Post-sanction Myanmar is preparing for an economic resurgence as Western governments give the all-clear for re-engagement with the impoverished nation, viewed by investors as south-east Asia’s final frontier market.
Myanmar has been welcomed back into the fold after more than 50 years of isolation, stagnation and economic mismanagement under a brutal military regime following its transition to a quasi-civilian government. In recent months Western nations, including Australia, have stepped up aid commitments and moved to ease punitive sanctions against Myanmar (also called Burma) to pave the way for greater foreign investment in the impoverished country.
Australian investors have been among visiting trade and investment delegations eyeing off opportunities in the impoverished country, considered to be one of the most underdeveloped in the region despite hosting rich, untapped natural resource reserves including petroleum, timber, gemstones and precious and base minerals.
Australian economist and Myanmar expert Professor Sean Turnell says Australian expertise in areas such as agriculture is in high demand in Myanmar, which used to be known as the “rice bowl of Asia” at the height of British rule more than 50 years ago. “Australia has a lot to offer Burma as we are a big, rich resource/agricultural-led economy while Burma is a big but poor, resource-rich agricultural economy,” Turnell said.
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Unlike the European Union and the US, Australia never imposed trade or investment sanctions on Myanmar, preferring to utilise targeted sanctions such as a visa ban and restrictions on financial services, against certain individuals and companies with close links to the former military regime. Foreign Minister Bob Carr recently signalled to lift all remaining sanctions during his visit to Myanmar in June, pledging support for President Thein Sein’s reformist government and effectively firing the starting gun for Australian investors to join the hordes of foreign firms seeking to re-engage with Myanmar.
Tim Harcourt, former chief economist at Austrade, says Australian investors have much to offer.
“Australia could help Burma develop its rural industries as well as in education and training in tourism in much the same way as in Vietnam, Laos and Cambodia,” said Harcourt, who is part of the Australian School of Business at the University of NSW. “The emphasis will be in capacity building and helping Burmese people to reach their full potential. But it would be a ‘softly, softly’ approach provided the pro-democracy reforms continue.”
Potential investors from Australia’s mining industry say Myanmar could benefit from Australian industry expertise and know how to unlock its vast mineral wealth.
“Australian junior exploration and mining companies are well-placed to enter Myanmar. Australian entrepreneurial junior companies are often the first movers going into remote areas,” said Everett, chairman of exploration company Global Resources Corporation Limited, pointing to the examples of South America, Africa and parts of Asia.
Turnell says Australia could step up its presence as a regional superpower and alternative to Chinese investment. Australia is already making a name for itself among the hordes of foreign products and people seeking their fortune in Myanmar, he says.
In the upscale bars and restaurants around the economic capital of Yangon (also called Rangoon) the familiar Australian twang can be heard discussing project opportunities from agriculture and farming to mining and petroleum. Australian produce can be discovered when wandering the aisles of Yangon’s few Western-style supermarkets by way of a bottle or two of Hardy’s shiraz to wash down the Australian camembert. The iconic Strand Hotel on Yangon’s waterfront, popular among the expats for its lively Friday happy hour, also serves up a well-bloodied chunk of Australian beef or lamb on request.
However, current-day Myanmar is far from being an easy place to do business and although the country’s tentative steps towards democracy and economic stability have been warmly welcomed by the international community, experts say it’s far from a “gold rush” of investment.“For the first time in a long time, investors see a government here that is serious about opening the country and creating a place where people can do business,” said Jared Bissinger, a PhD candidate at Macquarie University who is studying Myanmar’s economy. “I think these are the most important reasons why there is so much excitement about Myanmar right now.”
But he says Myanmar may soon suffer from “investor fatigue”, as firms come to terms with the difficulty of doing business in a country emerging from 50 years of central economic planning. “Infrastructure — especially roads, telecommunications, and electricity — are desperately inadequate and among the worst in Asia,” he said.
“These things cannot change overnight — developing the capacity of the government and the country’s human and physical capital will take decades. Of course, business will play a huge role in this, but they have to understand that investment environment can only improve gradually — not overnight.”
Other legal and physical barriers to investment such as a weak banking sector, resulting in a cash-dependent society and untested judicial system in a country Transparency International ranks as one of the world’s most corrupt. New investors will also need to navigate layers of bureaucratic red tape, as discovered by several Australian mining firms scoping out opportunities in the country’s unexploited minerals sector at a convention in Yangon last month.
Although investors at the Myanmar Mining Summit agreed Myanmar’s rich mineral wealth holds untapped potential, the biggest bones of contention include an inhibiting Production Sharing Contract (PSC) arrangement between a foreign company and the Myanmar government, which does not act as an equity partner, but takes a hefty 30% chunk of the total resource extracted on top of royalties and income tax.
“That means you risk all the money, you risk all the development then you give the government a share of the production free of charge, on top of royalty,” said Everett, who attended the conference to look for coal mining opportunities on behalf of some Australian investors. “People will not invest on that basis — not on a large scale, anyway.”
Mining veteran Owen Hegarty, formerly of Rio Tinto and Oxiana, spoke at the summit and said his firm, Tigers Realm Group, is already scoping out potential copper and gold deposits.”Tigers is taking a preliminary look at opportunities in Myanmar — we know the region well, we’ve had a look at some properties and prospects previously and we think the prospectivity for copper and gold is attractive and we believe it is un- and under-explored,” Hegarty said.
However, the country’s strict regulatory framework will hold back more significant investment, he said, with many firms preferring to either “watch and wait” before making their move on Myanmar.