Neighbors’ Business Plans Stall at Burma’s Borders

By William Boot 6 February 2013

In recent times, many of Burma’s neighbors have been knocking on the door, eager to do business in the rapidly reforming country.

Thailand and India have sent several business delegations for talks. Bangladesh says it wants to increase trade and buy some of Burma’s new offshore natural gas. China is full of fraternity and even quiet neighbor Laos has publicly agreed to build a “friendship bridge” spanning the Mekong River.

The announcements seem to indicate that the countries are rapidly expanding cross-border trade and foreign investment in Burma. Yet, the impression is a superficial one.

Many planned economic projects have become stuck and President Thein Sein’s counterparts next door have contributed little beyond words, while Burma’s biggest trading partner, China, seems increasingly frustrated with the impact that ongoing reforms are having on its business interests.

New Delhi for instance, has talked about its ‘Look East’ economic policy for many years but has actually done little investing in Burma.

Sittwe Port’s modernization and the dredging of the Kaladan River, the India government’s biggest investment in Burma so far, was agreed in 2008 but began only in late 2010. The projects are making slow progress and are primarily intended to give Indian business easier and quicker access to India’s isolated northeastern states.

The long-awaited India-Burma-Thailand highway connection — dubbed India’s Gateway to Asean — has been under discussion since 2004, but Burma and India have yet to sign a project agreement.

Last week, India’s long-planned strategic investments in Burma suffered another setback when an Indian government study deemed two hydropower projects on the Chindwin River in Chin State, west Burma “unfeasible,” according to the Hindustan Times.

Almost every week Thai companies, business groups and government ministers outline new investment schemes for Burma. The latest idea is a special economic zone on the border at Mae Sot, the oldest plan being a sprawling port and industrial complex on Burma’s southeast coast at Dawei.

The latter project was agreed in 2008 but has suffered numerous delays. A Thai government study last month found that the project costs had been greatly underestimated and would rise from US $6.6 billion to $10.7 billion, Thai media reported.

Not even the public endorsement of Prime Minister Yingluck Shinawatra and Thein Sein, who have met twice on the issue, has induced Thai, Burmese or any other countries’ major development corporations to buy into Dawei, and the grandiose table model plans remain just that.

The Burmese and Thai governments, along with Japanese investors, have now been forced to step in and take over the project’s implementation, Thai media reported recently.

Such setbacks raise the question what has been hindering closer cross-border economic ties between Burma and its neighbors?

One reason is feeble land transport links, a problem made worse by the fact that most of Burma’s armed ethnic rebel groups occupy border regions.

China’s Yunnan province has been the exception, as the long porous border experienced a booming trade even during the military regime years and the current Kachin conflict. Business across the border, straddling Kachin and Shan states, topped US$2.2 billion in 2012 according to the official Chinese news agency Xinhua, compared with US$1.6 billion in 2010.

China was happy doing business in the murky environment under the former military regime, but the continuing absence of a proper legal and regulatory framework in Burma and the lack of a trained independent judiciary to enforce fair play is another reason for hesitancy by would-be foreign investors, say analysts.

“Despite the country’s great investment potential, a lack of clarity over investment regulations is the biggest risk that investors, particularly in the energy sector, face in Myanmar,” said an assessment last week by Maplecroft, a research agency offering risk analyses for international firms.

“While Myanmar is currently adapting its regulatory framework to improve the country’s attractiveness for investors, the process is marked by a near-complete lack of transparency or consultation with stakeholders,” said the assessment, adding that the precarious ceasefires with ten ethnic rebel groups also pose significant risks for investment.

Burma also lacks many of the administrative skills needed to handle investment planning on a wide front.

“An economy, even a rudimentary one like Myanmar’s, is a complex system. This means that to perform at a high level, a large number of elements need to be functioning properly at the same time. Right now, it is hard to identify a single element that is functioning properly,” noted American economist Lex Rieffel told The Irrawaddy in an interview late last year.

“Substantial progress has been made since March 2011 in removing obstacles to proper functioning, like ending some monopolies and abandoning the official exchange rate, but much more needs to be done to have a properly functioning electrical system, telecommunications system, banking system, land tenure system, trade regime, foreign exchange regime,” said Rieffel, formerly with the U.S. Treasury Department and now with the Brookings Institution think-tank in Washington.

China is the one neighbor that actually appears to be losing ground as a result of the opening up of Burma by the Thein Sein government.

Beijing’s plans to build huge hydropower dams on Burma’s northern rivers that would supply Yunnan province are in disarray, after Thein Sein suspended China’s large Myitsone dam on the Irrawaddy River in Kachin State until 2015.

It also seems unlikely China will gain much access to new natural gas finds as Burma’s government seems intent on attracting western energy giants instead.

“China can no longer count on Myanmar as its strategic corridor into the Indian Ocean, or as a loyal supporter at the Association of Southeast Asian Nations [Asean]. The protests against Monywa [copper mine] have raised worries that all Chinese investments in Myanmar are in danger,” says Yun Sun of the Brookings Institution and a former analyst with the International Crisis Group, based in Beijing.

A protest at the Chinese-backed copper mine at Letpadaung Mountain in Monywa District was brutally suppressed on Nov. 29 and dozens of monks suffered horrendous injuries. The incident fanned widespread anti-Chinese sentiments among the Burmese population.

“Beijing finds itself with little ability to prevent Naypyidaw from hurting its interests,” Yu Sun said in a new analysis in Foreign Policy magazine last month.