Economy Burma's Busy Black Economy 'Threatens Reforms'

Burma’s black market economy is not only costing the country heavily in lost tax revenue, it’s undermining President Thein Sein’s reform efforts.

It can be as small as a mobile phone, as long as a felled teak tree, or as bulky as a four-door sedan. The size of the goods doesn’t seem to matter in Burma’s thriving black market economy.

Someone somewhere is simply turning a blind eye or taking a bribe to help keep the illegal cross-border trade—worth tens of millions of dollars—in operation.

It’s not only costing the country heavily in lost tax revenue, say observers, it’s undermining efforts by President Thein Sein and his government to turn Burma into a successful democratic market economy.

“Decades of corruption and mismanagement have resulted in a network of crony officials and businessmen who still illegally trade in the country’s natural wealth, ranging from gem stones to timber to oil and gas,” Billy Tea, a research fellow at the Pacific Forum Center for Strategic and International Studies in Honolulu, wrote in the Asia Times.

“The country’s weak capacity promotes the continuation of old ways and reinforces the space for non-state actors to pursue their illegal activities, thereby restraining the country’s transition toward democratic governance,” Tea added.

An acute shortage of properly trained administrative managers and the lack of adequate law enforcement or judicial authority “severely hinders the state’s ability to respond and properly prosecute illegal activities,” Tea says.

Burma’s Ministry of Commerce admitted last month that cars were being smuggled into Burma via multiple land crossings, mostly from China and Thailand. The ministry has also conceded that more than 100,000 mobile phones were illegally imported in the April-June period this year in preparation for the expansion of the national wireless network.

“It strikes me that the changes in Burma will have stimulated two opposing effects on the informal economy,” Australian economist and co-editor of Burma Economic Watch Sean Turnell told The Irrawaddy on Monday.

“On the one hand, we might expect it to be reduced, as more activity moves into the formal sector. Foreign exchange dealing might be one example of this,” said Turnell, who is also a professor at Macquarie University in Sydney. “On the other, there are now more opportunities for cross-border business activity. Yet, faced with the obstacles and bureaucracy, some of this will spill over into a more ‘enabling’ informal sector. That is, to get things done in Burma, often one must step back into the shadows.”

Noted cronies of the military regime era who are still on US blacklists are evidently thriving in the Thein Sein era too.

Pioneer Aerodrome Services, a subsidiary of Asia World, has just this week reportedly been awarded a government contract to modernize Rangoon International Airport.

Asia World is controlled by Steven Law, who also known as Tun Myint Naing and was blackballed by the US government for links with the former military regime and Burma’s illegal drugs trade. It is still illegal for US companies to have business dealings with Law, but he has openly formed a consortium with China Harbour Engineering Company and Malaysia Airport Consultant Services to work on Rangoon International Airport.

Other companies that put in bids for the airport contract have already questioned the selection of Law’s company, a decision made by the Department of Civil Aviation, which does not have to disclose the reasons for its choice.

In May, a company owned by military regime crony and US blacklisted Burmese businessman Tay Za was given a contract to control all import and export cargo handling services at Rangoon International Airport. Mingalardon Cargo Services, a subsidiary of the Htoo Group of Companies, was awarded the concession by the Department of Civil Aviation, which said there had been bids from three companies.

The Htoo Group’s business is growing under Burma’s economic reforms and now includes mining, farming, hotels, an airline and banking.

Tay Za was placed on a US government blacklist for his close links with the former military regime of Gen Than Shwe. In the past he has been accused by the United States of involvement in trade in weapons and drugs, and in money laundering.

In Tea’s view, because senior military officers and their close associates are still involved in illicit trading, “any significant moves to curb to them could destabilize Thein Sein’s quasi-civilian regime” and thereby threaten to end the president’s reforms.

The re-opening of US and European markets after years of isolation through sanctions is intended to not only encourage formal, legitimate trade but also provide help in anchoring Burma’s recent reforms.

“Trade is fun­da­men­tal to sup­port­ing polit­i­cal sta­bil­i­ty and the EU’s trade pref­er­en­ces mean we will give this reform-mind­ed coun­try pri­or­i­ty access to the world’s larg­est mar­ket,” European Union Trade Commissioner Karel De Gucht said in July. “The EU is also going to help [Burma] boost the capac­i­ty of both pub­lic and pri­vate firms to make use of these new oppor­tu­ni­ties.”

But that is of little interest to the crony business operators and their cohorts, especially those still on international blacklists.

“All in all, it must surely still be the case that the informal economy is at least as big as its formal sibling,” Turnell told The Irrawaddy.