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Beware Talk of Business-Friendly Myanmar

Author: Joshua Kurlantzick, Senior Fellow for Southeast Asia
February 20, 2012
Financial Times

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Over the past year as Myanmar has launched a shockingly rapid era of reform, foreign investors have descended on the country, convinced it is the next Asian tiger cub economy and that western democracies soon will lift all sanctions. In recent weeks, some of the largest Japanese businesses visited Myanmar to scout for opportunities, as did George Soros, and several large European companies. Many venture capitalists privately have been assessing ways to invest in Myanmar.

Investors are betting on several factors. With a population of over fifty million that has been mostly cut off from western products by sanctions passed in the late 1990s because of the regime's abuses, Myanmar is one of the biggest untapped consumer markets for western companies. Its location, between China and India, gives companies potential access to underdeveloped regions of the two Asian giants; its land and offshore waters contain significant untapped petroleum, gems, virgin forests, and potential hydropower.

What is more, opportunities in other emerging markets are becoming harder to find. China, Brazil, South Africa, and other governments are retaking state control of important sectors of their economies. In Myanmar, by contrast, the government has over the past three years launched a wave of privatisation of state assets, and the country's labour force is chronically underemployed, resulting in low wage levels.

But investors expecting Myanmar to be another Vietnam are likely to be disappointed. Instead, they are likely to find a market more akin to Angola: a shattered nation with minimal human capital. Myanmar has a large labour force, but unlike Asian exporting powerhouses which focused government resources on education, the quality of its labour is extremely low. For nearly two decades, the former military regime shuttered the finest secondary schools, to prevent students from gathering for protests. Today there are only a handful of well-educated younger Burmese skilled in information technology, communications, or management, which would make it hard for multinationals to build an office of any size in Myanmar.

In much of northern and north-eastern Myanmar is dominated by powerful ethnic insurgencies and narcotrafficking organisations. In many of those unstable regions, Myanmar lacks any infrastructure at all. These weaknesses could put transport costs on the level of the more expensive places in Africa, as well as contributing to corruption: Transparency International recently ranked Myanmar the second most corrupt nation in the world.

Unlike in China in the late 1970s, Myanmar's economic reforms also could be easily overturned. In China, reforms had the support of Deng Xiaoping, clearly the most powerful leader. But while Myanmar's president, Thein Sein, has shown reformist instincts and theoretically controls government, the former military rulers have not died or clearly retired. In fact, officials and activists privately worry that General Than Shwe, the former military ruler, is still exerting influence through his allies. He never had much interest in reform. If liberalisation threatens the (illicit) wealth he and his cronies have amassed, he could try to stop the process of change.

Myanmar went through a similar glasnost in the mid-1990s, when the government promised reforms and welcomed foreign companies. But after the initial opening, hard-liners worried that reforms would threaten the military's long-term power and rolled back the changes.

Worst of all for multinationals, unlike previous emerging giants like Vietnam in the early 1990s where all foreign firms were essentially entering the market at the same time, in Myanmar only some foreign companies have been absent. South Korea, Singapore, Thailand, China, and other powerful Asian states did not go along with the western sanctions. So, while an American telecommunications company might plan to expand into Myanmar, it would have to compete with the Korean giant Samsung, which never left Myanmar and has a huge head start. For these multinationals, indeed, Myanmar may be less a golden opportunity than a recipe for major trouble.

The writer is fellow for South-east Asia at the Council on Foreign Relations

Copyright The Financial Times Limited 2012.

This article appears in full on CFR.org by permission of its original publisher. It was originally available here.

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