A pariah state for decades, Myanmar’s recent emergence from economic isolation has attracted foreign companies and investors intrigued by the Southeast Asian nation’s untapped potential, abundant natural resources and low wage workforce.
The first U.S. fast food restaurant, KFC, opened in 2015 and other assorted Western and Asian brands have popped up across the nation’s biggest city, Yangon. With the World Bank forecasting growth of about 7 percent per year through 2019, there’s reason for guarded optimism in the next several years.
Yet some of the initial euphoria over the long-term outlook for one of the world’s last frontier markets is waning. Foreign investment and exports have cooled and the currency has slumped, straining the government’s finances. A growing chorus of investors, policy makers and executives worry that the coalition government led by Aung San Suu Kyi–a former political prisoner and Nobel laureate–lacks the kind of coherent economic strategy and regulatory framework to move the country up the development ladder.
While the government has won praise for passing a revamped companies law that takes effect in April, more work needs to be done, according to an appraisal in October by the International Monetary Fund. To really safeguard growth in the coming decades, the country needs to modernize its tax and public school systems, liberalize the financial sector and streamline business regulation.
Thiri Thant Mon, 40, returned to her native country in mid-2013 after 17 years living and working overseas, including a stint at Morgan Stanley. She sees a glacial pace of economic change in Myanmar.
“The government is slightly lost as to how they can tackle the bigger picture,” said Thiri, managing director and co-founder of Yangon-based investment firm Sandanila Partners. “There is no articulation of policy.”
The World Bank in January also called for greater clarity and communication of the government’s economic policies.
“One of the things that people do say, which I think is a fair criticism of the government, is that it has not set out its economic policies clearly enough,” Andrew Patrick, Britain’s Ambassador to Myanmar said at an investment conference in Yangon hosted by Bloomberg. “If people understood exactly what the playing field looked like it would be much easier for business to operate here.”
Ethnic tensions and violence persist across this multi-cultural nation, where minorities make up one-third of the population. External observers accuse the military of waging a campaign of violence in western Rakhine state, targeted at the Rohingya minority. A prominent government legal adviser who called for religious harmony in Myanmar was shot and killed outside Yangon International Airport in January.
Ethnic strife aside, Myanmar remains one of the world’s poorest countries. Its 54 million citizens have a per-capita GDP of $1,161.50 compared to $43,876 of its former colonial master, Britain.
Overhauling the civil service and government’s traditional way of doing things is going to require deep cultural change, said Sean Turnell, Naypyitaw based Economic Adviser to the government and an academic at Macquarie University, Sydney.
“I find sometimes people hanker for quick authoritarian solutions to things,” Turnell said. “In the old corrupt authoritarian order it was easy to get quick decisions – but they weren’t necessarily good ones.”
While the military continues to hold powerful sway and corruption and poverty is rampant, there’s no appetite for a return to the old regime. Suu Kyi’s National League for Democracy won a sweeping victory in November 2015 elections and formed a new government last year. A relatively free media and high mobile phone penetration have encouraged a thriving forum for debate and opened up the world to citizens.
Investment is also pouring into the nation’s telecom sector. Viettel, the military backed Vietnamese telecoms provider that operates across Asia, Latin America and Africa is embarking on a $2 billion investment in Myanmar–it’s largest outside its home market–after winning a license last year.
A new stock market has been launched, albeit with only four companies listed. Banks are being combed over to gauge their true financial health ahead of a planned restructuring designed to get credit flowing to those who need it most, according to Turnell.
“The government has actually been doing quite a lot on the economic reform front, but sometimes it has not been so good at communicating this,” he said.
It’s also the case that the slowdown in foreign investment in part reflects a mixed global economy, previous one off transactions and a spat with China over the $3.6 billion Myitsone Dam and hydroelectric project in northern Myanmar that was put on hold in 2011. Inbound investment hit a record $9.4 billion in the year through March 2016 compared with less than $2 billion five years earlier. Those inflows have cooled to about $5.8 billion for the current fiscal year, in line with the government’s target.
Another worry is that 80 percent of Myanmar’s foreign investment is concentrated in the oil, gas, power, and telecom sectors, according to an analysis by the World Bank, with manufacturing accounting for only about 7 percent. That could leave the economy vulnerable to an economic shock if, say, the energy sector were hit hard.
There have been some landmark deals in the consumer goods sector. Colgate-Palmolive Co., the New York-based maker of toiletries, bought a Myanmar toothpaste company for about $60 million in 2014, while Kirin Holdings Co. of Japan acquired 55 percent of the country’s largest beer producer, Myanmar Brewery Ltd., for $560 million in the following year.
Observers point to massive opportunities in education, retail, tourism, manufacturing and above all, infrastructure in a country where a quarter of the population live below the poverty line.
Only 40 percent of the road network is paved and 20 million people, half of the rural population, don’t have access to all-weather roads. Some $120 billion will be needed by 2030 to build road, rail, bridges, airports and more, according to the Asian Development Bank.
“Logistics within Myanmar currently is a nightmare and it’s affecting all types of different businesses,” said Peter Beynon, Chairman, Myanmar & Cambodia, Jardine Matheson.
About 77 percent of the population has no access to financial services, according to consultancy Roland Berger.
“We are heading towards the right direction,” said Htoo Htet Tay Za, Managing Director of Asia Green Development Bank Ltd. “We have to be patient.”
Still, hammering out the kind of comprehensive regulatory and policy framework that foreign investors need to invest longer term is a looming challenge.
Some suggest Myanmar needs a streamlined powerhouse economic agency led by a key talisman that the world can point to when looking to do business.
“One economic tsar supported by around 12 capable people, that’s what we need,” said Thiri.