Myanmar | Blank Slate For Foreign Investors

Foreign direct investment in Myanmar is surging, driven by relaxed economic sanctions and reforms by the semi-civilian government—which is expected to triumph in upcoming elections and has made boosting investment a clear priority. FDI inflows into the country surged to $8 billion for the 2014-2015 fiscal year ended in March, up from $4.1 billion the year before, according to government figures, although some independent sources suggest the number might be lower. As of March 31, 2014, 34 countries had 684 projects there.

Foreign direct investors that are prepared to face down a number of hurdles, from a lack of infrastructure to rebel attacks, have a broad menu of options to choose from, including oil and natural gas production (both on- and off-shore), telecommunications and Internet, food processing, mining and labor-intensive businesses like the garment industry.

Recent changes seem promising, according to Michael Yeo, a consultant and senior marketing analyst at the Singapore office of International Data who has tracked Myanmar for two years. Before 2013, Myanmar was one of the most expensive nations in the world for cellular telephone users, with subscriber identity module (SIM) cards costing from $1,000 to $2,000 and a complex series of permits and procedures required to buy a device. But in June 2013 the government opened bidding to foreign operators and granted licenses to Norway’s Telenor Group and Ooredoo of Qatar.

“It was done extremely well—not a sniff of corruption, not a sniff of inefficiency,” says Yeo.

The government has also started licensing foreign banks to operate on its territory, which is likely to encourage inflows of capital and investment.

On the downside, there may be risk of political turmoil. While the ruling Union Solidarity and Development Party seems poised to win elections in November, some analysts and Myanmar’s opposition leader Aung San Suu Kyi have expressed doubts over whether the current government will allow the election to proceed.

The pace of reforms has slowed, owing in part to continued fighting with rebels in the north, and reports have even accused the army of using chemical weapons. For some investors not already in Myanmar, this could be a game changer.

Another limitation is a shallow financial sector that makes long-term loans completely unavailable.

“A lot of what was expected, a lot of what was promised, has not come as quickly as many outside investors had hoped for,” Yeo says.

Myanmar’s most daunting obstacle, and its greatest opportunity, may be its lack of infrastructure.

“Looking at roads, railways, railway systems, electrical power, they are just really not there; power outages are commonplace,” Yeo says. Internet connections are limited and problematic. Paradoxically, a low level of technological penetration presents advantages, Yeo points out. “The great thing about Myanmar is that it’s a blank slate. It doesn’t need to go through the whole legacy evolution process that other countries have gone through.”

Yet Myanmar might be overhyped and the “blank slate” won’t appeal to everyone, Yeo says. Investors should view it as an extremely long-term commitment.