Myanmar reforms open up fresh opportunities

by The Nikkei Asian Review on Wednesday, April 18, 2012 at 1:40pm ·....

With Myanmar's progress in its democratic reform bringing a thaw to relations with the West, businesses around the world are increasingly keen to tap fresh business and investment opportunities that the long-secluded Southeast Asian market has to offer.

     The global community will likely move to lift economic sanctions imposed on Myanmar, as democracy icon Aung San Suu Kyi's National League for Democracy (NLD) scored a landslide victory in the nation's parliamentary by-elections held April 1.

     The opposition party led by the 66-year-old leader of the nation's long-repressed pro-democracy movement fielded 44 candidates for 45 seats up for grabs – six in the upper house, 37 in the lower house and two in regional assemblies – as the party did not seek one of the upper-house seats. The party took 43 seats, losing one upper-house seat.

     For the West, the elections served as a litmus test to determine whether the nation's progress toward democracy is irreversible, given that the nation had been under military rule for more than 20 years. After the military junta came to power in 1962, Myanmar shunned foreign investment. But it shifted to a market economy in 1988. In the mid-1990s, foreign businesses began making inroads into the Southeast Asian market. But in 1997, the West slapped economic sanctions on Myanmar, citing the military regime's anti-democratic policies and human rights abuses. The investment boom was thereby dampened, due also to the Asian currency crisis.

     But recently, the progress in democratization renewed investment appetite of foreign firms. In the year through March 2011, foreign direct investment surged to $20 billion, exceeding the cumulative sum of $16 billion prior to that year.

     In a sign that the U.S. is seeking to normalize the bilateral relations, Secretary of State Hillary Clinton in December visited Myanmar. Her visit was the first by U.S. Secretary of State in more than half a century, since John Foster Dulles in 1955 under the Eisenhower Administration. Victoria Nuland, a U.S. State Department spokeswoman, told reporters April 3, "We're doing some internal work" to ease the sanctions. The department will soon elaborate on how it will relax the sanctions. To restore diplomatic ties first, the U.S. will appoint an ambassador to Myanmar, which requires Congressional approval. Lifting a ban on fresh investments, financial services and trade also requires Congressional procedures. When these restrictions will be lifted, that will facilitate American firms' foray into the resource-rich nation.

     British Prime Minister David Cameron visited Myanmar on April 13, the first major Western leader to do so since its transition to democracy in 2011. The premier met with President Thein Sein in the capital city of Naypyidaw, and with Suu Kyi in the nation's largest city of Yangon.



     The return of the populous, resource-rich nation to the international community offers hope to businesses across the globe looking to explore untapped opportunities. Bordering such key emerging markets as China, India and Thailand, Myanmar holds geopolitical value. The nation's importance is likely to grow down the road, particularly in the fields of energy and cargo transport among emerging economies.

     For companies looking for low-cost production locations, Myanmar is an attractive investment destination, because its population of over 60 million offers cheap labor. The average annual salary in Yangon is $629, less than one fifth of China and Thailand, according to Japan's Ministry of Economy, Trade and Industry. Myanmar's literacy rate stands at 90%, and many people speak English.

     Myanmar is also rich in natural resources. Natural gas accounts for roughly 30% of its annual export in value terms. It is also believed to have deposits of rare earth minerals and rare metals. Myanmar's rich timber resources are also attractive, with forests covering half of the nation's total area.

     The ASEAN member states as well as businesses in China and India are among the first to make fresh investments in Myanmar.

     Thailand's Siam Commercial Bank Pcl President Kannikar Chalitaporn said the SCB will open a field office in Yangon, citing that Myanmar offers bigger business opportunities than Vietnam. The Thai lender was prompted to do so by Siam Cement Group, Thailand's largest conglomerate which has strong ties with the bank. The group believes that Myanmar will eventually allow foreign banks to open a branch in the nation, and that Thai businesses operating there will need financial services which will help them expand local operations.

     Thai state-owned energy company PTT Pcl recently expanded their operations in Myanmar by acquiring rights to develop two onshore oil and natural gas fields.

     Major general contractor Italian-Thai Development Plc is developing a huge port and industrial zone in the southern city of Dawei, located in the western edge of the Southern Economic Corridor, an international highway running through the Indochina Peninsula to connect Vietnam, Cambodia, Thailand and Myanmar.
     Vietnam's major real estate developer Hoang Anh Gia Lai spends $300 million to build a large commercial complex in Yangon, which houses shops, a hotel, and condominiums.

     Singaporean law firm Kelvin Chia Partnership, which opened an office in Yangon in 1995, is inundated with inquiries from Asian and Western businesses expecting governments to lift economic sanctions. An employee said that after November 2010 when Myanmar held its first general elections in 20 years, the office became incredibly busy.

      Even Myanmar's poor infrastructure offers lucrative business opportunities. In addition to Thailand's Dawei project, other harbors are also being developed by overseas players. Western cities of Sittwe and Kyaukpyu are being comprehensively developed by an Indian firm and Chinese firm, respectively, to build a port, railroad, pipeline, and industrial park.

     The neighboring Asian nations are not alone in making inroads into Myanmar. Businesses in Japan and other advanced nations are also keen to make investments in the fledgling democracy.