Experts warn of further concentration of wealth

Experts warn of further concentration of wealth

If Burma’s reforms stay on track, its growth rate could be on par with Asia’s fastest growing economies; however, some experts fear the impoverished nation’s wealth may remain concentrated in the hands of a few.

The economy could expand at 7 to 8 per cent per year and become a middle-income nation with triple per capita income by 2030, according to a recent report published by the Asia Development Bank (ADB).

While it’s possible Burma could grow at these rates, economic growth doesn’t guarantee poverty reduction, said Jared Bissinger, a PhD candidate at Australia’s Macquarie University who is studying Burma’s economy.

“Myanmar [Burma]’s economy has grown pretty significantly over the last few years and per capita incomes have increased significantly, but their distribution has been highly unequal,” said Bissinger. “Per capita incomes simply aren’t a sufficient way of measuring whether economic growth is translating into poverty reduction and broad-based development.

“It’s possible that Myanmar can become a middle income nation by 2030, but it’s both more important and more challenging to see a significant expansion of the middle class by then,” he said.

Greater investment in health, education and social services would boost social cohesion and reduce poverty rates while further reforms and development could create a more investor friendly environment for job-creating industries such as manufacturing and services.

“Capacity building in education, health and human capital development (skills) are needed to ensure that economic development occurs efficiently and equitably,” said Tim Harcourt, an economics professor at University of New South Wales and former chief economist at Austrade – the Australian Government’s trade and investment arm.

Burma’s growth will depend on the country maintaining economic stability and boosting its dishevelled infrastructure by way of ensuring adequate transport networks, telecommunications and electricity supplies to encourage investors.

“Myanmar’s strategic location, rich natural resources and abundant labor force leave it perfectly positioned to prosper from Asia’s dynamic economic growth,” said Stephen Groff, ADB’s vice president for East Asia, Southeast Asia and the Pacific, in a press release.

He said the country could benefit from rising regional trade, tourism and investment and meet the growing demand for natural resources and energy from neighbouring boom economies such as India, Thailand and China.

However, investment that is concentrated in extractive industries such as Burma’s oil and gas sector could boost economic growth at the expense of development, said Bissinger.

“Sadly the precedent for resource-led development is mixed, at best,” he said.

“Myanmar’s growth rates could be very high with concentrated investment in extractive industries – one need look no further than Mongolia’s 17.3 per cent GDP growth rate last year [driven mostly by mining] to see that,” said Bissinger.

But these investments can be difficult to translate into economic development and can have negative effects on the macro economy through “Dutch Disease,” where a resource-driven appreciation of the currency makes it more difficult for people in tradable sectors to compete internationally, according to Bissinger.

“Rising per capita incomes are necessary but not sufficient for Burma’s development,” said Harcourt.

“Burma wants to avoid a ‘resources curse’ where rent seekers in the extractive industries raise average incomes but worsen income distribution,” he said.
“Keeping the extractive industries open to FDI and strengthening ties with and beyond ASEAN through open trade will be an important ingredient in Burma’s economic development plan for prosperity,” said Harcourt.

If Burma adopts good economic policies, its growth trajectory could surpass the ADB’s prediction, says Bissinger; however, the country needs to pursue a balanced strategy to exploit the vast untapped potential of its human resource reserves and ensure adequate wealth distribution.

“The worst case is having growth that doesn’t lead to poverty reduction – it can even make it worse,” he said.

While experts agree Burma is poised at the crossroads of opening up its economy, essential reforms, investment and development are required before the impoverished Southeast Asian nation reaches the level of its wealthier neighbours.

-Kate Kelly is a pseudonym for a journalist working inside Burma.

 

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