Burma – Last Business Frontier?

As Burma continues its reforms, expect international business to eye its raw material and cheap labor potential.

Every week, Burma – in ways big and small – continues to open its doors to the outside world. It still has a long and difficult way to go but already trends are emerging that outline a future for a country that has spent the last half-century winning comparisons with North Korea.

Among the most important factors within those trends is Thailand.

Relations between Bangkok and its neighbors – Cambodia, Laos, Malaysia and Burma – are often stressed. Border disputes, Islamic militancy and transnational crimes like drug running and ethnic conflict are among the festering issues that dog diplomacy from all sides of the political divide.

But throughout recent decades, Thailand has provided access and resources that for years linked Cambodia and Laos to the outside world. Its ties with Malaysia helped restrict the influence of hot-head mullahs and counter Islamic extremism. With Burma, Thailand is ideally placed.

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Morten Pedersen, a Burma analyst with the University of New South Wales in Australia, says Burma’s next development phase was likely to be the new special economic zones on the border with Thailand.

Investment is sorely needed in infrastructure; roads, ports dams, electricity and access to clean water and sewage. But areas like food, health and education are also in dire need of funds.

In 2000, the World Health Organization ranked Burma 190th and the worst performer in the world in regards to health care. More recently, the United Nations ranked Burma at 149th in terms of human development, while the list of bottom of the heap global rankings is endless. 

President Thein Sein knows this must change.

A major focus is Dawei in Burma’s south, where a massive $8.6 billion port and industrial complex is being built by Italian-Thai Development Co. The Bangkok listed company has a 60-year concession and the industrial park is 16 times bigger than anything similar in Thailand.

Thai corporations lining up for expansion into Burma include PTT, PTT Exploration & Production, Ratchaburi Electricity Generating Holding and Hemaraj Land & Development.

From Japan, Honda, Mitsubishi, Mitsui and Sumitomo, have lined up.

Importantly, Toyota Motor Corp has also expressed an interest in building a production base at Dawei as part of a broader strategy to reduce costs, but with potential friction elsewhere in its corporate empire.

Toyota suffered heavy losses in Thailand during the recent floods and backing the move is the Japanese government, which has indicated it will help bankroll the Dawei project, although it would also like to restructure debt currently held by Burma’s military leaders.

This wasn’t what Australian unions and government want to hear.

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They were recently angered by Toyota’s decision to cut back on production at its Melbourne plant. The company’s reasoning was based on a persistently high Australia dollar, which made exports of locally made vehicles too expensive for export.

However, this didn’t stop Toyota management from accepting $100 million in Australian government subsidies over the previous four years, given to safeguard jobs. Despite this, Toyota cut 350 Australian jobs while planning a Burmese expansion and a debt restructuring for Burmese generals, which would hardly endear the company to a long-standing and loyal market in Australia.

Travel and tourism are other obvious industries for Thai development. One up-market travel agent, Khiri Travel, is offering boutique holidays out of Bangkok, a tour of Burma in a private and luxurious jet for $8,500 a head for four days and three nights and sold as “one of the greatest little holidays in Asia.”

Khiri’s lofty clients are a long way from the business and politics on the ground that authorities in Naypyidaw seem bent on attracting into Burma, which is resource rich with a population of about 60 million. The potential size of Burma’s economy is comparable with Thailand and Vietnam.

Pederson says from a developmental perspective, Foreign Direct Investments (FDI) will increase and broaden and be a key issue in the coming years.

“Burma obviously has the potential to be the next frontier – like Cambodia and Thailand were earlier,” Pederson says. “However, I would be careful about comparisons beyond that. Economics in the early days of development seems to me to be mainly about politics.”

The politics and significance of Dawei weren’t lost on Burma’s opposition leader Aung San Suu Kyi, who chose the impoverished town to stage a recent political rally in the lead-up to April 1 by-elections, which her National League for Democracy will contest.

In Dawei they cheered, lined the streets by the thousands and lavished Suu Kyi with flowers, chanting; “Long Live Aung San Suu Kyi.” It was the type of reception that opposition leaders in Vietnam, Laos and Singapore can only dream about.

Burma and Dawei lie in the middle of a regional strategic corridor that will link Vietnam and China to Burma through Bangkok. This corridor will gain increasing importance within the 10-member Association of Southeast Asian Nations which is aiming to become a fully integrated economic community by 2015. The Dawei Special Economic Zone is expected to become an ASEAN hub.

ASEAN’s 2015 goal is for a stable, prosperous and united economy capable of competing with the likes of China through the free flow of goods, services, investments and capital based on a single market.

Such ambitious goals might be impossible to achieve without Burma opening up.

Burma will also provide strategic access into India, putting Thailand at the crossroads of regional trade with Burma and India to the west, Cambodia and Vietnam to the east and Laos and China to the north.

Gavin Greenwood, a risk consultant with Hong Kong-based Allan & Associates who has followed Burma since the early 1970s, says the country is one of the few frontier countries left that has serious economic potential through enormous resources and access to a large market.

A surge of interest from international companies keen to asses Burma’s potential as a market and a source for raw materials and low cost labor should be expected, he says.

“This transitional period will produce difficulties and challenges on both sides as the still introverted regime confronts the realities of dealing with accountancy-driven, profit-orientated foreigners. Managing expectations and reducing commercial risks will now form the core of political analysis,” he says.

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Chief among those new expectations and commercial realities is Thailand, and for the time being at least, all roads in and out of Burma will lead to its eastern neighbor’s door.