Myanmar – Investor Nirvana or Centrally Planned Clone?

The WealthCycles Staff

After decades of political upheaval the country of Myanmar, formerly known as Burma, is now being hailed as a potentially lucrative market for serious investors. For a country that was, as recently as 2010, governed by a military junta, this is no small accomplishment. Like all emerging markets, however, investing in Myanmar is not without risks. To analyze the potential Myanmar offers, it is important to understand a bit of the country’s history.

Myanmar Burma Map via Google

Burma’s Turbulent History

Located on the Bay of Bengal and bordered by India, China, Thailand and Laos, Myanmar is a small country that was first established in 1057. The history of Myanmar has been one of turmoil and hardship, from invasion by the Mongols to years of being a province of British India.

Modern history has not been much kinder to the country, but in 1948 it finally became an independent state. From independence until 1962 there were a series of rulers, but in 1962 the existing government was ousted by a military coup, which established “the Burmese Way to Socialism.” As you might guess, the intent of the new military-based government was to establish a centrally controlled system of government.

One-party, military-led state
1962 - U Nu's faction ousted in military coup led by Gen Ne Win, who abolishes the federal system and inaugurates "the Burmese Way to Socialism" - nationalising the economy, forming a single-party state with the Socialist Programme Party as the sole political party, and banning independent newspapers.

Breaking Free of Military Control

From 1962 to 2011 Myanmar continued to be ruled by military-backed political parties, including the Socialist Programme Party, the State Law and Order Restoration Council (Slorc), and finally the Union Solidarity Development Party (USDP). During its five decades of military rule, Myanmar was plagued with long periods of martial law, forced labor, widespread humanitarian abuses and a variety of sanctions imposed on it by the international community.

Aung-San-Suu-KyiFinally, in 2011 the military junta gave up its hold on the country, and Thein Sein was sworn in as president of the first non-military government in almost five decades. The U.S. Holocaust Memorial Museum will honor Aung San Suu Kyi, the leader of the democracy movement (above). With the new government in place and promising democratic and human rights reforms, the country today is poised for growth.

Since the election of Sein, the international community has rewarded Myanmar by removing or suspending sanctions and praising the government’s efforts toward democracy.

The European Union suspends all non-military sanctions against Burma for a year. EU foreign policy chief Catherine Ashton, British Prime Minister David Cameron and UN Secretary-General Ban Ki-moon visit for talks on moving the democracy process forwards.

The European Union (EU) is taking a very active role in aiding Myanmar on its path to democracy. In November 2012 European Commission chief Jose Manuel Barroso traveled to Myanmar and offered the government $100 million in development aid. During his recent visit to Brussels President Thien Sein was greeted with even more support.

While EU development aid has more than doubled to around 200 million euros for 2012-2013, Brussels said it was now ready to explore the feasibility of a bilateral investment agreement.
[European Commission Vice President Catherine] Ashton, flanked by commissioner for industry Antonio Tajani, will visit Myanmar, also known as Burma, later this year to look at further economic support.

While accepting the beneficence of the EU, President Sein made it clear that Myanmar remains one of the poorest countries in the world.

Myanmar has one of the lowest per-capita gross domestic products in Asia, standing at $855 last year compared with $5,851 for Thailand, according to International Monetary Fund estimates. An Asian Development Bank assessment of Myanmar released in June last year found that a quarter of the population lives in poverty and about three in four people don’t have access to electricity.

Myanmar at the Crossroads

Among the prime opportunities for investment in Myanmar is its lack of basic infrastructure, particularly when it comes to telecommunications.

“It [Myanmar] is one of the few markets left in the world with significant untapped voice and data potential,” said Sachin Gupta, a Singapore-based senior analyst at Nomura Holdings Inc. “The opportunity is tremendous, but not without risks either.”

In an effort to resolve the communications problems in the country, the Myanmar government will award two licenses to communications organizations to help build out the country’s telecommunications infrastructure. With only 9% of the population currently using mobile phone technology, Myanmar has said that it hopes to increase usage by as much as 80% by 2015. The potential gains are huge for investors. After all, the world’s richest man (on official lists), Carlos Slim made his fortune largely by gaining control over Mexico’s largest wireless and landline-phone companies.

However, as is the case with most emerging markets, the risk is equally huge. Currently the Mexican government, supported by studies produced by the Organization for Economic Cooperation and Development (OECD), is claiming Slim and other telecom companies have vastly overcharged and is actively seeking ways to introduce more competition into the telecom market. Nationalization, particularly in a nation as volatile and new to democracy as Myanmar, is always a possibility.

Southeast Asia as Potential Wealth Generator

There is no question that Myanmar has overcome a troubled past to emerge with huge potential. The fact that the EU and most of the international community has reached out to offer friendship and support is evidence that there is the potential for a very bright future.

However, here comes the proverbial “but.” After decades of an economy in disarray and completely controlled by the central government, Myanmar faces an abundance of potential pitfalls. Perhaps the biggest risk is the oh-so-easy decision to accept aid from the international community. What could possibly be wrong with accepting badly needed aid and assistance? The answer to that question is simple: the pressure that might be placed on Myanmar to adopt the inflationary and debt-addicted monetary policies of its benefactors.

The emerging economies of Southeast Asia are attracting significant investor interest currently, as reported recently in Bloomberg:

“The relative stability and continuous growth of Asian economies and business in the region is an attractive proposition for managers looking to take advantage of new and growing business opportunities,” said Mitul Patel, manager of Asia Research at Preqin Ltd. in Singapore. “Private equity managers are realizing that making a mark in Asia before their competitors do could reap much longer-term rewards.”

“Valuations look attractive for investments amid global challenges including low growth in the U.S, Europe’s sovereign debt crisis and limited growth prospects in China and India,” Ming Lu, member of private equity firm KKR & Co.  and regional leader for Southeast Asia, told Bloomberg.

Myanmar, like other Southeast Asian nations, is at a precipice. It has made progress in terms of freedom and human rights. To continue on this path the country will need to establish a strong foundation of economic freedom supporting the solid structure of a free market. Transitioning from a centrally controlled economy to a truly free market is key to Myanmar’s continued progress and its long-term success.

We say" Carlos Slim made his fortune largely by gaining control over Mexico’s largest wireless and landline-phone companies."

SOROS says almost a month later... he is investing in Myanmar telco: