With a population of 50 million people, and an enviable abundance of natural resources, Myanmar has always been a tempting proposition for many potential investors. But its recent, troubled political history has meant that all but a small number of hardy companies, notably in the oil and gas sector, have chosen – or been obliged – to stay away in recent decades.

After a brief but relatively strong influx of FDI in the mid-1990s, this slowed to a trickle over the past decade, as economic sanctions and Aung San Suu Kyi’s call for the international community to boycott the country took affect. Indeed, many foreign investors that were present in Myanmar at that time subsequently exited the country, having come under pressure to do so from customers, shareholders or home country governments. But after more than a decade, economic sanctions have essentially failed to achieve their stated goal, and a sense of weariness pervades this policy approach.

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There have been signs of the beginning of a new surge of foreign investment in recent years, with China and Vietnam this time leading the charge, largely inured by calls for economic sanctions. For Vietnamese companies in particular, themselves relatively new to outward FDI activity, Myanmar provides a rare opportunity to establish an early foothold in a largely untapped host country market. But it is Chinese companies that have established the strongest economic grip in Myanmar over recent years, primarily at the expense of Western competitors.

A change in attitude?

The trigger for this change has been the long-awaited introduction of a new constitution, and the holding of elections in November 2010 (although the NLD opposition party decided not to participate). Earlier this year, a new parliament, cabinet and president were all sworn in, and army rule has – officially at least – come to an end, after almost 50 years. Aung San Suu Kyi’s house arrest also ended just days after the election. And just to underline the extent of change, the official name and flag of the country were both changed. 

Some observers argue that the recent changes are purely cosmetic in nature, and that the regime has not fundamentally altered in any way. Old wine in a new bottle, they would say. But an increasing number of analysts are hinting that these could prove to be the first ‘baby steps’ towards a more democratic Myanmar, and therefore should be encouraged, even if many of the leadership faces – minus their khaki uniform – remain the same. Besides, international isolation has not worked, and has only served to push the country closer into China’s orbit.

In the queue

If FDI activity in Myanmar does resume in a more strident way, as seems increasingly likely, then it will probably see Japanese, South Korean, Chinese and Indian firms at the forefront, and various south-east Asian countries, including neighbouring Thailand and Malaysia, also well represented. The initial focus of FDI activity will almost undoubtedly be on energy and resources, with some additional interest in labour-intensive light manufacturing, where the low cost of labour in Myanmar will put it at a competitive advantage.

But will this new wave of FDI activity in Myanmar transpire? Much depends on a couple of factors. If Aung San Suu Kyi changes her stance on economic sanctions, or the international diplomatic and donor community opts for a new policy of greater engagement – rather than one of isolation – with the new regime, then a very substantial surge of new FDI seems almost inevitable. That in turn may have an adverse impact on aggregate FDI inflows into a number of south-east and south Asian host country rivals, as there is a new kid on the block.