How Not to Invest in Myanmar
The Risks for the World's Newest Frontier Market
Article Summary and Author Biography
Alongside Myanmar's political reforms, tens of billions of dollars of foreign direct investment are flowing into the country. But investors chasing high returns have overwhelmed fragile, newly opened economies in the past, and Rangoon's undeveloped financial sector, fledgling commodities market, and weak governance structures all warrant caution.
BRIAN P. KLEIN, a former Director of Southeast Asia Affairs at the Office of the U.S. Trade Representative, is a macroeconomic and geopolitical strategist.
Postscript
Although freeing Aung Suu Kyi may allow Burma’s military leaders to escape scrutiny for now, their budding nuclear ambitions could rejuvenate international interest in placing pressure on their regime.
Snapshot
Critics accused U.S. President Barack Obama of acting prematurely by traveling to Myanmar, a country whose democratic transition is still woefully incomplete. But the real reason for the rapid thaw in U.S.-Myanmar ties is geopolitical: both countries want to offset China’s influence in the region.
Letter From
In its rush to fete Myanmar's president, Thein Sein, and capitalize on the country's tentative opening, the international community has turned a blind eye toward the ongoing repression of minorities and the continued political dominance of the military. In doing so, it has given up much of its leverage over Sein at the very time when it should be pushing for clearer commitments to reconciliation and democracy.
Aung San Suu Kyi in June at the World Economic Forum on East Asia (World Economic Forum / flickr)
Since Aung San Suu Kyi's parliamentary election victory last April, Asian and Western businesspeople have flocked to Myanmar (also known as Burma), eager to take part in the re-emergence of a regional economic power. Over the last several months, Australia, Canada, the United Kingdom, and, as of May, the United States, have reopened some economic ties with Rangoon. U.S. sanctions that had long prohibited direct investment, development funding, and visas for military leaders have now been largely suspended.
Coca-Cola, GE, and oil and gas companies have already expressed strong interest in entering Myanmar. Hotels are filling fast, and rooms that rented for $60 six months ago go for $400 today. After several decades of isolation, Myanmar has moved to the center of frontier markets' maps. But Myanmar's potentially fractious political climate and dangerously fragile economy mean that a rapid opening may bring unsettling results along with sudden wealth.
Vast reserves of natural resources, including oil and gas, rice, timber, and precious gems, most of which are now exported unrefined, offer many opportunities to build up production capacity. Finished lumber, polished rubies, and even higher quality rice will attract investment opportunities in addition to tourism, energy, construction equipment, and manufacturing. Last year, more than $20 billion in foreign investment, mostly from China, Hong Kong, and Thailand, flowed into the country -- more than all the foreign direct investment from the previous two decades combined.
Some have counseled caution, however, and rightly so. Aung San Suu Kyi, who spent most of the last two decades under house arrest before she was freed in 2010, recently issued a warning to eager investors. At a World Economic Forum event in Bangkok in June, she warned of "reckless optimism," highlighting the need for transparency in the new government reforms that were making all the new economic activity possible. Otherwise, she said, the Burmese public would continue to lose out to the few in power...
