YANGON—Myanmar needs to speed overhauls and rapidly expand its impoverished economy before significant population changes in 2017, the OECD said in a report Thursday.
The Southeast Asian country, still suffering from the effects of years of isolated military rule, has a population of about 60 million people. Its population is expected to continue to grow in coming decades, but according to the report, the population is expected to start aging earlier than in comparable neighboring countries—including Laos and Cambodia—and push down Myanmar's comparative advantage to foreign investors and companies who are increasingly doing business there.
"Time is of the essence," said the Organization of Economic and Cooperation and Development in the report. "If the momentum for development is not seized now, Myanmar risks getting old before the incomes and living standards of its people can significantly improve."
According to United Nations data used in the Paris-based organization's report, the share of people aged 10 to 64 in Myanmar will start declining in 2017. Larger economies in the region that are further along the development ladder, such as Vietnam and Indonesia, will experience similar trends in 2020 and 2021, respectively. This charts a similar population trend that China has experienced in recent years, now facing a slowly aging population threatening to impair the growth of its lucrative manufacturing sector.
The report, written by both the OECD and the U.N. Economic and Social Commission for Asia and the Pacific, highlighted some of Myanmar's advantages over its regional neighbors. Trained labor is "excellent compared to many countries in the region," said Mario Pezzini, director of the OECD's development center and costs companies far less. In 2011, a factory worker in Myanmar cost an average of $1,100 a year, one-sixth of a comparable worker in China or Thailand.
Some of the world's biggest companies, including Coca-Cola Co. KO -0.44 % and Unilever, UL -0.45 % have recently invested in manufacturing plants in Myanmar. Held back for decades by Western economic sanctions aimed against the former military government's human-rights record, the two companies have pledged $1 billion to Myanmar's fledgling manufacturing sector over the next decade. More Western companies, including General Electric, GE 0.21 % plan similar investments.
On some other social indicators—including life expectancy and public security—Myanmar fares better than other countries in the same income bracket, including Bangladesh and Indonesia.
Still, Myanmar will continue to face challenges as it emerges from economic backwardness. It is still held back by bureaucratic structures inherited from the old regime. According to the OECD, the government still lacks financial resources—roughly 4% of Myanmar's gross domestic product, compared with 35% in OECD countries—which could hamper plans for development.
"We have been asleep for five or six decades, but we are finally trying to become a responsible member of the global community," Set Aung, vice minister for national planning, said at the launch of the report. "With limited experience, it is hard for us to come up with coping strategies."
The OECD encouraged the government to develop its local small and midsize enterprises, currently overshadowed by military-linked enterprises and state-owned companies. There are only six SMEs per 1,000 people in Myanmar, compared with 40 in neighboring Thailand. The report said the government has to level the playing field among the different types of companies and provide better access to capital and credit for small business owners.
U Myint, chief economic adviser to the government, said the country "does not want to catch up with Cambodia or Laos"—which he says would "not be challenging enough"—or regional financial powerhouse Singapore, which he says would be impossible. Instead, Mr. U Myint said the benchmark for Myanmar should be Malaysia, where gross domestic product is more than five times as high.
The biggest impediment to this, Mr. U Myint said, is the "lack of co-ordination between those involved in the reform process" and in-fighting between different authorities.
Just weeks ago, Myanmar's closely watched telecommunications license bid—awarded to Norway's Telenor AS TELNY -0.77 % A and Qatar's Ooredoo QSC QSCYY 0.00 % —was almost delayed by a parliamentary vote to hold back announcing the winners until legislation governing the sector was passed. The vote wasn't upheld by the presidential office and the award went ahead as planned, boosting investor confidence in tender processes.