The Risks for the World's Newest Frontier MarketBrian P. Klein
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.