The elected government of Myanmar deserves credit for improving fundamentals such as the rule of law and tackling corruption, but many challenges remain and some shortcomings are becoming more apparent as economic development progresses, say business executives.
They believe there is still plenty of opportunity for public and private investment in the energy sector to address chronic electricity shortages, which must be overcome if the economy is to move forward.
But creating a business climate in which investors feel confident is also important and in this respect the civilian government is making progress, said Thomas Klotz, managing partner for Southeast Asia with the strategy consulting group Roland Berger.
"These are important fundamentals and they are very wise in doing that," he said at the Myanmar Insight 2017 forum held in Bangkok earlier this month. "There is no long-term sustainable development without improving them and there is a lot of recognition that [combating] corruption has improved."
Even though corruption still persists in Myanmar, the climate has improved substantially when compared with five years ago and the effort "should be applauded", he said.
Myanmar has been adjusting to life under a civilian administration, after nearly six decades of military rule, since the government led by the National League for Democracy (NLD) took office in March 2016, following its landslide election victory four months earlier.
Plagued by endemic corruption, the country has consistently ranked near the bottom of the Transparency International Corruption Perceptions Index (CPI), in 180th place out of the 183 countries surveyed 2011, with a score of 1.5 on a scale of zero to 10. It improved to 147th in 2015 and moved up to 136th out of 176 countries last year, with a score of 28 out of 100.
The NLD has made combatting corruption part of its key governing ethos. State Counsellor Aung San Suu Kyi has banned civil servants from accepting gifts worth more than 25,000 kyat (US$18.50) in an effort to stamp out "tea money".
Nevertheless, there are still significant challenges for anyone doing business in Myanmar, most notably the lack of trained staff and lack of clarity on the government's economic policies.
"Interestingly, the availability of trained staff has improved when compared to last year but the government's policies have not," Mr Klotz said.
Myanmar has the highest dropout rate in Asean, from primary and high school, at more than 55%. But there are also people who are very motivated and eager to learn, and this is something that businesses can take advantage of.
According to Roland Berger's Myanmar business confidence survey, 41% of respondents say that lack of skilled staff is a very significant issue and for 85% it is the most significant one. The survey taken in August and September 2016 was based on responses from 200 senior executives from small to large businesses.
Most companies say that most of their investment in the coming years will be on employee development and training, but higher-skilled workers present the added challenge of rising labour costs, which 68% of firms say could be an issue.
"If you are a company in Myanmar, you can hire them, you can train them, you can develop them and yes, there are issues with turnover and the heavy increase of salaries over the last few years, but these are things that the company can do something about," Mr Klotz said, adding that most of the labour cost complaints came from local SMEs as international corporations tend to be used to dealing with such issues.
"Some of the initial high (GDP) growth has calmed down a bit and we are seeing that some costs have been rising rapidly in Myanmar, like the cost of office space for instance or the cost of staff, which is starting to level out a bit, and that is not necessarily bad news," said Mr Klotz.
Among areas where the government needs to improve, clearer rules are essential for key sectors, such as energy, utilities, transport and financial services, if Myanmar wants more foreign investment.
While the new investment law has been welcomed, the business community says what is still missing is a programme broad enough to cover the major parts of the economy and specific enough to build business and investment plans on.
Because the government has been slow to clarify its economic policies, the advantage of the goodwill created by the change in government and lifting of sanctions is evaporating.
The majority of firms surveyed said the lack of a clear economic policy, an unpredictable legislative environment, selective enforcement of regulations and lack of intellectual property rights protection are all major obstacles to business growth and investment.
The government clearly faces a "huge range of challenges", but where businesses are concerned, 90% say energy supply problems top the list. "This is not surprising because we all know that the lights can go out at any time in Myanmar," said Mr Klotz.
According to World Bank surveys in 2016, Myanmar has the highest percentage of firms experiencing electrical outages in Asia at 94.9% every month. The duration of outages is, however, low at 1.3 hours on average which is lower than the East Asia Pacific average of 4.3 hours. But the problem still contributed to losses of around 2.5% of annual sales every year.
According to Myint Oo, deputy director-general at the Ministry of Electricity and Energy, the country derives most of its electricity from hydropower while the use of imported liquefied natural gas (LNG) has also been growing in recent years. The country is now generating electricity at an annual loss exceeding 300 billion kyat ($220 million). For the 2017-18 fiscal year, the ministry estimates electricity demand could hit 3,100 megawatts with a loss of around 376 billion kyat.
The ministry has also formed a central committee to oversee LNG imports with financial assistance from the World Bank and International Monetary Fund. Tendering for the LNG supply is expected to start later this year.
Chaiyot Piyawannarat, managing director for Thailand of the power grid maker ABB, told the Myanmar Times in August that the country doesn't need to spend large sums to develop its existing infrastructure. New microgrid technologies, or low- or medium-voltage grids located at or near consumption sites, can generate power from both renewable and conventional sources and could be the answer for energy supply problems.
He said new microgrid technologies, equipped with energy storage systems that can run on batteries, could be connected to the main power grid or be completely off-grid. They can now be built and installed much more cheaply compared to 10 years ago. Microgrids would also lower the government's burden from subsidies used to keep power prices low.
U Soe Myint, the ministry's permanent secretary, has said that the government was spending 333 billion kyat a year on subsidies and supplying electricity to just 37% of the country.
However, the biggest hurdles that energy companies have to overcome in introducing microgrid technology in Myanmar are the environmental impact and objections from local residents who fear displacement.
The government, meanwhile, will continue to focus on gas from three offshore fields -- Yadana, Shwe and Zawtika -- despite a natural decline in some reservoirs. As well, new offshore projects in the pipeline include Blocks AD 7 and A6 off western Rakhine and Block M3 in the Gulf of Moattama.