Myanmar: Lots To Offer, But A Long Way To Go

Courtesy of The Financial Times, one observer’s look at Myanmar’s potential:

I spent a few days in Yangon, Myanmar’s biggest city, just before this month’s elections. It was my first visit since 1985. Back then, there were one or two flights in a day from Bangkok on small planes. One could only stay a week and there were no more than 4,000 foreigners in the country at any time. There are still only 300,000 visitors a year, compared with 19m in Thailand.

This time I arrived on an Airbus 300, packed with western tourists and some Thai, Burmese and Chinese businessmen (all with local SIM cards) – and six saffron-robed monks.

The change from 1985 is vivid. Then, nothing seemed to have been built since the British left in 1948. Today, modern buildings are mixed with the traditional. There are Korean restaurants, road signs saying “Drive Safely” in English and advertisements for global brands such as Palmolive and Manchester United. It is a surreal place: on the day of my arrival, the front page news was the vice president’s visit to a “shed warming” ceremony for a baby elephant. People openly discussed politics and street vendors were selling Aung San Suu Kyi T-shirts.

Myanmar’s recent history is one slow step forward, one step back. After the setback of Suu Kyi’s annulled election victory in 1990, gradual opening led to membership of the Association of South-east Asian Nations in 1997.

For the next five years Myanmar was still shunned by the west as Asian businesses led a boom in construction and trade. This might have ground to a halt with the banking crisis of 2002-03. But the economy continued to grow at 10 per cent for the next five years, driven by Chinese and Thai demand for commodities.

Periods of optimism were followed by renewed repression until the unexpected reforms from late 2009 under president Thein Sein. Change was driven partly by fear of being dominated by China and partly because wealth is so concentrated – one person I met said it was in the hands of only five or six families – that even senior officials would benefit from openness. Hillary Clinton and William Hague visited before this month’s elections and the US has said sanctions will be partly lifted.

Yet in spite of all this, the country remains impoverished. Growth must be driven by investment: FDI has been a mere $200m to $300m a year for the last decade, half from China and almost all going into the power, oil & gas and mining industries. This increased to $750m in 2010  – but compare that to over $10bn each for Indonesia and Vietnam.

The opportunity is great. Myanmar has 60 per cent of the world’s teak reserves and estimated gas and oil reserves of 12tn cu ft and 215m barrels, respectively. Natural gas alone accounts for 41 per cent of official exports.

Myanmar exports just a seventh of the rice it exported in the 1930s. The Irrawaddy delta is very fertile but rice yields are half or a third of those in Thailand, so the scope for productivity gains is high. Agriculture employs 70 per cent of the workforce and provides almost half of GDP. Even using the fanciful official exchange rate, exports last year were only $9bn, compared to $225bn for Thailand and $97bn for Vietnam. The official rate of around 6 Kyats to $1, is being changed to a rate of 800 to 1, which reflects the openly-functioning black market rate.

Another obvious growth opportunity is tourism. Apart from the famous temples of Pagan, Myanmar has incredible natural beauty and 2,000 miles of largely unspoilt coastline as well as hundreds of islands. Yangon has fewer than 8,000 hotel rooms, mostly in poor hostels, while Bangkok will soon have over 40,000. Supply of other properties should also increase: Yangon’s 62,000 sqm of office space compares with over 8m in Bangkok.

A new airport terminal opened in 2007. Gas is being piped to China, while the port of Dawei is being developed jointly with a Thai firm.

Immediate challenges include seeing how Suu Kyi’s NLD party works within the established political framework; whether ceasefires hold in the various civil wars; if the banking industry can be developed; and whether corruption can be curtailed. If progress can be made, investor confidence will grow and the country will have a bright future. Even if per capita income doubled it would merely reach Laos’s level of today, which is in turn 20 per cent behind Vietnam and half that of Indonesia. This is surely within reach.

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Wildcats & Black Sheep is a personal interest blog dedicated to the identification and evaluation of maverick investment opportunities arising in frontier - and, what some may consider to be, “rogue” or “black sheep” - markets around the world.

Focusing primarily on The New Seven Sisters - the largely state owned petroleum companies from the emerging world that have become key players in the oil & gas industry as identified by Carola Hoyos, Chief Energy Correspondent for The Financial Times - but spanning other nascent opportunities around the globe that may hold potential in the years ahead, Wildcats & Black Sheep is a place for the adventurous to contemplate & evaluate the emerging markets of tomorrow.