Need for caution on investing in Myanmar
By all accounts, Myanmar opposition leader Aung San Suu Kyi
had a successful visit to Thailand in what was her first trip abroad after 24
years. The 66-year-old parliamentarian enjoyed a superstar-like welcome and
made the most of her short trip to highlight the plight of her fellow
countrymen overseas, such as exploited migrant workers and war refugees.
Comments
06 June 2012
By all accounts, Myanmar opposition leader Aung San Suu Kyi had a successful visit to Thailand in what was her first trip abroad after 24 years. The 66-year-old parliamentarian enjoyed a superstar-like welcome and made the most of her short trip to highlight the plight of her fellow countrymen overseas, such as exploited migrant workers and war refugees.
But it was her presence at the World Economic Forum on East Asia in Bangkok that stole the show. She came armed with a message to the international community as she stressed the need to exercise some “healthy scepticism” towards her resource-rich country’s much-lauded democratic awakening. Significantly, she cautioned against “reckless optimism” about investing in Myanmar at this fledgling stage of the reform process. Essentially, she suggested that foreign firms, big or small, should invest cautiously and transparently so that the influx of money will be able to benefit the people of Myanmar rather than be wasted, or fuel opportunities for corruption. She has a point.
It is understandable that investors want to be among the first in their respective industries to tap the business opportunities opening up in Myanmar, which many view as Asia’s new “frontier market”. However, they should consider carefully whether the country is, at this point, able to absorb large amounts of capital, put it to productive use and yield good returns. The answer is, probably not.
Shut out from the outside world for decades, Myanmar is still very much in the early stages of building a democracy and, crucially, still lacks rule of law and an independent judiciary. Basic services such as communications, transportation and infrastructure such as water, education and health are in scarce supply. The financial services sector is also small, rudimentary and repressed. Most of the economy remains under state control.
The civilian government under President Thein Sein has recognised that restrictive rules and regulations are major obstacles to investment. Still, market reform is new territory for the leadership, which is only beginning to come to grips with the challenges of modernisation.
It is true that Myanmar offers promise, given its 60-million-strong population and resource wealth. But it needs stronger economic and political institutions before investments can bear fruit, both in terms of benefiting the mass of the people - which would help build political support for reforms - and yielding durable returns.
Foreign investors will also no doubt be watching Ms. Suu Kyi’s ties with Mr. Thein Sein; both will be key figures in influencing the direction and pace of reform. Myanmar’s state-controlled media has hailed Ms. Suu Kyi as “the hope of Myanmar”, recognising her as a leader in her own right, alongside the president. It has also urged the two to cooperate for the greater good of the country. These are positive signs. But investors should heed the essential fact that Myanmar is only at the beginning of a reform process that has a long way to go.