Western Firms Dither on Burma Infrastructure

By William Boot 7 August 2012

After the initial hype of a “last frontier” economic boom for Burma in the wake of recent dramatic reforms, nervous Western companies appear to be hesitating to invest.

US companies are pegged back by restrictions imposed by Washington, European Union countries seem preoccupied with their own economic problems, and all the real and likely big investment is being marshaled by Asian business.

Some of this hesitancy may be political, but it’s becoming clear that severe underlying weaknesses in Burma are playing a part. Basic infrastructure such as roads, electricity, wired communications, accommodation and worker skills are missing, say experts. And so far, Western money is reluctant to invest in plugging those gaps.

“Mobile [phones] and internet penetration rates are both below five percent; rolling blackouts occur on a daily basis … the streets, without adequate drainage, regularly flood to knee-high levels during the rainy season,” says Michael Lwin, a Rangoon-based consultant to the Myanmar Medical Association.

“Public health is very poor, with high malaria and HIV rates and a Ministry of Health that is understaffed and under-skilled to deal with all of these issues,” Lwin told Al Jazeera television.

“There is a concrete fact that cannot be ignored: the people of [Burma] lack the skills, capacity and experience” needed to speedily push economic growth forward, he said.

Another specialist worker inside Burma paints a similar picture. “There is a lack of internationally educated and English-speaking local talent, driving salaries up for those who do have relevant skills and qualifications.

“Then there’s high inflation and a lack of hotel rooms or good quality accommodation for offices and international staff,” says Marie Lalle, an aid specialist with Rangoon-based Myanmar Egress, a local NGO.

“All-in-all, setting up a new business venture in [Burma] will be neither cheap nor easy,” she told The Global Times, a Chinese government-linked newspaper.

All of this contrasts with the hype being put out with the help of Burmese government ministries desperately seeking Western investment.

Organizers of a second Rangoon conference this year to promote the oil, gas and energy industries assert “there has never been a better time to invest.”

Burma “is the last frontier market in Southeast Asia and the [Burmese] government aims to accelerate growth by encouraging foreign direct investment,” says a statement by the Ministry of Energy in a bid to lure Western foreign firms to the Sept. 3-6 forum.

But while the first such conference earlier this year attracted a lot of curious interest, no Western businesses bid for the exploration oil and gas licenses on offer.

“Burma is a very complex place and if you’re going to invest, you have to do a lot of due diligence,” US Under Secretary of State for Economic Growth, Energy and the Environment Robert Hormats told a trade conference in Washington last week. “This notion that there’s going to be a rush of American capital coming in there—there probably won’t,” he said.

Hormats, who visited Burma in July, cited infrastructure and a skills shortage among problems which could stymie US investors’ interest in the short term.

And there is the no small matter of the US Congress’ decision to renew a ban on imports from Burma for one more year despite a recent decision to allow US businesses to invest in the country. The continued ban is intended to push the Burmese government to implement more human rights reforms.

The continued import ban will have a particularly damaging effect on prospects for reviving and expanding Burma’s garment manufacturing industry, the Brussels-based International Crisis Group has warned.

Before the ban was introduced in 2003, clothes and textiles were Burma’s biggest export to the US.

“At this stage in the reform process, it is indeed hard to see how retention by the US of its import ban could in any way serve the interests of the [Burmese] people or assist the democratization process,” the group said in a report.

It criticized Washington for talking about action to push the Burmese government into more democratic reforms to end the power of a military-business elite while at the same time undermining jobs prospects for ordinary people.

The gap between Western and Asian business links with Burma is underlined by the statistic that exports from the US to Burma in 2011 were less than US $50 million—a fraction of the trade with neighbor Thailand which was worth $36 billion.

Thailand is emerging as one of Burma’s biggest potential investors, albeit with Bangkok’s economic interests foremost. So far, along with Japan, the Thais plan to invest not only in consumer prospects but the more basic infrastructure which Burma so desperately needs.

Aside from the extractive natural resources sector, big Thai firms are eyeing construction, refining, electricity, banking, petrochemicals and agriculture.

The Thai state-owned oil and gas group PTT alone is planning investment of up to $3 billion.

While the US and EU countries pontificate about faster and deeper reforms but have actually done little to date beyond political statements of support, Japanese firms are committing to major but basic aid in restructuring key sectors such as the financial institutions and wiring Burma for the 21st century.

The Japanese technology firm Daiwa is spearheading a $380 million program to build a computer system which will link up government departments and separately help start the development of a wired economy in areas such as banking.

Japanese firms are investing in much-needed new electricity generating plants and banking infrastructure. Economic reform needs to ensure that the bulk of the population “recognizes it is better off as a result,” says the International Crisis Group report.

The report warns: “While the intention is clearly to open the economy and shift away from restrictive licenses and permits, the necessary reforms to achieve this in practice have not yet been instituted. Much business activity still requires political approval. Conducting successful business is still very much about who you know.”

That’s a situation which greater involvement by Western companies, imbued with some sense of corporate responsibility, might help to change sooner rather than later.