Myanmar poised to grow as country shakes off decades of dictatorship

In the mid-20th century a young Canadian traveller, touring Southeast Asia at a time when backpacking around the world was not only unfashionable but high-risk, gave a bleak review of Burma.

“I have seen no country where chaos, bribery, looting, smuggling, insurrection and political assassination have been so prevalent,” Pierre Elliott Trudeau told his mother in a letter unearthed during historian John English’s research for a 2006 biography of the late prime minister.

Fast-forward from 1949 to 2013 and, on the surface, not a lot seems to have changed. The United Nations still puts Myanmar, a country of 60 million people also known as Burma, among some of the least developed in the world.

Transparency International says it’s one of the most corrupt countries, while human rights organizations are still exposing numerous abuses.

And this month the Vancouver-based Fraser Institute put Myanmar second-last, ahead of only Venezuela, among countries in terms of the level of “economic freedom” offered to companies and individuals to do business and own property.

Yet these rankings fail to take fully into account the sweeping reforms that have been launched since early 2011, when former general Thein Sein became president and took major steps to end five decades of oppressive and inept rule by a military junta.

Not only is the country’s economy opening up, but the government has released most political prisoners, is relaxing rules on free speech, is permitting the formation of unions, and is seeking or has arranged peace deals with some ethnic minorities.

“This country isn’t just economically opening up, as in China and Vietnam. They’re trying to do a political reform, a social reform, a peace process (with ethnic minorities), all at the same time,” according to Doan Nguyen Hansen, an analyst with the McKinsey Global Institute.

These reforms – and the entry of longtime dissident and former political prisoner Aung San Suu Kyi into parliament in 2012 – have resulted in a flurry of visits by opportunistic political and business leaders. With that comes a growing consensus that Myanmar is a country to watch for the next 20 years.

The country’s economy, according to a bullish McKinsey Global Institute report published earlier this year, has the potential to grow fourfold by 2030.

That would result in a stunning increase in the number of citizens put in a position to purchase consumer goods – from 2.5 million in 2010 to 19 million in 2030.

Myanmar’s potential is even more eye-popping when considering its geographic location at the crossroads of some of the most powerful and fastestgrowing countries on the planet. On its borders are China, India, Thailand, Laos and Bangladesh – “countries that are home to more than 40 per cent of the world’s population and (which) are huge potential markets,” the report noted.

High-risk, high reward Among the many emerging Asia-Pacific economies expected to dominate global investment and commerce in coming years, Myanmar represents an “absolutely extreme” example of high-risk, highreward potential, according to an assessment from a Canadian parliamentarian who has visited Myanmar, federal Trade Minister Ed Fast.

The MP for Abbotsford, who visited both President Sein and Suu Kyi during a 2012 visit after Canadian sanctions were lifted, doesn’t try to gloss over the negatives.

“It is one of the poorest countries in the world, there’s a complete lack of infrastructure and institutional structures in place, they’re still trying to come to grips with what democracy and rule of law mean. So that’s why the degree of caution that a Canadian company would have to bring to the table is much higher than anywhere else,” he told The Vancouver Sun.

“But that said, Burma represents some amazing opportunities for Canadian companies.”

One such company joining the rush to Myanmar is Ottawabased Optelian, which signed a major contract last year through its local business partner with state-owned Myanmar Posts and Telecommunications.

Optelian’s optical network technology is being used as part of a massive effort to establish Myanmar’s wireless infrastructure.

“There’s a sense of a gold rush going on,” said Larry Perron, Optelian’s director of business development. “But you have to be very careful, there are a lot of risks.”

Natural resource development, like telecommunications, is another sector certain to attract Canadian businesses. Another of the early birds is Vancouver-based Centurion

Minerals Ltd., which jumped into the country shortly after Canada lifted trade sanctions in 2012 to strike a joint venture deal with Eternal Gold Mining Ltd., one of Myanmar’s largest private gold exploration and production firms.

Centurion’s deal allows it to explore and assess the development potential of a 8,903-hectare area in central Myanmar. “The opportunities for us as a junior mining company are fantastic,” said Centurion president David Tafel. “It’s a very good place to do business, and things are changing pretty dramatically.”

He said Centurion is the only Canadian mining firm he’s aware of operating in Myanmar, and said its early entry was due to the company’s ability to take advantage of personal links some Centurion directors had with the mining industry there dating back to the 1990s, before sanctions by western countries forced foreign firms out.

Tafel said weak infrastructure is a challenge, as is government bureaucracy. Company geologists are still unable to access online information on what potential mining properties are available for staking, and must instead rely on government bureaucrats to share that information verbally.

The company has had no problems with corruption, but Tafel cautioned other investors to be wary of those with whom they do business.

“You do need to be careful about who you’re partnering with, though everything is becoming more and more transparent.”

Myanmar, according to McKinsey analyst Doan Nguyen Hansen, is like a country coming out of a “time capsule” after lagging for decades behind its neighbours. Its opportunity to expand rapidly is staggering.

“Let’s not forget it is the first country to come to this stage of development when every technology is so much cheaper and so much better than it used to be, so the potential to accelerate is tremendous,” she said.

Potential in many areas Among the sectors most attractive to foreign investors are telecommunications, mining, oil and gas, financial services, manufacturing of consumer products, and agriculture, according to McKinsey’s report.

For example, Myanmar has 12.25 million hectares of arable land and permanent crops, the 25th-largest such area in the world, even though it is the world’s 38th-largest in terms of total area.

Yet the productivity of the sector, as measured by output per worker, is roughly half of neighbours Thailand and Indonesia.

The sector’s low productivity and the low level of inputs such as seeds, fertilizers, water and machinery suggest that there is significant room to grow, according to McKinsey.

Hanson cautioned that companies entering Myanmar have to be prepared for some of the challenges, especially when it comes to infrastructure.

A McKinsey survey of 30 manufacturing operations around the commercial capital of Yangon found that none of them can get more than four hours of electricity from the public grid. So they all have to use diesel-powered generators to run a single eight-hour shift.

That might not be a huge problem for a company involved in textile manufacturing, bottling or packaging, she said, but is risky for the manufacturing and assembling of sophisticated electronics products that are more sensitive to power outages.

Hotels are few in number and run more than $200 US a night in Yangon, and many hotels and all restaurants require cash. Automated teller machines and credit cards are only now being introduced into the country.

And transportation is a constant challenge – despite aberrations such as a modern but sparsely used 20-lane highway leading into and out of Naypyidaw, a town the military junta funnelled vast sums of money into after making it the new capital in 2006.

“Going into rural peripheral areas, the road connections are slow. There are no significant rail lines and no deepsea ports,” Hansen said.

Workers need training Government regulatory standards in some sectors are uncertain, she said. And while labour is cheap and plentiful education levels are low, so companies may have to include vocational training in their business plans.

Larry Perron, of Ottawa-based Optelian, said his company has set up a training centre to help Myanmarese engineers work with modern fibre-optic technology.

“That’s part of our commitment to corporate social responsibility,” he said.

Another area of concern for foreign companies is the risk of getting entangled with human rights abuses and corrupt cronies of the old military regime, according to a July report from Human Rights Watch titled “Burma: Invest at your risk.”

“One flashpoint is the absence of community consultation and consent for projects,” according to the report.

“Laws regulating land tenure and environmental controls are weak and poorly implemented. Trouble can arise when securing access to land and other resources, particularly in ethnic minority areas where preliminary ceasefires have been signed after decades of civil war. Foreign investment projects have been enmeshed in land-grabbing controversies.”

Foreign companies also face the challenge of “finding local business associates whose hands are clean of corruption or abuse.”

Tin Maung Htoo, a former student protester, political refugee and human rights activist now living in Ottawa, said the Human Rights Watch report is overly pessimistic.

“There are many areas (where investors) should be concerned,” said Htoo, executive director of Canadian Friends of Burma.

But the best way for foreign governments and companies to ensure economic and political reforms continue is to remain engaged, he said.

“If we want the people in Burma to be better off, politically as well as economically, then we should do investment in some areas that are beneficial for the ordinary people,” Htoo added.

Hansen, the McKinsey analyst, said her company’s dramatic projections for growth to 2030 could be derailed by any number of missteps.

“Things could go wrong in many ways. Everything could be nationalized again, perhaps regulation doesn’t end up allowing international players into the market. Or maybe the peace process, or the political reforms, don’t work.

“Everyone is quite positive that these things won’t happen, but any of them could happen. And then, of course, we’re talking about a situation that won’t meet anywhere near its potential.”