Foreign investors who have been hungrily eyeing Burma amid promises of political and economic reform would have been buoyed yesterday by pro-democracy leader Aung San Suu Kyi’s election victory and news that Burma’s central bank floated the kyat against the US dollar for the first time.
But the surge in investor interest surrounding Burma, which is also known as Myanmar, has gathered so much momentum that a realistic appraisal of the country’s preparedness to provide businesses with the security they need has been hard to come by.
To bring some light to the issue and to draw an accurate picture of the business climate, private investors and officials from Burma held talks yesterday at the EU-Asean Business Summit in Phnom Penh.
The conclusion? Burma still has a long way to go before foreign companies will feel comfortable investing money and doing business there.
“Since we have been isolated for many years and many decades, we have multi-dimensional problems. All these multi-dimensional problems can be addressed only by multi-dimensional policies,” said Winston Set Aung, an economic adviser to Burma’s President Thein Sein.
“We normally came up with quick fixes, we normally came up with the short-term arguments, and these kind of quick fixes and short-term arguments could resolve the problem but tended to create more problems,” he said by way of a description of Burma’s economy.
Despite its large population, 55 million, ample natural resources and close proximity to India and China, Burma must still pass a host of laws and improve its infrastructure before major companies will even consider investing.
Mr. Winston Set Aung said that Burma is currently drafting laws on foreign investment and special economic zones. New regulations to govern the country’s central bank are also underway.
“The Central Bank is going through vigorous transformation,” he said. (Burma’s Central Bank set a new rate for the local currency, evaluating it at 818 kyat against the dollar yesterday. The previous exchange rate was 6.4 kyat)
The country’s foreign investment law has already been drafted by the International Monetary Fund and is expected to go to parliament at the end of the month for debate.
But how quick other laws the country needs will be passed remains to be seen.
Mr. Winston Set Aung said there were those who want fast reforms and those, whom he described as “conservatives,” who are advocating for a slower, more measured approach to reform.
The IMF “belongs to the conservative group,” he said. “They are also telling us, ‘Why are you in a rush?'”
“These changes take many years. If you do it in such a short time, it’s a challenge and it’s also maybe a risk,” said Rolf-Dieter Daniel, president of the European-Asean Business Center in Thailand.
There are also uncertainties surrounding how quickly and under what conditions sanctions against Burma will be dropped by Western countries.
“Even if you just lift the sanctions on trade and if you still have the sanctions on financial transactions, then lifting sanctions on trade is going to be useless,” said Mr. Winston Set Aung.
EU Policymakers in Brussels are scheduled to discuss the issue of sanctions on April 23.
Undoubtedly, large firms are all keeping a close eye on changes in Burma.
Every day there are at least four Western companies making inquiries about Burma with the Myanmar Federation of Chambers of Commerce and Industry (UMFCCI), said Maung Maung Lay, the federation’s vice president. Interest in Burma of late has been “overwhelming,” he said.
“We were behind the Bamboo Curtain for half a century,” he said. “Now after so many repressive years, its justifiable that we wish to be the new world order.”
Despite the obvious interest in doing business in Burma, actually getting firms to put down hard currency could take a while.
“I think it will take some time,” said Emmanuel Menanteau, CEO of Cambodia Airports, a subsidiary of the French construction giant Vinci and the company that operates Cambodia’s airports.
“What we need is a national infrastructure master plan from Myanmar. We need a foreign investment law. Today we don’t know how it is going to be managed in terms of policy to get foreign investment,” he said.
There is also the matter of how companies from Europe and the US compete with firms from other nations like Japan and China, both of which have been doing business in Burma for years.
“How they will welcome European investment and European companies is also a big question. We are not in our big sphere of influence so definitely we will need to wait and see how we are welcomed,” Mr. Menanteau said.
Gordon Peter, a manager at Emerging Markets Consulting, a consultancy firm in Laos and Cambodia, said those first off the starting block to enter Burma will be firms willing to take on high levels of risk.
“There’s going to be different types of investors that go in at different times,” Mr. Peter said.
“I don’t think that there is good information about the different things you look at when you make an investment. You’ve got to look at the legal framework, you’ve got to look at what competitive landscape is there and you’ve got to look at macroeconomic data,” he said.
“I think that it’s going to be high-risk people that are looking at Myanmar.”