Investing in Asia’s Latest Tiger

by Erin Murphy

Myanmar has made an astonishing turnaround. Once considered one of the world’s most despotic regimes, reforms have led to the easing of U.S. financial restrictions. With the easing of sanctions have come fears that after years of economic isolation, the U.S. has ignited a “gold rush” for the country’s fabled natural resources, abundant land, and plentiful labor. There are concerns that such investments would ultimately benefit the military elite and leave wide swaths of people, especially ethnic minorities who sit atop the bulk of those natural resources, with nothing.

Yet these fears have not been realized as investors’ enthusiasm has been tempered and the rush has perhaps been not so golden. Myanmar’s economy is essentially starting from scratch after fifty-one years of gross economic mismanagement and self-imposed isolation under the former military regime. Global economic sanctions further compounded the situation, excluding Myanmar from international markets and banking systems. As Myanmar rebuilds, it must remedy its opaque economic system, improve its non-existing infrastructure, and firmly move away from totalitarian rule. Despite these hurdles, U.S. companies can invest successfully in the country while bringing about positive changes through engagement. To do so, however, investors should take care to understand the political, economic, and legal environment in Myanmar, know how to navigate the restrictions still in place, and proceed with patience. What follows are some recommendations on how to do so.

First and foremost, investors must be aware that Myanmar lacks a legal outlet to protect investments. Recently, President Thein Sein in October of 2011, for example, canceled the controversial Chinese-backed Myitsone Dam project. Similarly, in January of 2012, he shut down the Italian-Thai Development PLC-backed Dawei coal fired power plant. Both decisions came as the people pressured the current government to review lopsided contracts which benefitted the few, harmed the environment, and displaced villages. While this government responsiveness to the will of the people can be seen as a positive step for the country, these cases serve as a cautionary tale for investors.

Investors could be put in a similar position if the people or government decide the investment harms their standard of living. There is little judicial reform, experience, and capacity to appropriately deal with these issues. Investors would be wise to connect with affected local populations and government officials to build support for their investment before proceeding, as well as push for increased government transparency and judicial reforms. Such outreach would not only protect U.S. investments, but would simultaneously improve Myanmar’s society.

Second, U.S. companies interested in resources or infrastructure must pay attention to Myanmar’s pivotal issue: national reconciliation. The government has made great efforts towards negotiating a durable peace with armed ethnic groups—some of whom have fought the government since Burma gained independence in 1948 while others maintain tenuous cease-fire agreements—and fostering a political dialogue with its 135 officially recognized ethnic nationalities. Ethnic areas—mainly located outside urban areas and along the country’s periphery and home to gems, minerals, timber, and transportation routes—have been subjected to land grabs, questionable labor practices and environmental degradation by the former junta, armed groups, and foreign companies. Even today, some ethnic groups often convey to U.S. officials that reforms have yet to reach them. They would certainly benefit from U.S. business engagement. Investors, however, must be sensitive to this history of abuse by the central government and avoid any appearance of exploitation.

Third, investors must learn to navigate and adapt to the remaining restrictions in place. With the easing of sanctions last July, we in the State Department’s Office of the Special Representative led interagency efforts with the White House and Departments of Commerce, Defense, and Treasury to design policy that would allow for broad U.S. investment in Myanmar. To flag remaining concerns, we developed the U.S. Department of Treasury’s Specially Designated Nationals list, which identified and restricted those individuals and organizations who continued to undermine political reform, disrupt national reconciliation efforts, and engage in military trade with North Korea. Remaining sanctions, however, need not prevent U.S. investment. There are many local entrepreneurs in Myanmar who are hungry for change and development, and who seek the quality products, expertise, and leadership U.S. companies offer.

Finally, U.S. companies must be patient. Myanmar essentially needs everything—infrastructure, banking, health, and education systems, and many other services—and may not have the capacity or financial ability to welcome the type of investment some companies have to offer. U.S. businesses in turn, may not want to take the inherent risks associated with this emerging economy, at least for now. Interested companies need to conduct an honest analysis of the market to determine whether or not Myanmar makes sense for them, and not rush blindly into the country. The potential is there for many, but not everyone will realize riches.

We are at a juncture in Myanmar’s historic transition in which U.S. companies can foster positive change and increase the economic livelihood for the nation’s long-suffering people. U.S. companies, in Secretary Clinton’s words, can be an agent of positive change if they remain informed, connected, and patient in their approach to the development of Asia’s last tiger.

About the Author

Erin Murphy is the President and Founder of the Inle Advisory Group. Formerly, she served as the Special Assistant to the Office of the Special Representative and Policy Coordinator for Burma. Erin is a 2001 graduate of Tufts University where she majored in International Relations.

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