The plush lobby of the Myanmar International Convention Centre, decked out with swanky white leather sofas atop polished marble floors was abuzz with activity in early June this year.
As a team of smiling waitresses weaved through crowds of investors and senior government officials, offering refreshments during the World Economic Forum’s (WEF's) summit on East Asia being held in Myanmar's capital city of Naypyidaw, the mood among delegates was a blend of cautious optimism and quiet intrigue at the novel opportunities the country’s economic opening would bring. While Myanmar could feasibly quadruple the size of its economy to $200bn by 2030, according to the consultancy firm McKinsey, the average citizen in the country has only four years of education, and only 13% of the population lives in a city.
Although it is located at the heart of south-east Asia, bordering economic heavyweights China and India, Myanmar has for the better part of 50 years been bypassed by the growth experienced across the rest of the continent. Decades of military rule, following the 1962 coup d’état that installed the country’s first military regime, which in turn imposed its unique ‘Burmese’ style of socialist governance, resulted in years of economic stagnation. As recently as 2008, Myanmar's economy grew by just 3.6% in a region that grew by 6% in the same year, according to the International Monetary Fund. Speaking to fDi Magazine, Myanmar's deputy minister for energy, U Htin Aung, concedes: “We closed our door for a very long time, and our income was not used in the proper way.”
Indeed Naypyidaw appears more like a Potemkin city, as its notoriously empty 20-lane highways and modern government complexes seem a world away from the ramshackle buildings and pot-holed streets in former capital Yangon, which more accurately reflect the country’s reality.
Revival under way
Having begun exporting oil in 1853, Yangon evolved as Myanmar’s capital city under the colonial UK government, and served as one of the epicentres of commerce in south-east Asia before the country’s independence in 1948. Although decades of economic isolation and trade sanctions from Western countries such as the US have done much to reverse Myanmar’s development, Aung Naing Oo, the director-general for the country's Directorate of Investment and Company Registration is confident that its sweeping reforms will boost growth.
“In March 2011, the new government [of president Thein Sein] was elected, and the first thing it did was to review our foreign investment laws in order to attract more foreign investors,” says Mr Naing Oo. “The new foreign investment law includes more incentives, such as [giving investors] a good tax holiday.”
The government’s fiscal reforms, which also included simplifying the country’s tax system and broadening its tax base, have significantly boosted FDI. Data from investment monitor fDi Markets shows that capital inflows into greenfield projects in Myanmar increased by 193% between 2003 and 2012, with just four projects worth $693m in 2003 rising to a whopping 63 projects worth $2bn in 2012. While the coal, oil and mining sector led the way in this period, attracting $3.4bn in FDI, the financial services sector also brought in $1bn.
Over the past five years, the Myanmar government and Thailand’s biggest construction company, ItalianThai, have been constructing a 350-kilometre road connecting Myanmar with Thailand, as well as working on what will become Asia’s largest deep-sea port. The road, which connects Dawei in the south of Myanmar to Bangkok, Thailand's capital, will lead to the deep-sea port, and the entire project is expected to cost $50bn.
“We are creating [special economic] zones in Myanmar, and Dawei is the first zone,” says Mr Naing Oo. “This is a 10-year project... Dawei has attracted investments from Thailand and will benefit the Myanmar economy.”
Such infrastructure projects have brought about a significant increase in Myanmar's trading partners, and data from fDi Markets shows that Thailand has become a key player in Myanmar’s economy. While Japanese and Vietnamese firms are the top two investors in Myanmar, accounting for 37 and 16 greenfield projects between 2003 and 2013, respectively, Thai companies are the third most prolific investors in the country. Their 15 projects in this time have been worth $675m.
While Myanmar’s economic opening presents investors with a string of seemingly endless opportunities, businesses continue to face numerous challenges when doing business in the country. Almost every sector in its economy faces a low level of productivity, and although Myanmar holds an estimated 2500 billion cubic centimetres of natural gas and 3.2 billion barrels of crude oil, according to a report by the law firm Herbert Smith, oil company Total estimates that the country only exports 180,000 barrels of oil a day.
The vast majority of Myanmar’s population has no access to electricity, and as a result the average worker adds $1500 in economic value to a year of work, which is 70% less than the average in other Asian countries, according to McKinsey. “Thirty-eight percent of the population has access to electricity, but we are trying our best to increase that,” says U Than Htay, Myanmar’s minister of energy.
While Myanmar has for years lagged the rest of Asia in its development, Mr Naing Oo contends that this could actually become an advantage. While rapid growth in neighbouring countries such as Thailand has pushed up the costs of labour, businesses in Myanmar still have access to a ready supply of cheap and abundant labour. “Labour prices in Myanmar are more competitive than that of our neighbours,” says Mr Naing Oo. “In Thailand, the average wage [that companies pay local workers] is $10 a day, but in Myanmar $3 a day is considered the norm.”
Despite such enticing propositions, Myanmar still has a long way to go. Some $650bn in infrastructural investment is needed by 2030, according to McKinsey, if the country wishes to quadruple the size of its economy by this time. Yet U Thant Kyaw, Myanmar's deputy minister of foreign affairs, remains confident that the government will set in place the fundamentals to attain this long-term goal. “We have been isolated for 50 years so we are out of touch – especially in [dealing with] Western-type economic systems,” he says. “Yet our norms and policies have changed. We have a new government and we have really reformed our systems. The international community should come, and see for themselves what is happening in Myanmar.”