Thein Sein’s Infrastructure Headache Goes on Tour

By William Boot 9 October 2012

President Thein Sein’s three days in South Korea this week have little to do with the diplomatic niceties of a state visit. They are part of the president’s increasingly urgent efforts to drum up immediate solid investment to revive Burma’s economy.

Despite all the international praise and promise by the chattering classes, Burma is still desperately short of hard-cash commitment to rebuild a country languishing about half a century in the past in development terms.

“Astonishingly, [Burma] is unconnected to any of its five neighboring countries by a single railroad or highway,” according to a new study of Burma’s infrastructure problems and possible solutions.

“The policy challenge is how to finance construction of the basic transportation network required to connect [Burma] efficiently to its natural markets in Asia,” says “The Myanmar Economy: Tough Choices,” published by the Brookings Institution, a Washington-based think tank.

These are words doubtless ringing in Thein Sein’s ears as he meets industrial conglomerate leaders in South Korea looking for deals which will benefit them and Burma.

The Asian Development Bank (ADB) in its latest assessment of the country’s problems points out that Burma’s government has yet to draft a national transport strategy.

“Although [Burma] shares borders with several countries and is in effect a bridge between South Asia and the Mekong sub-region countries of Southeast Asia, its transport links with its neighbors are limited,” says the ADB.

“For the country to achieve the potential that being so strategically located affords, [it] needs to, at the physical level, develop or improve more border crossings, and to put in place the essential software changes … to facilitate the movement of people and goods across the borders.”

Transport is but one of many infrastructure problems. Electricity infrastructure, agricultural systems and telecommunications are all in urgent need of overhauls, the two studies underline.

In South Korea, Thein Sein is looking for investment in all these areas. Bizarrely, his office said he would also tour “military-related companies.” In May, he promised South Korea’s President Lee Myung-bak that Burma would no longer buy weapons from North Korea.

The Koreans appear keen to invest while Western companies hesitate as the details of a new foreign investment law continue to be fine-tuned. Just a few days ago a group of South Korean firms were awarded a contract to build a 500 megawatt gas-fueled power plant to be built on the rim of Rangoon.

The plant, amounting to 25 percent of Burma’s present overall electricity generating capability, is intended to provide the power needed to drive the planned Thilawa Special Economic Zone. A clutch of Japanese firms have undertaken to build Thilawa, which is linked to the port of Rangoon.

The level of investment needed for these two projects alone will be at least US $2.5 billion, and although big in their own right, they are just small patches of color in the overall reconstruction picture that Thein Sein and his advisers need to paint on their forays abroad for aid.

Some Western commentators have repeated the mantra that Burma has a well-educated population, implying that millions of people can suddenly switch on to a new economy. The truth is that the country needs not only tens of billions of dollars of investment in infrastructure from roads to electricity power lines, but also the technology and skilled expertise which only foreign firms have at this stage.

The Department of Civil Aviation last week appealed for foreign help to improve and expand the country’s airports as the present system overloads with rising numbers of leisure and business visitors and government ministries ponder the logistics of hosting the 11-nation Southeast Asian Games in December 2013.

In fact, the country is not in any shape to host a major international event involving thousands of visitors over a short period streaming into Rangoon Mandalay and Naypyidaw, according to the ADB.

“The core constraint to [Burma’s] urban development is inadequate infrastructure and poor quality of services. One of the key causes for this has been chronic under-investment in urban infrastructure over decades, particularly in water supply and environmental infrastructure, including drainage, waste water and solid waste management,” says the ADB study.

“As a result water supply and environmental conditions are often below acceptable standards.”

Thein Sein faces just as tough a battle to improve the growth and productivity of the rural sector where 70 percent of the population live and work.

“Boosting agriculture productivity to Asean-average levels will require improvements in almost every area: land ownership, crop credit, floor prices, extension services, research, infrastructure,” says the author of the Brookings’ study, Lex Rieffel.

“From its first day, the Thein Sein administration has placed a high priority on the agriculture sector. At the one-year mark, however, the impact of these actions is minimal in terms of production, exports or farmer incomes,” he adds.

“While crop credit was doubled in the 2011/12 budget year and will be again in 2012/13, the base level was so low that these increases can only have a marginal impact on output. Also, there is anecdotal evidence that over-indebted farmers are losing their land to creditors. In addition, although the new ‘rice-specialized companies’ have been the main source of rising rice exports, their business models do not appear to be sustainable.”

While he is in South Korea, Thein Sein will have one eye on other meetings under way in Tokyo, where the Japanese government is hosting the World Bank and the International Monetary Fund.

The meetings, between Oct. 9 and 14, concern loans and other financial aid and the Japanese Finance Ministry has arranged a session devoted to Burma and its debts to the World Bank and Asian Development Bank. It proposes putting together a $900 million bridging loan via Japanese banks which would enable Naypyidaw to pay off those debts—a precondition to Burma receiving new loans and grants.

Japan’s motives are not entirely philanthropic. If Burma’s debt slate is cleaned it clears the way for normal financial relations with the international community. It would be a green light for unfettered Japanese private sector investment, and sweet music to Thein Sein’s ears.