MYANMAR: The new frontier

13/10/2012 | Elliot Wilson

Myanmar is rapidly opening after 60 years of isolation. Despite the hype, it’s unlikely to be plain sailing

There was just one international cashpoint in Myanmar this summer – and it was broken.

The stock exchange was stillborn on its launch 15 years ago, and just 1% of all Burmese have a bank account. Fewer than 0.1% of people own a mobile phone – and for good reason: the feeble network often fails completely, and until recently, a SIM card cost over $5,000.

And yet it’s hard to move in Yangon these days without tripping over business delegations. Every week seems to bring a new troupe of global corporates to Myanmar’s largest city, each keen to tap into the potential riches of this rejuvenated south-east Asian country.

In early July, the cream of the UK’s business community rode into town, led by Standard Chartered, Shell and BP. The US delegation came next, spearheaded by secretary of state Hillary Clinton and backed by 70 of America’s largest corporations, including Coca-Cola, Google and Ford.

France followed, then Germany, Italy and Australia. Each delegation appeared to meld into the last, with only the dates, accents, tongues and corporate names changing. There were – and are – good reasons for these corporate thrills.

Myanmar, formerly known as Burma, is opening up after 60 years of mostly self-imposed isolation, and international corporates are desperate to be the first to fill this breach and offer the country’s 60 million people shampoo, blue jeans, mobile phones and air conditioners.

As an official from the US state department told Emerging Markets over a coffee: “Get a global copy of the Fortune 500 list and go down it, ticking the names off. Each was here, is here, or will be here. They’d be stupid not to be.”

But four facts, in reverse order of gloominess, should be well remembered by corporate and capital investors as Myanmar opens up to the outside world.

First, this remains a desperately backward place, despite the investment that has continued to flow in – western sanctions notwithstanding – from China, Singapore and Thailand.

According to the IMF, the average Burmese earned $832 last year, placing the country alongside Tajikistan and Zimbabwe on the lower rungs of global wealth.

LACK OF CLARITY

That makes Myanmar less an emerging market than a frontier nation – and a basic one at that. Last year, Singapore consultancy Vriens & Partners ranked Myanmar 19th and last among all south-east Asian nations in terms of corruption, political stability and the rule of law. The World Bank couldn’t rank Myanmar in its global 2012 Doing Business report: there simply wasn’t enough reliable data available.

Second, economic, social and political progress, though rapid and even astonishing in its speed and scale since the accession of the reformist Thein Sein to the presidency in March 2011, can easily be reversed.

The US eased sanctions against American firms investing in the country this July.

Europe, Australia and Canada followed suit. US president Barack Obama praised

Myanmar’s “significant progress along the path to democracy”, following the release of Aung San Suu Kyi and the approval of independent trade unions.

New laws loosening the state’s grip over the media and boosting foreign direct investment are expected by the end of the year.

But sanctions and reforms, at this stage in a country’s development, are fragile concepts, dependent on a host of national events, not least elections.

For this reason, says Thura Soe-Paing, managing director of All Myanmar Investment Partners, a $50 million private equity firm jointly owned by Singaporean and Vietnamese investors, everyone’s eyes are on the general elections in 2015.

If as expected voters turn against the Union Solidarity and Development Party (the military’s political wing) and elect a fully democratic government, the military has two choices. It can either accept defeat and become part of the new economic firmament but with a diminished role, or cast aside the reform process and revert to full military control. “Only then,” believes Soe-Paing, “will we know if these reforms are for real.”

This creates a conundrum for foreign investors: to jump into the frontier state feet first, as General Electric and Coca-Cola are, picking up the rules as they go along, or to wait until 2015, when the country’s future – for better or for worse – is clearer.

Most here believe that current reforms are for the best – even many USDP advisers who, interviewed for this story, insisted the army has “given up the fight” and “just wants to become a normal part of a normal country”. Others aren’t so sure. “All these reforms are reversible very easily,” says Gareth Price, a senior research fellow and Myanmar expert at Chatham House in London.

BIG OPPORTUNITIES

But Myanmar has vast potential. Virtually no one here owns a branded product or has a bank account, but that is precisely what makes the country so exciting to global corporates, particularly those searching for the next emerging-markets story.

Plus, it is rich in other ways. Energy minister Than Htay in August estimated the country’s recoverable oil reserves at more than 200 million barrels, and its natural gas reserves at 22.5 trillion cubic feet, a figure that would catapult Myanmar into the energy-producing big leagues.

Other treasures lie in and under the country’s rich soil, from copper and iron ore to timber, agricultural products and precious metals.

If Myanmar does all the right things – setting out laws to attract FDI and then working alongside foreign firms – economic growth could purr along at over 8% annually for the next decade, reckons the Asian Development Bank.

The final point is more nuanced. In his 2011 book Monsoon: the Indian Ocean and the future of American power, Robert Kaplan depicts Myanmar as a global “hinge” vital to Asia’s and the world’s prosperity, acting as India’s buffer against China, and a natural barrier between the Gulf’s leading energy producer and Beijing’s oil-hungry model of state capitalism.

The outside world, it seems, needs Myanmar just as much, if not more, than this country of 60 million people needs reciprocation. After six decades of isolation, global corporations are inundating Myanmar, one of the world’s last great untapped frontier nations.

Time will be the only arbiter of their investment decisions. But for now at least, Myanmar is the hottest ticket in town. “I wouldn’t be anywhere else,” says Soe-Paing, born in Yangon, educated in America and Britain and back home via a corporate job in Beijing.

“Myanmar is the only place to be,” he says. “We have waited 60 years for this opportunity. We aren’t going to let it slip through our fingers.”

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