Myanmar: Southeast Asia’s last frontier for investment

U.S. companies might also benefit from choosing an MBK entity to partner with, especially in fields in which the MBK businesses are strongest - canning and dehydrating equipment, as well as other machinery for the food and beverage industry. Overall, however, the most productive sectors are those related to natural resources: oil and gas, mining, and timber.

The first challenge in trying to assess the business climate is the lack of trustworthy data, with different private and government sources releasing different figures. Although no comprehensive nationwide census has been taken since 1931, the current estimated population is about 50 million. Import figures are grossly underestimated since so much smuggling takes place from Thailand, China, Malaysia, and India. The International Monetary Fund forecasts Myanmar's 2013 GDP growth at 7.7 per cent.

Another negative is that the administration is widely perceived as non-transparent, corrupt, and highly inefficient. Over 60 per cent of the FY2010-11 national budget was allocated to state-owned enterprises, most of which operate at a deficit.

TAITRA's Fan notes some other drawbacks. "As the rural population is too small, spread out, and impoverished to purchase anything, most investors, including Taiwanese businessmen, focus only on major cities like Yangon, Mandalay, and Naypyidaw," he says.  Additionally, in the absence of a formal stock market, domestic investment goes mainly into land, "creating sky-high prices that deter the development of manufacturing facilities and warehouses." Kristy Hsu notes that "property prices in the city of Yangon are higher than Bangkok and some places in Tokyo," and that while the official exchange rate is 6 kyat to the dollar, "on the street that same dollar will get you 860 kyat."

In 2010-11, the transfer of state assets, especially real estate, to military families under the guise of a privatisation policy further widened the gap between the economic elite and the general public. Generals control vast tracts of land and therefore hold the key to the development process, says Fan. "These generals can use their power for or against reforms." Under a controversial 2010 amnesty agreement, the military was given a clean slate for any crimes committed before 2010.

Potential transport hub

If U.S. sanctions are fully lifted, economic stability should be assured, as Myanmar is well situated to be a regional transport hub. For China and India, a stable Myanmar would be a strategic asset providing deepwater port access to the Indian Ocean and enabling circumvention of the Malacca Straits by using overland rail routes through Yunnan Province in western China. The rail connections from the Chinese side are in place, but key portions of track within Myanmar remain in the planning stages.

Existing railways are old and rudimentary, using narrow gauge, and haven't been repaired in decades. The train trip from Mandalay to Myitkyina, which is 530 miles, takes 24-30 hours, but the same distance can be covered by car in 17 hours. Highways are unpaved, and even streets in major cities are a patchwork of semi-pavement. Transportation costs are high and energy shortages are common, especially from January to April when hydroelectric reservoirs are at low water. To further complicate matters, ethnic armies control all the roadways throughout the Shan and Kayah States. "Bribery and road-use taxes imposed every hundred kilometers or so through different ethnic army-controlled areas make it cheaper to deliver by air," says Kristy Hsu.

What will look more attractive to potential investors are the low wage rates. Factory workers earn US$50-100 per month, a truck driver $150, and salespeople $80-160. Social Security Benefits require the employer to contribute 2.5 per cent of the insured wage and the employee 1.5 per cent. Most workers come from remote rural areas, so that room and board must also be included in labor costs. Those over the age of 40 can speak English as they received schooling during the period of British rule, while the English ability of younger workers is described as hit or miss, but generally higher in the cities. The population consists of many different ethnicities, with different  management techniques needed for each group.

The capital of the country is now Naypyidaw, so that companies setting up in Yangon (formerly known as Rangoon), the largest city and commercial center, may encounter delays in paperwork running into days or weeks while documents are sent back and forth. Construction has begun on a new industrial park for foreign investors within the Thilawa Special Economic Zone, which includes the deep-sea port of Thilawa 25 kilometers south Yangon.

Politically, "Myanmar recognises the People's Republic of China, accepts the One China Policy, and does not maintain any representation in Taiwan," including non-official representation, notes Kristy Hsu. With even TAITRA barred from opening an office in Myanmar, connections are maintained through wholly private entities. Hsu says that some Taiwanese businessmen have set up a desk at the Yangon Golf Club to serve as a channel to provide business information and answer inquiries and business. In addition, she says she receives at least 12 calls a day in Taipei from Taiwanese companies, mostly asking about the investment law changes.

"Foreign firm are highly sought-after as partners as they can bring new technology and fresh capital," says U Ken Tun, CEO of Myanmar's Parami Energy Group. "Foreign firms should come in and identify an opportunity, then find a person who shares the same vision," he suggests. "Access to the oil and gas industry is limited to a profit-sharing joint venture arrangement with a local company owning the exploration concession. The same is true for mining, since mineral reserves are controlled by the Ministry of Mines and the best spots have been awarded to private local companies. One advantage is that with a well-known business entity as a partner, you could circumvent some of the bureaucratic challenges - that's local firepower. The partner can also contribute essential assets in the form of connections, land holdings, and property." But prospective investors need to be aware that many leading business figures are former members of the military regime that the U.S Treasury Departments has placed on its’ Specially Designated Nationals (SDN) list of individuals targeted for "Frozen Asset" sanctions. Dealings with them could pose long-term risks to a company's finances and reputation.

Some of the key opportunities for investment are likely to be in such areas of infrastructure development as power plants, industrial parks, airports, and telecommunications, as well as in mining, oil and gas exploration and production, forestry and timber development, agriculture, and hotels and other tourism facilities. In manufacturing, major sectors identified as in need of investment are cement, building materials, and spare parts for agricultural machinery and automobiles. There is also a need for imported hospital equipment, even second-hand.