CHAPTER 1. Business environment OECD (2013) estimated that Myanmar had approximately 750 000 business entities in total, while 127 000 of which were registered enterprises and 99.4 per cent of them are small and medium-sized enterprises (SMEs), including micro businesses. The share of SMEs as a percentage of all businesses is in line with international baselines (Abe and others, 2012), although Myanmar has yet to formally define SMEs on a sector-wide basis.2 Among them, 620 000 business entities, constituting more than 83 per cent of all Myanmar businesses, are in the informal sector whose majority comprises family-based establishments and self-employed workers (OECD, 2013). As a result, the majority of business entities have not been captured by the official data.
as those between the Government and firms (e.g., infrastructure, utilities and licensing) often lead to the firms’ dependence on public services (Heide, 1994). One result is that certain facilities, resources or services become important, even crucial, to performance and growth of the firms. The dependence of firms on the business environment, however, could potentially be exploited by one party at the expense of another. Formal institutions such as property rights, independent judiciary and state security become necessary to guard against vertical expropriation by the State and horizontal expropriation by other entities (Acemoglu and Johnson, 2005). The lack of formal institutions dramatically increases transaction costs as firms may have to pay bribes for property or hire private security for example. Reducing transaction costs by improving the business environment is thus crucial to creating widespread prosperity.
In Myanmar there are only 2.6 registered SMEs per 1 000 people, which are far lower than other least developed countries and developing countries that report 9 and 27 SMEs per 1 000 people, respectively (Abe and Dutta, 2014). The Government has recognized the importance of SMEs and is working to promote their development. The SME Development Central Committee was established in 2013 to coordinate the eight or so line ministries involved in SME development. A working group from this Committee has drafted a new SME law to help overcome obstacles such as overly complex tax procedures, labour regulations and collateral requirements among other issues (Abe and Dutta, 2014).
An improved business environment has been shown to benefit economies through higher employment, increased trade and reduced corruption (World Bank, 2008). For example, a fair and transparent regulatory regime allows entrepreneurs to invest in new businesses and hire more workers without fearing unnecessary intervention by the State. By reducing excessive regulation of goods that cross borders more firms are able to engage in international trade. This is particularly important in today’s globalized world where competition is so intense that an unfavourable environment can pose a severe handicap for local firms. Simplifying processes and increasing transparency can reduce opportunities for corruption and can help to promote a competitive and vibrant private sector (World Bank, 2008).
Myanmar categorizes business establishments into various types and segments. Figure 1.1 presents an overview of the business sector categories in Myanmar: (a) state-owned enterprises (SOEs); (b) Myanmar enterprises;3 (c) foreign enterprises;4 (d) military enterprises;5 (e) partnerships; (f) joint ventures;6 (g) cooperatives; and (h) business associations.
Current status After decades of authoritarian military rule and economic isolation, in 2011 Myanmar began to introduce democratic reforms that have led to the reduction of sanctions imposed by many countries. As Myanmar begins to open its market and restructure its economy, it faces several challenges particularly in creating the right environment for businesses to flourish. The impediments that exist today can be explained, to an extent, by Myanmar’s history of a centrally planned economy in which major businesses were once nationalized, markets dismantled, prices of essential commodities fixed, bureaucratic mismanagement rife and borders closed (OECD, 2013).
The present survey results have subsequently shed light on various facets of the business environment and conditions currently facing firms in Myanmar. However, before moving on to the in-depth review of the survey results such as data collection and analysis, these aspects are discussed here briefly in order to provide the relevant background to the survey results. They include regulatory framework, market conditions, innovation, human resources, access to finance, productivity and corruption.
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