Via Maplecroft, two articles on Myanmar.  The first looks at key developments in Myanmar’s recent liberalization:

Recent political developments have pushed Myanmar to the centre of 2012’s strategic landscape, with governments and businesses in Asia and the West closely monitoring the accelerating reforms taking place there. The most important symbol of this reform has been the decision by the country’s military rulers to allow long-time opposition leader Aung San Suu Kyi to run in parliamentary by-elections in April.

Earlier today, Monday 6 February, Myanmar’s electoral commission formally approved her right to stand in the elections, removing the final legal hurdle to her contesting the elections. This is one of the important milestones on the Myanmar’s road to international rehabilitation and confirms it as one of the most important and dynamic countries of 2012.

Key developments:

• Myanmar’s military-backed civilian leaders have adopted a programme of rapid political liberalization and economic reform. In response, opposition leaders, led by Aung San Suu Kyi, have called for foreign investors to return to the country, while the international community has begun lifting sanctions. It is increasing clear that 2012 will be the year in which sanctions will be lifted, even if not all activist opposition groups will approve.
• Vast opportunities lie ahead for business looking to enter Myanmar – particularly in the oil and gas, mining, agro-commodities and tourism sectors. Myanmar also offers significant opportunities for business looking to set up their supply chains in the country, given the opportunities the large workforce availability and relatively cheap labour rates. The country is also well sited for access to other key emerging markets such as Thailand, Vietnam and Indonesia.
• Myanmar has the potential to become Asia’s ‘next economic frontier’, starting in 2012. A report released on 26 January 2012 by the International Monetary Fund (IMF) talked of the country’s ‘high potential’ for economic growth and socio-economic development. The IMF projects that economic growth will pick up already in FY2011/2012, with an expansion of 5.5%, and the trend will continue in FY2012/2013 with a growth of 6%.
• As Myanmar looks to redefine its position on the global stage and work to restore relations with the West, it seeks to move away from over-reliance on China. The military regime has historically been wary of over-reliance on a single foreign power and has sought to diversify its foreign relations, primarily with ASEAN members in the first instance. This may mean that Myanmar will look favourably on western firms seeking to enter the country.
• Critics view reformist President Thein Sein’s outreach to the West as an attempt to overcome growing public discontent against large-scale Asian, and particularly Chinese, investment in the country. Many of these investments have created limited employment, while burdening local communities with considerable environmental and social costs. Sustainable businesses that can promise to create employment and benefit local communities may hold an advantage when seeking to win governmental support.
• Considerably risks still exist, however, for business looking to operate or invest in the country. Myanmar’s political reforms are still a work in progress and the country remains a long way from being fully democratic. The country’s years of isolation and military rule have also meant that infrastructure (particularly health, education, transport, and communications infrastructure) and institutions are often underdeveloped. Corruption, a weak legal system and judiciary, continuing human rights abuses and a lack of protection for investors are also significant risks that may take some time for Myanmar to fully address.

Alyson Warhust, CEO of Maplecroft, said:

‘Aung San Suu Kyi’s newly active and visible role in Burmese politics and her January 2012 call for ‘good’ overseas investment country have given Western governments and businesses the green light they needed to re-engage with Myanmar.

‘Myanmar’s wealth of natural resources, key strategic position between India and China, and its abundance of relatively cheap labour, ensure that it is going to become one of the most important countries of 2012. At the same time, however, the country remains underdeveloped both politically, and in terms of infrastructure and institutions and business will have to monitor and manage risks in the country very carefully to take advantage of the significant opportunities that are on course to open up.’

The second looks at Myanmar’s potential to become Asia’s next ‘economic frontier’:

On 6 February 2012, Myanmar’s Electoral Commission formally approved Aung San Suu Kyi’s right to stand in the elections, removing the final legal hurdle to her contesting the upcoming parliamentary by-elections on 1 April 2012. Suu Kyi had already confirmed on 10 January 2012 that she would run but had been waiting for official approval from the commission. She started her electoral campaign on 7 February 2012, the same day when the US began lifting economic sanctions on Myanmar, starting with easing restrictions on technical assistance from international financial institutions such as the World Bank, IMF and Asian Development Bank.

Suu Kyi’s new role paves way for new foreign investment

• Aung San Suu Kyi’s newfound active and visible role in Burmese politics and her call for investors to return to the country in January 2012 have given Western governments and businesses the green light they were waiting for. Suu Kyi’s decision to run for a seat in the April 2012 parliamentary by-elections further legitimises the on-going reform process led by the government of President Thein Sein. The President’s acceptance of a future government role for Suu Kyi if she is elected in the April by-elections marks a significant departure from the days of the military junta, when she was banned from participating in elections, put under arrest and her party dismantled despite winning the elections in 1990. In his first interview with a foreign media, The Washington Post, Thein Sein said on 20 January 2012 that if the parliament agrees, ‘we will have to accept that she becomes a cabinet member’.
• Suu Kyi’s call for new ‘good investment’ in Myanmar in a ground-breaking interview with BBC on 5 January 2012 contrasts with the predominant view amongst advocacy NGOs, which continues to be pro-sanctions. Suu Kyi re-iterated her support for ‘ethical, new and innovative investments’ to Myanmar in a speech delivered in absentia to the World Economic Forum (WEF) Annual Meeting at Davos (25-29 January 2012), when Suu Kyi said Myanmar had the ‘rare and precious opportunity’ to reach a ‘great transformation’. Advocacy groups – such as the UK-based Burma Campaign – have long centred their pro-sanction campaigns over Aung San Suu Kyi and her opposition to foreign investment, which they argued provided a lifeline to the military regime. They have also engaged with business to divest.
• Reputational risks connected with on-going human rights violations are nevertheless expected to persist and NGOs will continue to monitor companies doing business with the government of Myanmar. Protests and government lobbying is therefore likely to persist in the short- and medium-term. Until the nature of the on-going reforms becomes clear, many activist groups will likely hesitate to recommend a lifting of sanctions for fear that the regime is exploiting the goodwill generated by the current thaw.

Business eyes return to Myanmar as reforms gain momentum

• Recent political reforms have pushed Myanmar to the centre of 2012’s strategic landscape, with governments and businesses in Asia and the West closely monitoring the accelerating developments taking place there. Since the transition from military to civilian rule was completed in March 2011, the reformist cabinet led by President Thein Sein has announced reforms at an unprecedented speed. However, the military – which has ruled Myanmar (formerly Burma) with a heavy hand since the military coup in 1962 – still retain influence over the cabinet and occupies a quarter of seats in parliament. The military junta embarked on a seven-step ‘roadmap to democracy’ since 2003, which included holding the first elections in two decades on 7 November 2010. The polls were widely condemned as fraudulent by both domestic and external observers, with opposition parties and voters facing systematic intimidation.
• Western governments have responded to the fast-changing political situation in Myanmar by gradually reversing the country’s diplomatic isolation and sanctions, a move which would pave the way for business to return to the country. Sanctions against Myanmar were introduced by foreign governments as a diplomatic tool to influence regime change and punish human rights violations during military rule. Since they were first imposed in 1988, when the junta suppressed peaceful demonstrations, Western governments have introduced increasingly stricter economic and diplomatic sanctions, as well as an arms embargo. The EU and US have already lifted some diplomatic sanctions (visa bans on members of the government and parliament), and are looking to ease economic bans too in the course of the year.
• As reforms are gaining momentum, it has now become clear that 2012 will be the year for sanctions to be lifted. The release on 13 January 2012 of at least 302 high-level political prisoners paved the way for the reinstatement of full diplomatic relations with the US and further steps from Washington are expected in the coming months. The release of political prisoners was one of the preconditions Hillary Clinton had made for sanctions to be lifted during her historic first trip to Myanmar on 30 November 2011, and businesses are therefore expecting this to occur shortly. On 7 February 2012, the US lifted some economic sanctions, allowing limited technical assistance from international financial institutions such as the World Bank, Asian Development Bank and IMF.

Scramble for resources in Myanmar triggers power competition

• The decision of Western powers to engage with the civilian government was motivated not only by an objective assessment over democratic reforms but also by a willingness to protect or develop their interests in Myanmar. Policy perspectives of key Western governments are also influenced by concerns over access to resources, energy security, regional and global balances of power as well as access to trade routes and shipping lanes. Myanmar is set to become one of Asia’s geopolitical hotspots in 2012. The US is looking to strengthen its presence in the Asia-Pacific while China is seeking to offset US efforts to isolate or at least counterbalance the superpower in Asia, and Myanmar will potentially become yet another theatre where the two superpowers will compete for influence and resources.
• Myanmar is looking to redefine its position on the global stage and work to restore relations with the West, while moving away from over-reliance on China. The suspension of the Myitsone dam in September 2011 was an unprecedented blow for China and an indicator that Beijing is losing its level of influence over Myanmar. Citing popular discontent as the reason for his decision, President Thein Sein took the risk of hindering economic and political relations with Beijing, possibly anticipating that investment from other foreign governments would start flowing soon. President Thein Sein said on 28 November 2011, a few days before US Secretary of State Hillary Clinton’s first historic visit to Myanmar, that ‘it is just a matter of time’ before sanctions would be lifted. Due to sanctions in place against the regime, China has long been the largest foreign investment provider to Myanmar.
• Critics view Thein Sein’s reformist drive as a last attempt to overcome diplomatic isolation and attract Western investment, as public discontent against large-scale Asian investment grows in the country. These investments have created limited employment, while burdening local communities with considerable environmental and social costs. The government has become increasingly worried about popular discontent towards large-scale investment in the extractive industries has on two occasions halted controversial investments (the Myitsone dam in September 2011 and a power plant at Dawei in January 2012). Western investors thus have unprecedented opportunities ahead of them, but these must be managed carefully.

Vast business opportunities lie ahead

• Underlining the competition for influence and power between Western and Asian powers in Myanmar are considerable natural resources and economic opportunities. Vast opportunities lie ahead for businesses looking to return to Myanmar – particularly in the oil and has, mining (notably semi-precious and precious gems, such as rubies), and agro-commodities sectors. The on-going uncertainty in the oil-rich Middle East and North Africa has made Myanmar’s largely untapped hydrocarbon reserves even more attractive globally. Myanmar also offers significant opportunities for businesses looking to set up their supply chains in the country given the large workforce availability and relatively cheap labour rates. Myanmar has also the potential to become a tourism hotspot similar to neighbouring Thailand. The country’s young and educated workforce and its location close to key Asian markets are strategic advantages to Myanmar.
• Myanmar has the potential to become Asia’s ‘next economic frontier’ in the coming years, starting already in 2012. A report released on 26 January 2012 by the IMF talked of the country’s ‘high potential’ for economic growth and socio-economic development.Despite the growing but cautious enthusiasm amongst investors for an imminent return to Myanmar, however, businesses need to be aware that significant operational and strategic risks are likely to persist in the short- and medium-term. Decades of isolation and military rule have left the country’s infrastructure (particularly health, education, transport, and communications infrastructure) and institutions underdeveloped. Myanmar will need to prioritise capacity-building in order to provide an attractive investment framework for foreign companies.