Myanmar’s Foreign Investment Crossroads

Courtesy of Al Jazeera, a look at how foreign investment in Myanmar could greatly benefit the country if its people are not left behind:

This July, the Obama administration finally acted on statements made by Hillary Clinton in May, issuing general licenses allowing for new investment in and the export and reexport of financial services to Myanmar.

General Electric (GE), which had been conducting behind-the-scenes research and negotiations in Myanmar for quite some time, quickly finalised a sale of hospital equipment to private hospitals in Myanmar with the first US ambassador to Myanmar in 22 years, Derek Mitchell, presiding over the signing. This was a good opening gesture: while doctors in Myanmar are reasonably well-trained compared to probably every other occupation, there is a severe shortage of modern equipment.

Coca-Cola, which had issued a press release in June saying that it intended to reenter Myanmar after 60 years upon the issuance of the general licenses, scaled back its earlier enthusiasm somewhat, saying that it needed to debate how it would reenter the country and that it needed to perform “proper due diligence”.

 Inside Story – Why is the world ignoring Myanmar’s Rohingya?

Western companies have been chomping at the bit for the past few months. American businesspeople have been voicing concerns they would fall behind European and Australian companies (whose countries have been relatively faster in suspending sanctions). And the interest of other Asian countries that had invested less in Myanmar in the past (including Japan and India) has been piqued by the gold rush to extract Myanmar’s abundant natural resources. These countries want to develop the country’s prehistoric infrastructure and eke out a bit of growth in the age of austerity. With the recent suspension of US sanctions and the impending passage of an update to the foreign investment law, the road to Myanmar’s riches will soon be well-beaten.

So long as Western companies bring improved labour, environmental, anti-bribery practices, and robust corporate social responsibility initiatives to Myanmar, much good can result from an influx of Western foreign direct investment (FDI). Myanmar is a country where people lack even the most basic goods and services that many Westerners take for granted. Mobile and internet penetration rates are both below 5 per cent; rolling blackouts occur on a daily basis even in its most developed city, Yangon; and the streets, without adequate drainage, regularly flood to knee-high levels during the rainy season. Public health is very poor, with high malaria and HIV rates and a Ministry of Health that is understaffed and underskilled to deal with all of these issues. And, of course, there is ongoing ethnic conflict and the tragic fate of the internally displaced Rohingya people, whom many local Myanmarese have noted are among the poorest people in the country.

But FDI had been flowing into Myanmar well before the Obama administration officially suspended sanctions in July. China, Thailand, and Hong Kong have been investing billions of dollars in Myanmar for years, mostly in the natural gas and crude oil extractive industries. During this period, per capita income for the Myanmarese people has remained low while state-owned enterprises, military holding companies, and Chinese, Thai, and Hong Kongese companies have benefited from the extraction deals. Crony capitalists became rich from the lucrative government construction contracts the junta doled out. Goods and services provided to the Myanmarese people have remained poor and unemployment has remained high.

Education system crippled

The education system has been crippled since the famous student protests of 1988, with various colleges dispersed far from each other in order to prevent students from bonding together and using their youthful energy for protest. Yangon University, once the finest university in Southeast Asia, has been relegated to dustbin status. As a result, even if foreign companies were interested in hiring locals, local citizens don’t have the skills required for higher-productivity jobs. Those few, frustrated Myanmarese who do have high-end skills have fled to Thailand, Singapore, Malaysia, and the West to make a living.

This FDI picture is not destined to change simply due to the reentry of the West into Myanmarese business. Though the Obama administration has taken the positive step of imposing reporting requirements for new investment exceeding $500,000, and the proposed FDI law has provisions providing for the employment of Myanmarese workers, there is a concrete fact that cannot be ignored: the people of Myanmar lack skills, capacity, and experience. The fear is that market forces will likely incentivise Western companies, just as they have incentivised the Chinese, Thai, and Hong Kongese companies before this year, to act only out of profit-maximising self-interest, only employing skilled citizens of their own countries as workers and exporting most of Myanmar’s resources for refining and sale outside of its borders, largely cutting the Myanmarese people out.

For example, who is going to comprise the majority of the oil and gas engineers in deals Shell Oil and Chevron broker with the Myanmar Oil and Gas Enterprise (MOGE)? By a MOGE engineer’s own admission, “we cannot do the high-end, sophisticated work, so we will need workers from the US and UK to come in”.

It is also unclear whether crony capitalism will fade. Rent seeking will likely remain an issue for quite some time. I have observed businesspeople bringing in expensive gifts to government officials in exchange for preferential treatment.

Real benefits

There are likely real benefits that will accrue to the Myanmarese people from FDI. If companies like GE focus on energy, millions of Myanmarese can benefit by having stable electricity and running water. In turn, improvement in the energy sector should enable improvements in the telecommunications sector, and mobile phone use should increase exponentially, allowing individuals to be able to contact someone far away in times of trouble or need.

Improved telecommunications should result in an improved banking sector, giving individuals sorely needed access to money in this mostly cash-based economy. Low-end manufacturing and textiles stand to improve, providing jobs for low-skilled workers. But if these improvements come without substantial investment in education and the training of a young, large, and unskilled workforce, per capita income and domestic demand can only grow so much. Without attention to these areas, Myanmar will experience an expansion of what it has been for so long – an extraction vein for Asia to the West.

Johns Hopkins University, which wishes to open a school in Myanmar to train local Myanmarese, has the right idea in mind. Unfortunately, Hopkins has not secured financing yet. But the best chance for Myanmar to become Asia’s next tiger will be through a combination of investment in Myanmar’s education system and a concerted effort on the part of foreign companies to hire and train Myanmarese workers. Here’s to hoping that Western companies realise there are greater goals than mere profit, and that they adopt a synergistic relationship with Myanmar’s people – rather than the exploitative regime on display from multinational companies that has prevailed up to this point.


This entry was posted on Thursday, September 13th, 2012 at 8:50 am and is filed under Burma.  You can follow any responses to this entry through the RSS 2.0 feed.  Both comments and pings are currently closed. 

Comments are closed.

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.