Winter 2013

Myanmar on the Rise: Slow Dance Rather Than Gold Rush

Philip Delves Broughton

Expectations for Myanmar were giddy in 2012 after it emerged from decades of military misrule. Yangon’s airport bustled with investors, industrialists and politicians wanting to see what all the change amounted to. One of the first in was George Soros, who has been funding Myanmar’s democracy movement for decades, followed soon by Hillary Clinton and David Cameron, and eventually President Obama, who stopped over in November last year, the first American president ever to visit. 

Myanmar certainly has all the characteristics of a potential high-growth economy, great demographics with a young and growing population, ambitious neighbours in South East Asia, and a world willing it on to succeed. Its GDP is just $90 billion compared to Thailand’s $646 billion. Thailand’s GDP per head is $10,000 and Myanmar’s $1400 (adjusted for purchasing power parity), and even that dismal sum is heavily concentrated among the rich. Growth in 201314 is expected to be a robust and BRIClike 6.8 per cent. 

But sixty years of mismanagement takes a long time to correct, and Myanmar is still at the very beginning of its transformation. Yes, it may have other countries nearby after which to model its development. Yes, technology such as mobile phone networks may allow it move more quickly than other countries have.

But people still have to be won over to what economic growth will entail. Myanmar’s leaders are not yet fully comfortable with democracy and the sharing of power and wealth. All of this will take time. 

It is easy to see Myanmar’s revolution as a front, no more convincing than the Uppatasanti Pagoda in Naypyidaw, the country’s eerie capital. The Uppatasanti was built to resemble the Shwedagon in Yangon, but is a foot shorter and better seen at night than during the day, when its blotchy paint job and slapdash construction becomes obvious. But it is vital for Myanmar’s future that the waiting and frustrations of its transition do not lead to disappointment. 

The news from Myanmar is always conflicting. The World Bank’s latest analysis said it was growing more quickly than Eastern Europe and the Soviet Union did after the fall of Communism. The number of cars in the country, for example, has risen by a quarter in the past year. But Myanmar still ranks a dismal 182 out of 189 countries in ease of doing business, rattling around in the economic basement with the likes of Chad, Eritrea and the Central African Republic. To start a new business takes 72 days, involves 11 different procedures, costs $1,500 in fees, and requires a deposit of $58,000, the worst conditions for an entrepreneur in the world. 

In every sector, one finds a pattern of exuberance tempered by reality. When Myanmar opened up its newspaper industry, new titles blossomed. 26 companies received licenses to print daily newspapers and for several months they reveled in their new freedoms. But since then, several have shut down and those that survive are struggling to compete with the state-run media which is both subsidised by the government and hogs what little advertising money there is from companies seeking political favour. The quality of those that survive has also gone down as the early thrills have been replaced by the grind of daily production. 

In June, the government issued mobile phone licenses to Norway’s Telenor and Qatar’s Ooredoo. But then in November, it invited Vodafone and Orange, which had lost out in the earlier licensing process, to partner with the state-owned telecoms company on a joint venture. Foreign investors who think they have adhered to the rules are often finding those rules shifting as the government tries to seize economic opportunity for itself. 

The old Burmese government habit of taking a large slice of every business and industry is proving hard to shake. 

Myanmar’s state brewer is challenging the purchase of a 55% stake in the country’s biggest private brewery by the Thai company, ThaiBev. The Burmese drink just four liters of beer per year compared to the Thais’ 25 liters and the Vietnamese’s 30 liters, a classic BRIC opportunity. But if the purchase is reversed, it could freeze other companies hoping to participate in the growth of Myanmar’s consumer markets. 

Enthusiasm for Myanmar’s potentially rich mining and natural resources sectors is also waning as the government seems unwilling to withdraw its snout far enough for foreign investors to see a profitable opportunity. 

Under the existing Mines Law the government is entitled to 30% of any minerals extracted, in addition to taxes and royalties, without having to put up any equity. The contracts system is also a mess, forcing companies to process extracted minerals in Myanmar and draft new contracts every time it goes from one operation, such as exploration, to site development. This combination of greed, lack of sophistication in the relevant ministries and the mistrust of outsiders is impeding what should by now be a roaring trade. 

And then there is oil and gas. Myanmar has been called a sleeping giant”, with possibly vast untapped resources on and off-shore. More than 60 firms have been prequalified to bid for some 30 blocks, including majors such as Chevron, ExxonMobil, Total, Statoil and the China National Petroleum Corporation. The government is expected to announce the winners of the tenders for these blocks early next year, but still wishes to take 80% of any revenues from oil and gas projects. 

This raises two fears: that Myanmar’s government will suffer the resource curse” of developing countries, and become dependent on easy oil and gas revenues rather than making disciplined, long-term economic decisions for the country; and that only state-backed oil companies will be able to make such a deal work financially. The Chinese are already gearing up by investing in pipelines running from the Bay of Bengal across Myanmar into China. 

The government’s reluctance to give up the habits of authoritarian control infects every aspect of Burmese development. The Japan International Cooperation Agency (JICA), the development aid arm of the Japanese government, was asked to develop a long-term master plan for Yangon, covering everything from zoning to sewage. The Japanese draw on lessons from their own rapid development in the 1970s and 1980s and hope that the plan will lead to contracts for Japanese companies. 

But the plan has already run into the government’s Stalinist project-management approach. When JICA proposed a Bus Rapid Transit system to ease congestion, they said it would take at least two years from breaking ground to set up everything from the roads to management, to ordering and delivering the buses. The government has said to hell with it, and any time-wasting pilot projects, and that desperate its inexperience and poor record with infrastructure projects, it will introduce its new system within a year.

The overarching challenge is one of leadership. From the perspective of Myanmar’s still predominantly military government, it has come a long way fast. From the perspective of outsiders, it could go a darned sight faster if only it would slacken the reins.

Many of its members still mistrust this process, and the government lacks the deep bench of technocrats able to draft and implement modern, conciliatory and liberalising legislation.

Anyone wanting to do business with Myanmar must understand that the government sees the economy as just one piece of a more complex transition, from decades of civil war to peace, from dictatorship to democracy, from a country closed off and run on a war footing to one now open to free speech, tourism and buccaneering entrepreneurs.

At the same time as it is trying to improve its inward investment strategy, it is also trying to reach peace deals with its ethnic minorities such as the Karen, who have been fighting against the national army since Burma gained independence in 1948. In early November, the government gathered 17 armed ethnic groups to peace talks and shared their proposals for a peace agreement. Several of the groups are still unwilling to strike a deal. Even the latest generation of military leaders still think and act as if an explosive civil war was still possible.

What gives them cramps is the prospect of any reforms reversing the recent years of peace-making. In Southern Myanmar’s Dawei township, the government has created a special economic zone and port development funded largely with Thai money. This is already a hub of mines and natural gas extraction projects being developed off the Tenasserim coast. But the local Dawei and Karen people are angry at being displaced, and are complaining noisily.

The Letpadaung copper mine in the northwest of Myanmar has faced similar protests. Run by China’s Wanbao mining company and the Burmese Army’s business arm, the Union of Myanmar Economic Holdings, it has alienated local villagers and Buddhist monks, who allege that explosions in the mine have damaged a local pagoda. Last year, police raided a protest camp at the site, injuring monks and prompting nationwide anger. This led to the mine’s temporary closure.

It would be wonderful for investors if Myanmar had a Lee Kuan Yew figure poised and able to hustle it forward over all these obstacles. But it has what it has, a group of leaders who are letting out the rope at a speed they can manage and control.

Aung San Suu Kyi, the face of Burmese democracy and leader of the National League for Democracy, stands in the middle of all this, her role and message still only vaguely defined.

The world still sees her as a Nobel prize winning hero of peaceful resistance to oppression. The government sees her as both a nuisance and a useful propaganda tool, a way to keep foreign support while progress is still lurching. Myanmar’s farmers wish she would stand up for them more against land appropriations by companies supported by the government. The persecuted Muslims of northern Myanmar, and their foreign supporters in NGOs, feel she has abandoned them in favor of the Buddhist majority. The Buddhists think she is too partial to the Muslims.

She appears to support economic development, but not the kind of hurly-burly growth that has scarred some Myanmar’s Asian neighbors.

As a mere member of parliament, she hopes that constitutional reforms will allow her to run for the Presidency in 2015 and lessen the military’s role in parliament. But until then she has more influence than actual power.

At a recent EU-Myanmar meeting in Yangon, she said 2015 is important because we need to get the Constitution amended before then. And anybody who encourages business or investment or any other activity in Burma, while at the same time totally ignoring the need to amend the Constitution, is not being pragmatic.” She added: I want good, hard-headed businessmen who are intent on making a good profit for themselves, but in a responsible way so that we also may benefit from your presence. That means that when you talk about responsibility, it’s not just CSR, it’s not just social responsibility. It’s political responsibility, legal responsibility. It’s responsibility in a very broad sense of the word. So if you want to make responsible investments in Burma, you must be aware of the political situation in Burma, the peace situation, the social situation, the human rights situation.” That’s a big gulp for any company, however eager they are to participate in Myanmar’s growth.

It can all seem maddening for anyone who hoped for a gold rush in Myanmar, but for those willing to slow dance with the government, there are still grounds for optimism.

The OECD recently reported that Myanmar is going to simplify rules for foreign investors and reduce the discretionary power of the Myanmar Investment Commission which currently vets foreign investors in what can often seem an arbitrary way.

Several of the 20 conglomerates which control Burmese business are now trying to circumvent the lack of domestic capital by trying to raise money by listing in Singapore. The one Burmese firm currently listed in Singapore, Yoma Strategic Holdings, which controls the property and auto holdings of the entrepreneur Serge Pun, has seen its share price has quadruple since 2012. Japan’s Daiwa Securities Group is working on a new Myanmar securities exchange to open in 2015 which should entice capital for investment.

And then there is that ultimate status symbol for any emerging market on the make. By 2015, Myanmar will have its first Starbucks. Then will be a good time to take stock of this quiet revolution.

Philip Delves Broughton is an author and journalist. He is a Senior Consultant to Brunswick, based in New York. He was previously a Senior Adviser to the Executive Chairman of Banco Santander. His books have appeared on The New York Times and Wall Street Journal bestseller lists and been published around the world.