Full Steam Ahead: The Burma Boom

Recent Features

Features | Economy | Southeast Asia

Full Steam Ahead: The Burma Boom

With Burma opening to the outside world, the opportunities for investors and its people are vast. The challenges may be equally daunting.

RANGOON – Khin Yu Waddy Myint is manager at Pyrex Trading and Distribution, a Burmese pharmaceutical company that employs 250 people across the country. Part of her job is to source and import medicines from India and Australia, a task she concedes she doesn’t know enough about.

“It is the first time for me to learn many of these things about how to tender,” she says, taking a break from some business training at the SME Center inside a Ministry of Commerce building in Rangoon, a short walk from where opposition leader Aung San Suu Kyi spent 15 years under house arrest during Burma’s military government.

Now that military rule is a thing of the past, formally at least, and more donor-funded NGO work is being done in a country where Western aid was, until very recently, on ice for the most part as a part of sanctions imposed on the military junta.

And while eyes might roll at the notion of another NGO doing yet more training in a poor country, the group behind the course says that its work is all about boosting local business and creating jobs.

Yuki Kuronuma is Business Development Manager at Building Markets, an NGO that aims to bridge the business-aid divide. She says that “part of what we try to do is link local business and entrepreneurs with international suppliers and business opportunities. In Myanmar  the need for this is quite clear, given that the country has been closed to the much of the outside world for so long.”

Burma’s economic prospects are on the rise, now, with the World Bank saying on December 19 that “the Myanmar economy continued to accelerate in fiscal year 2011-12, with GDP growth at 5.5 percent, and expected to reach 6.3 percent in fiscal year 2012-13.”

But a lot of that growth might not be conducive to small businesses or job creation. Exports and inward foreign investment are almost entirely based on natural resources such oil, gas, hydropower — sectors that might bring in vast revenues but not a huge number of jobs for the country’s young.

7 out of 10 Burmese work in agriculture, much of which is low-tech, low-yield subsistence — while 32% percent of the population lives under the poverty line. The country has the lowest GDP per capita in Southeast Asia and only a quarter of the population has electricity.

Job creation is the cornerstone of economic policy for Aung San Suu Kyi, who described her country as sitting on an unemployment “time bomb” when speaking at the World Economic Forum in June, while urging investors to try provide jobs for young Burmese.

Similarly, the military-in-disguise civilian government headed by President Thein Sein, a former army man and Prime Minister of the old military dictatorship that formally ceded control after its proxy party won a rigged election in late 2010, is hoping that a new foreign investment law coupled with low labor costs will attract foreign business.

That’s a maybe, for now, and while companies such as General Electric and Coca-Cola have investments lined up for Burma, there’s little indication yet that Rangoon will play host to the sort of mass production job-hub industrial parks seen in neighbors such as Thailand and Vietnam — no matter what laws the government passes.

“The new foreign investment law isn’t perfect by any means, and gives a lot of discretion to the investment commission to rule on whether a proposed investment is valid or not, opening the way for possible corruption,” says Jared Bissinger, an economist who specializes on Burma.

“It does seem though that the law is geared towards job creation,” Bissinger says. But entrepreneurs want more than just words on paper. “There are other hidden costs that might counter the attractiveness of low wages for investors — be that a lack of skilled people, unreliable electricity, poor infrastructure,” warns Bissinger, who recently undertook a survey of 150 local businesses.

His findings so far indicate some growth of small and medium enterprises (SMEs) in Burma, something that SME Center director Aye Aye Win also believes to be the case.

“We have 40,000 SMEs listed,” she says, “but we estimate that there are maybe 300,000 such businesses in Burma altogether.”

The disparity in numbers is caused by some of Burma’s other main business hurdles — poor communications and a lack of reliable data.

“The communication process for us in Myanmar is so slow, that is probably the most difficult thing about doing business here,” says Khin Yu Waddy Myint. The country awaits the liberalization of the telecommunication sector — change that could in time bring Burmese people the type of cheap and fast mobile phone and internet services seen elsewhere in Southeast Asia.

For now, however, it has been estimated that 3-5 percent of the population have mobile phones, while internet penetration may be as low as 1 percent, both legacies of a paranoid military government. And despite its optimism about next year’s projected growth numbers, the World Bank warned this month that the country needs to improve its telecommunications if it is to maintain growth.

Lack of data and statistics is another hurdle, as Aye Aye Win suggested. There hasn’t been a census since 1983 (a new one is planned for 2014), and William Aung, a Burmese who returned from Canada after the country’s “glasnost” began, says that finding out business-relevant information – how many of what and where – can be difficult to impossible in Burma.

Mr. Aung is a director at Thura Swiss, a Rangoon-based business consultancy. “Information is hard to come by here, for many sectors, there is no official data available. We literally have to get out and walk the streets to find things out ourselves.”

As for Burma’s immediate economic prospects, Mr. Aung says that “the economy will grow, but little by little. But we have very poor infrastructure, land is expensive, office space is hard to come by.”

Land prices have been jacked up by a cabal of well-connected business crones that have grown wealthy from Burma’s natural resources. With the country’s limited banking and financial infrastructure many have put their money into property and land.

The result is office space rental prices of around U.S. $50 per square foot in downtown Rangoon — where the total floor space available is only 3 percent of that in Bangkok, an hour’s flight away.

Such scarcity and high prices are another deterrent to doing business — for Burmese and foreigners alike.

Nonetheless some ambitious companies are pushing ahead. Leafing through a glossy brochure, Ye Yan Naung Soe, marketing manager at the construction company Yadanar Myaing, tells me that one high-end high-rise condo block that is still under construction is almost sold-out.

Sitting on the edge of Kandawgyi Lake, a prize waterfront location in the heart of Rangoon, the as-yet-unfinished apartments are highly-sought after, it seems, amid a shortage of accommodation across the city.

“We have one room left to sell, out of 66 units in total,” he says. “People want to move here now as the economy develops, and many buyers are foreign, from Japan, Korea, Singapore.”

Simon Roughneen is a freelance journalist in Southeast Asia. His website is www.simonroughneen.com and he can be found on Twitter: @simonroughneen.