Published on Mar 1, 2012 by Luke Hunt
ASIAWATCH — As Myanmar trades political reforms in return for an end to economic sanctions, businesses big and small are queuing-up for access to the region’s last totally closed economy. Luke Hunt reports entry will be dictated by political connections, financial clout, further reforms and need.
Chief among need will be food and infrastructure – roads, ports dams, electricity and access to clean water – but areas like health are also in dire need of investment. The World Health Organization ranks Myanmar 190th and the worst performer in the world in regards to health care.
Access to capital and appropriate partners are the biggest issues.
“Burma is one of the few frontier or ‘reservoir’ countries left — Cuba is another example — that have serious economic potential due to their resources and proximity to large developed or developing markets,” said Gavin Greenwood, a risk consultant with Hong Kong-based Allan & Associates.
China, Thailand and Singapore have been active in Myanmar for a decade while Japan, South Korea, India, the US and Europe have made recent forays and are easing sanctions. According to one analyst this was akin to “kicking the tires” to assess what’s possible and profitable.
Two large ports are already under construction. China National Petroleum Corp has begun construction of a 770km oil pipeline from Myanmar’s west coast to China with port facilities being built in Madeira.
That area offers access to nearby offshore oil and gas fields, existing port facilities which include a naval base, an existing airport at Kyaukphyu and a relatively deepwater and sheltered moorings for docking with an expected depth of up to 20 metres.
Importantly the pipeline highlights Burma’s strategic importance, providing an alternative route for China’s energy needs to the Malaccan Straits.
A massive $8.6 billion port and industrial complex is also under construction in Dawei in the south by Italian-Thai Development Co, which has a 60-year concession. The industrial park is massive, 16 times bigger than the largest of any such are projects already built in Thailand.
“Looking ahead 20 years from now, 2030, the economy around the Indian Ocean would be growing more than it is now given the fact there are at least two major countries located nearby – China and India,” said Somchet Thinaphong, Managing Director of Dawei Development Co.
“Burma and Dawei are in the middle. So this creates a uniqueness for new investments and we should immediately capitalize,” he said. “There is a route which represents a regional corridor, from Dawei passing through Bangkok to Vietnam. It’s a strategic corridor.”
More importantly, he says, will be Myanmar’s strategic importance within the 10-member Association of Southeast Asian Nations (ASEAN) which is aiming to become a fully integrated economic community by 2015, and the Dawei Special Economic Zone will become a hub of ASEAN.
Essentially the 2015 goal is a stable, prosperous economy capable of competing with the likes of China and India with the free flow of goods, services, investments and capital — based on a single market and production base. It’s an incompatible ambition with Myanmar’s trajectory of recent decades and something had to give, given Naypyidaw’s ambitions of hosting the ASEAN chair in 2014.
“The next big story is likely to be the new special economic zones, including along the borders with Thailand and China,” said Morten Pedersen, a Burma analyst with the University of New South Wales in Australia. “This should include agri-business, which is certainly a big priority for the government.”
He said from a developmental perspective with Foreign Direct Investments (FDI) increasing and broadening, a key issue in the coming years would be the quality of investment and this would also encompass human rights and environmental issues.
“It will be a long time before the Burmese government is able — even if willing — to exert proper supervision in this area,” Pedersen added.
Resource rich with a population of about 60 million, the potential size of Burma’s economy is comparable with Thailand and Vietnam but the immediate transitional period is expected to produce problems for an inward looking government and profit-demanding foreigners.
Nevertheless the idea of a politically correct Burma will no doubt tantalize business with potential opportunities thought unimaginable just six months ago.
“Burma is now entering its ‘age of reconnaissance’ as companies from countries that had shunned the country’s military regime for decades examine its potential as a market for their products or services or source of raw materials or low cost labour,” Greenwood added.
The list of companies lining-up is a who’s who of the corporate world.
Chief among Thai corporations are PTT, PTT Exploration & Production, Ratchaburi Electricity Generating Holding and Hemaraj Land & Development. These are likely to benefit from large infrastructure and border economic development projects.
Toyota Motor Corp and Honda Motor have expressed an interest in locating a production base at Dawei as part of a broader strategy to reduce costs. Japan has also indicated it will help bank roll the project, although it would also like to restructure debt currently held by the country’s military leaders.
Mitsubishi, Mitsui and Sumitomo, all from Japan, along with Malaysia’s Petronas , American conglomerate General Electric Co, Danish shipping Line Maersk and Indian group Jubilant Energy are also planning to invest in the hope of growing their bottom lines.
And amid the brouhaha that came with the release of political prisoners over recent months, other announcements were also made by the government which fielded much less coverage.
This included the awarding 10 onshore oil and gas blocks, by the far the biggest tender, to companies that included Petronas, PTT Exploration & Production and Jubilant.
However, just like the opening-up of Vietnam and Laos at the end of the Cold War, Cambodia once its civil wars ended in 1998 or Thailand 30 years ago, Burma remains a legal and political minefield dogged by corruption. Transparency International ranks Myanmar at 180 equal with Afghanistan, one spot ahead of Somalia and two ahead of North Korea, considered the most corrupt country on Earth.
“As far as I know, rules and regulations are one of the biggest obstacles,” said one Yangon-based political analyst who declined to be named.
“Here in Myanmar, there is no investment law, money exchange law, things like that. Nowadays, businessmen from abroad complain that there are no clear explanations for obstacles they face because there is no clear direction,” he said.
Those laws are expected to be discussed and legislation passed by the Parliament in upcoming sessions and are sorely needed for all levels of an isolated society. Copyright infringement in the arts is another major issue. Artists of all types, particularly musicians, have for years simply copied and sold works from abroad while claiming it as their own.
Banks are also keen to get involved, in particular UK-based Standard Chartered, Bangkok Bank, Siam Commercial and Krung Thai. But the country lacks an independent central bank, nor has it fully recovered from the 2003 crisis when 20 private banks or informal financial companies went bankrupt.
The black market flourishes on the dilapidated main streets of Yangon. Greenwood said another major hurdle to stepping-up low cost industrialization to kick-start a moribund economy is Myanmar’s human limitations.
Myanmar had a history of high quality English-orientated education but half a century of military rule resulted in the closure of the best universities and schools amid fears they would harbour student resentment and protests. According to Joshua Kurlantzick of the Council on Foreign Relations this was perhaps the most destructive blow dealt to Myanmar’s economic future.
Greenwood was harsher.
“The emerging population has been effectively uneducated, or even ‘diseducated’ – by the regime in what may be compared to a less bloody variant of the Khmer Rouge efforts to create supine, isolated and even physically weakened peasantry,” he said.
One possible solution touted is the return of educated exiles. However, analysts doubted the release of dissidents, political reforms and the prospect that Aung San Suu Kyi will win a seat in Parliament at the April 1, by-elections would be enough to entice those living abroad with well paid jobs to return home.
Despite the shortcomings, a business boom is already being talked-up. Last November the country’s industry minister declared the government was expecting an enormous inflow of foreign investment, mainly from Asia.
The price of industrial land has reportedly quadrupled in parts of Yangon on the back of a rumor mill running hot on speculation about the development of satellite cities and large construction projects.
Even the up-market travel agents are stepping in and offering boutique services out of Bangkok. One group, Khiri Travel, is offering tours around the country in a private and of course luxurious jet.
At US$8,500 a head a for four days and three nights, the company’s General Manager Edwin Briels, was optimistic in describing his target market as “high-end clients who want to be treated like millionaires” undertaking “one of the greatest little holidays in Asia”.
Currently, Burma’s main income earners are a little more modest. Garments and tourism, alongside timber felling – an abomination among environmentalists — and mining have provided limited financial returns for a government which has already privatized much of the country’s assets among the military.
While comparisons with Thailand and Vietnam are understandable, the reality is Burma sits squarely behind Cambodia and Laos, which have been transformed by a decade of unprecedented growth with both countries establishing stock markets.
“Myanmar could create a stock exchange within a couple of years but first it has to pass some new enabling laws,” said Doug Clayton, Chief Executive Officer of Leopard Capital, an investment fund that focuses on emerging markets.
Clayton has followed Myanmar’s fortunes for more than two decades and said real estate, hotels and consumer goods usually led the foreign investment wave into transitional countries but such investors in Myanmar faced peculiar hurdles such as sanctions, uncompetitive foreign investment regulations and a bizarre official exchange rate system.
“All this may rapidly change as Myanmar’s reforms continues but this is the reality as of today,” he said.
His sentiments were echoed by Morten Pedersen who added the economics in the early days of development of such countries was more about politics and Myanmar had the potential to become a serious regional competitor in areas like garments once sanctions are lifted.
“But this will take some significant progress in day-to-day governance, below the changes in ‘High Politics’ and governance approach that we are seeing at the moment,” he said, adding small investors were likely to see a quick rise in demand of the back of tourism.
However, he added it would take some time before an expat community was established, if at all, to support the levels of Western-style bars and restaurants seen in the other major cities around the region that often find support among the foreign donor community and NGOs.
“In fact, I am not sure this will ever happen – the Burmese are much more self-reliant and likely to continue to limit the role of aid agencies. And that’s a good thing, I think,” Pedersen said.
Either way, analysts agree Myanmar as a development story could run for decades, the process will be long, at times arduous — and the returns could be great for Myanmar and business alike — if the reforms initiated by the civilian government after it came to power in November 2010 remain on track.
This article first appeared in Spectrum magazine. It has also been re-published in the Phnom Penh Post.