Rising incomes in Myanmar contribute to expanding middle class

In July 2015 the US-based fried-chicken restaurant chain KFC opened its doors for business in downtown Yangon, becoming the first Western fast-food restaurant chain in Myanmar. At the grand opening event and for a week afterward, locals lined up out the door and around the block. The fast-food restaurant’s evident popularity is just one of many recent signs that Myanmar’s middle class has grown rapidly in recent years. Additional examples abound, such as the fact that by April 2014 the number of vehicles in Yangon had more than doubled from 180,000 in 2007, according to the Yangon City Development Committee, suggesting both increased levels of discretionary expenditure and a growing appetite for relatively big-ticket items. The recent development of a slew of high-end specialty coffee bars in Yangon also reflects changing appetites and consumption habits among a burgeoning, largely urban, middle-class population.

Together, these changes signal a national socioeconomic shift that is driving local and foreign businesses to look at Myanmar not just as an export-oriented economy, but also as a significant market in its own right. “Since 2011 we have seen incomes jump dramatically among a wide swathe of the population,” Alexander Jaggard, Country Representative of Mekong Economics in Myanmar, told OBG. “It is clear that people are earning more money, particularly in Yangon, Mandalay and some of the larger border towns. This represents all kinds of opportunities across a range of economic sectors.”

Income Advancement

In July 2015 the World Bank reclassified Myanmar as a lower-middle income country, whereas previously it was a low-income nation. This upgrade is linked to Myanmar’s steadily improving economic performance over the past two years, and specifically to growing income levels across the population. According to World Bank data, the nation’s GNI per capita was at $1270 in 2014, which was the latest year for which the figure was available. This improvement pushed the nation out of the World Bank’s low-income economy bracket, which includes all states with GNI per capita of $1045 or less, and into the lower-middle-income economy bracket ($1046-4125). Myanmar was one of just 10 countries worldwide to jump brackets in the most recent GNI per capita revision. This builds on Myanmar’s exponentially expanding income base. Indeed, according to statistics from the UN and the World Bank, the nation’s per capita income nearly doubled between 2010 and 2014, rising from an estimated $800 per year to $1200 over the four year period.

Even as top-line GNI and GDP per capita are increasing, so too has the percentage of Myanmar’s population of over 51m that falls into the middle-class category. According to a 2013 report released by Boston Consulting Group (BCG), as of the end of 2013 some 5.3m people, or around 10% of the population, earned more than $120 per month, which was the minimum bar for middle-class status in Myanmar. Assuming current growth rates persist, this figure is forecast to nearly double to 10.3m people by 2020, according to BCG estimates. The firm’s report noted that around 27% of the population increased their discretionary spending over the 2012/13 period. By 2020 around 15.4% of the nation’s total population was expected to be classified as low-income or poor, down significantly from 23.1% at the end of 2013.

Enabling Framework

Underlying Myanmar’s steady march towards middle-class status over the past few years has been a raft of government-driven reforms and policies. State-led initiatives have been aimed at managing inflation and consumer prices, encouraging savings, boosting domestic involvement in the formal banking industry, ramping up education and training throughout the country, and improving national communications and transport infrastructure networks. All these have played an important role in ensuring that rising trade receipts, foreign direct investment and government revenues benefit not only the elite, but also the rest of the population.

According to a 2014 Asian Development Bank (ADB) report, “Myanmar: Unlocking the Potential – Country Diagnostic Study”, the key to ensuring continued middle-class expansion in the coming years is the ongoing diversification of the economy, with a particular focus on the manufacturing and services sectors, both of which have thrived recently. Longer term, the ADB report noted that while Myanmar’s youthful population is a key strength, “without substantial investment in human capital development… the potential demographic dividend could easily turn into a demographic curse”. With this in mind, education and health care are widely considered to be priority development areas for the country moving forward. Programmes and policies in these areas will likely constitute an important component of the National League for Democracy’s (NLD) plans.

Domestic Impact

Increased domestic purchasing power bodes well for a variety of economic segments. Myanmar continues to lag well behind most of its neighbours in East Asia and among ASEAN states in terms of consumption. According to the BCG report, as of the end of 2013 just four in every 10 consumers in the country frequented restaurants and only one-quarter took a vacation. Similarly, just 18% of urban consumers owned a washing machine. Since the telecommunications sector was liberalised in 2013, it has been a key indicator of the potential of domestic consumption. Yangon-based weekly Myanmar Times reported in June 2015 that from mid-2014 through mid-2015 mobile phone penetration jumped from around 33% of the population to nearly 55%, according to data from the Ministry of Communication and Information Technology. Two of the country’s three mobile network operators report that smartphones account for more than 80% of all devices that access their mobile networks, which suggests a tech-savvy user base with rising purchasing power.

The retail market has also benefitted from the jump in consumer spending associated with Myanmar’s burgeoning middle class in recent years. According to data reported by the Myanmar Retailers Association, during the period 2012-14 the nation’s retail sector posted growth of between 7% and 15%, depending on the product line in question. Key segments in this market include fast-moving consumer goods, food and beverage products, and vehicles, among others (see Industry & Retail chapter).

New Faces

A range of consumer-facing foreign multinationals have set up shop in Myanmar in recent years, in an effort to tap into rising levels of discretionary spending among the general population. In addition to KFC, both Lotteria, a South Korean fastfood chain, and Japanese fast-food brand Freshness Burger have set up shop in the country in the past two years. Coca-Cola, the US beverages giant, and a variety of foreign brewers have recently launched manufacturing operations in Myanmar, with the primary aim of serving the domestic market, but also eventually exporting to elsewhere in the region. Indeed, the relatively competitive cost of labour in Myanmar has made it a popular site for export-oriented manufacturing since 2011. In the automobile segment, in May 2014 German manufacturer Daimler opened a Mercedes-Benz showroom. Other car companies that opened showrooms in recent years include BMW, Jaguar Land Rover and Toyota, among others.

Challenges

Rising income levels present a variety of challenges. “As people have earned more money in recent years, income inequality has jumped, which has the potential to create various social pressures,” Jaggard told OBG. “And this has happened at a breakneck pace, which has only exacerbated these issues.”

Indeed, it is important to note that despite attracting a considerable amount of press, as of late 2015 Myanmar’s middle class was still quite a small percentage of the overall population. Most of the country’s citizens are still low-wage workers, primarily employed in agriculture. According to the 2013 census – the first national census in 30 years – just 0.5% of Myanmar’s population had all modern communication amenities in their homes – including a radio, television, landline and/or mobile phone, computer and internet – and 30.3% of the population had none of these items. Similarly, census data showed that only 3.1% of the population owned an automobile, while nearly 39% owned a motorcycle or moped.

Ensuring that the bulk of the country’s large, low-income population benefits from Myanmar’s ongoing economic and political development will likely be a key focus for the new NLD government in 2016. “There are huge opportunities in terms of developing the economy and providing a higher quality of life to the population,” U Maung Aung, an advisor at the Ministry of Commerce, told OBG. “The new government will have to work to take advantage of our many assets, including the large, young population, for example.”

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The Report: Myanmar 2016

Economy chapter from The Report: Myanmar 2016