Doing business in Myanmar - what, when and where

Riding on the reforms, investors who are first to fill in the infrastructure gaps will benefit immensely. With all the hype about being the world’s last frontier, Myanmar has to remain attractive in the long term to keep foreign money pouring in, so it must undergo urgent reforms to its soft infrastructure, such as the healthcare, financial and legal systems. Investors should take the opportunity to provide financial and legal services as well as basic medical needs.
At the same time, hard infrastructure – such as telecommunications, logistics, electricity and water – is in serious need for the country to stay competitive and connected. Ample incentives would be offered to foreign investors to modernise telecom and logistics services, or supply electrical and water equipment such as wires and pipes to local communities.
Labour-intensive sectors remain the hot destinations owing to the cheap labour market, as long as firms are aware of the limited extent of the cost-savings. There are hidden costs that must be assessed ahead of time, such as the rising employee benefits demanded by the strengthening labour union. Power shut-downs at various hours can leave unprepared firms scrambling to invest in large electric generators, or risk having to shorten workers’ hours. This issue will also impact investors planning on bringing cutting-edge production technology, only to face frequent power outages and high maintenance costs.
The next step on the horizon is to offer more sophisticated and customised products in narrowing the gap in human capital. Once infrastructure – soft as well as hard – is on track towards successful transformation, after-sales service centres can cater to the owners of mobile phones, cars and industrial machinery. Subsequently, skill and language training institutes as well as printing and media outlets will soon be needed to improve the country’s largely unskilled workforce. The rise of the local elite and expatriates will also trigger demand for the best available alternatives such as serviced apartments, private transportation to Thai hospitals, or a franchise of a prestigious international school right in Myanmar’s major cities.
Location, location, location: Where to invest in Myanmar? Strong consumer demand is usually found in large cities like Yangon and Nay Pyi Taw, which form the heart of Myanmar’s trading and distribution networks and can easily absorb Thai products. Special Economic Zones are more suitable for setting up plants as they are better equipped with basic infrastructure, and are associated with well-defined laws and regulations.
Thai investors should not ignore the huge potential of border trade, arguably constituting 40-50 per cent of existing Thai-Myanmar business activities. Thai investors can bank on established border relationships among local businesses.
The right form of investment is also crucial, and calls for thorough assessment of the level of risk tolerance and the capital available. Exporting allows a company with limited risk appetite and resources to find its products a fresh market. Selling a franchise to a Myanmar entity is another good platform, albeit with non-compliance risks in production. Direct investment – for example, a distribution centre or a production base – will expose investors to the highest levels of investment risk and capital commitment, and demand a strong partnership with the right Myanmar firms that possess distribution network capabilities and, in the case of joint ventures, adequate funds.
Myanmar experts are all agreed on one thing – a right partner is the ultimate key to success. Most successful firms have set up their bases in Myanmar long before the current reopening. New entrants must have realistic expectations, and recognise the ground rules and the risks involved. Lastly, take advantage of the unique know-how of the more than 3 million Myanmar workers in Thailand who are already familiar with doing business with Thais, and are a great source of information on Myanmar.

This is the final part of the three-part series on Myanmar. The second part was published on April 23.
Sutapa Amornvivat is chief |economist and head of the Economic Intelligence Centre at Siam Commercial Bank. She has gained wide international experience working for the IMF, ING Group and Booz, Allen, Hamilton.