Premature rush for Myanmar riches
By Brian McCartan
The
rapid pace of reforms in Myanmar is raising
speculation about when, not if, United States- and
European Union-imposed economic sanctions will be
lifted. While Myanmar's various untapped markets
are generating immense interest from foreign
investors, until more economic and financial
reforms are implemented actual capital inflows
will likely be mitigated.
While part of
President Thein Sein's wider reform drive,
economic reforms are also being fueled by a crisis
in the domestic financial system, dissatisfaction
with China's growing economic influence
and recognition that Western
sanctions have greatly inhibited the economy.
Another spur is the need to comply with
Association of Southeast Asian Nations (ASEAN)
Economic Community regulations scheduled to take
effect in 2015.
As the US and European
Union (EU) make concessions in response to Thein
Sein's reform signals, it seems increasingly
likely that all economic and financial sanctions
could be rolled back later this year. Those
prospects will improve if Naypyidaw can show that
by-elections scheduled for April 1, the first to
be contested by pro-democracy icon Aung San Suu
Kyi and her National League for Democracy (NLD)
party since 1990, are free and fair.
Myanmar has seen a number of senior
Western diplomats visit the country in recent
months, beginning with US Secretary of State
Hillary Clinton's visit in December. Since then,
Britain's Foreign Secretary William Hague,
Australia's Foreign Minister Kevin Rudd and
France's Foreign Minister Alain Juppe have all
made official trips to the traditionally
military-run country. The positive rhetoric after
their visits and wider praise for Naypyidaw's
reform efforts have added momentum to the
gathering drive in the West to repeal sanctions.
The EU is considering a US$197 million aid
package focused on health, education, agriculture
and institutional capacity-building. EU foreign
ministers agreed at a meeting on January 23 to
lift immediately a travel ban it had imposed on
certain Myanmar leaders and is considering
relaxing other restrictions after the April 1
by-elections.
French Foreign Minister
Juppe announced at the end of his official trip
that France - independent of the EU - would triple
its development aid to Myanmar to about $3.85
million a year. Denmark has announced it will
increase its bilateral aid to $17 million in 2012.
Australia announced in early January that it would
begin relaxing some financial and travel sanctions
against government tourism representatives and
members of the former ruling junta.
Although Washington has been coy on the
sanctions issue, it took a major step towards
normalizing diplomatic relations this month when
it announced it would soon name an ambassador to
Myanmar - only hours after Thein Sein released an
estimated 300 political prisoners.
The US
downgraded its mission in 1990 after pro-democracy
protests were brutally crushed by the military and
the ruling junta nullified election results that
indicated a clear win for Suu Kyi and NLD-led
opposition.
Repealing American sanctions
would require an act of congress, something that
seemed unlikely just a few months ago. Now there
are signs that many of Myanmar's strongest critics
in congress are beginning to shift their views
towards greater accommodation with Thein Sein's
nominally civilian, military-backed regime.
Senator Mitch McConnell recently told
senate colleagues that he felt the reforms were
real following a two-day trip to the country
earlier in the month where he met with government
officials and Suu Kyi. McConnell, a long-time
opponent of the military regime and a backer of
sanctions legislation, said more must be done.
Senator John McCain said this month that free and
fair by-elections would encourage the relaxation
of sanctions.
Many long-time Myanmar
observers maintain reservations about the
sincerity of Naypyidaw's moves. They caution that
repealing sanctions outright would be too much,
too soon since the government has not proven the
reforms are sustainable or amended various
controversial laws. Myanmar's military rulers are
notorious for reversing seemingly conciliatory
gestures to the opposition and then re-arresting
political opponents once international attention
shifted away from its abuses.
At the same
time, economic analysts say investment
opportunities abound in Myanmar, especially in the
energy, agriculture, manufacturing and
infrastructure sectors. The tourism industry, too,
is expected to see major growth due to the
country's historical pagodas, natural beauty and
colonial architecture, among other attractions.
The International Monetary Fund (IMF)
recently referred to Myanmar as the "next economic
frontier in Asia" with "high growth potential",
following a two-week assessment trip. The IMF is
currently working with the government to overhaul
its financial system, including a distorted dual
exchange rate that has long discouraged foreign
investment.
Myanmar occupies a strategic
crossroads between the growing economies of India
and China and Southeast Asia. A port under
construction at Kyaukpyu on Myanmar's west coast
is aimed at opening up China's remote southwestern
province of Yunnan to trade and investment. It is
also part of a project to build a dual oil and gas
pipeline from a terminal at the port to
southwestern China.
An even larger
multi-billion dollar port project at Dawei on the
southern coast aims to connect Myanmar with
Thailand, the rest of Southeast Asia and southern
China. It will offer a potentially faster,
cost-saving alternative to the Malacca Strait and
Singapore for the transportation of goods and
energy. Investment in these port projects will be
encouraged through their associated infrastructure
development and planned integrated special
economic and industrial zones.
Legal
exposure The Ministry of National Planning
and Economic Development has recently revised the
investment law to attract more foreign capital
through providing better legal protections for
potential investors. Deputy Railways Minister Lwin
Thaung recently told reporters that foreign
consultants had been hired to "draw up the law so
as to be more attractive to our neighbors".
The new bill was submitted to parliament
in September but so far has not been signed into
law. According to Lwin Thaung, the bill, which is
expected to make it easier for foreigners to
control local companies and provide stronger legal
protections for land leases, will be enacted into
law at the end of February.
The new
parliament's latest - third - session began on
January 26 with a focus on the budget and
anti-corruption measures.
The new
investment law is also expected to provide
investors with more clout by removing the past
necessity of working through influential
businessmen with ties to the government and
military. Naypyidaw announced on Saturday a plan
to offer eight-year tax exemptions for foreign
investors as part of the new law.
As the
country's international image improves, so too
will the image of its most high-profile business
figures as foreign companies look for local
partners. Prominent businessmen such as Tay Za,
Zaw Zaw and others have long been derided as
cronies of the former junta. Other businessmen are
also allegedly linked to narcotics trafficking.
Recent positive international news coverage has
helped to soften several of their images.
Even if the new investment law is
promulgated, there remain concerns over the weak
legal system, frequently cited for its
incompetence and lack of independence. Endemic
corruption is also a major issue in Myanmar, which
was listed last year as the third-most corrupt in
the world after North Korea and Somalia in
Transparency International's Corruption
Perceptions Index.
The relationship
between the still all-powerful military and an
opening investment climate remains obscure,
especially in the countryside. Military commanders
have long behaved as warlords in their areas of
responsibility and many have established their own
economic interests, including commercial
plantations and other agribusiness projects.
Away from Naypyidaw and other major
population centers, the power of military and
civil officials will likely trump any investment
law for the foreseeable future.
Of concern
to some potential investors is the possibility of
a link between their projects and human-rights
abuses, particularly forced labor and poor working
conditions. Agribusiness projects in Shan state
have been linked to evictions of villagers, forced
labor has been used on road construction and to
support troops guarding projects.
Work
conditions at the Hpakant jade mines are
notoriously miserable with low wages, long hours,
inadequate tools and high levels of HIV/AIDS
infections due to rampant drug use.
Investors will also take a hard look at
Myanmar's poor infrastructure before investing in
manufacturing or businesses that require the
efficient transportation of goods. Electricity
supplies are erratic across the country, roads and
railways are in poor repair and port facilities
are woefully inadequate.
Without extensive
development of the energy and transportation
infrastructure, investors will find it difficult
to establish profitable manufacturing enterprises,
much less get their products to market in a timely
manner.
Much of the investment to date in
Myanmar, including Chinese ventures, is
concentrated in energy and resource extraction.
While such activities promise huge profits for
certain businessmen, unless properly managed and
efficiently taxed they do not provide the type of
inclusive economic development that both the
government and opposition now claim to prioritize.
Investors seeking opportunities in the
seven ethnic states, where the need for economic
development is most acute, will likely run into
problems of resource ownership between the central
government and ethnic minorities - some of whom
have only recently stopped fighting the government
but remain armed.
Some of these groups
have become very aware of the risks of development
on the environment, but also see investment as a
way to provide much-needed growth in their areas
after decades of debilitating civil war.
While Western business interests look
towards Myanmar's vast untapped potential, many
Asian companies are moving pre-emptively before
Western sanctions are lifted and US and European
companies join the competition for contracts and
projects.
Thein Sein is now on a three-day
trip to Singapore, where on Monday he signed an
agreement under which the city-state is offering
help in economic planning, urban development and
technical and vocational training.
Already
a number of US and European firms are known to
have quietly sent representatives to explore
opportunities should sanctions soon be repealed.
Even without legal protections and basic
infrastructure, and with a dubious cast of
potential business partners, Myanmar is fast
becoming Asia's next big thing.
Brian McCartan is a freelance
journalist. He may be reached at
bpmccartan1@gmail.com.
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