Cargojet Inc. chief executive Ajay Virmani said fuel prices and labour challenges suggest a recession is looming.
BANGKOK — The military coup in Myanmar is unlikely to do the country’s struggling economy, once considered a promising “last frontier,” any good at all.
Myanmar’s economy has languished as the pandemic added to its challenges and the prospect of fresh Western sanctions in the wake of this week’s army takeover will only make things tougher for those on the ground, economists say.
It’s unclear if China might help make up for lost business due to the increased political risks and potential for turmoil if public anger over the ouster of massively popular Aung San Suu Kyi and fellow civilian leaders erupts in mass protests.
Apart from raising the risk of political unrest, economic sanctions and other disruptions, the coup likely will prove to be a huge setback to efforts to improve Myanmar’s investment environment, curb crony capitalism and build a more sustainable path to growth.
“With this kind of situation the sad thing is that you don’t even need to put sanctions in place because the dire economic consequences of the conflict, combined with what happening now makes the country look very unstable and not the right place to invest right now. So the repercussions are immediate,” said Laetitia van den Assum, a former diplomat and a member of the Advisory Commission on Rakhine State, which was set up by former U.N. Secretary General Kofi Annam to improve Myanmar’s treatment of minority Rohingya Muslims.
The military seized power shortly before a new session of Parliament was to convene on Monday, declaring its actions were legal and constitutional because Suu Kyi’s government had refused to address voting irregularities in November’s election, which her National League for Democracy won in a landslide.
That provoked a rush to ATMs and food stalls. TV signals were cut and passenger flights were grounded. Authorities urged calm, while moving to suppress dissent through Facebook and other social media.
Commander-in-Chief Senior Gen. Min Aung Hliang, who now controls the government, met with business leaders and pledged to maintain financial stability and “continue work on international projects.”
Meanwhile, the central bank promised it would not demonetize any of the currency, a reasonable fear: three past demonetizations provoked much anguish and anger.
“The general public can continue using the banknotes and banking services without any worries, and all the banks have been instructed to provide regular banking services,” the Central Bank of Myanmar said in a notice.
The economy already was faltering before the pandemic. Sian Fenner of Oxford Economics estimates the coup will likely cut growth this year by half, from an earlier forecast of 4.1% to 2%.
The past decade’s average annual growth rate of 7.6% had slowed to just 2.9% in 2019. Last year, the World Bank estimates the economy grew 0.5%.
The economy’s performance fell short of popular expectations as growth benefited a tiny part of the population and reforms took a back seat to efforts to end decades of ethnic civil conflict. Tourism has suffered and new sanctions were imposed following a 2017 counterinsurgency campaign that drove about 740,000 of the mostly Muslim Rohingya to flee the country.
Min Aung Hliang is one of four generals who were blacklisted by the U.S. Treasury Department for the military’s abuses in Rakhine and other ethnic majority regions.
Given the recurring risks of falling afoul of such sanctions, many U.S. companies have held back on major direct commitments, instead opting for local partnerships. Fast food giant Yum! Brands Inc., for example, opened its first Kentucky Fried Chicken outlet, a franchise with local partner Yoma Strategic Holdings, in downtown Yangon last year.
President Joe Biden said Monday the coup would bring an immediate review of U.S. sanction laws, “followed by appropriate action.”
“We will work with our partners to support restoration of democracy and the rule of law, and impose consequences on those responsible,” he said in a speech to State Department employees on Thursday.
The potential impact of sanctions would depend on how far-reaching they are. Many Western brand names, including Samsonite, LL Bean, H&M and Bass Pro, have suppliers in Myanmar, based on shipping data from Panjiva.
Exports of clothing, shoes and other consumer goods are a vital source of growth. They doubled after the European Union in 2015 began allowing preferential imports from Myanmar under an “everything but arms” arrangement in recognition of the country’s progress toward democracy.
The garment and textiles sector employs 450,000, mostly women, in more than 600 factories, according to the Myanmar Garment Manufacturers Association.
“The development of a competitive low-end manufacturing sector has traditionally been the route out of poverty for low-income countries in Asia, so throttling textiles would have lasting repercussions,” Gareth Leather of Capital Economics said in a report.
Japan’s Kirin Holding Co. announced Friday it was ending its joint venture with the military-linked conglomerate Myanma Economic Holdings PLC, whose board is entirely composed of military leaders.
“Given the current circumstances, we have no option but to terminate our current joint-venture partnership,” Kirin said. “We will be taking steps as a matter of urgency to put this termination into effect.”
The military, which had ruled Myanmar for five decades, does not have a strong track record on handling the economy. Beginning in the 1990s, foreign investment rose as the leadership began sporadic efforts to modernize and reopen the economy.
Business and tourism revived as a result of a transition to a civilian, quasi-democratic government a decade ago. Poverty dropped from about half of the population to just over a quarter, according to the World Bank. But rural areas, home to about 70% of the population, still lag far behind.
The coup threatens the short-term outlook for investment and foreign business, but also the longer-term potential for growth, says Fenner of Oxford Economics.
It is likely to delay or perhaps derail the government’s efforts to improve the business environment, build up a modern banking system and other financial industries, cut corporate taxes and move ahead with “strategic infrastructure projects,” he noted.
Myanmar has made progress in some areas in recent years, including compliance with anti-money laundering standards, opening a stock exchange and enacting a financial institutions law. The government was preparing to implement a medium- to long-term economic resilience and reform plan after the election.
But the military has retained ultimate control both of the government and much of the economy, enabling cronies to dominate lucrative trading in gems and other natural resources. Private businesses are starved of cash while investment in schools, health and other vital foundations of future growth has suffered.
“You need the kind of investment that helps you build and adapt to climate change, that helps you to make your economy more sustainable in the long run. You need innovation. And that’s not going to come from crony capitalism,” van den Assum said.
Milko reported from Jakarta, Indonesia.
Elaine Kurtenbach And Victoria Milko, The Associated Press
Near the start of the war, as the sanctions piled up, the Russian economy was thought to be doomed, possibly forcing President Vladimir Putin to sue for early peace. Almost three months later, there is no sign that a peace deal is about to be negotiated, nor is there much sign that the Russian economy is collapsing. The two may be related.
Yes, the Russian economy is hurting and no doubt in recession. But the economy is also showing annoying signs of resilience, in good part because oil and natural gas revenues are climbing even as Europe tries to wean itself off Mr. Putin’s hydrocarbons as punishment for having launched an unprovoked war that is killing an alarming number of civilians and triggering war crimes investigations.
Last week, the International Energy Agency said that Russia’s oil revenues are up 50 per cent this year even though some refiners are refusing to take Russian shipments. But other refiners are buying as much as they can – China and India are gobbling up the cargoes no longer wanted in Europe and North America. Moscow has been earning about US$20-billion this year – money that is used to fund the war – from the sale of crude and refined products.
At the same time, the sanctions, coupled with the proposed embargo on Russian oil exports to Europe, are putting the Europeans into a low-grade panic that is intensifying by the day as energy prices soar and across-the-board inflation takes off – always a popularity-shredding recipe for any ruling politician.
This week Italian Prime Minister Mario Draghi, calling for a ceasefire and the start of peace talks, indicated that the country’s support for the war is waning. Italy was one of the European countries most dependent on Russian energy and one of the biggest exporters to Russia – until the war began. Recent polls say nearly half of Italians now oppose sending arms to Ukraine and a similar proportion say that Russia should be handed Crimea and the eastern parts of Ukraine it now occupies, if doing so is what it takes to end the war. The figure is double the level of those who think Ukraine should fight to reclaim the territories lost to the Russians.
Sanctions and embargoes are tricky, often hazardous, pursuits. The working idea is that those on the receiving end should suffer far more than those delivering them. In this case, the pain is shared by both sides, though Russia is suffering more. Still, as energy writer Irina Slav points out, Europe’s assumption – that Russia needs to sell Europe its hydrocarbons more than Europe needs to buy them – may not hold true.
Take Hungary. The European Union is struggling to ban oil imports from Russia because Hungary is completely dependent on Russian oil; its economy would shut down without them, all the more so since most of its refineries are incapable of processing non-Russian oil. About two-thirds of Hungary’s oil, and more than 80 per cent of its gas, come from Russia.
And because much of the rest of Europe is addicted to Russian hydrocarbons too, the sanctions are taking on a two-sided flavour. Finland revealed Friday that Gazprom, the Kremlin-controlled gas giant that holds a monopoly on Russian gas exports, will cease gas supplies to Finland on Saturday (since Russia supplies only 5 per cent of Finnish gas, the move won’t hurt much but will act as a warning to the European heavyweight economies far more reliant on Russian gas, notably Germany and Italy).
The sanctions and embargo wars, like the war in Ukraine itself, are getting ugly, with no obvious winners or losers. The West is still waiting for the Russian economic implosion.
In March, shortly after war started, JPMorgan predicted a 35 per cent fall in second-quarter Russian GDP over the same period in 2021. Earlier this month, the Wall Street bank said the GDP hit would likely be less severe than it had forecast. They wrote that the data “do not point to an abrupt plunge in activity, at least for now.”
One of the reasons for Russia’s relative rude health is the country’s oil and gas export revenues are not only intact – they’re rising – even as the EU tries to curtail, and ultimately stop, imports of those fuels (the United States and Canada have already banned Russian oil and refined oil products).
Russia was making fortunes from oil and gas revenues even before the war started as global demand rose. Oil began to surge about this time last year as pandemic restrictions eased off and economies bounced back to life. Brent crude, the international benchmark, is up 73 per cent in a year; OPEC undershooting its oil production target is certainly adding to the upward price pressure, much to the irritation of the Americans. Mr. Putin is not complaining.
As Russia’s hydrocarbon revenues rise, its current-account surplus, which includes trade and some financial flows, is hitting record levels. The Institute of International Finance recently estimated that Russia’s surplus could hit US$250-billion this year, about double the figure recorded in 2021. Meanwhile the Russian ruble, which got slaughtered in the early days of the war, has rallied and is one of the top performing currencies in the world, in part due to capital controls and Moscow’s insistence that Gazprom be paid in rubles, not dollars or euros.
To be sure, Russia is suffering. Various Russian and international forecasts predict Russian GDP will shrink by 10 per cent this year. Russia’s central bank is hobbled by the sanctions on its foreign exchange reserves and Western companies are leaving in droves (though Russian companies are picking up some of those discarded assets at fire sale prices). But the country is not suffering enough to be motivated to end the war to save its economy. That may change, but probably not anytime soon.
If you’re looking for a free outing that’s good for all ages, the Great Northern Ontario Roadshow is in the city this weekend.
The event is taking place Saturday and Sunday from 10 am to 4 pm outside the North Bay Museum.
Ryan Land, Director of Education and Northern Programs with Science North, says the two-day event features demonstrations and activities with the Science North bluecoats, a staycation expo, and so much more.
“We’ll have activities for, we like to say, kids of all ages 0-99, there will be food vendors and we have a big stage set up where we’ll have local entertainment. It’ll be MC’d by northern comedian Ron Kanutski, and we’ll also have local musicians performing,” he says.
Land says the roadshow, which is touring across 50 communities, will attract 70,000 visitors.
“It really is all about re-energizing the local economy and tourism, inviting out makers, growers and vendors to just supercharge the local economy a little bit as we all start to recover on the back end of the pandemic,” he says.
The event will also highlight some of the private and public tourist attractions and natural wonders around the North.
Cargojet Inc. chief executive Ajay Virmani said fuel prices and labour challenges suggest a recession is looming.
“All the challenges that you see out there [are] pointing towards almost a recessionary economy,” he said in an interview with the Financial Post’s Larysa Harapyn.
Virmani has a unique sightline on what’s happening in the economy. Cargojet had a good crisis, as the Mississauga, Ont.-based airline tripled its loads as consumers started ordering goods for delivery that they typically would have purchased at a store. Year-over-year revenue growth increased by 46 per cent in the quarter ended March 31, rising to $233.6 million from $160.3 million in the first quarter of last year.
Despite beating earnings expectations, Virmani said that business has levelled off since 2021. “That was a bit of a different story,” he said. “Today, it’s a very different picture.”
The once-fluid supply chain has faced numerous disruptions, including blockades, floods, and shortages. The chaos of the past couple of years has generated debate about whether supply chains will be shortened, as manufacturers and retailers seek suppliers closer to home to reduce the risk of being left with empty storerooms in the future.
Virmani said he isn’t seeing that yet. But he is seeing firsthand the extreme labour shortages that have come with the recovery from the COVID recession.
“Our biggest challenge right now is making sure that we can have people on the ground,” said Virmani. ”Inflation is a big factor, especially when you have wage rates go up 20 to 30 per cent to find any decent people to work.”
“Everybody’s increasing prices,” said Virmani. Examples of recent price hikes in the airline industry include airport landing and parking fees, NAV Canada navigation charges, and jet fuel prices.
Passing on inflationary costs has been tricky for Cargojet because many of its customers have locked-in contracts.
“You’re not able to pass on 100 per cent of those charges,” said Virmani. ”It’s kind of hard to jam through every area of increase to your customers because there’s no ability for them to pass [it] on either,” said Virmani.”
Cargojet has been branching out into the international market as part of its growth strategy in the post-pandemic world.
“I’ve always said that Cargojet needs to diversify,” said Virmani. “We have the infrastructure in place, we have the resources in place, so basically we had to get some planes and people to fly them.”
The airline used to be primarily domestic – 80 to 90 per cent of its business, Virmani said – when it launched in 2001. Its business has since evolved, and domestic orders now account for only 50 per cent of business, the CEO said.
“It’s like McDonalds. They used to serve you lunch and dinner and they added breakfast to their menu,” said Virmani. “We have added sort of our version of breakfast which is international to the menu.”
Air Canada recently expanded its fleet with the acquisition of new freighter aircrafts. But Virmani said it has done little to change the playing field for Cargojet.
“International is a big market,” he said. “We’ve got a business plan and we’re going to execute it.”
At home, Virmani said Cargojet is shielded from Air Canada and other competitors because few have been in the business for as long as he has. Cargojet has taken over 20 years to build its network in the Canadian market, and that has value, the CEO said.
“There’s a cargo pedigree. There’s a cargo system in place. Minutes matter and I don’t think that anybody who wants to expand in that market field will have great luck,” said Virmani. “You have got to spend a lot of money, or you have got to spend a lot of time on it – and we’ve done both.”
• Email: email@example.com
What’s Next for the Real Estate Industry?
Canada’s first two monkeypox cases confirmed in Quebec, others under investigation
Taxes in Canada: 5 Things Immigrants Need To Know
Your Guide to the Toronto Tech Scene: What’s Happening and Why Now?
Blood moon, big city: Skywatcher captures total lunar eclipse over New York – Galaxy Reporters
Hockey’s Battle Of Alberta Is Back
Russian vodka, caviar and diamonds on new Canadian sanctions list
Home sales tumble again as mortgage rates surge – Business News – Castanet.net