Myanmar’s state-owned enterprises show how much reform is still needed

NOTHING has been made in the engine factory in Thagaya, in the south of Myanmar, since April last year. Yet around 350 employees still turn up each day. In 2016 government-owned factories like this one made a loss of more than $ 200m.

When Myanmar moved from military dictatorship to a form of democracy, its new government embarked on a series of reforms. Since 2011 it has passed at least two dozen laws related to the economy. Foreign investment, much of it from China, has helped the economy to grow at around 7% a year. But it remains one of the region’s poorest countries. And vast swathes of the economy remain untouched.

State-owned enterprises (SOEs) employ about 145,000 people and provide about half of government revenue, excluding foreign aid. They collect around 12% of GDP in fiscal revenue and spend about the same. But the junta-era law that regulates them is a vaguely worded two-page document that is silent on what they are supposed to do. It simply states which sectors are government monopolies and promises prison to anyone who encroaches.

Myanmar now has 31 SOEs. Some are decrepit industrial complexes like that in Thagaya, but others deal with juicy sectors such as airlines, gems, oil and gas, telecommunications and timber. Their economic impact is huge. They not only pursue commercial activities; most also collect taxes and regulate the sectors they operate in.

A recent report by two think-tanks, the local Renaissance Institute and the National Resources Government Institute, in New York, details their freedom from government oversight. The SOEs have no specific performance targets or formal appointment procedures for senior staff—most are run by former army men. Their accounts are kept by hand, in physical books. Audits consist of nothing more than checking bank statements against the figures they provide. Only their total budgets are reported to members of parliament, who do not get to see detailed line items.

Exceedingly conservative accounting rules require them to set aside 55% of their profits. Myanmar Gem Enterprise, for instance, holds enough cash to run itself for 172 years, earning no interest in a state-owned bank. In January 2017 SOEs held $ 8.6bn. Officials admit that much of that money is sitting idle.

Myanmar’s SOEs are not unique in the region in being legacies of dirigiste military rule. But they are probably the most opaque and badly run. Other countries generally require their counterparts to publish annual reports. Thailand’s have adopted international reporting standards. A few in the Philippines have private minority shareholders. Malaysia uses performance indicators for some SOEs’ managers. In China bosses’ pay is linked to performance (which, admittedly, encourages the fiddling of statistics).

There are a few glimmers of improvement. Myanmar’s government has joined an Asian forum on how best to monitor SOEs. It recently rid itself of a finance minister, Kyaw Win, who had been accused of corruption and admitted in 2016 that his PhD was fake. His replacement, Soe Win, may do more to promote oversight. He used to work for Deloitte, a global accounting firm, and sits on the board of the Renaissance Institute.

But formidable obstacles remain. Different ministries are responsible for different SOEs and the finance ministry has no control over their spending. Only Aung San Suu Kyi, Myanmar’s de facto leader, has the authority to pass reforms. But the economy is not her priority and she tends to tread carefully when it comes to the armed forces’ interests.

MPs from the lower house’s public-accounts committee are keen to look into the mess, says Aung Min, their chair. But they lack administrative support and, in many cases, expertise. And few other parliamentarians would welcome scrutiny of zombie factories in their constituencies. Workers in Thagaya, for their part, feel secure. The factory cannot close, one says, “because it belongs to the government”.

This article appeared in the Finance and economics section of the print edition under the headline “Living fossils”