Despite promise, Myanmar faces big challenges to lure foreign investors – The Edge Review

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When Nay Aung returned to Myanmar two years ago, he wasn’t quite sure what to expect. One of the few educated, well-to-do Burmese to come home so far since the country’s recent opening and reforms, the former Google staffer has already made a mark as a businessman on the homefront.

His online travel website has a plush office in one of Yangon’s handful of shopping malls, and he ‘s hoping to expand in tandem with Myanmar’s chrysalis-like tourism sector.

But starting a business – even for a well-educated, well-connected young Burmese – is not easy.

“If you have a partner, it helps, but for the first six months, it is really tough in areas like finding and hiring people with the right skill-set, ” he told The Edge Review.

The Myanmar economy is expected to grow between 6 and 7 per cent this year, according to the International Monetary Fund (IMF), while the World Bank estimates that foreign direct investment (FDI) grew from 3.7 per cent of GDP in 2011/12 to 5.2 per cent in 2012/13. Most of this investment was in the energy sector, garment industry, information technology and the food and beverage sector.

Data from the Myanmar Investment Commission show that Myanmar received US$1.8 billion in FDI between April and August this year, as much as the entire previous year. If all goes well, Myanmar could growth at 8 per cent a year and pull in US$100 billion in FDI over the next 17 years, according to a June report by McKinsey Global Institute.

But a lot would have to go well for that to come about, the report’s co-author Heang Chhor told The Edge Review. “In order to compete, the country will likely need to address logistics and infrastructure, the skills and education gap of its workforce, and land provisions. Electricity supply is among the lowest in the region, forcing companies to operate on their own generators and, oftentimes, below capacity,” he said.

The country’s unreliable and restricted electricity supply is estimated to reach no more than around a quarter of the population of 50-60 million, while less than 10 per cent of the population is connected to the telephone network or able to get online. Moreover, the country’s aging and potholed roads turn what should be a three-hour drive into an eight- or nine-hour slog. Long-haul road trips that would take maybe a working day in nearby Thailand turn into two- and three-day ordeals.

Myanmar’s water supply, meanwhile, doesn’t get as much attention as its lack of power or availability of the Internet, but it’s another issue that would-be investors have to get their heads around if they are to do business in the country. Hideaki Iwasaki, Principal Infrastructure Specialist at the Asian Development Bank’s Myanmar office, says that the water supply is being worked on, but it will require considerable efforts, as is the case with much of the country’s creaking infrastructure.

“The water supply needs to be improved together with other infrastructure, such as wastewater collection and treatment, and power supply, as water pumps use a lot of electricity, and road and bridge improvements, as water pipes are usually installed along roads and bridges,” Iwasaki said.

And the list goes on. Lex Rieffel, a non-resident senior fellow at the Brookings Institution and author of several reports on the Myanmar economy, told The Edge Review that the education system – a wasteland of rural teachers paid less than US$50 a month inflicting rote learning on pupils in rickety classrooms – is in need of fixing. Reiffel described education reform as a vital building block for “improving the environment for private sector investment so that it is worthwhile and relatively easy for companies, local as much as foreign, to create new jobs.”

Myanmar is coming out of decades of economic mismanagement and sanctions, so it’s expected that the changes needed will be vast and complex. New investment laws and rules will play a part, but legislation alone cannot drive growth or pull in investment. Slow or opaque moves by the government to reform some colonial-era codes will dissuade potential investors. Even some companies who have started or restarted operations in Myanmar in the past year or so think the Myanmar government needs to keep its foot on the pedal

Connie Yip, a spokesperson for Western Union, which has 280 agents in Myanmar as of mid- September, told The Edge Review that “while Myanmar has made strides in developing its infrastructure and investing in projects that will make a difference in opening up foreign and domestic markets, the government still needs to continue with regulatory reforms in order to utilize the new assets to maximize efficiency.”

In May, when Japanese Prime Minister Shinzo Abe visited Myanmar with a delegation from Japanese corporate giants such as Mitsubishi, Sumitomo and others, the head of Tokyo’s overseas trade mission in Yangon said that while Japanese businesses were keen to sell to Myanmar’s long-closed market, they were less certain about the more expensive and difficult process of setting up factories there, despite the vaunted low labour costs.

Those cost benefits would quickly be offset if a factory needed massive generators to run, or if wares had to be transported slowly along winding roads. As a result, the Japanese are putting their money into a planned special economic zone (SEZ) at Thilawa covering more than 2,000 hectares, a half-hour drive along the coast from downtown Yangon, where, Tokyo hopes, Japanese companies will have reliable power and communications along with their own airport link and motorway – an oasis of quick-fix progress inured from the growing pains that are likely to afflict the wider Myanmar economy.

“SEZs should be set up to have specific objectives, a defined industry focus, attractive location, a favourable regulatory regime, and streamlined processes,” said Heang Chhor.

Thilawa, however, is already running into some of the same challenges that have stalled investments in Myanmar’s lucrative natural resources sector elsewhere in the country. Farmers say they were forced off their land at Thilawa with insufficient compensation. While it seems far-fetched that they could hold up the project, their case resembles those in locations such as Letpadaung, site of a massive copper mine near Myanmar’s second city, Mandalay, where thousands of famers have been dispossessed and where protests have turned ugly. As more big investors size up Myanmar in the years to come, we can expect more land grabs and more protests.

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