The China Alternative – Myanmar
The China Alternative is our series covering other manufacturing destinations in emerging Asia that may start to compete with China in terms of labor costs, infrastructure and operational capacity. In this issue we look at Myanmar.
By Simon Sheung
Jul. 11 – Myanmar, also known as Burma, has long had its share of political and economic turmoil. This began with British colonial rule in the mid-19th Century, leading to its struggles as an independent state after the Second World War, which culminated in its contemporary regulations under the nation’s military juntas. In spite of a tumultuous history, Myanmar has recently begun a string of new reforms, and has been refurnishing itself to become an established area of growth for foreign investment.
In terms of land mass, Myanmar is the second-largest country in Southeast Asia after Indonesia, and the largest on the area’s mainland. The country shares borders with the People’s Republic of China to the northeast, Bangladesh on the west, Thailand and Laos to the east, and India on the northwest. With a population of approximately 54 million, it is the 24th most populous nation in the world. An estimated 89 percent of its people practice Buddhism, while smaller groups adhere to Islam and Christianity.
With a population of approximately 4.26 million, Yangon is Myanmar’s largest city, and is the country’s main hub for trade, industry, culture and media. While it once served as the nation’s capital, that role was formally passed on to the city of Naypyidaw in 2005. This was done by Myanmar’s ruling military officials, who have long had a strong presence in the country’s politics.
While officially a presidential republic, Myanmar has long been governed by local military juntas, which first seized control from the original parliamentary government in March 1962. From there, military leaders began appointing themselves into political positions, and restructured the nation into what they envisioned as a socialist state. Under the military regime, many private businesses were expropriated as the state sought to be economically self-sufficient. However, due to corruption and general mismanagement by the juntas, standards of living fell drastically and socio-economic conditions suffered for many years.
In 1988, the government was ousted and another military-run organization, the State Law and Order Restoration Council (SLORC), took its place. Under the SLORC, Myanmar’s situation deteriorated further due to frequent issuances of martial law and various human rights violations. A national election was held in 1990, which led to the main opposition party, the National League for Democracy (NLD), winning in a landslide victory. However, the SLORC refused to hand over power and instead had the NLD party leader, Aung San Suu Kyi, imprisoned for nearly 20 years.
The SLORC, which renamed itself the State Peace and Development Council (SPDC) in 1997, continued to govern Myanmar until parliamentary elections were again held in November 2010. The government-formed, Union Solidarity and Development Party (USDP) won the election and its leader, Thein Sein, became Myanmar’s president in March 2011. Although the SPDC has dissolved and transferred power to the parliament, many in the international community saw the election as being heavily manipulated by military authorities, and that the current government is still under de facto military rule.
Myanmar’s 2010 GDP is estimated to be at US$43 billion, an increase of 5.3 percent from the prior year. Analysts predict this growth will be maintained for at least the next few years, with government consumption and foreign direct investment being the principal driving factors.
In terms of trade, Myanmar had a trade surplus of roughly US$3.3 billion in 2010, with an estimated US$7.8 billion worth of exports and US$4.5 billion in imports. Exports include products such as natural gas, wood products, rice, clothing and precious stones, while imports consist of fabric, petroleum products, plastics, machinery, transport equipment and construction materials.
Many countries in the West have imposed financial and economic sanctions on Myanmar in protest of its military rule, but Myanmar continues to do business with many of its neighboring countries. Its principal trading partners are Thailand, India, China, Singapore and Japan.
Myanmar is a member of both the Association of Southeast Asian Nations (ASEAN) and the World Trade Organization (WTO).
Predominately an agricultural economy, Myanmar’s agricultural sector comprises most of the country’s GDP (41 percent), and produces various commodities such as rice, wheat, beans, maize, coffee, tea, sugarcane, and cotton. While also a prime source of raw materials for mining and forestry, Myanmar is perhaps best known to the investment community for its energy resources, with industries for oil and gas exploration being the most attractive to foreign investors.
Myanmar recognizes itself as a developing country and encourages the inflow of foreign investment. As a part of its foreign investment law, the government authorizes sole proprietorship of enterprises to foreign investors, as well as a joint venture program. To further promote investment, Myanmar offers investors a number of tax incentives, and enables them to lease land at government rates.
According to the Economist Intelligence Unit, the total approved amount of foreign direct investment in Myanmar was US$19.4 billion in the months between April 2010 and January 2011. Of this amount, approximately US$10.2 billion was invested in the oil and gas sector, with US$8.2 billion in the power industry, and US$1 billion in the mining sector. The level of FDI was a tremendous increase from the prior year, which was only at US$302 million. This growth was driven mainly by very recent finds in sources of natural gas and oil, as well as ongoing development in local power projects.
Although both economic growth and foreign investment is increasing, doing business in Myanmar is still moderately risky. As Myanmar begins to enhance its energy and local infrastructure, it continues to borrow heavily from its central bank. Myanmar’s banking system is still under development, with its lending structure and risk management systems still being relatively weak. Given the recent increases in loans for development projects, there is a propensity for bad loans, and the system may be subject to a high credit risk.
Most of Myanmar’s political system is new and remains under military control. Because of this, the direction of its local policies is clouded. While Myanmar’s government has outwardly promised democratic reforms, its military juntas have a track record of corruption and political repression. Much of the country’s resources are mismanaged and directed in favor of the country’s military leaders and elite.
Myanmar’s public infrastructure is currently underdeveloped, mainly due to the government’s mismanagement of resources and slowed progress as a result of the damage caused by Cyclone Nargis in May 2008. The storm caused an estimated US$4 billion in damages, at least 138,000 fatalities and left tens of thousands homeless.
In terms of transportation infrastructure, there are currently 37 major airports under operation in Myanmar, and approximately 5,031 kilometers of railways. Of the 27,000 kilometers of roadways in Myanmar, only 3,200 kilometers are paved. Major seaports and terminals operate in the cities of Yangon, Moulmein and Sittwe.
Myanmar’s communications system comprises of at least 812,000 telephone land lines, along with a cellular network that provides service for about 502,000 users. While the domestic telephone service can support day-to-day calls, as well as local business and government functions, this is maintained at a very minimum level. There are an estimated 110,000 Internet users, with about 172 hosts providing service. Broadcast media is mostly regulated by the government. There are at least two state-controlled channels, one of which is run by the military, as well as another network owned by a joint state-private venture. Satellite television with international broadcasting is available, but is very limited.
As a state that is currently in political and economic transition, the biggest investment risk is currently rooted in Myanmar’s new government, which is still in effect, controlled by its military leadership. Unpredictable in both policy and action, there is no telling how the new parliament will manage the mounting pressure of the country’s financial system, which in the worst case scenario, can lead to a serious banking crisis in the future. However, in light of the ongoing development plans in the country’s energy and mining sectors, Myanmar will likely remain a tremendous source of growth in the years to come.
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