Banks are essential in promoting economic growth, development and stability. Changes in economic systems, following changes in political system, usually involve reorganizing the financial systems, including the banking system. The Myanmar banking system, therefore, has also lately, undergone changes according to the requirements of the changes in its political and economic systems.

In 2014 Myanmar’s banking sector has seen the launch of a number of smaller privately and publicly-owned local banks and both local and foreign microfinance institutions. The launch of two major telecoms operators has also made way for the beginnings of mo- bile money operations in the country. In De- cember 2013, the country published its first

Mobile Banking Directive, which adopted the “bank-led” model for mobile money. Besides, in 2011, The Myanmar Payment Union expanded its debit card network and nationwide ATM network which allows ATM card holders to withdraw cash from ATMs operated by all member banks, rather than being restricted to a single bank. The electronic banking network now covers 80% of all banks’ existing workloads.

The financial institutions in Myanmar are overseen by the Central Bank of Myanmar. The State-owned banks are Myanmar Economic Bank (MEB), Myanmar For- eign Trade Bank (MFTB), Myanmar In- vestment and Commercial Bank (MICB), and Myanmar Agricultural Development Bank (MADB). There are over 1,000 bank branches (state owned, semi-government, and private banks) of which almost 50% be- long to state-owned banks. All local banks are members of the Myanmar Banks Association (MBA) which was formed on April 1st, 1999 to handle banking industry issues.

“Myanmar has tremendous potential for enormous growth. To realize this potential it is essential to create space for entrepreneur- ship. A vibrant private sector can generate jobs, and spur growth,” said Kaushik Basu, the World Bank’s Chief Economist and Senior Vice President. “Creating a level-playing field for the private sector will help unleash its potential. Government’s role is to provide an efficient regulatory system that encourages and facilitates individual creativity.”

Myanmar’s banking industry is also seeing the growing presence of foreign banks, particularly those from Asia-Pacific. According to International Monetary Fund, Myan- mar’s economy is expected to grow 7.75 % in the financial year 2014-2015. This marked a new horizon in Myanmar’s banking industry as it had previously restricted foreign banks’ operations.

Last year, The Central Bank of Myanmar awarded nine foreign banks the licenses to operate in Burma. It was seen as the government’s biggest move to bring in much-need- ed foreign capital into a fast growing economy. Before Myanmar’s military junta nationalized the banks in 1963, 14 foreign banks operated in the country—more than anywhere else in South-East Asia. Among 25 contending foreign banks, all nine of the license winners were based in the Asia Pa- cific, including the world’s largest bank, Bei- jing-based Industrial & Commercial Bank of China, ANZ Bank from Australia and three Japanese lenders – Bank of Tokyo-Mitsub- ishi UFJ Ltd., Sumitomo Mitsui Banking Corp. and Mizuho Bank Ltd.

Other license winners included Thailand’s Bangkok Bank, Public Industrial & Commercial Bank of China Ltd, Malayan Banking Bhd., and two Singapore banks – United Overseas Bank Ltd. and Overseas Chinese Banking Corp.

After winning the license to operate in Myanmar, Grant Knuckey, CEO of Cambo- dia, Laos and Myanmar for ANZ Banking Group, said the firm will benefit from going through the process of setting up in both Thailand and Myanmar at roughly the same time.

“Myanmar is still at an early stage of its eco- nomic transformation, though is trying to compress reforms that would normally take decades into only a few years, he said. “It means the opportunities arrive a little earlier and they need to be seized earlier, and it also means accelerated waves of investment and infrastructure is required”.

Myanmar, before the 1997 Asian crisis, had more than 40 representative offces of foreign banks. However, due to the crisis and the fact that they can only collect information and data, most banks either closed or streamlined their offces. However, as Myanmar becomes more open, foreign representative offces have increased and it is certain that more will appear in the future.

On winning the foreign license, Malayan Banking Bhd. (Maybank) group president and chief executive offcer Datuk Abdul Farid Alias had also said, “The new development is a signifcant milestone in the bank’s partnership with Myanmar. It will further strengthen the group’s regional footprint as “well as its capabilities in serving customers”. While the introduction of foreign banks to

Myanmar has been one of the more visible signs of the transformation, it has also proved controversial. Many of Myanmar’s local banks have opposed the granting of licenses, worrying that allowing foreign banks to operate in the country would erode their market share. “Foreign banks are giants, but we are still very small,” said Sein Maung, chairman of Myanmar First Private Bank and vice chairman of the Myanmar Banking Association. “We are not ready to compete with them, not in terms of technology or experience.”

Expressing his fears, Pe Myint, managing director of Myanmar’s Co-operative Bank Ltd. also said his frm is preparing to upgrade services and has hired consultants to respond to the added competition but we will still face shortage of human resources and skills, because some of our talented staff will move to foreign banks”.

The World Bank Group is supporting reforms in Myanmar to strengthen the private sector and create jobs to reduce poverty and boost shared prosperity. The Myanmar Investment Climate Assessment is supported by the United Kingdom’s Department for International Development (DFID) and has been carried out in close collaboration with the Ministry of National Planning and Economic Development.

As a true daughter of Asia, Myanmar has come a long way in a short period. Though the country still needs a lot many fnancial reforms to take place but a solid foundation has already been laid for a bright fnancial future.

The SEZ as a national strategy

Myanmar opened up its economy, exerted efforts to integrate it with the global community and hoped to move from a least developed country (LDC) to a middle income country (MIC) by the year 2030. Towards this end, the government has drafted a blue- print, the National Comprehensive Development Plan (NCDP) that spelled out how the country will graduate from its present condition to a more improved status. The blueprint stipulated the concentration of re- sources in developing selected growth centers from where growth corridors will radiate and cover the rest of the country.

One of the main elements of the growth centers are special economic zones (SEZ). It is considered as an excellent model for bringing in foreign direct investments and helps improve the economy of a developing country. It is an exclusive enclave where foreign companies enjoy the benefits of government support, incentives and protection. The government generates income from taxes and provides employment to its citizens. In theory, it is a win-win situation and beneficial to both parties, but it may not be the case in reality.

Companies locating their operations in the SEZ take advantage of cheap labor and other factors that lower their production cost. To attract locators, the government has to pass investor friendly policies. It has to have dependable power supply, telecom connection, roads that will connect to transport hubs like ports and airports and seamless processing center for government processes such as permits, taxes, customs and other regulatory requirements. Other than the production related infrastructures, facilities that would cater to the needs of foreign executives and workers are provided as sweeteners, like housing, recreation, health services and even school for children. Building a special economic zone therefore requires investment which does not come cheap.

In the case of Myanmar, the government offered an incentive package that includes five year tax holiday and customs duty exemptions, income tax incentives and long- term (30 years) land leases. In principle, the government will spend for the development of the zones, but will not earn for the first several years of operation.

The SEZ pioneers

At present there are three SEZ in various stages of development. These pioneers has the support of several countries particularly Japan, China and neighbouring Thailand.

The first SEZ is Thilawa, within the Yangon area. It has the support of the Japan Inter- national Cooperation Agency (JICA) who committed to shoulder the development cost of the zone. The most promising among the SEZ, several big Japanese companies are slated to locate at the zone.

Another SEZ is Dawei at the south-east- ern part of the country in the Taninthary Region. The narrow strip of land extending southward is shared with Thailand. With the long coastline facing the Andaman Sea, the proposed seaport will give Thai compa- nies a shorter distance to markets in Europe and Middle East instead of the circuitous Strait of Malacca.

The third is the Kyaukphyu SEZ, which is the port outlet of the oil and gas pipeline that goes directly to the western part of Chi- na. The parallel transport access offered by the pipeline makes the Kyaukphyu SEZ a favorite among Chinese companies.

Issues and apprehensions

The main question raised is the relevance of the having special economic zones in Myanmar and its impact on the economy of the country. Who benefits most, the country of the companies?

1. Will the government earn?

The cost of development means not only providing the basic infrastructure in the zone. Connectivity to the market is crucial for the companies that will locate to the zones. This means ” ensuring that roads, railways, seaports and airports are at par with international standards to service logistic requirements and ensure connectivity. The development cost of the zones itself may have been shouldered by the main investors, JICA in Thilawa, Italian-Thailand group in Dawei, and Chinese companies in Khyaukphyu, but the government still has a share in the overall development cost.

Another crucial factor is the continuous supply of power, which at present cannot cope with demand. As the country continue to experience growth, the energy needs also gets bigger. Ad- dressing the power needs require high investments which will be costly for the government.

The cost of upfront investment in development may not immediately be recovered considering that the locators are given the privilege of tax holidays and other incentives which limit the income-generating opportunity of the government.

2. Will employment be sustainable?

One of the supposed economic benefits is employment for local people. Cheap labor is considered as one of the main attractions offered by Myanmar, with its wage rate being competitive com- pared to other developing countries in the region like Cambodia, Vietnam and the neighbouring country of Bangla- desh. But being cheap is not the only factor. Instead, the workforce has to exhibit capacity to do technical job that requires skills competency. Ability to communicate and the attitude of being trainable are among the qualities being looked upon by locators. English competency may be needed at present but the development of zones designed for Chinese companies may also re- quire competency in their language. Developing the workforce to cater to international companies is another development cost that will have to be shouldered by the government.

The “cheap labor advantage” may be relevant as of this moment, but there is no assurance it will remain static.

Workers are becoming restless and are demanding a fair share of the fruits brought about by the opening up of the economy. The country may lose its competitive advantage if the workers push hard with their demands for better pay. The integration of the ASEAN economy is another factor that may affect wage rates in the country as it promotes free movement of goods and services within the region.

Who will compensate for the social costs?

One of the social costs of the project is the land problems. Cases of displacements, land grabbing and underpayment hound the zones. Speculation drove people to take advantage of small land owners and divest them of their lands. This results to negative development as people become marginalized with the dispossession of their lands. The resulting poverty due to displacement and dispossession runs counter to the main aim of bringing improvement to the lives of the people.

A coping mechanism or safety nets for those that will not absorbed by the companies will be an added cost to the government.

4. Addressing environmental concerns

Another social cost is the environmental degradation affecting the areas around the zones. It is not only about turning an area into a sprawling concrete complex, but more of the capacity to manage waste from the companies doing production inside the zones.

Both the Dawei and the Khyaukphyu SEZ are along the coast which may endanger the ecological balance in the area. Short-term benefts may not offset the long-term effects that will be left behind by the companies.

The main purpose of the creating SEZ is to contribute to the economic development of the country. The question remains, will it beneft the country? Is there an alternative, or are we stuck with it?