One of the biggest challenges for business in Myanmar is simply getting started, according to the study. The licensing system is hopelessly complex. Ministries grant licenses for businesses operating in their sector, while most microenterprises are licensed by municipalities. National government licenses often require recommendation letters, from local police, health and fire officials; local and township administrators; and state and national ministries. The costs of obtaining these, in terms of both time and money, are immense. In a few sectors, informal restrictions prevent entrepreneurs from getting a license at all. According to the World Bank's 2014 "Doing Business" report, Myanmar is the most difficult country in the world in which to obtain a corporate operating license. These barriers deter entrepreneurs from sectors where licensing is difficult, and push them into less productive sectors such as small shops and restaurants.
Corruption is still common in Myanmar, especially among local government officials who interact with SMEs. Civil servants are poorly paid and have few incentives to refuse bribes: A college-educated staff officer makes about $150 a month, plus benefits. Penalties for corruption are enforced rarely and arbitrarily. Poorly designed laws also create loopholes that incentivize corruption. For example, businesses with an open tax file cannot renew their operating license, so tax officers keep these files open to encourage bribery.
Government services are generally poor, the legacy of decades of military misrule and corruption. Poor services prompt businesses to pay "tea money" to move things along. Another problem is the lack of accountability. Businesses rarely complain when their trash is not collected or their electricity fails, believing it wouldn't help. Then there are capacity issues: Government employees lack both the technology and the human capital to improve efficiency. Poor-quality public services are especially problematic for SMEs -- it is easier for a large factory to buy a cost-effective generator than it is for a small shop.
In addition, there is considerable overlap and uncertainty about authority in Myanmar. Recent reforms have created new governments at the state/region level, and a range of local committees. These hold great potential to improve government-business interactions. But it is still unclear how these new structures fit with existing parts of government, leading to confusion about where real authority lies. Officials are often reluctant to act until all authorities agree. The result is that, instead of different parts of government having different responsibilities, every part of government plays a role in everything.
Dealing with government is still a challenge for Myanmar's SMEs. If governments worked to simplify their complex licensing, de-incentivize corruption, improve services, and clarify the roles and responsibilities of different parts of government, the dividends for SMEs would be immense. Of course, there is strong institutional momentum after 50 years of socialist and military rule, so these changes will not happen overnight. However, reforming business governance is essential for the business environment that Myanmar's SMEs need to survive and thrive during the country's transition.
Jared Bissinger is a Yangon-based development economist and consultant, and author of "Subnational Governments and Business in Myanmar," a study conducted with the Asia Foundation and Myanmar Development Resource Institute -- Center for Economic and Social Development.
One of the biggest challenges for business in Myanmar is simply getting started, according to the study. The licensing system is hopelessly complex. Ministries grant licenses for businesses operating in their sector, while most microenterprises are licensed by municipalities. National government licenses often require recommendation letters, from local police, health and fire officials; local and township administrators; and state and national ministries. The costs of obtaining these, in terms of both time and money, are immense. In a few sectors, informal restrictions prevent entrepreneurs from getting a license at all. According to the World Bank's 2014 "Doing Business" report, Myanmar is the most difficult country in the world in which to obtain a corporate operating license. These barriers deter entrepreneurs from sectors where licensing is difficult, and push them into less productive sectors such as small shops and restaurants.
Corruption is still common in Myanmar, especially among local government officials who interact with SMEs. Civil servants are poorly paid and have few incentives to refuse bribes: A college-educated staff officer makes about $150 a month, plus benefits. Penalties for corruption are enforced rarely and arbitrarily. Poorly designed laws also create loopholes that incentivize corruption. For example, businesses with an open tax file cannot renew their operating license, so tax officers keep these files open to encourage bribery.
Government services are generally poor, the legacy of decades of military misrule and corruption. Poor services prompt businesses to pay "tea money" to move things along. Another problem is the lack of accountability. Businesses rarely complain when their trash is not collected or their electricity fails, believing it wouldn't help. Then there are capacity issues: Government employees lack both the technology and the human capital to improve efficiency. Poor-quality public services are especially problematic for SMEs -- it is easier for a large factory to buy a cost-effective generator than it is for a small shop.
In addition, there is considerable overlap and uncertainty about authority in Myanmar. Recent reforms have created new governments at the state/region level, and a range of local committees. These hold great potential to improve government-business interactions. But it is still unclear how these new structures fit with existing parts of government, leading to confusion about where real authority lies. Officials are often reluctant to act until all authorities agree. The result is that, instead of different parts of government having different responsibilities, every part of government plays a role in everything.
Dealing with government is still a challenge for Myanmar's SMEs. If governments worked to simplify their complex licensing, de-incentivize corruption, improve services, and clarify the roles and responsibilities of different parts of government, the dividends for SMEs would be immense. Of course, there is strong institutional momentum after 50 years of socialist and military rule, so these changes will not happen overnight. However, reforming business governance is essential for the business environment that Myanmar's SMEs need to survive and thrive during the country's transition.
Jared Bissinger is a Yangon-based development economist and consultant, and author of "Subnational Governments and Business in Myanmar," a study conducted with the Asia Foundation and Myanmar Development Resource Institute -- Center for Economic and Social Development.
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