Asia’s Last Economic Frontier Needs Hundreds of Billions of Dollars

By William Boot 20 June 2013

The winners of next week’s bidding process to build Burma’s wireless telecommunications network will need very deep pockets, according to the latest Monopoly board-game figures for developing the country.

“$50 billion is needed in telecommunications infrastructure if Myanmar [Burma] is to make full use of digital technology to leapfrog stages of development,” say economists Martin N. Baily and Richard Dobbs in a critique of the level and focus of investment in the country.

Perhaps that kind of outlay is not what the dozen or so international telecommunications companies bidding for two network licenses have in mind, but it’s what Baily and Dobbs believe will be necessary to help push Burma firmly into the 21st century by discarding some 20th-century models.

“For example, by using mobile banking or e-commerce to avoid the cost of building physical banks and shops and to extend health and education services to even the remotest villages,” Baily and Dobbs outlined in a report for Project Syndicate, a website which publishes “original, engaging, and thought-provoking commentaries by esteemed leaders and thinkers.”

Baily is a former chairman of the US President’s Council of Economic Advisers and an economic policy development commentator at the Brookings Institution in Washington. Dobbs is a director of the McKinsey Global Institute.

US $50 billion is only a small portion of the hundreds of billions of dollars the authors reckon is needed to truly make Burma the last economic frontier of growth which international media have been talking up for the past year.

Baily and Dobbs calculate that around $300 billion is needed just to raise Burma’s housing, electricity, transport and energy infrastructure to 21st-century standards. Half of this huge sum would need to be spent in the largest cities and towns, which they tip to expand considerably if the country moves away from its present agrarian base.

“Today, only an estimated 13 percent of Myanmar’s population lives in large cities, but that could rise to 25 percent by 2030—an addition of 10 million people,” say Baily and Dobbs.

Their figures suggest an annual investment of at least $20 billion a year through to 2030. But in Burma’s last financial year, a total of $1.4 billion was actually invested, according to government figures.

This modest investment to date, the reality behind all the gung-ho headlines of boom, boom, boom, was underlined as a problem for Burma just recently by opposition leader Aung San Suu Kyi.

“Certainly it is going to be an uphill task to attract the sort of investment to meet these [Baily and Dobbs] projections. Particularly so since the vast funds that, up until recently, have been sloshing around the world looking for yield are fast drying up,” long-time Burma economy watcher Sean Turnell told The Irrawaddy on June 17.

Much of the inward investment in property construction is going into hotels to cater for the country’s burgeoning tourism. Numerous foreign companies have visited Rangoon and Naypyidaw and made vague offers to build new electricity-generating infrastructure, but very little actual power plant construction is under way or confirmed as copper-bottomed projects.

Aside from the mobile telephone network franchises scramble, with winners scheduled to be announced June 27, one of the biggest looming investments is expected to be in the energy sector, with 30 offshore blocks up for development.

The closing date for offshore blocks bids was June 14 and the Ministry of Energy has said it will announce winners by the end of this month.

Nineteen of the blocks are in deep seas of the Bay of Bengal and only the major international oil companies have the necessary technology, skills and deep pockets to carry out expensive undersea exploratory drilling.

No firms have announced their bids but speculation in the foreign oil industry press has named Chevron, BP, Shell, China National Offshore Oil Corporation, Petronas of Malaysia, PTTEP of Thailand and Norway’s Statoil as possible contenders.

The short-listed bidders for phone network licenses already announced by the government include Singapore Telecommunications; Bharti Airtel of India; KDDI Corporation of Japan; Sumitomo Corporation, also of Japan; Telenor of Norway; and Vietnam’s Viettel Group. Vodafone Group and its partner China Mobile Limited withdrew from the race to become the first foreign mobile phone network in Burma in late May.

Turnell, an economics professor at Macquarie University in Australia and co-editor of the Burma Economic Watch, said a lack of investment in basic infrastructure in Burma remained a “very significant problem”. But he cited the example of the British-Dutch conglomerate Unilever’s decision to develop a second factory in the country as “something quite positive”.

“The Unilever story [is] still only one example of what needs to take place, but a step in the desired direction at least. This sort of investment employs people, is of the sort that must grapple with local laws, institutions and conditions broadly, and is the sort that puts down roots,” Turnell told The Irrawaddy.

Unilever, a processed packaged foods-to-personal hygiene and household cleaning products giant, is due to open its first factory in Rangoon by the end of June, providing jobs for 150 people, and said earlier this month it would establish a second plant by the end of this year.

“Myanmar faces monumental development challenges that embrace virtually every aspect of the economy,” said Baily and Dobbs. “But that implies the broadest possible range of opportunities for companies and investors as well. They should proceed with caution, but with the expectation of tapping into a potentially lucrative new market.”