Emerging Myanmar: Risk versus reward

“This is Burma, and it is quite unlike any land you know,” wrote Victorian author Rudyard Kipling in his Letters From The East in 1889.

Roll forward to the present day and, while much of the rest of the world is struggling to shake off the gloom of the global financial crisis, getting to know Myanmar as it is now called is one of the hottest topics on investors’ lips.

Rich in oil, gems and other resources, with a young workforce and a strategic location bordering the giant Asian economies of India and China – on the face of it Myanmar has much to tempt.

Indeed a report released by the IMF last year said Myanmar has the potential to become “the next economic frontier in Asia”.

Another recent study, published by the McKinsey Global Institute, described Myanmar as “perhaps one of the few remaining, largely untapped markets in the world”.

The McKinsey report noted that while Myanmar’s economy is currently tiny – representing just 0.2 per cent of the overall Asian economy – it has the potential to more than quadruple in size to over $200bn as early as 2030.

Hibernation

bus280As emerging economies go then, you don’t get much more emergent than Myanmar.

So when Myanmar’s recent political reforms began, it was inevitable that the country would see a torrent of potential investors lured by the prospect of one of the last virgin markets.

“Myanmar is emerging from 60 years of hibernation,” one analyst told a recent business forum in Singapore. It is indeed a remarkable and rare opportunity that a country of 60 million people is suddenly open for business, he said, “but this is not paradise”.

Caution is the operative word – and patience.

Larry Jagan, a freelance journalist and former BBC News editor who has spent many years covering Myanmar, told NUS the catchphrase among many potential investors is “the three Ls” – short for look, learn and leave.

Change is certainly happening and at a rapid pace. But add to the mix widespread inexperience, a massive skill shortage and deeply-entrenched crony interests – linked to the still-powerful military – and change can produce uncertain results.

Indeed, says Jagan, the biggest challenge to the reform process itself is the lack of actual human capacity to carry them out.

Brain drain

ThinkAloud4Under decades of military rule Myanmar haemorrhaged talent – a brain drain that was fuelled by a paranoid dictatorship fearful of the challenges to its own rule that might come from educating its people.

The recent reforms have stemmed and, to some degree, begun to reverse the exodus, but many of those who have returned remain wary.

As Myanmar’s Nobel laureate opposition leader Aung San Suu Kyi told the British parliament last year, Myanmar’s transition out of hibernation will be “the most difficult road we have ever walked.” (This, remember, coming from a woman who has spent most of the past 20 years under house arrest and knows a thing or two about difficulties.)

Decades of military-led mismanagement have produced an economy that has consistently been ranked as one of the least developed in the world. For many years one of Myanmar’s biggest exports was heroin.

Power supplies are erratic and the agricultural sector is dominated by subsistence farming – a shabby state of affairs for a country that once laid claim to being the world’s top exporter of rice.

On the financial side, until very recently Myanmar’s banking system relied entirely on cash – large bundles of it – while credit has been an alien concept for decades.

Shades of grey

skyline280Meanwhile corruption is endemic; a situation fuelled by decades of life under an opaque legal system. That has meant backhanders and dealing in various shades of grey have become simply a way of life and a habit that will not be easy to break.

Analyst Larry Jagan says corruption and lack of rule of law are common problems in many emerging markets – by far the biggest challenge he sees in Myanmar is over disputed land rights.

“In a lot of the country the army has seized a lot of the land,” he says, with much of the land now controlled by the army’s vast economic interests.

For decades the army was Myanmar’s dominant institution, and while the government is now nominally civilian, the generals remain a massively powerful force – both politically and economically.

That’s led many to raise the possibility of some kind of pushback from the military if the reform process puts their economic position under threat.

So could there be a return to the bad old days?

That’s unlikely, say analysts. The reform genie is well out of the bottle and any effort to squeeze it back in would be seriously damaging on many fronts.

Lacking strategy

Nonetheless, says Jagan, the reform process as it currently is lacks any real strategy, and there is a risk that if popular disaffection leads to widespread social unrest or perceived instability, then there might well be a backlash from the military.

Already, he says, there have been street protests over rising utility costs. Meanwhile sectarian unrest between Buddhist and Muslim communities in some parts of the country is another issue that could trigger the army reasserting its authority.

That’s not to say there aren’t reasons to be optimistic.

Jagan has no doubts that the country’s leadership is committed to reform and to building insitutions and laws that respect best practices internationally.

Myanmar’s natural resources, cultural and tourism potential and its emerging manufacturing industry all offer potentially rich rewards for investors.

The key, Jagan says, will be whether the government can move beyond what he calls the current adhoc-ism and translate its commitment to reform into a coordinated national plan to prioritise development.

Investment, he says, has to be funnelled to priority areas that only the Burmese themselves can decide.

“Of course they can be advised, and they’re quite prepared to listen to advice, but they have to understand that they have to control the process.”

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