Francisco A. Laguna & Jennie Linder Cunningham
After decades of isolation, Burma is beginning basic economic, industrial, legal and social developments. The Asian Development Bank is “cautiously optimistic” about the growth and development of Burma, emphasizing the importance of lifting sanctions as the first of many steps – along with comprehensive and meaningful reforms. Growth rate potentials are estimated as high as 7-8% – but only as long as foreign direct investment (FDI) and domestic investment occur in all sectors in order to avoid the “resource curse” endemic to so many developing nations.
The resource curse, defined as an over-reliance on one or a few key natural resources, is particularly apparent in nations with underdeveloped and / or unstable institutions and infrastructure. Burma’s economy has depended primarily on oil and gas resources, mining and lumber, all industries that have caused massive environmental degradation. These industries will continue to be major staples of the Burmese economy, but it is imperative that the economy and investments diversify beyond extractive practices if long-term change is to occur in the post-sanctions country. This will be important for investors interested in the long view and certainly for Burma itself.
Burma has a sizable, yet unskilled, workforce. This makes investment in the manufacturing sector a challenge; however, the Burmese are eager to develop skills and are willing to work to obtain necessary training. Another factor affecting FDI in the manufacturing sector is Burma’s power grid: it remains largely unreliable, with major business centers such as Rangoon and Mandalay receiving only around 4 – 5 hours of power per day, according to national news sources. Generators are an option, but they require a fuel source, and depending on the size of the operation, they may be both impractical and cost-prohibitive. Despite this issues, Belgian textiles and wood floor surfaces manufacturer Beaulieu International Group is reportedly negotiating to develop a factory in Burma.
Some initial FDI has focused on the agricultural / biotechnology sector. In 2010, Burma ranked 14th in terms of world distribution of genetically modified (GM) crops, with 300,000 hectares being farmed with GM crops. The primary biotech crop is cotton, including insect-resistant Bt cotton, planted for the first time in 2010. These are impressive statistics, given that just under 16% of Burma’s land is considered arable, and only 2.1% is used for permanent crops.
The telecommunications and technology sectors are other areas poised for quick growth, given the proximity to China and the rest of Southeast Asia. The market is ripe for expansion, especially because cell phone and internet use is still extremely low. As of April 2013, only 4% of the population utilized mobile technology, and 2% had access to the internet. Again, considerable reform is needed in the legal system before the technology infrastructure can function to protect both consumers and private entities (the latter of which are still not allowed in the tech sector), but the government considers this infrastructure crucial to the new Burma and has even welcomed tech superstars like Google CEO Eric Schmidt in recent months Additionally, the government has expressed its goal of providing 3G coverage to at least half of its citizens by 2015.
Early projects in infrastructure and tourism are underway, including the HAGL Myanmar Centre in downtown Rangoon. Vietnam’s Hoang Ahn Gia Lai Group and the Burmese Ministry of Tourism signed a US$ 300 million contract to build the center in December 2012, shortly after the Ministry expressly encouraged FDI in the tourism sector. Construction began earlier this year, and the complex will include a five-star hotel, and multi-use space with offices, apartments, retail and restaurants. The government hopes to increase the number of hotels in order to meet tourist demands, and we can expect to see the tourism sector – which developed significantly over recent years with an influx of Chinese tourists – to continue to expand rapidly. Indeed, anticipating increasing visitor numbers, Rangoon’s Sedona Hotel is building an US$80 million, 29-story new wing.
It is always difficult to predict the trajectory of a country so recently re-entering the world stage. However, with conscientious investing in all areas of the Burmese economy, coupled with sweeping reforms, and a continued effort to strengthen institutions and infrastructure, there is hope that long-term FDI will flourish, and Burma can enter the second decade of the 21st century as a nation that is truly developing.
TransLegal has a correspondent office in Rangoon and is available to assist answer your questions concerning doing business in Myanmar, including the introduction of local partners.