Presentation of Country Reports

Country: Myanmar

Experiences of Myanmar Privatization Programme

by Mr. U Thein Tun

Director

Project Appraisal and Progress Reporting Department (PAPRD)

Ministry of National Planning and Economic Development, Myanmar

Introduction

Myanmar is implementing  market oriented economic system for economic development. In accordance with the principles of market economy, economic reforms are being done by the state. Of these reforms privatization is one of the activities for promoting Myanmar economy. Privatization is one of the main driving forces for economic development in market economy. It facilitates emergence, development and smooth operation of the market mechanism as well as reduction of poverty by creating job opportunities. The effects from privatization contribute the momentum of economic growth and  promotion of standard of living. Thus Myanmar is implementing the privatization programme under the guidance and supervision of the Privatization Commission of the Union of Myanmar. This paper is intended to reveal the experiences of Myanmar privatization programme in brief and to present some suggestions for improving the efficiency of the programme. It also aims at better formation of general privatization policies, which must be effectively contributed to national economic development.

Need to privatize

The state owned enterprises of Myanmar are facing problems such as losses that translate into deficits in the state budget, shortage of funds for expansion, heavy debts, operating problems and inability to realize their full production capacity, all of which make it imperative that the state owned enterprises be transferred to the private sector.

Objectives

The main objectives of Myanmar privatization programme are to increase the efficiency of enterprises through competition, to strengthen the private sector and increase its role in economic development of the state.

Guidelines

The following guidelines are laid down for implementation of the privatization programme of Myanmar:-

(a)     to transfer state owned enterprises to the private sector in an orderly phase by phase manner;

(b)     to help the private sector entrepreneurs to acquire business skills;

(c)     to promote emergence and prosperity of national economic enterprises in the hands of the national entrepreneurs;

(d)     to prevent monopolization by  a private group in distribution of national wealth;

(e)     to carry out privatization on the basis of patriotic spirit.

Formation of the Privatization Commission

Myanmar introduced the privatization programme in 1995 with the formation of the Privatization Commission. The commission consists of twenty members and the chairman is Secretary 1 of the State Peace and Development Council. The commission is responsible for carrying out the task of privatization under the directives and guidance of the State Peace and Development Council. Valuation Committee and Land  Analyzing Committee are established as the technical working committee under the commission. The valuation committee is responsible for valuation of privatization candidates and the duty of the land analyzing committee is to analyze the land of the privatization candidates.

Privatization of state owned enterprises

The Privatization Commission has been privatizing state owned enterprises from some economic ministries since 1995.At present one hundred and sixty six economic entities from eight ministries were privatized by the decision of the commission.(Annexure) Most of them were cinema halls and other were factories, plots, buildings, saw mills and rice mills. Some saw mills from the Ministry of Forestry have been leased to the private entrepreneurs by the decision of the commission.(Annexure)

Experiences

The privatization programme of Myanmar has implemented for nearly eight years under the guidance and supervision of the Privatization Commission. Although it has met with a reasonable measure of success, some obstacles are encountered in implementing the programme. Many experiences are gained from the implementation of Myanmar privatization programme.

From the side of the entrepreneurs of the private sector inexperience in doing business can be seen as  a obstacle for privatization.  As  Myanmar has adopted and practiced centrally planned economic system for 26 years, most economic enterprises were stated owned  that have led to the inexperience in  economic activities on the part of private entrepreneurs. Economic activities sometimes involve large scale risk taking and the inexperienced national entrepreneurs lack the willingness to take risks.     In order to solve this problem training courses, seminars, discussion, sessions and lectures have been conducted to educate the private entrepreneurs.

Insufficiency of capital is one of the major obstacles of Myanmar privatization programme. It hinders the private entrepreneurs for taking over the state owned  economic enterprises. Due to lack of sufficient capital in the hands of national entrepreneurs, the number of proposals received from private entrepreneurs was  less than expected. This difficulty can be overcome by giving long term low-interest loans to private entrepreneurs, and by restructuring large economic enterprises into joint stock companies and selling shares to the public. In order to promote privatization and encourage the emergence of a capital market, the state has formed  Myanmar Securities Exchange Centre Co.Ltd. Reduction in import tariffs and offering tax holidays can also attract to increase investment in private sector.

The majority of employees involved in the implementation of privatization are inexperienced. To help them acquire the work experience and expertise in privatization, they have been allowed to attend seminars and skills development courses at home and abroad and enable to study the privatization experience of foreign countries.

In reviewing floor prices used in competitive bidding for transferring the state owned enterprises to the private sector, the value of  land is invariably found to be the highest. Floor prices is broken down  into land, building, machinery and furniture prices, land is major portion of floor price. The cities and towns have developed around the factories, the land on which the factories are located has become prime land. It leads to a great appreciation of land prices. Floor prices therefore are found to be high amount for buyers, who want to pay low amount. It affects  the momentum of Myanmar privatization programme.

At present one of the technical working committees, the Valuation Committee takes control of asset valuation of the privatization candidates. This committee is composed  of government employees from government departments and corporations, who are mostly familiar with finance and accounts. As a general rule, real estate such as land and buildings are revalued based on the current market price of surrounding real estate. The problem is revaluation of depreciable assets, including machinery, equipment and manufacturing facilities. It is difficult for financial experts to accurately evaluate such assets. Thus the members of the committee should be selected from a broad range of fields both private and public sector. Moreover the valuation of such depreciable assets should not be made simply based on the current value but calculation taking into consideration future cash flow.

According to the procedures of Myanmar privatization programme the state owned enterprises to be privatized shall be determined and defined by the Privatization Commission. No specific sectors or enterprises are targeted for privatization. The state owned enterprises vital to the security and management of the state and those that should be under state control in accordance with state policies are exempted from privatization. The followings should be in the  focus for Myanmar privatization programme:

(a)     enterprises with under utilized capacity;

(b)     enterprises where technology needs modernization;

(c)     enterprises where uneconomical use of inputs exits;

(d)     small enterprises and factories.

At present ministries select privatization candidates under their own arrangement  and forward  them  to the Privatization Commission for obtaining decision. The ministries with the power to make selection must look for candidates that will not contribute to the national economy or industrial policies, which benefit them. Thus the disadvantages of bottom-up selection should be eliminated. On the other hand the Privatization Commission strengthen its organization and has the authority to select potential privatization candidates. In  other words the commission should use top-down method in selection of privatization candidates. Hence it can select strategic industries and enterprises which match macro economic policy. Under this method privatization can be carried out with greater efficiency and fairness and transparency because ministry benefit and individual interests can be disregarded.

Lack of willingness to privatize in the part of some ministries also affects the momentum of privatization. In general the cause is their  misgivings about the adverse effects privatization may have on their staff in particular and the general public. These difficulties may be overcome by enacting legislation protecting the general public and by retaining ownership of the enterprise instead of selling out. Enterprises reformed as joint-venture or corporation, they should become privatization candidates.

For the time being the method of direct sale is generally used in Myanmar privatization programme. In addition, leasing the state owned enterprises to private investor is occasionally introduced by the decision of the commission. Direct sale is suitable for privatization of relatively small factories and facilities. However this may not   be the fairness may become it does not give enough people the chance to participate in the  privatization of state property. For privatization of middle and large scale enterprises  the method of selling shares in corporatized state owned  enterprises on the open market should be considered. But this method needs a capital market, which should be established as earlier as possible.

In Myanmar Privatization Programme terms and conditions have been prescribed for private entrepreneurs who want to buy state owned enterprises. Some of important terms and conditions are the buyer has to continue the same kind of economic activity after obtaining the state owned enterprises. In addition, no permission is granted to change to an economic enterprise unrelated to original economic activity. Although these terms and conditions are prescribed in general, some proposals from the private entrepreneurs are decided  on case by case basis by the Privatization Commission, according to the requirements of the state. Although this restriction is set on business changes for private entrepreneurs this should be considered for  leading newly privatizated enterprises onto success in improving environment and business restructuring. This can lead towards increasing momentum of the privatization programme of Myanmar.

Conclusion

The privatization experiences of many countries have shown that they acts as the driving forces for success of future privatization programme. Myanmar has been implementing the privatization programme gradually under the guidance of  the State  Peace and Development Council.  Some measures such as changing some procedures, establishing and developing capital market, learning the experiences and knowledge from foreign countries should be considered for successful implementation of the future privatization programme of Myanmar.