New Players in Myanmar's Markets

Local Entrepreneurs Gain Ground, Help Drive Reform; A Prawn Exporter Thinks of Running for Office       

 By a WSJ Staff Reporter        

A strengthening entrepreneur class is helping to drive economic reforms in Myanmar, paving the way for growth in the poverty-mired nation. The WSJ's Deborah Kan discusses with Alex Frangos.

YANGON—For decades, much of Myanmar's wealth was tied up in the hands of the country's military and its cronies. Now, entrepreneurs like Yan Aung Kyaw have emerged as beneficiaries as well as drivers of reform.

The 39-year-old Yangon businessman, who got a business degree in 2002, long felt stifled by the government's handing of monopolies to the well-connected, but lately he has seen more investment opportunities. He exports giant frozen prawns to a high-end supermarket chain in Hong Kong, is scouting for land for rubber plantations, and is trying to land small-scale mining licenses. He is even thinking of running for office to push for more liberalization.

He says it has become easier because the government has loosened rules on what companies can import and export. Until mid-2011, businesses had to submit for approval the lists of what they wanted to trade, and the council handling the requests met only once a week, he says.

"If you missed the meeting, you had to wait," says Mr. Yan Aung Kyaw. Now, he says, approvals takes only a few days instead of weeks.

Western leaders say the stranglehold over Myanmar's economy—long considered one of the most backward in Asia—by state enterprises and a small business elite that control assets related to timber, jewels and land helped to empower the military regime while leaving much of the country mired in poverty.

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A worker at a Yangon garment factory, above. Myanmar's garment industry and other sectors show signs of a renaissance amid market reforms.

But small-scale businesses have emerged, and in some cases thrived below the surface in recent years, mostly by selling to local needs or making inroads in markets the government cared little about.

Even before an elected government took power last year, Myanmar started quietly allowing more-independent business players to expand into agriculture, tourism and other parts of the economy. As their influence grows, they add to pressure on the government to open up more sectors, provide more credit and fix the country's complicated currency-exchange system.

Since Myanmar's first election in 20 years, the new military-backed government has eased restrictions on the Internet, legalized the main opposition party, and freed hundreds of political prisoners. The U.S. said in January it would restore full diplomatic relations with Myanmar, and has indicated it may consider easing sanctions if a planned parliamentary by-election in April is seen to be free and fair.

 

"These businesses aren't the big-ticket suppliers of cash to the regime—their interests are for a growing economy," said Sean Turnell, an associate professor at Macquarie University in Australia and an expert on Myanmar's economy. "Everyone has been surprised at the vibrancy and prominence of some of the business groups. That's really a new thing."

It is too early in the reform process to say a boom is taking place among independent businesses. It also is difficult to say which businesses succeed because of preferential treatment by the government and which have excelled by market criteria. But locals and analysts say the ice is cracking in the business sector.

One example of below-the-radar growth: the decidedly unflashy business of beans. For this predominantly agricultural nation, the sharp growth since 2002 of exports of lentils and chickpeas to its neighbor India proved a lucrative market, now valued at nearly $800 million annually, enriching small-time growers and traders.

It was initially developed under the noses of the military, according to Ikuko Okamoto, a Japanese academic who has studied the beans and pulses market. Myanmar now vies with Canada as the world's largest exporter of dried beans, which are easy to grow and process, and require little fertilizer.

Other small-scale businesses also are finding space to grow, in many cases through trade associations whose membership rolls have expanded dramatically. Chief among them is the Union of Myanmar Federation of Chambers of Commerce and Industry. Once known as an opaque, government-linked organization, the group now includes thousands of midsize operators whose interests lie in more economic reform.

A former head of the group, Win Myint, was appointed commerce minister last year, giving businessmen a direct line to the government.

Now "it's very easy to call the minister for meeting," says U Myint Soe, chairman of the Myanmar's Garment Manufacturers' Association and an owner of four factories, with 1,150 workers, that supply uniforms to South Korea and Japan. He says his and other organizations pushed to make it easier to import raw materials and expand workers' rights. "There has been a big change in the business climate," he says, sipping a beer in a Yangon hotel bar. "We will make more money."

Myanmar's garment industry, which once employed 250,000 people, according to Mr. Myint Soe, has struggled under U.S. sanctions forbidding the import of most goods. Many workers fled across the border to Thailand to work in factories there.

But there are signs of a renaissance. Apparel exports to Japan and South Korea have more than tripled, to $530 million in 2011 from $162 million in 2008, according to trade data tracker Global Trade Information Services. The gradual easing of some sanctions by the European Union and the U.S. could bring back global clothing brands attracted by Myanmar's inexpensive labor force. Wages rival those in neighboring Bangladesh, considered among the lowest in the world.

Analysts say a number of factors are driving the changes, including a desire by Myanmar's leaders to break free of Western sanctions, which left it too reliant on China as the country's primary financial and political backer. Myanmar officials say they simply want to bring reconciliation to the country after years of turmoil.

Entrepreneurs still face an uphill climb. Despite liberalization of the car-import market, it is hard to get quality vehicles to get around town or to move goods. Mr. Yan Aung Kyaw, the Yangon prawn exporter, still drives a two-decade-old car.

To push liberalization further, he says he is considering running as an independent candidate for office some day. He wants to see stock and commodities markets develop and to rein in state-controlled companies he says serve as "cash cows" for those in power.

Several businessmen cite the elimination last May of a monopoly on cooking-oil imports as one of the first signs independent entrepreneurs were gaining traction. Previously, the market was controlled by a small group of government companies and businessmen with ties to Myanmar's generals, according to people familiar with the business. When government officials agreed to end the monopoly and promote more competition, cooking-oil prices immediately dropped.

"We're exposing all our problems now. The government sector knows what's going on," says U Moe Kyaw, also known by his English name, Peter Thein, a U.K.-born Myanmar businessman serving various roles in business associations. About the nation's chamber of commerce, he says, "We used to say we are the 'bridge to the government.' The problem was it was a one-way bridge on an incline coming toward us. Now it's different. "We really have a voice."

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