THE MYANMAR BUSINESS ENVIRONMENT INDEX 2020 EXECUTIVE SUMMARY Measuring Economic Governance for Private Sector Development

THEEdmund Malesky, Dean Dulay, and Ville Peltovuori

3 Myanmar Business Environment Index 2020’s Executive Summary

Lead Researchers and Authors Edmund Malesky Dean Dulay Ville Peltovuori

Core Research Team Kyaw Thu Marip Ja Dim Nyan Win Phyo Wai Htun San Yi Thiri Maung Ye Wana Hlaing

Reviewers Jon Keesecker Kim Ninh Peter Yates

Graphic Design Ye Htut Oo

Photo Credits Ye Htut Oo

Editor John H. Rieger

© 2020 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 4 Myanmar Business Environment Index 2020’s Executive Summary

Executive Summary

The 2020 Myanmar Business Environment The MBEI represents the voice of private Index (MBEI) aims to identify constraints businesses from across Myanmar. The MBEI in Myanmar’s business regulatory environ- is based on a nationwide survey of 5,605 ment and provide a tool for identifying reform firms—many of them small and medium-sized opportunities that spur growth. The MBEI is enterprises (SMEs)—in Myanmar’s service an economic governance index (EGI), a spe- and manufacturing sectors. To ensure com- cialized instrument pioneered by The Asia parability between S/Rs, the MBEI excludes Foundation to measure the performance the primary sector (agriculture, forestry, fish- of local authorities and to assess the local eries, and mining) and foreign firms operating business environment through quantitative in Myanmar, which are not well distributed indicators. Between 2016 and 2018, The across the country. To capture the views Asia Foundation carried out extensive desk of businesses, the MBEI uses a two-stage, research, expert interviews, and focus group stratified random sample (SRS) to ensure rep- discussions to adapt the EGI model to the resentation at the state and region level as well specific Myanmar context and to find ways as the township level. Survey responses are to best measure these constraints through combined with objective data gathered from survey and administrative data. This led to the observations of township offices, recorded 2019 MBEI report and economic governance by our field team, taken from statistical year- ranking, which were based on data collected books, and drawn from other administrative in 2018.1 After releasing the report in 2019, we sources available from government ministries. again invested heavily in contextual research This combination ensures highly reliable esti- and upgraded the index to capture Myanmar’s mates of economic governance at the local efforts to improve governance at the national, level that are based on business perceptions state and region (S/R), and township levels. but also anchored by objective measures.

Subnational EGIs have been used in Indonesia, The MBEI measures 10 core components of Sri Lanka, Bangladesh, Cambodia, Mongolia, good economic governance. The overall MBEI and Vietnam, and the tool has become widely score comprises 10 subindices. A state or accepted by diverse governments to under- region that is considered to perform well on stand economic growth, attract investors, and the MBEI is the one that has (1) low entry costs engage in public-private dialogue. In Vietnam, for business start-up, (2) easy access to land the Provincial Competitiveness Index (PCI) and security of business premises, (3) limited recently celebrated its 15th anniversary and time requirements for bureaucratic procedures has been deeply incorporated into local- and and inspections, (4) minimal informal charges, central-government policies and planning. (5) sufficient and well-maintained physical and Currently, all of Vietnam’s 63 provinces have telecommunications infrastructure, (6) a trans- published actions plans to improve their PCI parent business environment and equitable scores, and the central government uses PCI access to business information, (7) minimal data to monitor private-sector development crowding-out of private activity due to policy strategy and anticorruption campaigns. biases toward state, foreign, or connected 5 Myanmar Business Environment Index 2020’s Executive Summary firms, (8) limited pollution and environmental culture, fishery, forestry, or mining sectors. In damage, (9) sound labor training policies, and other words, the MBEI does not purport to rank (10) fair and effective legal procedures for the overall market, nor the performance of dispute resolution and maintaining law and individual administrators. Markets are largely order. The MBEI innovates on the traditional out of control of governments in the short EGI model by measuring the environmental run, and in Myanmar economic governance and labor-recruitment dimensions to provide is determined not strictly by the most recent a holistic image of local economic governance administrator but by a history of accrued that incudes socioeconomic factors. policy and administrative decisions. Rather than point to winners or losers, the MBEI is This report details the results of the sec- designed to point to areas of economic gov- ond iteration of the MBEI. This year’s MBEI ernance that S/R governments can focus on features several improvements over the to help grow the private sector locally. MBEI 2019 report, which was the first of its kind in Myanmar. First, new indicators have National-level findings suggest that busi- been added, allowing for more nuanced and nesses remain optimistic despite operating in complete analyses by subindex and by S/R a challenging environment. While challenges Each state that more closely track Myanmar’s reform to economic governance remain, there are and region efforts. We also dropped 16 indicators that reasons for this optimism. In addition to in Myanmar were deemed problematic by experts for describing the variance in economic gover- demonstrates being obviated by Myanmar’s national-level nance across Myanmar’s S/Rs, we also detail different reforms or because their impact on business national-level and S/R-level findings that apply strengths and performance was ambiguous. Second, this to all firms in the country. While businesses weaknesses year’s report features a subset of 1,200 panel unsurprisingly report facing many obstacles, with respect firms—firms that were surveyed in both this in many areas they also show glimmers of to governance. wave and last. Analysis of their performance optimism and confidence in Myanmar’s future. No state or along core indicators—indicators that were Here are a few highlights from the study’s region stands collected consistently in 2018 and 2020— findings: out as superior allows for the measurement of improvements to all others of S/Rs over time. z Yangon, Sagaing, Nay Pyi Taw, and Bago with respect to have the highest scores for economic gov- overall economic MBEI measurements are weighted to reflect ernance in the country, although they have governance. business confidence and expansion. Weight- achieved this distinction through different ing the index by contribution to private sector constellations of reforms, as shown in Figure performance, offers concrete policy infor- 1. Yangon and Nay Pyi Taw (along with mation to officials about what to prioritize. Mandalay) excel at infrastructure, environ- To generate the weights, subindices were mental compliance, and labor recruitment, regressed on average, annual, firm-level which reflects the benefits of urbanization employment growth since establishment. Sub- and the greater fund of human capital in indices most strongly correlated with these their localities. Sagaing and Bago, with measures received higher weights in the index less-dense populations, excel at reduc- (see chapter 5 for methodological details on ing favoritism towards businesses with calibration and regression results). This step connections, regulatory costs, post-entry allows local leaders to better prioritize reform regulatory compliance, and in instilling efforts. The four highest-weighted subindices, confidence in the legal system and law each accounting for 15% of the national index, enforcement. Figure 2 illustrates this point are land access (subindex 2), transparency by depicting the highest and lowest scores (subindex 6), environmental compliance (sub- on each subindex. index 8), and labor recruitment (subindex 9). z Variation in S/R performance on different MBEI rankings reflect aggregate economic subindices helps to pinpoint where subna- governance rather than the overall market or tional governments can innovate and where the efforts of individual administrators. When the challenge lies with central policies. Some comparing Myanmar’s S/Rs, it is important subindices reveal significant differences to remember the purpose of the MBEI: it is between the highest and lowest S/Rs, while designed to measure economic governance as other subindex scores do not differ much experienced by domestic businesses operat- between subnational administrations. The ing in the service and manufacturing sectors greatest differences between minimum throughout Myanmar. These businesses are and maximum scores are found in labor largely SMEs and do not participate in the agri- recruitment (subindex 9) and infrastruc- 6 Myanmar Business Environment Index 2020’s Executive Summary

ture (subindex 5). Favoritism (subindex importance of township authorities to the 7), transparency (subindex 6), and land reform process (see Figure 3). Less than access (subindex 2) exhibit very little vari- nine points separate the top S/R from ation and smaller differences between the the bottom, and different S/Rs excel in lowest and highest scores. High variation different dimensions of governance. No implies that there are important differences S/R stands out as a top-ranked performer in how S/R and township governments on every index. Consequently, differences are interpreting and implementing central among S/Rs account for just 27% of the policies, and what new initiatives they are variation in firm-level experiences of gover- devising of their own. Combination of low nance. By contrast, there is a 14-point gap variation and low scores indicates that the between the highest- and lowest-ranked governance issues are very similar across townships, and differences between town- S/Rs, pointing to either structural problems ships within S/Rs account for over 39% of in the Myanmar economy or issues with the variation in firm-level experiences of central laws and regulations. governance. This is because most firms  in Myanmar, and therefore most respon- z Higher scores in land access (subindex 2), dents in the MBEI, are SMEs, and their transparency (subindex 6), environmental primary interactions with government are compliance (subindex 8), and labor recruit- with bureaucrats at the township level. ment (subindex 9) are significantly and Economic governance can only improve positively correlated with employment growth if these agencies are part of the reform among respondent firms.Consequently, they process. receive the greatest weights in the final 2020 MBEI. For local leaders pursuing gov- z Firms in townships with better governance ernance reform, initiatives targeting these have hired more new workers on average subindices will be most likely to improve since their establishment than firms in economic well-being by stimulating firm townships with poorer governance, and growth and employment. better-governed townships have higher levels of economic welfare, measured by z Differences in economic governance are night light data. These associations hold more pronounced among townships within true even after accounting for the under- S/Rs than between S/Rs, pointing to the lying endowments, location, and wealth of

FIGURE 1 2020 Myanmar Business Environment Index

62 61 60 59 58 57 56 55 54 53 Weighted MBEI Score MBEI Score Weighted 52 51 50 Mon Chin Shan Bago Kayin Kayah Kachin Yangon Yangon Rakhine Sagaing Magway Mandalay Tanintharyi Tanintharyi Nay Pyi Taw Pyi Taw Nay Ayeyarwaddy Ayeyarwaddy

High tier Mid-high tier Mid-low tier Low tier

95% CI Tier cut-off points 7 Myanmar Business Environment Index 2020’s Executive Summary

FIGURE 2 The Ten MBEI Subindex Rankings

Entry Land Access Post-Entry Informal Costs and Security Regulation Charges

Rakhine State Kayah State Bago Region Kayin State Kayin State Rakhine State Ayeyarwady Region Nay Pyi Taw Nay Pyi Taw Ayeyarwady Region Kayah State Bago Region Bago Region Tanintharyi Region Sagaing Region Sagaing Region Sagaing Region Kayin State Rakhine State Magway Region Mandalay Region Nay Pyi Taw Kayin State Tanintharyi Region Kayah State Magway Region Mandalay Region Shan State Ayeyarwady Region Bago Region Magway Region Kayah State Chin State Yangon Region Nay Pyi Taw Rakhine State Yangon Region Sagaing Region Kachin State Ayeyarwady Region Shan State Mandalay Region Chin State Kachin State Magway Region Chin State Mon State Mon State Mon State Kachin State Shan State Chin State Tanintharyi Region Shan State Yangon Region Yangon Region Kachin State Mon State Tanintharyi Region Mandalay Region 0 2 4 6 8 10 0 2 4 6 8 10 0 2 4 6 8 10 0 2 4 6 8 10

Environmental Infrastructure Transparency Favoritism Compliance

Yangon Region Yangon Region Sagaing Region Mon State Mandalay Region Ayeyarwady Region Bago Region Mandalay Region Nay Pyi Taw Sagaing Region Kachin State Yangon Region Mon State Nay Pyi Taw Rakhine State Kayah State Kayah State Shan State Yangon Region Nay Pyi Taw Sagaing Region Chin State Kayin State Magway Region Kachin State Bago Region Chin State Kachin State Magway Region Kachin State Mandalay Region Chin State Bago Region Kayin State Tanintharyi Region Bago Region Tanintharyi Region Tanintharyi Region Nay Pyi Taw Sagaing Region Kayin State Magway Region Mon State Shan State Shan State Mon State Ayeyarwady Region Ayeyarwady Region Ayeyarwady Region Mandalay Region Kayah State Kayin State Chin State Kayah State Magway Region Tanintharyi Region Rakhine State Rakhine State Shan State Rakhine State 0 2 4 6 8 10 0 2 4 6 8 10 0 2 4 6 8 10 0 2 4 6 8 10

Labor Law and Order Recruitment

Mandalay Region Bago Region Yangon Region Kayin State Kachin State Sagaing Region Sagaing Region Mon State Magway Region Magway Region Nay Pyi Taw Ayeyarwady Region Chart legend Bago Region Chin State Hard data Kayah State Nay Pyi Taw Ayeyarwady Region Shan State Survey data Tanintharyi Region Rakhine State Rakhine State Tanintharyi Region Chin State Yangon Region Mon State Kachin State Kayin State Mandalay Region Shan State Kayah State 0 2 4 6 8 10 0 2 4 6 8 10 8 Myanmar Business Environment Index 2020’s Executive Summary

FIGURE 3 MBEI Ranking at Township Level

Hlaingtharya Taikkyi Chart legend Pyinmana Bago Monywa High Tier Lanmadaw Middle Tier Bhamo Low Tier Dagon Myothit (Seikkan) Pakkoku Bottom Tier Phyu Shwebo North Okkalapa Pathein Dagon Myothit (South) Chanmyathazi Mahaaungmyay Bahan Lewe Patheingyi Latha Hpa-an Poke Ba Thi Ri Paungde Ye Mayangone Pantanaw Loikaw Chanayethazan Hpapun Pyinoolwin Yankin Pazundaung Kyaukpadaung Ahlone Oktwin Myingyan Tabayin Tedim Sittwe Ma-Ubin Demoso Dawei Kalaw Taze Myintkyina Hakha Magway Hinthada Pyapon Taungdwingyi Paung Mohnyin Pindaya Mawlamyine Kengtung Wakema Hopong Gwa Myeik Taunggyi Falam Kawthoung Myawaddy Nawnghkio Launglon Loilen Lawksawk Tachileik Matupi Hsipaw Nyaungshwe Toungup Bokpyin Lashio Mongmit Tangyan 9 Myanmar Business Environment Index 2020’s Executive Summary

FIGURE 4

Change in Core MBEI at Firm Level, Chart legend by State or Region 2018 Wave 2020 Wave

68 67 66 65 64 63 62 61 60 59 58 57 56

Core Index from Panel Data Panel Index from Core 55 54 53 52 51 50 Mon State Chin State Shan State Kayin State Kayin Kayah State Kayah Nay Pyi Taw Nay Bago Region Kachin State Rakhine State Yangon Region Yangon Sagaing Region Magway Region Magway Mandalay Region Mandalay Tanintharyi Region Tanintharyi Ayeyarwady Region Ayeyarwady

the localities. The finding illustrates how z The quality of governance declined in only economic governance is correlated with one subindex, law and order (subindex 10). improvements in welfare. z Entry costs are reasonable, but not improv- z Economic governance has improved in Myan- ing. Only a small share of businesses mar since 2018. The Core MBEI rose 5.4 encountered significant waiting periods points, from 55.1 in 2018 to 60.6 in 2020, or administrative burdens when registering an 10% improvement. And every single S/R and licensing their businesses. However, improved on the Core MBEI (see Figure 4). panel data indicates that waiting periods are not declining significantly over time. z Improvements over time were not uniform, but instead were concentrated in a few sub- z Land-titling issues are less problematic; how- indices. Governance improved in six areas ever, land security remains an issue even measured by the MBEI, as shown in Figures when firms have property rights.Possession 5 and 6. Subnational governments in Myan- of land titles among private businesses is mar, including both S/Rs and townships, frequent and improving. However, firms still recorded improvements in reducing the feel uncomfortable about the security of burden of post-entry regulation (subindex their business premises. Half of all busi- 3), augmenting infrastructure (subindex nesses with land titles fear expropriation, 5), enhancing transparency (subindex 6), and almost all businesses without titles reducing favoritism (subindex 7), strength- fear changes in rental contracts that might ening environmental compliance (subindex undermine operations. 8), and facilitating labor recruitment (sub- index 9). z Many businesses perceive administrative procedures for post-entry regulation as sat- z Three areas of governance did not improve isfactory and improving. One-stop shops significantly. These include ease of entry for administrative procedures have prolif- (subindex 1), improving land access (sub- erated, and firms point to the friendly staff index 2), and limiting informal charges in those offices. Members of the research (subindex 4). team confirmed this by observing that 10 Myanmar Business Environment Index 2020’s Executive Summary

FIGURE 5 Changes in Core MBEI at Firm Level, Chart legend by Subindex 2018 2020

Entry Land Access Post-Entry Informal Infrastructure Costs and Security Regulation Charges

10 10 10 10 10

9 9 9 9 9

8 8 8 8 8

7 7 7 7 7

6 6 6 6 6

5 5 5 5 5

MBEI Core Index MBEI Core 4 4 4 4 4

3 3 3 3 3

2 2 2 2 2

1 1 1 1 1

Transparency Favoritism Environmental Labor Law and Compliance Recruitment Order

10 10 10 10 10

9 9 9 9 9

8 8 8 8 8

7 7 7 7 7

6 6 6 6 6

5 5 5 5 5

MBEI Core Index MBEI Core 4 4 4 4 4

3 3 3 3 3

2 2 2 2 2

1 1 1 1 1

more OSS desks were occupied during bribes are paid, they are not overly burden- business hours, and OSS and GAD staff some for firms, accounting for a very small were friendly and helpful. share of total revenue. The widespread agreement that bribery is needed to win z Despite improvements in post-regulation pro- procurement contracts, however, shows cedures, concerns remain about the capacity that, while petty corruption is not a bur- and efficiency of township offices such as den, malfeasance at a larger scale may GAD and DAO. Firms claim to be spending be taking place beyond the experience of more time on bureaucratic procedures and most SMEs. blame declining efficiency among bureau- crats who handle their paperwork. z A special analysis of corruption confirms the finding that petty corruption is not a prob- z Informal charges are less of a problem for lem for respondents in Myanmar, but grand service and manufacturing SMEs than gen- corruption remains a very serious concern. erally perceived. As in 2018, very few firms Bribes during business entry are close in 2020 admit to paying bribes, either in to zero, however, nearly 70% of firms pay direct questions or in shielded questions bribes to receive construction licenses at a meant to protect their identity. Even when cost of 3.4 million Kyat (US$2,430) per firm. 11 Myanmar Business Environment Index 2020’s Executive Summary

FIGURE 6 National level starburst chart to identify areas that have improved on core MBEI

Law and order Entry cost

Labor Land access

Post-entry Environment regulation Chart legend

2018 core score

Informal Favoritism 2020 core charges score

Transparency Infrastructure

z Quality of infrastructure has improved a great access to S/R laws and regulations, pre- deal but remains a significant issue, and sumably easy-to-find public information. this is especially true for construction-heavy Despite the uniformly low scores on this physical infrastructure. Almost 60% of firms subindex, dramatic improvements are pos- say that rural road quality is good or very sible, as seen in Yangon, from relatively good. Firms now lose only three days simple interventions such as posting this annually due to flooded or blocked roads, information on an easy-to-find website and a huge improvement from 14 days in 2018. publicizing its existence. Firms are generally more optimistic about electricity and the internet. Three-quarters z Favoritism towards connected businesses of firms believe that their access to elec- is not widespread, and scores on the aggre- tricity, internet, and telephone service is gate subindex are improving. Only two S/ good or very good. Work stoppages and Rs, Shan and Magway, score under 9 out damage from power outages has also of 10 on this subindex. The general per- declined precipitously. ception among firms is that bias in favor of connected firms is most common in z Transparency has improved but remains connection with loans and access to land. uniformly poor in all S/Rs. Only 18.5% of Even in these areas, only around 7% of all firms in the leading Magway Region have firms believe that favoritism exists. access to plans for public investments such as airports and highway projects. z Environmental compliance has improved In Kayah State, not even 1% of all firms over time, but more work needs to be done. have access to these plans. The lack of Fewer than 10 percent of firms believe transparency with respect to government that pollution has a significant, negative documents is not confined to large-scale effect on their business. In the median construction projects. Only 6.9% of firms S/R, over half of firms believe that state in the median S/R, have access to its state support is lacking. Despite improvements, budget. National-level statistics corrobo- there is not a single S/R where more than rate these results. Only 18% of firms have half of businesses believe that inspections 12 Myanmar Business Environment Index 2020’s Executive Summary

rity situation is good. According to the are done to protect the environment, and interviews 8.3% of firms say that they were there is not a single S/R where more than victims of a crime in the past year. A poor one-third of businesses believe that the security situation introduces uncertainty government supports water conservation. that reduces investment, and it creates a barrier to entry for businesses that fear z Access to qualified labor is improving but violent crime. remains hard to find. Panel data indicates that labor recruitment and quality have The data contained in the MBEI provides improved, but businesses are still con- government, businesses, and other stake- cerned. Labor recruitment is difficult holders with a valuable resource for improving regardless of the position to be filled. In economic governance and thereby boosting the national sample, only 40.3% of respon- Myanmar’s future prospects for economic dents say it is easy to recruit managers, growth. The MBEI serves as a diagnostic and only 48.3% of respondents find it tool for both Union and S/R governments in easy to hire accountants. The situation is Myanmar to better understand local economic equally bad for blue-collar positions. Only governance. 45.6% of respondents find recruiting rank- and-file manual workers easy. Even worse, This report is just a summary of the exten- only 26.7% of respondents find it easy to sive MBEI data, which can be used for more recruit technicians. Difficult recruiting puts detailed diagnostics at the S/R, township, or a greater burden on firms to train their subindex level. The next step, taking advan- workers. On average, it takes a firm 51 days tage of this wealth of data, is to facilitate to train a new worker sufficiently to do the discussions between government, businesses, job. While there are many explanations and civil society to identify solutions that will for the difficulty of finding and training improve Myanmar’s business environment by workers, one reason may be the generally working to address the challenges outlined low levels of education in Myanmar. For in this report. example, administrative data shows that high school enrollment rates are only 44% In addition to providing lawmakers with (CSO, UNDP, and WB 2018). insights into future policy and administrative reform, the MBEI is a source of information z Firms believe that powerful officials are for businesses and investors considering above the law. Most firms appear to think investment or expansion. Finally, it can also that government officials are above the be a resource for donors and civil society law, and the situation has worsened over organizations as they seek to support eco- time. Just 26.5% of businesses believe nomic and governance reforms. Ultimately, that they can appeal an unjust decision the MBEI is designed to be a resource for to a higher government office, and only improving the business environment, which 20.1% believe that officials will discipline is critical to private sector development and offending staff. Myanmar’s goal of sustainable and inclusive economic growth. z The security situation needs improvement. Only 26.2% of firms believe that the secu-

This is the Executive Summary of the full report titled “Myanmar Business Environment Index 2020: Measuring Economic Governance for Private Sector Development”.

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14 Myanmar Business Environment Index 2020’s Executive Summary

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