Perhaps the most remarkable story in Southeast Asian affairs this last 18 months has been the largely unanticipated “opening up” of Burma, driven by President Thein Sein. A series of political and social reforms have quickly led to major world economies, including the EU and the U.S., dropping or reducing their sanctions against the country.
Despite some very reasonable concerns that things may be moving too fast given ongoing internal difficulties, it is hard to deny that vast change is in the wind, and it is not just internal factors which are driving the changes.
From a look at some of the recent events it is clear that changes are indeed continuing apace. Following a 25 year hiatus, the World Bank last week granted a small but symbolic U.S. $245 million of credit and grant funding for Burma, which will be dispersed in an immediate U.S. $80 million instalment and a further U.S.$165 million will be made available when the country clears roughly U.S. $400 million of overdue debt. The EU is also preparing to provide development aid of more than U.S. $100 million to the country.
Much less reported, but possibly more significant, Burma launched its first debit cards on Friday, which will gradually spread and facilitate transactions across the country, as well as cash machine access. Such a scheme will eventually funnel more funds to banks, improving their ability to finance investments across the country. Currently, cash still dominates the country.
Also on Friday (Nov 2nd), President Sein signed into law a parliamentary bill clearing the way for foreign funds to be invested into the country. The bill had been amended to make its clauses more attractive for foreign investors, with conditions on start-up capital and ownership limitations being eased.
One country which is already taking advantage of the newly open climate is Japan. Several Japanese firms are looking to relocate facilities outside of China (or at least create redundancies in their supply chains), following rising labor costs and political risk there. Newly opening Burma with its lower labor costs, port access, improving transport infrastructure, natural resources, proximity to India’s rare earth metals and hunger for foreign investment is ideal (although the Japanese so far are focusing on the entire S.E. Asian region). Japanese clothing chain Honeys began manufacturing jeans in the country this year.
Indeed Japan’s economic engagement with Burma has a long history. Japanese firms had retained strong economic involvement in Burma until international pressure forced them out (along with most other countries aside from China) in the late 1980s, so there is recent memory and experience of operating in the country.
As the case of the former Yugoslavia demonstrated, the reform and opening of a repressive regime in a multi-ethnic state can unleash certain tensions. This problem has already reared its ugly head in the Rakhine region of Burma, where religious and ethnic violence has emerged in recent months. Foreign firms or countries looking to get involved in Burma will have to remain aware of the instability that could continue to haunt the country at times (or in certain areas). Equally, ongoing internal problems could bring renewed international condemnation, depending on how Naypyitaw responds.
Japan seems to be at least partly aware of these risks, and as Stratfor reported in a recent analysis, the Nippon Foundation recently donated USD$3 million to help improve the lives of Burma’s ethnic minorities, also hosting the heads of various rebel groups in Tokyo for talks. Efforts such as these to ameliorate social tensions must come alongside standard corporate investments if Burma is to emerge as a stable, growth economy.
Burma remains a strategic country whose recent 're-opening' has provided an opportunity for regional and global players to increase their engagement with the country. China’s influence in the country may well suffer in relative terms, but there is no reason the world’s renewing engagement with Burma cannot also bring great benefits, both strategic and economic, to China too. China sees Burma as a potential 'land-bridge', allowing goods and resources to be shipped overland to Yunnan rather than through the Malacca Straits. Such a bridge will not be secure unless Burma can deliver a better life to all of its citizens. International engagement with Burma can only help this goal.