This Tiger Needs to Earn Its Stripes

Inching toward a market economy—villagers carry goods on their tractor as they come back from market in Nyaung Tone in the Irrawaddy delta. (PHOTO: THE IRRAWADDY)

RANGOON—Despite the recent suspensions of Western sanctions and the government’s claim that Burma is moving the country toward a market economy, foreign investors are not going to rush into the country anytime soon, say business people and analysts.

After a implementing a series of political reforms since taking office in March 2011, President Thein Sein announced earlier this week that Burma would focus on economic change over the coming year, hoping to triple the country’s lowly GDP by 2016.

But optimism about Burma’s largely untapped market of around 60 million people is coming up against the hard realities of a country where poverty is widespread and where business has been stifled for many years by a combination of sanctions, government mismanagement and corruption.

Despite the country’s strategically pivotal location between India and China and relatively low labor costs, investors should be cautious, say analysts. “There does not seem to be a ‘master plan’ for economic development in Myanmar yet,” said Alessio Polastri, the managing partner at P&A Asia, a law form advising investors looking at “emerging markets.”

Overcoming the Past

Authoritarian rule and human rights abuses saw Western sanctions applied on Burma during the 1990s and 2000s, while the Burmese military junta was widely criticized for its economic incompetence. In turn, foreign investment into Burma has been low, relative to the size of the country, and has been largely limited to natural resources

According to the government’s cumulative multi-year investment statistics from 1989 up to May 2012, oil, gas, mining and “power” made up 92 percent of all foreign investment into Burma, coming to a combined value of almost US $30 bn. During the 1989-2012 period, foreign investment in Burma was below $100 million during eight separate years, but spiked to $6 bn in 2005-6 and $20bn in 2010-11.

Loose Change?

Times—and policies—are changing, however, the government now says. “The way forward to a market economy is on track,” said government official Dr Kan Zaw, speaking to around 300 local and foreign business people at the New Myanmar Investment Summit 2012, organized by Singapore-based CMT and taking place in Rangoon on June 20-21.

Though the Burmese government expects continued investment in oil, gas, hydropower and minerals, it says it wants other investment in sectors that will generate more jobs for the estimated 60 million Burmese, 75 percent of whom work in agriculture and tens of millions of whom live on one or two dollars a day.

“We want to create an investor-friendly environment,” said Kan Zaw, who is deputy minister at Burma’s Ministry of National Planning & Economic Development, pointing to recent announcements by Coca-Cola and 7-11 that they would open operations in Burma after the US and EU suspended economic sanctions in response to government reforms.

Kyaw Zaw Maung, the director of the Directorate of Investment and Company Administration, the government agency that handles applications from foreign investors, talked up Burma’s “mega-port” projects as evidence that the country is gearing up for significant foreign investment.

Three multi-billion dollar ports and contiguous special economic zones (SEZ) are currently being developed in Burma: at Kyaukpyu in Arakan State; at Thilawa, 18km from commercial capital Rangoon; and at Dawei (Tavoy) on the southern coast.

These ports, along with a draft foreign investment law and proposed revisions to Burma’s recently enacted SEZ laws will make Burma a more attractive investment proposition than in the past, said Kyaw Zaw Maung.

Scenting Opportunities

Officials and Burmese businesses spoke at the investment gathering about “finding local partners” as a way for unsure foreign investors to find their feet in a relatively unknown market.

So for some Burmese business people, foreign investment means an opportunity, rather than competition, it seems. One, Aung Zaw Oo, who is managing director at Aung Naing Thitsar, said that “the government is encouraging investment in rice, sugar, cotton.” This will mean foreign investors could have “an opportunity for manufacturing farm machinery and joint ventures,” he said.

And despite the government aiming to pull in labour-intensive investment, Burmese energy companies are jockeying for position before Western energy firms return to Burma, likely later in 2012 when the government fields bids for 25 offshore oil and gas blocks.

“We are waiting for this to happen,” says Thu Rein Aung, the managing director of Asia-Pacific Exploration Mining and Production, which is a “small Yangon-based energy company,” he says. “We are hopeful we can join up with these companies.”

Similarly, foreign companies see the likely involvement of Western energy giants in Burma’s oil and gas sectors as an opportunity to do business. Amir Araabi, a Singaporean working with Sharjah-based OMC Ship Management, says, “We are trying to get involved with the local and international companies for any lifting with pipelines in the sea.”

Challenges Remain

However, despite some optimism, businesses at home and abroad say that for all Burma’s opportunities, significant challenges remain if Burma is to become another “Asian Tiger,” and emulate growth achieved by nearby Thailand and Malaysia over recent decades.

“There is a concern over lack of transparency in the government’s plan for development in various sectors, such as infrastructure,” warned Alessio Polastri.

Zach Wilson is managing director of Alfatech Vestasia, a Singapore-based consultancy that checks out emerging markets for high-tech US clients, and he too believes that the lack of big-plan clarity is a worry.

“Everybody makes fun of China with their 5-year plans,” he says. “But it would be good if they [the Burmese government] came out and said for the next five years we’re doing X,Y and Z, and then companies outside would know it’s time to go.”

Other businesses looking at Burma say that the local political and business culture is a challenge, after Burma’s years of relative isolation from the West. Counseling against working through typical Western business practices, Burma-based lawyer James Finch advised potential investors that “it is a question of establishing relationships with people, at all levels. It’s about the relationship. They don’t want to have piles of paper thrown in their faces.”

There are other, more short-term and less abstract hurdles for possible investors, however, some of which are a side-effect of a much-anticipated Burma boom. Moe Kyaw, a UK-educated Burmese and founder of the Myanmar Marketing Research Development Co, says that a 5-6 fold increase in the cost of office space in Rangoon over the past year could deter investors. Burma’s jade exporters are inflating property prices, he said, adding that “most of them aren’t educated and just put the money into property.”

Other pitfalls are a legacy of Burma’s long years of top-down economic mismanagement. The country’s physical and communications infrastructure is run-down, with regular electricity shortages and poor cellphone coverage. “The telecoms network is extremely underdeveloped,” said Polastri, while Zach Wilson says that to convince many potential investors, Burma “needs to have good Internet, reliable power, you have to be able to use a visa card.”

Wait a While?

So, for the high-tech stateside companies with which Wilson’s firm deals, it is too soon to think about opening operations in Burma. “If you look at the development clock, it’s like 7.30 in the morning here. Most of my clients won’t come until the afternoon,” he assesses.

Waiting might be a better option, it seems, for some investors, said Alessio Polastri, due to the size of Burma’s untapped market. He told the CMT conference that “the [Burmese] market is too big to suffer ‘early train syndrome’ for a few years yet.”

Waiting might be an option too for Nathan Pflaum, an executive with Singapore-based FJ Benjamin, which does retail distribution for Western fashion houses and timepieces.

He says that the suspension of Western sanctions means that US and European brands are hoping to sell their wares in Burma. However they too might have to wait for a later train, according to Pflaum. “It is quite hard to judge whether they are that ready for retailing and how we are going to do it,” he says, adding that “it might be a while before higher brands can come in.”

Massive Opportunities

But doubts and timetabling aside, Burma hype is unlikely to fade anytime soon. According to Erika Nolan of The Sovereign Society, a US-based free market research firm, “newly opening markets like this [Burma] are where the growth is nowadays.”

And, despite listing several of the challenges to doing business in Burma, Zach Wilson acknowledges that the country offers massive opportunities for “its 63 million people who could buy products. It has the natural resources, and it’s at a significant crossroads at the heart of Asia.”

Moreover, despite outlining that for some investors, it might be more prudent to wait until Burma’s laws change and infrastructure improves, a country of around 60 million people nonetheless offers a “first mover” advantage, according to Alessio Polastri. With scant investment to date in most sectors of the economy, “there is little competition for whoever takes the plunge,” he said.


10 Responses to This Tiger Needs to Earn Its Stripes

  1. Attempting a wi without a wa. Even if wi happens we’d be working for foreign bosses who can switch their business operations next door or farther afield at the drop of a hat. Grateful to be exploited I guess to those foreign wealth creators and job providers, like manna from heaven, from western or eastern skies all the way to our country.

    But do we really need Coca Cola and 7/11, next Walmart, McDonald’s and KFC? Even in manufacturing at best we can become another major sweatshop of the world, maybe not even the workshop of the world like China, at worst when they move on to another cheaper labor market we’ll be left with no real tech input/skills or proper industrial base which would enable us to pick ourselves up by the boot straps and carry on. Self reliance and a growing domestic consumer base, even in food and tourism (pilgrimage as is our tradition) for our own domestic consumption as a start, but also in infrastructure as well as other goods and services, for a healthy economy rather than completely depending on exports, albeit a very important sector, putting all the eggs in one very volatile basket.

    There is no reason why Burma, a country with the largest land mass in SE Asia with vast natural and human resources, cannot manage a burgeoning economy regardless of the whims of foreign investors or the vagaries of the global economic climate provided our leadership has the right ideas, policies and planning with foresight.

    • “Wi” without a “wa” is so apt, true and accurate.

      These uneducated but highly arrogant military crowd just want to be like the (in their mind) lowly Laos and Cambodian officials with iPAD’s and foreign visits and all that. That’s the total plan. And ask whoever wants to come in and take whatever they want. Just drop a few pew pennies in THEIR boxes on the way out. People never features. People also do not realize that getting Aung San Suu Kyi to worship is the whole thing. There is no more. She is the beginning and the end.

      Human capital is lip service. All it is now is just like their hero China where unskilled labour will be indentured and abused to the maximum in these SEZ’s.

      When the economic wind changes, the multinationals simply pack and go leaving behind graveyards of environmental destruction and more importantly social disarray and degradation.

      What Burma needs is to get the military spending to a tenth of whatt it is ( less likely to happen if they can buy the American hardwares) and use the precious land and labour wasted for all these widespread military campaigns for productive ventures.

      People have to realize that, the millineum- old farming system is not only precious for feeding but also as guardian of traditional values and culture as well. Unfortunately it is likely to be destroyed more by the ” progressive” youths than the military as they are never told to take pride in their culture but simply to be chauvinistic. Arrival of the likes of McDonald and KFC will enhance the cultural loss immensely as well as they are foremost ambassadors of the “western values”.

      Back to the economy. It must be telling sign that the very fact the people are ALWAYS looking out for new markets is their successful Midas touch where every thing they touch at all turns into crap. Americas, Europe, Africa, niw even darling China.

      Welcome to Burma. Suicidal thoughts.

  2. stop whining, you don’t come there is always chinese and the indians happy to do business adapting burmese ways…….

  3. Dear Moe Aung & NwaHle,

    It is indeed very sad to hear your view and comments, this is exactly a typical character attitude of many Burmese ” who think they are everything and think they are all something ” excuse me you may have lots of land, resources or whatever…SO WHAT!… but where are you now…the future what future, where you don’t ever get your house in order or put your act together.This clearly shows your REAL character and also BURMESE puts up too much AIR…WITHOUT SUBSTANCE…Don’t think too highly of yourself…where toe world knows who and what you really are. Look at your fellow ASEAN countries…ASEAN is trying to assist your country and you are the blacksheep. Shame on you.

    • You can stop patronizing us for a start. If you feel that only a white person’s opinion is worthwhile, here is Elliott Prasse-Freeman’s excellent analysis in Foreign Policy magazine. Perhaps he sounds rather left wing and Jewish for your approval.

      Defining a political path as “democratization” does not necessarily ensure that it will be democratic. In today’s Burma there is a distinct possibility that political elites — in league with outside experts or capitalists — will push ahead with reforms while ignoring the interests or ideas of average people, leaving many sections of the population even worse off than under tyranny. Such an approach must be contested. The voices of average Burmese must be incorporated into the decisions that will govern their future…..The problems lie primarily in two areas. First, state-led reform has serious limits. President Thein Sein and other reformers cannot impose their will on the country’s periphery or in deeply-entrenched institutions such as the military. Second, liberalization in the absence of existing political structures can have dire consequences. Lacking education or skills, millions of people could be forced off their agricultural land and shunted into a low-wage, low-skill manufacturing sector. This would be exploitative even under the best of circumstances, but the further problem is that such a sector does not even exist in Burma. What then will the vast majority of Burmese do? Fire-sale liberalization could produce surplus populations, turning the long-awaited Burmese dream of democracy into a cruel nightmare.

      ASEAN must have Burma’s interests first and foremost I’m sure. Like hyenas in a feeding frenzy. Now the vultures circling over and missing out on all that have landed. And we must surely emulate ASEAN’s semi/pseudo-democracies as passionately as our good generals in their time of need. Thanks TINA, but no thanks.

    • corrected copy:

      You can stop patronizing us for a start. If you feel that only a white person’s opinion is worthwhile, here is Elliott Prasse-Freeman’s excellent analysis in Foreign Policy magazine. Perhaps he sounds rather left wing and Jewish for your approval.

      Defining a political path as “democratization” does not necessarily ensure that it will be democratic. In today’s Burma there is a distinct possibility that political elites — in league with outside experts or capitalists — will push ahead with reforms while ignoring the interests or ideas of average people, leaving many sections of the population even worse off than under tyranny. Such an approach must be contested. The voices of average Burmese must be incorporated into the decisions that will govern their future…..The problems lie primarily in two areas. First, state-led reform has serious limits. President Thein Sein and other reformers cannot impose their will on the country’s periphery or in deeply-entrenched institutions such as the military. Second, liberalization in the absence of existing political structures can have dire consequences. Lacking education or skills, millions of people could be forced off their agricultural land and shunted into a low-wage, low-skill manufacturing sector. This would be exploitative even under the best of circumstances, but the further problem is that such a sector does not even exist in Burma. What then will the vast majority of Burmese do? Fire-sale liberalization could produce surplus populations, turning the long-awaited Burmese dream of democracy into a cruel nightmare.

      ASEAN must have Burma’s interests first and foremost I’m sure. Like hyenas in a feeding frenzy. Now the vultures circling over and missing out on all that have landed. And we must surely emulate ASEAN’s semi/pseudo-democracies as passionately as our good generals in their time of need. Thanks TINA, but no thanks.

    • Dear Todd
      I agree with your comment. Some of the bama are very arrogant and lack of insight. Some always point their fingers to foreign countries regarding to their backwards and reasons of their poorest. But most like and praise Apple, HTC, Samsung and Nokia technology and are willing to pay high price for those products as well as for show off. Compared those technology and brillient brain, what is the proud or class of having natural resources ?. Compared to poor land owner , north Korea, i am very upset of those some arrogant bama land owners. If bama still has stupid technology, idiot brain and stupid government, bama has to sell those natural ones in low price for survival. Yes, God or Buddha favors bama king (or bama king’s cruelty) to conquer Mon king to seize prosperous land in ancient history so i hope we, bama might be lucky to being unnecessary to sell their own bodies for survival in future. Taiwan, Thailand and Singapore have to build their economy with the help of the red light streets(brothel). Philippine needs red light city ( and oversea domestic helpers ) for economy and American army. I respect those countries for escape and survival. Most capable bama sought or seeks the other green glass lands( oversea) for survival but thein sein want them to come back to help bama, the poor country but thein sein’s stupid, idiot official(khin yee)announces that they will not accept dual citizenship. “Khin” means friendly in Burmese and “yee” means laugh at returners. If those returners are ill, will thein sein provide facility in Burma to take care of them? Or let them to eat the raw natural resources to cure the illness. So, come back with the proud of becoming bama citizenship again with your all own expanses and self teaching education(like Burmese way of socialism-teaching from late ne win or letting returners’ children to get admission to Defense service academy, particularly for how to rape and kill ethnics ). Or you have less chance to pray real Shwedagone pagoda day and night. Let see how and when arrogant than shwe, thein sein and khin yee continue to laugh at returner, DASSK. Luckily, without holding UK passport, DASSK might have a right to entertain health facility in UK because of permanent resident status in her Burmese passport. But Khin yee can seize DASSK’s Burmese passport anytime and with any reasons. Please, think twice before becoming a prestigious bama citizenship again for raw eating attractive bama natural resources. However, that announcement is target only for oversea Burmese oppositional politicians to return to live near In-sein prison.

  4. Simmon Roughneen wrote “Moe Kyaw, a UK-educated Burmese and founder of the Myanmar Marketing Research Development Co, says that a 5-6 fold increase in the cost of office space in Rangoon over the past year could deter investors. Burma’s jade exporters are inflating property prices, he said, adding that “most of them aren’t educated and just put the money into property.”
    I would like to say that the artificial inflated property price will go down sooner or later in general but it is also depended on the altitude of bama military government upon this issue.

  5. Dear Moe Aung,

    You obviously are too self centre to look from an objective point,now you are saying that ASEAN have ulterior motive in assisting Burma, I guess you are no aware that all this time…let say in the last decade or more where have your friend studied, work and park you ill-gotten money. I am not on the side of ASEAN or any other places but I am saying to you don’t act like you are SOMETHING…but sad to say this are the facts of BURMA.Look into your history Burma have always been the aggressor history are facts.Comments does not need to be from a western or eastern point of view but FACTS are FACTS. BURMA have lots of skeleton in its cardboard and so don you, you must be from or your family part of the JUNTA. Good riddens to you and your family.

  6. You are so kind, Todd. A curse on both your houses, eh? Especially the Burmese one. You obviously know so much about me, it must be the kind of FACTS you are referring to, and most definitely you are SOMETHING.

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