Doing business in the Wild Wild West - be prepared

And the rest of the world can hardly wait.

The international community has flocked in long before any reforms – political or socio-economic – can bring tangible outcomes. The US recently lifted one of its many sanctions to allow for World Bank assistance, while the European Union pledged a 150 million (Bt6 billion) aid package by 2013. Foreign direct investment (FDI) to Myanmar in 2011 alone stood at $20 billion (Bt614 billion), more than the FDI value in the previous two decades combined.
But the money may flood in faster than it can handle.

This phenomenal surge in foreign money calls for effective financial controls, contracting methods, attention to absorption capability and meaningful measures of national benefits. Decades of isolation eroded any structural capabilities they might have had. Yet, we must applaud Myanmar’s decision to resuscitate a currency redesign via on-going technical assistance from the International Monetary Fund (IMF) and the World Bank. Moreover, Myanmar will soon engage Singapore as a hand-holder in modernising the country’s financial infrastructure.

What is being neglected, in fact, is the development of basic infrastructure.

Intermittent power outages are a normal way of life, even in big cities. With the fewest phones per capita in the world, Myanmar also suffers from poor road infrastructure, which has impacted construction-related sectors and the food industry. On the bright side, this presents a golden opportunity for Thai investors as we can capitalise on several adjacent intra-Asean highway and rail-link projects, with twofold benefits – both in construction opportunity and easy access.

And we need to act fast to lock in the low-waged unskilled workforce before it becomes a hot commodity.

Under the new Special Economic Zone (SEZ) Law requiring investors to hire citizens for non-technical posts, the unskilled workforce of close to 30 million could become a supply constraint. If three-quarters of the unskilled workers remain in agriculture, as they have in the past 20 years due to government support, the number of unskilled workers for labour-intensive sectors such as garments and footwear drops to less than 10 million.

There is a desperately short supply of skilled workers.

Skilled manufacturing sectors such as electronics and automobiles will have to make do with labour imports from home countries or elsewhere. Even with the doubled education budget recently announced, the knowledge-transfer programmes required of foreign investors by the new SEZ Law may not create a sufficient supply of skilled workers, as there are no guarantees they will not move to other higher-paying Asean destinations on the back of free flows of skilled labour under the upcoming Asean Economic Community.

Doing business inside our Wild Wild West neighbour comes with other hidden costs, too.
The cost of relocating large existing agricultural activities can be huge, particularly for mega-projects. In addition, labour-intensive sectors will soon have to tolerate hidden labour costs as a result of socialist policies aimed at keeping the unions content. Compound this with corruption and monopolistic controls, it means investors in Myanmar must be prepared for many challenges – which they cannot afford to shy away from.

This is part one of a three-part series on Myanmar. The next part will discuss why our neighbour will not back-pedal this time, as it did a decade after it first adopted an open-door policy in 1988.

Dr Sutapa Amornvivat is chief economist and head of the Economic Intelligence Centre at Siam Commercial Bank. She has wide international work |experience at IMF, ING Group and Booz, Allen, Hamilton.