February 14, 2012
To see a pariah state, isolated for half a century, transforming into a putative investment icon in a matter of months is nothing short of miraculous. But that’s how a growing number of frontier investors now see Myanmar, the former Burma, once described back in the 1940s as the richest country east of Suez.
“Myanmar is one of the remaining jewels of the frontier space, with a potential 10x catch-up story once the reforms are anchored,”says Douglas Clayton, CEO of Cambodia-based Leopard Capital.
Decades of iron-fisted military dictatorship and massive economic mismanagement left the country locked in a bizarre time warp as its neighbors achieved historic prosperity. But over the past year or so, President Thein Sein’s regime appears to have eased its grip, releasing political prisoners, reaching out to the West, and talking of economic reforms. It is said that these moves are in part driven by concerns that growing Chinese influence could become pervasive.
The parallel market exchange rate of the kyat has appreciated by about 32% in nominal effective terms since the end of the 2010 fiscal year, primarily due to large foreign investment inflows. The IMF is projecting GDP growth of 5.5-6% in 2012, up from 3.6% in 2008. Inflation is expected to pick up as the recent decline in food prices phases out.
The progress has prospective international investors salivating. “George Soros has just been there. Bill Gates is about to go. And I can see Myanmar becoming the most exciting country in the region over the next five years,” enthuses one. “Would-be investors are already flooding in. You can’t get a hotel room in Yangon right now.”
Maya Ballard-Downs of DFDL Mekong in Cambodia confirms that there is increasing interest among Indochina-focused offshore funds in Myanmar. Their enthusiasm isn’t hard to understand. Myanmar boasts a largely untapped treasure trove of natural resources, including oil and gas, minerals and timber, as well as equally impressive renewable energy, agricultural and fisheries potential. And while it is next door to tourist mecca Thailand, its beaches are almost deserted. In the long term, the 60 million population is seen as an emerging consumer market.
The downsides are a lack of foreign investment protection and incentives, plus an artificially overvalued currency. Economic sanctions may well be lifted, but there remains there is also a risk that the government will perform an about face. It seems almost inevitable that the economic dynamism of Southeast Asia will in some way spill over Myanmar’s borders. Clayton sees the first wave of investment focusing on hard assets like real estate, hotels and natural resource concessions. “But as reforms take root, that will broaden to include financial services, telecommunications, electricity, local consumer products and labor-intensive export manufacturing,” he tells AVCJ. “Most of the early opportunities will be for greenfield projects, however.”
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