Via The Financial Times, a commentary on gaining access to Myanmar’s best investment opportunities:

The US’s decision to suspend some key sanctions against Myanmar is the latest and perhaps most prominent endorsement received by that country’s new quasi-civilian regime.

Global interest has surged, due to Myanmar’s vast untapped natural resources, underexploited agricultural sector and huge underemployed labor force. While there is justifiable excitement – the IMF expects 6 per cent economic growth this year – those new to Myanmar will find that it is hardly virgin territory.

After maintaining Myanmar’s isolation for decades, all major economies that had imposed sanctions have now relaxed or suspended them. Visits to Yangon by political and business leaders such as Hillary Clinton, the US secretary of state, British prime minister David Cameron and investment firm TPG’s David Bonderman have signalled growing confidence in Myanmar’s potential.

But, in fact, foreign investors are already present in Myanmar in force. Projected growth is driven significantly by existing foreign investment (estimated at $20bn last fiscal year, when most sanctions were in effect), primarily from Myanmar’s neighbours – China, India and ASEAN members such as Thailand, Malaysia and Singapore.

Facilitated by an isolated pariah regime desperate for hard currency, companies and investors from these countries have established themselves with little competition throughout the economy.

Their activities have been in part driven by their governments’ strategic goals: for decades, Myanmar has presented a vast source of commodities for feeding its neighbours’ domestic demand, as well a means of meeting major geopolitical aims.

China, for instance, has sought access to the Bay of Bengal through Myanmar to bypass the Straits of Malacca, which would slash shipping costs and times; India has similarly pursued access to the sea in an attempt to neutralize its insurgent-ridden and isolated northeast.

Sectors considered the most promising for new investment in Myanmar, such as energy, timber and construction, are all caught up in similar strategic equations. It is unlikely that incumbents will concede space to newcomers easily, having already invested significant capital in associated projects such as deep sea ports, pipelines, mines and highways.

Another obstacle for new investors is that a small number of powerful family-run conglomerates control much of the domestic economy. Entities such as KBZ (primarily airlines and retail), the Max Group (construction), and Asia World (construction and infrastructure) emerged during the years of Myanmar’s isolation with little competition and have come to dominate some of the country’s most important sectors.

Most of the conglomerates have actively engaged with the new political class, and given that gradual change seems to be the model negotiated for Myanmar’s transition to democracy, it is unlikely that radical reform would disrupt their influence in the immediate term. As a result, the direction set by these companies will strongly determine opportunities for new investors. In light of their relationships with incumbent foreign companies and governments, the conglomerates may prove difficult gatekeepers.

There is already a strong push to dilute the economic influence of China, which currently accounts for over 70 per cent of investment and 30 per cent of imports.  Many people in Myanmar are angry over Chinese labour practices and over environmental damage allegedly caused by some Chinese projects. Meanwhile the ruling elites are nervous about over-dependence on an unpredictable and omnipresent neighbour.

Public resentment erupted into a rare mass protest in September 2011, prompting the new government to abruptly suspend China’s $3.6bn Myitstone dam project, sending a signal to Beijing that it was no longer business as usual.

Indeed, concerns over China’s dominance in Myanmar have driven much of the recent global engagement with Myanmar, both by neighbours such as India and Thailand, and by the United States.

All of this points to a less-than-ideal playing field for new investors, who may actually find their best short-term opportunities lie in partnering with or investing in companies already active in Myanmar, rather than trying to enter the market independently.

This approach would allow time to become acquainted with the country’s evolving regulatory and institutional frameworks (many of which are being established for the first time) and pass some of the risk to entities already familiar with Myanmar.

Longer term, it is likely that the economy will be far friendlier to all foreign investors. Until then, new investment may be facilitated primarily by local and foreign government interests, and driven by goals that are as much strategic as economic.