by government concern relates to the rare cases when busi- through eminent domain or by private actors nesses have observed expropriation in their through conflicting land claims. Similarly, 91% township. In these cases, only 19.7% of respon- of businesses that are renting or leasing are dents believe that the occupants received fair unconcerned about changes in rental contracts market compensation for their lost property. that may injure their businesses. Of course, it is possible that smaller businesses in service Lack of transparency with respect to land and manufacturing have slim land needs and laws and procedures presents opportunities operate mostly out of their homes; nonethe- for improvement. Of the 30% that did report less the above optimism about land security difficulties in formalizing their land title, the is consistent throughout the country. largest categories of concern were the length of waiting periods (56%), the lack of clarity Land titling is a particular challenge for busi- about fees (27%), and the lack of clarity about nesses and presents an opportunity to improve procedures (23%). These problems were con- economic governance. Although firms perceive firmed by our research team through on-site titling to be free of difficulties, for the median observations of the processes. On a three-point firm, this process took about 90 days after it scale rating the availability of titling procedures had submitted all supporting documentation, and the quality and clarity of guidance about which is a lengthy waiting period by interna- those procedures, the median state received a tional standards. By comparison, acquiring a score of 1.58, indicating that many townships land use rights certificate in Vietnam takes 25 are not doing enough to help entrepreneurs days on average (Malesky et al., 2018). Given through the complicated procedures. Moreover, the nascence of Myanmar’s cadastral service the median state requires at least three supple- and the complications caused by overlapping mentary documents (e.g., Forms 103, 105, and FIGURE 6 Land Access and Security Possess Title for Owned Land Share of Firms (%) 80 84% 86% 85% 70 79% 60 66% 69% 70% 72% 66% 60% 50 60% 61% 57% 61% 40 50% 30 20 10 0 Kachin State Kayah State Kayin State Chin State Sagaing Region Tanintharyi Region Bago Region Magway Region Mandalay Region Mon State Rakhine State Yangon Region Shan State Ayeyarwady Region Nay Pyi Taw Wait for Land Title Number of Days 200 180 150 135 100 120 90 90 90 90 50 60 60 60 60 60 60 60 30 0 Kachin State Kayah State Kayin State Chin State Sagaing Region Tanintharyi Region Bago Region Magway Region Mandalay Region Mon State Rakhine State Yangon Region Shan State Ayeyarwady Region Nay Pyi Taw
38 Chapter 3 The State of Economic Governance in Myanmar Mon State has 106) and letters from other ministries in order 86%, compared to only 49% of operations in the largest to acquire the title, which adds to confusion Rakhine State. While several locations (Mon portion of and slows down the process. State, Nay Pyi Taw, Chin State, Yangon Region, businesses Shan State, Ayeyarwady Region, and Kayah Issues related to land tenure and security are State) have been able to fulfill land title appli- operating on titled serious across the entire country. Variation cations in 60 days, procedures are extremely land (86%), while across states/regions and townships is more slow in Kachin State (180 days) and Bago Rakhine State has limited than in relation to entry costs, and differ- Region (135 days). In Sagaing Region, 88% of the smallest ent states/regions excel at different measures. firms reported that they had no difficulties in portion (49%). In terms of the share of SMEs operating on obtaining their land titles, compared to only titled land, Mon State has the best record with 55% in Chin State. 3.3. Post-Entry Regulation Compared to Post-entry regulation is correlated with eco- Compared to neighboring countries, post-entry neighboring nomic welfare. According to our econometric regulation in Myanmar is not overly burden- countries, post- analysis to develop the weights, reducing some, but inspections are frequent and fees entry regulation post-entry regulations is an important reform are unclear. Overall, the findings with respect to in Myanmar for increasing business satisfaction, perfor- post-entry regulation in Myanmar are mixed. As is not overly mance, and expansion possibilities. Because Table 2 shows, firms in Myanmar spend much burdensome, but of its strong correlation with these factors, less time dealing with post-entry regulations inspections are post-entry regulations account for 10% of the than operations in Vietnam (94% vs. 68%) and frequent and fees weighted MBEI. Such procedures include reg- they find paperwork to be much simpler than are unclear. ulatory inspections to monitor labor safety, fire for Vietnamese firms (70% vs. 52%). They also certification, and environmental compliance. report very similar evaluations of the effec- They also include interacting with adminis- tiveness of bureaucrats (77% vs. 72%) and trative offices to pay taxes, renew licenses, requirement for agency visits (59% vs. 52%). and obtain construction permits for factory Firms in Myanmar, however, are twice as likely expansions. to face regulatory inspections and are much TABLE 2 Comparison Between Myanmar and Vietnam on Post-Entry Regulations Variable name Myanmar Vietnam Kayin State Chin State Less than 10% of time spent 94.0% 68.4% 95.02% 61.1% understanding and complying with regulations 2.13 1 2 1.6 77.2% 72.1% 86.7% 60.9% Number of annual inspections for 59.5% 54.6% 79.4% 53.2% all agencies (average) 69.7% 52.3% 86.7% 70.7% 42.6% 91.8% 63.7% 53.6% Government officials are effective Firm does not take many trips to finish registration/licensing Paperwork is simple Fees are publicly listed
39 Chapter 3 The State of Economic Governance in Myanmar more likely to complain that regulatory fees their time on bureaucratic procedures, 87% are not clearly posted in local offices (42% vs. report that governments officials are effective 92%) (Malesky et al., 2018). and paperwork is simple, and 64% report fees as publicly listed. By contrast, scores in Chin Post-entry regulation varies greatly across State are significantly lower on all measures. Myanmar’s states and regions (Figure 7). To The only place where Chin State marginally illustrate this point more effectively, Table 2 outperforms Kayin State is on the average num- presents the scores from the highest and low- ber of inspections experienced by businesses. est ranked states on the Post-Entry Regulations subindex. More than 95% of respondents in Kayin State report spending less than 10% of FIGURE 7Share of Firms (%) Post-Entry Regulations Spends <10% of Time on Bureaucratic Procedures 100 80 92% 98% 95% 93% 96% 99% 93% 93% 98% 92% 97% 96% 92% 74% 60 61% 40 20 0 Kachin State Kayah State Kayin State Chin State Sagaing Region Tanintharyi Region Bago Region Magway Region Mandalay Region Mon State Rakhine State Yangon Region Shan State Ayeyarwady Region Nay Pyi Taw Fees Listed Publicly Number of Days 70 60 64 64 50 54 54 53 40 30 35 44 46 46 38 40 20 23 18 27 10 19 0 Kachin State Kayah State Kayin State Chin State Sagaing Region Tanintharyi Region Bago Region Magway Region Mandalay Region Mon State Rakhine State Yangon Region Shan State Ayeyarwady Region Nay Pyi Taw 3.4. Informal Payments Informal payments present a serious chal- ysis and asked numerous survey questions lenge for businesses and one that the Myanmar related to informal payments. Of course, given government has recognized as an important Myanmar’s long history of military control and priority. The World Bank enterprise survey, how- favoritism toward military-backed businesses, ever, reported that informal payments were not it is important to note that survey respondents a significant obstacle for firms in Myanmar may be reticent to speak freely about sensitive (World Bank, 2014). The report argued that topics such as informal payments. For this informal fees were relatively infrequent and reason, we were careful to use the appropri- low. After talking with firms individually and in ate vernacular terms for small bribes, such focus groups, we were skeptical of that anal- as informal fees, tea money, and gifts, in the
40 Chapter 3 The State of Economic Governance in Myanmar Seventy-four hopes that this approach might reduce under- licensing and registration, such as “Searched percent of reporting. Moreover, in order to further reduce for information . . . on website.” However, only the effects of social desirability bias, we used form B contained an activity related to bribery: firms report several shielded-response questions described “Paid informal charge to expedite procedures.” that informal below. Form A contained a placebo clause: “Traveled payments are to Europe to observe registration processes,” not common for Our findings generally confirm the World Bank’s which no respondent answered. The interviewer firms like them, assessment that for many businesses informal and researcher were not aware which form a and 79% spend payments are infrequent and that they are also specific firm had received, and the firm was less than two small. Seventy-four percent of firms report asked to identify only the number of activities percent of their that informal payments are not common for it had participated in. As a result, respondents annual revenue firms like them, and 79% spend less than 2% could reveal critical information without fear, of their annual revenue on informal payments. thus removing the threat of firms lying in order to on informal By way of comparison, 60% of firms in Vietnam avoid incriminating themselves. The difference payments. say informal payments are common, and only in means between the forms should provide 50% pay less than 2% of revenue in informal the share of firms that participated in the sen- payments. In regard to informal payments in sitive activity—in this case, paying informal procurement, 68% of firms that participated in charges. As can be seen in Table 3 below, using public tenders claim that commissions are not this shielded technique, we find that less than necessary for winning government contracts. 2% of firms in Myanmar made informal pay- Of course, this does mean that a third of firms ments during their licensing or registration believe it is necessary, which points to unfair- treatments. By comparison, when a similar ness in the process. list experiment was employed in Vietnam, it revealed that over 30% of firms made infor- The MBEI uses a list experiment to confirm low mal payments during licensing or registration frequency of informal payments (see Malesky (Malesky et al., 2017). et al., 2017, for a review of the methodology in detail). As the wording below shows, respon- Despite the low level of informal payments this dents were randomly divided into two groups: research demonstrates, variation does exist those who received “form A” and those who between localities, as can be seen in Figure received “form B.” Both forms contained a list 8. In Chin State, where informal payments are of four common activities related to business the most severe according to the subindex BOX 7 List Experiment Question for Bribes During Registration/Licensing 8. Please take a thorough look at the following list of activities that firms normally need to do to register/ license their business. zzSearch information about business registration/licensing procedures on the website of state and region. zzHired a broker/facilitator to help complete procedures. zz[Randomize, so that 50% of firms receive this option] Paid informal charges to relevant officials to expedite the procedures. zz[Randomize, so that the other 50% of firms receive this option] Traveled to Europe to observe registration practices there. zzHired a lawyer/law firm to advise procedures. Please do not indicate any one of these activities specifically, we are only interested in the total number of activities you may have utilized. How many of the above activities did you engage in when registering/licensing your business? (Please check the number of activities) Number of activities 0 1 2 3 4
41 Chapter 3 The State of Economic Governance in Myanmar TABLE 3 Share of Firms Making Informal Payments During Licensing or Registration (from List Question) Form Mean [95% Confidence Minimum Maximum Activities Activities Activities Interval] Reported Reported A (Informal Payment Treatment) 1.191 [1.17 1.21] 0 (87%) 4 (4%) [1.15 1.19] B (Europe Placebo) 1.173 [-0.009 0.44] 0 (87%) 3 (4%) Difference 0.017 rankings, only 66% report that informal pay- lowest incidence of informal payments at the ments are not common for firms like their own, township level, 87.4% of firms report that it is only 33% of firms pay over 2% of their annual not common, 95% claim to pay under 2% of their revenue in informal payments, and only 44% revenue in informal payments, and 100% say it say procurement is not necessary to win gov- is possible to win a local government contract ernment contracts. By contrast in Tanintharyi without paying a commission. Region, which ranks as the locality with the FIGURE 8 Informal Payments Informal Fees Are Not Common 100 Share of Firms (%) Kachin State Kayah State Kayin State Chin State Sagaing Region Tanintharyi Region Bago Region Magway Region Mandalay Region Mon State Rakhine State Yangon Region Shan State Ayeyarwady Region Nay Pyi Taw 80 77% 82% 79% 67% 66% 87% 77% 83% 83% 66% 73% 62% 82% 73% 62% 60 40 20 0 Commission Not Necessary in Procurement 100 100 80 89 88 Number of Days Kachin State Kayah State Kayin State Chin State Sagaing Region Tanintharyi Region Bago Region Magway Region Mandalay Region Mon State Rakhine State Yangon Region Shan State Ayeyarwady Region Nay Pyi Taw 60 67 67 63 76 75 73 54 44 46 43 40 44 38 20 0
42 Chapter 3 The State of Economic Governance in Myanmar BOX 8 Government Efforts to Combat Corruption The Myanmar Anticorruption Commission (ACC) was formed in 2014 pursuant to the 2013 Anti-Corruption Law aimed at curbing illegal payments to public officials. The law empowered a 15-member committee to receive and investigate complaints of corruption made against public officials. In 2018, an amendment further broadened the powers of the ACC to initiate its own investigations. According to data from the ACC website, as of February 2019, the commission had received 10,747 formal complaints, of which 95% had been addressed. While the ACC is not focused strictly on informal payments involving private businesses, it is nonetheless an important step toward addressing the negative impacts of corruption on Myanmar’s business environment. MBEI data points to a strong correlation between MBEI survey responses and the number of corruption complaints received by the ACC. Figure 9 shows the statistically significant and negative correlation between business experience with informal payments and complaints before the ACC. This correlation illustrates that firms are much more likely to report experiences with informal payments in states/regions that have a large number of corruption cases before the ACC (standardized by the number of firms in the locality). In fact, an additional complaint per firm in the state is associated with a 41 percentage point decrease in firms’ optimism about corruption in their state (measured by the share of firms reporting that bribes are not common). While not definitive, this agreement between MBEI survey data and ACC data reassures us that there is concordance between business perceptions of corruption and reports of corruption to the ACC. FIGURE 9 Correlation Between Reported and Actual Informal Payments 90 Tanintharyi Region Informal Payments Are Not Common (%) Magway Region Shan State Kayah State Mandalay Region 80 Kayin State Kachin State Bago Region Rakhine State Ayeyarwady Region 70 Chin State Mon State 0.4 Sagaing Region 60 r = -0.55* Yangon Region Nay Pyi Taw 0 0.1 0.2 0.3 Corruption Complaints per Firm
43 Chapter 3 The State of Economic Governance in Myanmar 3.5. Infrastructure Quality of infrastructure is a concern for many can cost firms tremendous amounts of money businesses in Myanmar. In particular, firms in lost and spoiled products.6 express dissatisfaction with road quality and electrical power (only 49% of firms say these According to businesses, power and trans- features are good or very good). Firms are more portation infrastructure varies greatly across positive about the telephone (66% report good Myanmar. This variation is even more pro- or very good) and Internet (54% report good nounced than that of indicators within other or very good). Even these infrastructure fea- subindices. Nay Pyi Taw, the national capital, tures, however, have problems. The median for instance, recorded only 16 hours of lost firm reported experiencing 20 hours of lost tele- power in the month preceding the survey and phone and Internet coverage, and 20 hours of only 10 days of road closures owing to flooding lost electric power in the past month. And the in the past year. Compare that to Ayeyarwady median firm claimed to have lost seven days Region, where firms experienced 67 hours of of business transport activity due to flooded power outage and 67 days of unpassable roads, roads. These types of road and power outages respectively. FIGURE 10 Infrastructure Hours Lost to Power Outage Last Month 70 Number of Hours Kachin State Kayah State Kayin State Chin State Sagaing Region Tanintharyi Region Bago Region Magway Region Mandalay Region Mon State Rakhine State Yangon Region Shan State Ayeyarwady Region Nay Pyi Taw 60 65 67 50 55 40 48 30 36 39 20 28 26 21 26 24 22 25 16 10 15 0 Days Lost to Road Closures Last Year 80 Number of Days Kachin State Kayah State Kayin State Chin State Sagaing Region Tanintharyi Region Bago Region Magway Region Mandalay Region Mon State Rakhine State Yangon Region Shan State Ayeyarwady Region Nay Pyi Taw 60 67 40 39 34 36 20 16 14 5 7 20 17 14 23 9 10 17 0
44 Chapter 3 The State of Economic Governance in Myanmar 3.6. Transparency Government transparency is critically important limited access to important planning and legal for businesses to operate and grow. Transpar- documents provided by the government. Only ency matters because firms need to know how 3.6% of firms report having access to the state to comply with government regulations and or region budget, and only 4.3% of firms report how to maximize their earnings potential in line having access to new investment plans. Among with government investment and budget plans. the documents surveyed, the easiest to access Transparency provides firms with the certainty were forms for fulfilling regulatory processes, and the stability that are necessary to carry yet only 26.9% of firms had access to these out those activities effectively. Transparency forms. The implication is that most businesses is an issue of interest to policy-makers and has that engage in long-term planning are doing so generated a fair amount of attention. For exam- without a fair amount of relevant information. ple, Myanmar Centre for Responsible Business The country generally performs better when (2017) publishes annual reports on the trans- it comes to the predictability of its laws and parency of local corporations. Our analysis regulations. Firms reporting a low frequency of focuses on an equally important issue: how changes in laws and regulations at the Union transparent are local governments to SMEs. level make up 71.1%, while 66.1% report a low frequency of changes to regulations at the The national level indicators show that Myan- local level. The numbers, however, also imply mar still has a long way to go to improve that over a third of the firms surveyed believe transparency. In general, businesses have very that laws and regulations change with relative FIGURE 11 Transparency Access to State or Regional Budget Share of Firms (%) 20 15 17% 10 12% 5 2% 7% 6% 9% 9% 9% 0 7% 1% 0% 4% 5% 6% 2% Kachin State Kayah State Kayin State Chin State Sagaing Region Tanintharyi Region Bago Region Magway Region Mandalay Region Mon State Rakhine State Yangon Region Shan State Ayeyarwady Region Nay Pyi Taw Low Frequency of Changes in Laws and Regulations at the Union Level Share of Firms (%) 100 75 79% 83% 91% 90% 69% 76% 70% 75% 75% 71% 78% 64% 61% 50 65% 48% 25 0 Kachin State Kayah State Kayin State Chin State Sagaing Region Tanintharyi Region Bago Region Magway Region Mandalay Region Mon State Rakhine State Yangon Region Shan State Ayeyarwady Region Nay Pyi Taw
45 Chapter 3 The State of Economic Governance in Myanmar frequency, making it more difficult to plan for In addition, it is among the five lowest scoring the long-term. regions for the rest of the access measures. Fieldwork by our research team confirms State and region budgets in Myanmar are a the general lack of transparency along other good example of where transparency is lack- dimensions relevant to firms. The median state ing. All but two states/regions, Mon State has none of the relevant GAD or DAO docu- and Chin State, have scores where fewer than ments publicly posted in their township offices. 10% of firms said that they had access to the Even the most transparent states/regions are budget documents. Four states and regions insufficiently open by international standards.7 have fewer than 2% of respondents claiming Kachin State’s performance on the observa- that they have access to these documents. tional indicators of publicly posted information The indicator that measures low frequency of and examples of relevant documents explains changes to laws and regulations at the Union why it scored the highest on the transparency level shows more optimistic results. With the dimension. By contrast, Sagaing Region scores exception of Ayeyarwady Region, with a score the lowest in this subindex. The primary reason of 47.6%, the rest of the states and regions for this result is Sagaing Region’s placement seem to be distributed relatively similarly above among the two lowest scoring regions in five and below the median state. At over 90%, Chin out of the ten access to documents measures. State performs best in this category. 3.7. Favoritism in Policy Favoritism distorts markets, hurts productive There is great variation in bias across states firms to the benefit of less productive firms, and regions in Myanmar as well. In Shan State, and ultimately hurts Myanmar’s economy. the median state/region, 60.1% of firms claim International organizations are keenly aware that there is favoritism in land access. This indi- of the importance of a level playing field cator comes with substantial variation across for business competition and have quantified states, with as little as 27.1% of firms claiming competitive distortions across countries. favoritism in Tanintharyi Region and as many Myanmar does especially poorly on these as 83.9% claiming the same in Kachin State. measures. For example, the country ranks Such variation is also present in other indica- 185 out of 190 in protecting minority inves- tors. The share of firms that claim favoritism tors, according to the 2019 World Bank Doing in access to loans runs from 10.4% in Kayin Business Report. Our analysis focuses on State to 61.9% in Rakhine State, with Nay Pyi states and regions within the country, allowing Taw as the median location with 36.7%. us to examine which states/regions do better and which ones do worse. We also focus on Favoritism in administrative procedures helps various aspects of competition policy bias to illustrate regional variation in Myanmar. To determine the dimensions along which favor- illustrate the tremendous variation, Figure 12 itism takes place. looks closely at the favoritism in administrative procedures indicator. On this favoritism met- Our analysis reveals significant variation in how ric, three states/regions score within single businesses experience favoritism, depending digits, and two score above 50%, indicative of on the source of bias. Sixty-four percent of the very large differences across states and respondents claim that the government has regions. More optimistically, the second panel shown favoritism in land access for busi- of Figure 12 shows that favoritism in access to nesses with strong connections, and 44.6% information is perceived to be relatively lower of firms believe that there is also favoritism than favoritism in administrative procedures. In in access to loans. But only 19.8% claim that five locations—Mon State, Rakhine State, Bago there is favoritism in access to information, and Region, Kayin State, and Tanintharyi Region— only 25.2% of firms claim that there is favorit- less than 10% of respondents felt there was ism in administrative procedures. The variation favoritism in access to information. Only three across indicators should not hide the fact out of the 15 locations—Kachin State, Man- that favoritism is rampant along most of the dalay Region, and Ayeyarwady Region—have inputs surveyed. scores above 30%.
46 Chapter 3 The State of Economic Governance in Myanmar FIGURE 12 Favoritism Favoritism in Administrative Procedures Share of Firms (%) 70 72% 60 50 54% 40 30 40% 33% 32% 20 27% 11% 27% 10 22% 9% 15% 10% 24% 5% 14% 0 Kachin State Kayah State Kayin State Chin State Sagaing Region Tanintharyi Region Bago Region Magway Region Mandalay Region Mon State Rakhine State Yangon Region Shan State Ayeyarwady Region Nay Pyi Taw Favoritism in Access to Information Share of Firms (%) 40 30 34% 36% 30% 20 21% 24% 15% 20% 19% 19% 18% 5% 10 2% 7% 2% 2% 0 Kachin State Kayah State Kayin State Chin State Sagaing Region Tanintharyi Region Bago Region Magway Region Mandalay Region Mon State Rakhine State Yangon Region Shan State Ayeyarwady Region Nay Pyi Taw 3.8. Environmental Compliance Myanmar Environmental compliance is among the most on environmental compliance. Furthermore, businesses show important subindices in the MBEI. Its weight less than 10% of operations are familiar with strong preference of 20% indicates an extremely high correla- programs to encourage water saving (8.2%) and tion between performance on this index and water recycling (6.6%). As with previous criteria, for investment satisfaction with local officials and business local variance in environmental concerns is that is clean and expansion plans. This indicator’s importance large. Firms in Kayah State, Nay Pyi Taw, and likely has to do with the large share of busi- Tanintharyi Region are quite satisfied with both green. nesses in service sectors that are injured by the levels of pollution and the commitment pollution. For example, restaurants, hotels, and of the local governments to resolve them. In other tourist businesses struggle in polluted Shan State and Rakhine State, businesses are settings. Indeed, even in manufacturing, 44% raising severe red flags about the influence of of the operations (according to MOLIP data) pollution on business performance. are involved in some form of food processing where pollution can also pose a severe hazard. Myanmar businesses show strong preference for investment that is clean and green. To According to MBEI data, 42% of firms currently further explore business perception with respect believe that overall environmental quality in to the environment, the MBEI makes use of their locality is good, and 84% believe pol- a conjoint experiment (see Appendix C). It lution is at least acceptable. Nonetheless, involves asking survey respondants about businesses do raise some concerns. Only their preferences regarding different types 41% of businesses believe authorities respond of businesses seeking to relocate in their expeditiously to pollution crises, and only 33% township. We find that factors concerning feel that they receive appropriate guidance the economic output of the prospective
47 Chapter 3 The State of Economic Governance in Myanmar investment do indeed play an important role ronmental regulations that caused damage to in shaping the decision whether or not a busi- 100 households decreased people’s willingness ness would support granting the new investor to support the business’ license application a license. For example, violations against envi- by 26%. 3.9. Labor Recruitment Competitive labor policies are an integral part supervisors and managers—more than half of More than half of of the functioning of an economy. Ease of the firms surveyed find it difficult to recruit for all firms surveyed recruitment of workers and low costs of labor these positions. The easiest position to recruit find it difficult free up firms to engage in other profit-gener- was accountants, at 42.1%. This result implies, to recruit rank- ating activities. A well-educated labor force however, that 57.9% of firms find accountant and-file workers, further improves firm productivity. Myanmar recruitment difficult. Other positions do much technicians, is taking labor reforms seriously—for example, worse. Only 20.5% of firms find technician accountants, with the introduction of a minimum wage law recruitment easy. And finding good workers supervisors, and (World Bank, 2018). Our analysis below allows is expensive. The median firm spends 5.4% managers. us to disaggregate which states and regions of its operating costs on labor recruitment. are doing best in terms of various labor policies Taken together, these results may imply that along these lines. it is difficult and expensive to find qualified applicants. Ease of recruitment appears to be a substantial challenge for businesses throughout Myanmar. Most states and regions seem to struggle with Across all the jobs we analyzed—be it manual labor recruitment. As a case in point, across rank-and-file workers, technicians, accountants, all the positions we surveyed, the state/region FIGURE 13 Labor Recruitment Ease of Labor Recruitment (Technicians) Share of Firms (%) 40 30 33% 26% 28% 29% 20 22% 18% 18% 19% 16% 15% 15% 10 13% 15% 8% 10% 0 Kachin State Kayah State Kayin State Chin State Sagaing Region Tanintharyi Region Bago Region Magway Region Mandalay Region Mon State Rakhine State Yangon Region Shan State Ayeyarwady Region Nay Pyi Taw Ease of Labor Recruitment (Supervisors) Share of Firms (%) 60 50 56% 40 34% 32% 38% 35% 43% 46% 47% 30 21% 18% 25% 20 22% 20% 25% 23% 10 0 Kachin State Kayah State Kayin State Chin State Sagaing Region Tanintharyi Region Bago Region Magway Region Mandalay Region Mon State Rakhine State Yangon Region Shan State Ayeyarwady Region Nay Pyi Taw
48 Chapter 3 The State of Economic Governance in Myanmar that did the best in any of these positions was Only five out of 15 locations—Mandalay Region, Mon State, with easy recruitment at only 55.9% Bago Region, Mon State, Yangon Region, for supervisors. The locations that performed and Ayeyarwady Region—have a score where the best with respect to ease of recruitment at least 20% of firms find recruitment of were Ayeyarwady Region and Mon State, with technicians easy. In Kayah State and Chin State, 33.0% (for technicians) and 46.2% (for manag- less than 10% of respondents found recruiting ers), respectively. The states/regions that do a technician to be easy. Supervisors seem the worst for ease of technician and manager much easier to recruit. But even then, in seven recruitment, Kayah State and Bago Region, of 15 locations, only 25% or less of respon- have truly mediocre results, reporting only 7.7% dents report that recruiting a supervisor is easy. and 8.9%, respectively. Only four states or regions—Mandalay Region, Bago Region, Ayeyarwady Region, and Mon Not surprisingly, recruitment challenges State—have scores where at least 40% of vary depending on the position being hired. respondents found recruiting a supervisor to Examining some indicators gives us a bet- be easy. ter sense of the difficulties of recruitment. 3.10. Law and Order Businesses operate best in a context where of law and order, the government is doing a laws and regulations allow the enforcement of better job of upholding contracts than pro- contracts and the protection of basic property tecting businesses from physical harm and rights. Law and order are therefore prerequi- damage. sites for businesses to maximize their earnings potential. Even more importantly, contract States and regions perform vastly differ- enforcement facilitates transactions beyond ently once we examine their performance on a business’ network of family and friends. As individual indicators. For example, 71.8% of Myanmar’s private sector grows, these trans- respondents believe that court judgements are actions will increase, and social enforcement enforced quickly, which is the median score for will become more and more difficult. This sub- this indicator. There is substantial variation index’s weight of 20% indicates an extremely around this score. The lowest score goes to high correlation between performance on this Sagaing Region, where only 27.6% of firms index and satisfaction with local officials and agreed with the statement. At the other end business expansion plans. of the spectrum, nearly everyone (91.0%) in Tanintharyi Region, the highest scoring loca- The firm-level indicators for law and order tion, agreed. Furthermore, in terms of crime show mixed results, conditional on the indi- and the security situation, the state and region cator we examine. For example, 84.3% of firms results corroborate the firm-level results. As an believe that the courts judge economic cases extreme example, only 1.3% of respondents in by law, and 75.5% of firms claim that they Kachin State think that the security situation is benefit from legal aid (i.e., paralegals and good. While the median score of 37.5% is still assistance with navigating dispute resolution low, the state with the highest score, Kayah procedures in their states and regions). These State, had 80.8% of respondents think that high numbers are likely driven by the fact that the security situation is good, underscoring the vast majority of firms have little experience substantial differences across states/regions. with courts.8 However, assessments of crime and security vary tremendously and significantly Businesses have different perceptions of con- influence rankings. Only 37.5% of respondents tract enforcement (and legal enforcement more believe that their local security situation is generally) and physical safety and security. good, while only 44.9% of respondents believe In all 14 states and regions and Nay Pyi Taw, that if government staffers violate the law they at least 70% of respondents believe that pro- will be disciplined. An extremely high 11.2% of vincial courts judge economic cases by law. all respondents were victim of a crime in the In five out of the 15 locations—Bago Region, past year. This percentage, coupled with the Tanintharyi Region, Chin State, Kachin State, results above, seems to imply that, in terms and Shan State—at least 90% of respondents
49 Chapter 3 The State of Economic Governance in Myanmar believe that economic cases are judged by law. in the past year. In three locations—Yangon While there is obviously room for improvement, Region, Kachin State, and Chin State—at least the prevailing perception in all states/regions 15% of respondents said they were victims of seems to be that law enforcement by the courts a crime in the past year. While the absolute works reasonably well. Contrast this perception numbers are not high, a one in ten chance with respondents saying whether or not they of being a victim of a crime seems too high were victims of a crime in the past year. In ten for most people. Moreover, this risk produces out of the 15 locations, at least 10% of the uncertainty that can potentially curtail long- respondents said they were victims of a crime term business planning. FIGURE 14 Law and Order Provincial Courts Judge Economic Cases by Law 100 Share of Firms (%) 80 93% 80% 83% 93% 71% 92% 90% 74% 78% 88% 84% 81% 93% 80% 87% 60 40 20 0 Kachin State Kayah State Kayin State Chin State Sagaing Region Tanintharyi Region Bago Region Magway Region Mandalay Region Mon State Rakhine State Yangon Region Shan State Ayeyarwady Region Nay Pyi Taw Victim of a Crime Last Year Share of Firms (%) 20 15 16% 14% 13% 13% 15% 14% 15% 13% 13% 11% 9% 10 8% 6% 5 8% 7% 0 Kachin State Kayah State Kayin State Chin State Sagaing Region Tanintharyi Region Bago Region Magway Region Mandalay Region Mon State Rakhine State Yangon Region Shan State Ayeyarwady Region Nay Pyi Taw Women shop for textiles at a local market
50 Chapter 4 Economic Governance in the States and Regions 4 Economic Governance in the States and Regions The MBEI is designed to help the Myanmar government identify opportunities to promote private business growth by improving local economic governance. In particular, the MBEI can provide an improved understanding of local economic governance within individual states and regions. Although most businesses interact with government at the township level, decision making with respect to legal, administrative, and policy changes generally rests at higher levels of government. While much of this remains centralized with Myanmar’s Union government, recent efforts toward decentralization increasingly provide an opening for state and region governments to play an important role in improving the local business environment. The MBEI supports this effort by providing a wealth of information that state and region governments may draw upon to improve administration or propose policy reform. This chapter demonstrates how state and region government may use the MBEI as a diagnostic tool to assess the strengths and weaknesses of economic governance and draws comparisons between the relative per- formance of Myanmar’s states and regions. 4.1. State and Region Diagnostics The MBEI may be used to generate a unique 4.1.1. How to Interpret the economic governance diagnostic for each of MBEI Diagnostics Myanmar’s 14 states and regions and Nay Pyi Taw. The MBEI is perhaps most immediately The starburst chart allows each state or region useful to state and region governments since to visualize its score on all ten MBEI subindices they can help direct policy and administrative simultaneously. Each of the ten axes in the decisions. The insights generated through this starburst chart represents one MBEI subindex. analysis highlight areas for improvement as Within each subindex a state/region receives well as areas that must be monitored to main- an MBEI score of 0 to 10, which is denoted tain already strong performance. For example, by the length of the ray on that subindex. For we list the possibility of lowering crime as example, the axis for Entry Costs is directly an opportunity for Yangon. Importantly, lower north from the center. The further the ray crime will provide local firms with the stability extends outward from the center the stronger and certainty that they need to maximize prof- the state/region’s score on that subindex, and its. Furthermore, even modest improvements a ray which extends the full distance indicates in crime prevention will lead to a much better a score of 10. For each subindex, a black line MBEI governance score, as Law and Order is indicates the median score of all states/regions a highly weighted subindex. Therefore, as a on that aspect of economic governance. For tool for policy and administrative reform, the example, the median score on Entry Costs is state and region diagnostics can help state 6.25. Interpreting a state or region’s starburst and region governments prioritize areas of chart involves observing the length of each improvement in economic governance. of the ten rays and its position relative to the
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