Betting on Myanmar's opening

The fierce fighting that broke out in the country’s northeastern Shan state earlier this month between Kokang ethnic rebels and the military has been prominently featured in the Western press. This follows accusations by the United Nations and others about human rights violations in the government’s handling of Muslim-minority Rohingya in Rakhine state. 

The criticism goes beyond ethnic issues in remote states to the most central of political questions. Western and other observers increasingly question whether the year-end elections will be truly free and fair, and urge constitutional amendments to lock in democratic reform. 

Constitutional provisions disallow the iconic opposition leader Aung San Suu Kyi from running for president, and current government leaders and parliament are reluctant to amend them. Moreover, the military is directly represented in parliament and shows little desire to reduce its role and influence.

Yet, even as negative views mount in the West, there are signs that others are betting that the opening will continue. 

 

Investment gathering pace

New foreign investors from the United Kingdom, Netherlands, Norway and Sweden have come into Myanmar. For the UK, Myanmar has approved more than US$3.71 billion of investments from more than 70 companies, which lifts the UK to become the country’s fifth largest investor. 

Asian neighbours too have moved. While Chinese companies remain in front, with over $14 billion in approved investments, Singaporean and Japanese corporates are visibly active, especially in recent real estate deals.

Last December, Singapore’s Keppel Land put in $47.4 million to develop a 23-storey office tower in Yangon with Myanmar’s Shwe Taung Group. This is a new commitment from the Singapore developer which has been a long-time investor in Myanmar.

Another is lifestyle, real estate and investment company Rowsley Ltd, in which Singapore billionaire Peter Lim holds a stake. Rowsley will partner a Vietnamese company to build one of the country’s largest integrated projects. 

From Japan, Mitsubishi Corporation will develop another integrated project worth an estimated US$350 million in downtown Yangon, near the historic railway office. This is in partnership with Yoma Strategic Holdings, which is a Myanmar-focused, Singapore-listed corporation.

Projects are also advancing in other sectors such as oil and gas, telecoms and infrastructure. This is needed, given Myanmar’s current state of development, and holds considerable promise. 

No doubt, there are challenges and real questions to which foreign investors want answers. But many of these relate more to economic policy, rather than to the ethnic problems and political issues per se. 

 

Priorities and pace

One of the recurring questions is about the priorities and attention of government leaders. Besides physical infrastructure – roads, buildings, electricity – there remain gaps in the “software” of the country to facilitate investment. This includes updated and detailed laws, clear regulations and policies. Many government leaders are making every effort to move ahead, but complaints still arise about red tape further down the ranks. 

There is also some debate about whether the country’s economic development should prioritise its plentiful resources like oil and gas and forestry or gear up for industrialisation. 

Another major need is finance. While the government has done well to stabilise the management of the Myanmar kyat since its opening, the country still lacks a modern financial sector that can provide capital and credit efficiently and cheaply. Cash is still king and while some large corporations have the reserves, others struggle, especially small and medium-sized enterprises.

The government understands the issue and has sought to take a first step forward with the financial sector. Last October, nine foreign banks were awarded the first foreign banking licenses to operate in Myanmar. These are not Western or international entities but major Asian banks – including three from Japan and two from Singapore.

These banks can now lend to foreign investors and help support a second wave of foreign investors. But their licences are constrained against local loans because of concern that smaller local banks might end up getting shut out from the banking industry.

Others have argued that progressively developing the financial sector must be a next priority that involves both foreign banks and a number of reformed local entities. Only then can Myanmar corporations, both large and SMEs, access credit and other financial assistance to be competitive. 

 

Elections and continuity 

Amidst this gathering momentum, the year-end elections represent a sense of finality and with it, much uncertainty. The finality of the election deadline looms as there is not much time left to see through key initiatives. It remains to be seen whether President Thein Sein will offer himself up for re-election, and whether he can gain support. 

Suu Kyi remains immensely popular within the country. Yet respect has grown for the efforts made by the current president and his administration. Many in the business community and among foreign investors will be keen to see continuity and stability for reforms, and hope for greater speed in the country’s progress after the elections. 

In contrast, others may wish the 2015 elections to deliver change. Desire in the West, especially, is not just for free and fair voting, but for the country to emerge as a full-fledged democracy. 

Neither view may be correct. Judging the country’s progress purely according to political change and democracy may be overly idealistic. But emphasising the path of business-as-usual may fail to recognise the need for a more rapid and also steady reform. Myanmar’s opening was always about both political and economic challenges, and their interplay will continue. 

 

Simon Tay and Cheryl Tan are, respectively, chairman and assistant director of the Singapore Institute of International Affairs (SIIA). On March 23, the SIIA will hold an Asean-Myanmar Forum in Yangon to discuss the country’s next phase of growth. For more information, visit http://bit.ly/1M1hpO1.