MYANMAR: TIME TO GET IN?

For decades a “closed world” for many Western companies, Myanmar is suddenly on everybody’s radar. But while some glowing reports call it “The Final Frontier” for foreign investors, others warn that the early movers now pouring billions of dollars into infrastructure and industry projects could get burned.

On the one hand there is the enticing prospect of the last remaining large country in Asia to open up its economy – a potential market of some 60 million people where just about everything is needed: bridges, roads, ports, power stations, housing, hospitals, cars, cell phones, banking services….the list is almost endless. Foreign investment exceeded US$20 billion in 2011, mainly from China, Hong Kong, and Thailand. Against this there are the natural worries about committing substantial resources to a country only now emerging from decades of military rule, where many basic services are precarious and institutional security is partly a matter of faith.

With so much at stake, we have chosen to highlight Myanmar in a special report to be published with the prestigious FOREIGN POLICY magazine. Our provisional title reflects the essential question facing potential investors that we will seek to answer: Myanmar: Time to Get In? Readers of FOREIGN POLICY including senior international businessmen, national leaders and other global decision makers will welcome this unique opportunity to learn in detail about Myanmar’s challenges, strategies and opportunities.

“People ask about the risk of going in, but we feel the risk of missing the opportunity is greater…Myanmar will not be an easy place to do business initially but we see it as a long-term opportunity,” Stuart Dean, regional chief executive for General Electric, said late last year. And early 2013, Google Executive Chairman Eric Schmidt visited Myanmar and said he believed the reform process was a one-way street: “The Internet will make it impossible to go back.”

Myanmar faces daunting challenges. Not least is to forge a national consensus around a reliable democratic government in a pressingly poor country with over 100 ethnic groups and resurgent religious strife that was held down during the dictatorship. A recent report to the UN’s Human Rights Council warned of the difficult path ahead, but concluded: “Reforms are continuing in the right direction.”

Our special report will focus on:

Institutional security and social reform

How reliable is the new investment legislation, signed by President Thein Sein in late 2012? Some basic provisions look excellent: 100% foreign-owned investments are allowed; while foreign investors get a five-year tax holiday and 50-year land leases, renewable for another 20 years. But the devil may be lurking in the yet-to-be-published regulatory details, and the competence of the local judicial system after two generations of dictatorship. Our report will also examine Myanmar’s other reforms. How solid is the march to democracy? Will the general elections due 2015 consolidate the transition from military rule? Can the swelling religious unrest be resolved peacefully and democratically? And what are the strategies for social progress in a country with per capita income of around one thousand dollars a year, ranking pitifully low on the global Human Development Index?

Opportunities in infrastructure

Myanmar needs everything, from highways and railways to power stations and ports. Most people lack reliable electricity. Myanmar, Bangladesh, China and India are reportedly talking about joint projects, although the Myanmar government recently suspended plans for a $3.6 billion Chinese-led hydropower project and a 4,000 megawatt coal-fired thermoelectric station after local protests about flooding and pollution. Two huge foreign-financed projects promise to transform the country. One is the port and special economic zone at Dawei, some 400 km south of Yangon. This two-stage development reportedly budgeted at some US$11 billion blends local, Thai and Japanese money, with industry, power stations and a deep-water port all scheduled for a 16,000 hectare site. Critically, the project includes a road and rail link from Dawei to Bangkok, some 250 km west, so giving Thailand a much shorter route to the Indian Ocean and the Suez Canal, avoiding the pirate-infested Strait of Malacca. A second major development is scheduled for Thilawa, just south of Yangon. Reports indicate Japan will put up almost US$13 billion for a 2,400 hectare special economic zone that would include power generation and potential locations for the expected influx of multinational companies. Our report will detail these and other infrastructure developments, and the opportunities they create.

A new Asian Tiger?

Some pundits see Myanmar as a new Asian hub for low-cost manufacture. Already some Thai garment makers have announced they will move production to the Yangon region, while Suzuki said it will start small-scale truck assembly. But only 7% of labor currently works in industry, and education levels are generally quite low, so incoming investors may find that cheap wages come at a price. Our report will look at the advantages and bottlenecks for industrial expansion, and the best sectors.

Opportunities in raw materials

Myanmar is rich in gold, gemstones and timber. Agriculture could also be attractive, in particular for rice exports. Shell, Chevron, ConocoPhillips, Raisama Energy and Woodside Energy of Australia are all reported interested in helping develop the offshore oil and gas fields. Already a 409-km pipeline runs from the Yadana field under the Andaman Sea and across Myanmar to Thailand, and oil and gas pipelines are planned from Kyaukpyu on the northern coast into China’s Yunnan province. We will assess the risks and rewards offered by Myanmar’s hydrocarbon wealth.

Opportunities in services

Many multinationals are looking to the services sector. Given the generally low income levels, the domestic market is limited in many areas but is ripe for telecommunications expansion. Mobile telephone ownership is currently estimated at between one to three million, representing very low penetration. Experience in low-income African countries suggests great potential to leapfrog hard-wire telephony and also to leverage mobile phone expansion for basic banking services – day-to-day transactions are currently largely cash-based. Finance is another promising area – the state-owned Myanmar Investment and Commercial Bank offers only limited facilities. Some large Japanese banks have branches in Yangon, but Western banks have been kept out by economic sanctions imposed on the military dictatorship. Foreign investment is starting to move into retail: Ford will start selling imported light vehicles, while Pepsi has signed up a local franchisee. And Carlsberg has a joint venture with local company for a brewery. Other promising service areas include tourism, high-end real estate and health care. Our report will ask where the best niches lie, and hear local players about market entry strategies.