Meanwhile, the World Bank reported that about 75 per cent of the population has no access to electricity. Is the Yangon Stock Exchange a viable priority for one of the world’s most financially impoverished countries?
The Yangon Stock Exchange is an unwise policy priority for the Thein Sein administration; it highlights Burma’s lack of understanding about reform-minded policy making, regulation and globalisation. The Thein Sein administration started its second phase of economic reforms during the global financial crisis. The flying-geese economies, on the other hand, started their reforms at the peak of global financial liberalisation, which resulted in economic success stories such as the Asian tigers. As neighbouring economies took off, the Burmese generals were sleeping. But while the tiger economies fell into the middle-income trap, Burma’s leadership finally initiated economic reform and liberalisation. By this stage, neither the timing of its commencement nor the state of global financial markets favoured the reforms, despite assistance from the United States as it tries to strategically engage Burma to counterbalance China.
Moreover, Burma lacks the essential infrastructure and institutions necessary to make such economic reforms viable. The international financial markets are highly regulated and digitalised. Modern stock exchanges are digitally interconnected with advanced technologies, causing many financial analysts to speak of the digital economy era as an online money market. These technologies enable the trade of billions of dollars between currencies, and as a result global financial and digital companies are influencing global trade norms. Meanwhile, Burma does not have enough risk analysts, financial engineers, strategists or econometricians to develop the infrastructure for such technologies. Burma also lacks both rule of law and legal institutions where companies and citizens can seek to uphold their rights.
Is a stock exchange realistic in this infant economy, where 26 per cent of its population lives under the poverty line and approximately 70 per cent of people work for an agricultural sector that comprises half of Burma’s GDP? The manufacturing sector barely exists, and the services sector is hardly functional. The country’s infrastructure is out-dated, and communication and internet services are utterly underdeveloped. Professionalism does not exist and corruption is systemic and widespread.
Meanwhile, electricity deficiencies are common in Burma, and hydroelectricity and gas generators are still used in place of more sophisticated sources such as solar, wind and clean energy. Energy security and efficiency are absent from public discourse, while the government exports natural gas to China and Thailand. Apart from the gas and mining industries, small and medium firms that are extremely hard to finance and securitise dominate Burma’s economy. Furthermore, financial and capital investment itself is scare and credit is constrained. It seems unlikely that Burma can be transformed from an agro-economy to a knowledge-based economy by 2015, in time for the new stock exchange.
The current political instability in Burma also does not encourage global financiers to invest. There is still ethnic fighting in the Kachin and Shan hills, and minority Burmese Muslims are being slaughtered. Some generals have opposed U Thein Sein’s reforms, and subsequently been removed from power. It is uncertain who will be the president of Burma in 2015, as both the house speaker, U Shwe Man, and Daw Aung San Suu Kyi have publicly announced that they will contest the presidency. Whether the 2008 constitution is to be amended or whether it will continue to rigidly deny citizens their rights is yet to be seen. Ultimately, the political risks and uncertainty in Burma deter global financiers.
State regulation is essential in certain strategic industries, especially communications, finance and the securities market. Smart state regulation of these industries can create Pareto efficiency, transparency and an economic equilibrium, while the regulation of the securities market could prevent financial insolvency, insider trading and white-collar crimes. Burma should try to avoid these pitfalls by dispatching talented accountants, lawyers and economists to Australia to learn about local securities regulatory systems in a country whose robust regulators and public institutions helped ward off the worst of the global financial crisis.
The Thein Sein administration needs to develop a reasonable economic policy based on a comprehensive risk analysis before installing a financial institution like the Yangon Stock Exchange. The existing monetary and legal institutions in Burma also need further development in preparation for the Yangon Stock Exchange. Such an ambitious reform will have the greatest chance of success once Burma has modernised communications technology, provided more electricity and established a robust regulatory system.
Naing Ko Ko is a Visiting Scholar at the Regulatory Institutions Network, Australian National University.
You are quite right that what Burma requires right now is a good electrical supply system, amongst other things, rather than a stock exchange.
It is impossible for Burma to transform itself from an “an agro-economy to a knowledge-based economy by 2015”, that is for certain.
Perhaps, nevertheless, you are simply too conciliatory in your article and use too many euphemisms. It is sometimes better to simply use a more frank approach when talking about Burma, that is to say, Burma is in such a mess and in shambles. It’s really a complete catastrophe, to say the least. Of course it is needless to say why.
Peter Vertannes
It seems to me that you are unduly negative about the work underway to build a stock exchange in Myanmar. It may not be possible to have a “serious” stock exchange before the end of 2015, but it takes years to build the essential institutions and skills and starting now makes sense as long as the target date is not taken too serious and the effort does not divert attention from more serious issues. One of the keys to success is likely to be how quickly the government can privatize leading state enterprises and how quickly leading business groups decide to take their companies public. Creating 20-30 new listable corporations within the next 2-3 years may be possible, and it is likely to happen faster if a rudimentary stock market exists.
A time will come when Myanmar is ready to have it’s own stock exchange but for now Burma is in no way ready to jump to that stage. First of all, Burma needs to reconcile with itself. Myanmar is still fighting with it’s own minorities over power sharing and resource sharing. As results of Myanmar military offensive, millions of it’s citizens are internally displaced. Kachin IDPs and Rohingyas are case in point. Not to mention hundreds thousands of Karens and Shans whose future status are still in limbo.
Moreover, the current economic reform of quasi-civilian Thein Sein government does not cover the whole Burma, where 75 % of Burmese population are poor peasants. Certainly, we do not need stock exchange yet.