Much has been written about Myanmar over the last few months. Since US Secretary of State Hillary Clinton visited in December 2011, Myanmar has done much to aid the removal of sanctions imposed on the country since the early 1990s, which have crippled the country’s ability to attract foreign trade and investment.
Behind the headlines of Myanmar’s drastic political reforms lies the practical question of whether a country that has spent the last 20 years under Western sanctions, and a further 30 fighting civil wars, is able to provide a sound environment within which to do business.
Commentators from the international media have been quick to point out that, whist Myanmar’s political changes led by President Thein Sein appear to be sincere and among the most progressive within Asia, the country’s knowledge and industrial infrastructure remains severely outdated.
In fact, very little has changed since the mid-20th century and Myanmar is in need of rapid modernisation in order for it to become a viable international trading centre.
Paradoxically, Western governments and corporations do, however, acknowledge that vast riches await the one-time junta-run state. Others add that Myanmar’s economic future appears rather bright, subject to improvements in infrastructure and the lifting of trade sanctions.
Land of opportunity
Upon first glance of key facts and figures, Myanmar seems to be an attractive place to conduct international trade and investment. The country is blessed with a plethora of natural resources, including vast reserves of oil and gas, metal ores, precious stones and timber. According to the Myanmar government, the country’s natural gas reserves are estimated at 2.5 trillion cubic metres, which, at today’s prices, are valued at approximately US$210 billion, with deposits of copper and other metals pegged in excess of US$5 billion.
To date, China has been the largest investor in Myanmar’s natural resources. In 2010, this totalled over US$8 billion and included two hydropower dams, a natural gas pipeline from the Bay of Bengal to Yunnan province in China, and a copper mine.
Myanmar’s population of 53 million, too, bodes well for the country. According to United Nations Educational, Scientific and Cultural Organisation, or UNESCO, the nation’s literacy rate of 92% amongst adults is higher than those of neighbouring India, Bangladesh, Laos and Cambodia. Only China and Thailand are marginally superior at 94%. Plus, Myanmar’s labour costs are significantly lower than those of other developing nations within the region.
The large population also has manufacturers of consumer and everyday goods excited. To date, there are very few cars, shopping malls, supermarkets and high street brands that one normally associates with Asian economies. According to Reuters, Myanmar has fewer mobile phones per capita than any other country throughout the world, with the internet and home computers being equally as scarce.
Yet, anticipating a telecommunications rush, the Myanmar government has lowered its firewalls to allow access to social networking sites — such as Facebook and Twitter — and is set to pass new media laws that it claims are amongst the most liberal throughout the region.
Online retailing, too, is expected to commence later in the year with payment merchants reportedly in place. However, the number of online shoppers remains a concern for retailers, as, according to Gartner, credit card ownership is among the lowest worldwide due to sanctions that currently bar the use of US-based card merchants, such as Visa, MasterCard and American Express. To tackle this problem, Myanmar is likely to adopt a payments model similar to that of China’s Alibaba.com, where buyers pay for their goods via telegraphic transfer.
Arguably, Myanmar’s greatest strength lies in its geographical position, lodged between India, China and Southeast Asia — the heart of the world’s key economies. With its government targeting investment in infrastructure — in particular, rail, road and ports — Myanmar has the potential to become a key logistics hub that links all corners of the region.
In anticipation of increased volumes of international trade, in December 2011 the country opened a state-of-the-art airport outside the capital Naypyidaw, which reportedly can handle 65,000 flights per year (180 flights per day). Plus, a deep-sea port is currently being constructed on the country’s west coast — near Myanmar’s prolific gas fields — and is set for completion in 2014.
Despite this, business leaders have many reasons to be cautious about investing in Myanmar.
Regulation
Myanmar’s regulatory framework remains one of the biggest concerns for foreign companies looking to do business in the country. In fact, British-based risk consultancy Maplecroft declared in January of this year that Myanmar housed the “worst legal system” for business globally, due to its lack of regulatory transparency and outdated laws. In general, the country’s laws are more similar to those of an imperial industrial economy, rather than a modern and aspiring Asian knowledge-based economy, such as legislation in Singapore or Thailand.
Laws that are frequently criticised by Western governments and businesses alike include those pertaining to foreign direct investment, banking and finance, private enterprise, and the food and drug sectors. In addition, there are currently few, if any, regulatory institutions for corporate, employment, environmental, financial, legislative, judicial and securities matters. So, in the event that new laws are introduced, there is no regulatory body to enforce fair trade.
Banking and finance
Myanmar’s financial system, too, makes trading with the country difficult. As US dollars are currently prohibited, business must use either the local currency — the kyat — or those of other Asian nations, such as the Singapore dollar or Thai baht.
An added problem for local businesses is that despite officially trading at 6 kyats to the US dollar, the more realistic black market rate is approximately 800, with governments in the West claiming Myanmar’s foreign exchange mechanism to be rigged — a low exchange rate for the kyat means cheaper foreign imports.
However, in a bid to improve the situation, the country’s central bank recently requested the International Monetary Fund (IMF) send a team to Myanmar to advise on unifying its exchange rates, as well as lifting restrictions on international payments and transfers. The IMF’s analysis of Myanmar’s financial standing is still ongoing and is expected to conclude by June 2012.
Sanctions
Whilst sanctions, at large, currently only apply to European and American entities trading with Myanmar, and the usage of the US dollar for international trade, fellow Asian states remain coy about doing business with Myanmar.
Until recently, Myanmar was a somewhat taboo topic, particularly to neighbouring governments and businesses that heavily relied on trade with the West. Many political commentators believe that, until these sanctions are lifted, entities will continue to be cautious about trading with Myanmar.
Education
Despite the country’s impressive literacy rate, education and professional development appears to be lacking. By the government’s own admission, its education system is of poor quality, with most children leaving school after primary level, due to parents being unable to afford higher education. Similarly, a significant proportion of Myanmar’s workforce possesses little or no experience with modern technology and business practices.
Infrastructure
The same can be said for the country’s transportation, energy and telecommunications infrastructure, which apart from a select number of new projects have suffered from decades of neglect. An example of this is Myanmar’s rail network, which has remained unchanged since British independence over half a century ago. This is also the case for the country’s power grid, which frequently experiences power outages and is in desperate need of upgrading.
Despite Myanmar’s ambitious plans for the telecommunications sector, due to its lack of modern infrastructure, setting-up an internet connection will cost — according to The Economist — the equivalent of US$850, with monthly packages ranging between US$40 and US$150. A SIM card for a mobile phone currently costs US$700.
Corruption and civil unrest
Arguably, the biggest challenge preventing foreign trade and investment into Myanmar is its overt embracement of corruption. This not only discourages international business owners from arriving on Myanmar’s shores, but also makes day-to-day business activities extremely difficult and illegal for companies covered by anti-bribery legislation, such as British firms that are bound by the UK Bribery Act of 2010.
According to research compiled by Transparency International, only North Korea and Somalia are more corrupt, globally. However, since 2007 Myanmar’s government has taken large steps to try to curb corruption, yet it will be some time — if ever — before it becomes completely removed from the nation’s business agenda.
Likewise, civil unrest could prove to be the Achilles’ heel of Myanmar’s future business interests, particularly in the northern regions, where fighting frequently occurs between ethnic minorities and the ruling regime. It remains to be seen how today’s reformist government will act if faced with uprisings similar to that of the 8888 pre-democracy protests of 1988, where over two million civilians demonstrated country-wide against the military dictatorship of the time, resulting in the brutal killing of an estimated 10,000 protesters.
Today’s government has pledged political reform and a return to democracy. However, many political observers have reserved judgement.
The future
To many, why Myanmar has suddenly chosen to liberalise its economy — and, so quickly — remains a mystery. Some commentators claim the government’s fear of an Arab Spring uprising to be the primary catalyst, with others suggesting the country’s desperate need for external investment being the main driver. What is certain is that Myanmar offers a wealth of opportunities for businesses looking to capitalise on the nation’s vast amounts of natural resources and highly literate population. Plus, as Myanmar grows economically, so too will its middle class increasingly demand everyday consumer goods — businesses that supply these will do well to explore Myanmar’s many emerging opportunities.
However, the country’s vast trading opportunities are marred by its primitive and corrupt business environment, which, at present, challenges even the most ambitious and determined of businesses. Still, hope remains. The Myanmar government is committed to change and has already introduced ambitious reforms in order to make the country a foremost hub, free of corruption, for intra-Asian trade.
This won’t come easy, as the nation must rely on foreign investors from Asia and beyond in order to develop proper business infrastructure. Myanmar has plenty of pros and cons. Therefore, the question of whether it is able to provide a sound business environment which will allow foreign enterprises to thrive, becomes a matter of risk tolerance, rather than a simple yes or no.
This article was first published in HQ Asia (Print) Issue 03 (2012)