Despite pitfalls, Myanmar's opening offers lucrative investment opportunities.

Long regarded as one of the world’s most reclusive and authoritarian states, the southeastern Asian nation of Myanmar (also known as Burma) is witnessing a period of cautious political and economic liberalization. Rich in oil and natural gas and an array of minerals vital to the world economy, Myanmar’s steady opening is attracting growing interest from foreign investors and trading partners eager to gain a foothold in one of Asia’s most isolated societies. The ruling regime’s decisions to release longtime democracy advocate Aung San Suu Kyi from house arrest in 2010 and allow for her opposition National League for Democracy (NLD) party to contest the April 2012 elections, were also seen as signs of imminent change in Myanmar.

US President Barack Obama’s landmark state visit to Myanmar in November 2012 – the first visit by a sitting US president to the country – serves as a testament to the growing strategic importance of Myanmar to the United States and the international community. Obama’s trip followed a December 2011 visit by then US Secretary of State Hillary Clinton. Clinton’s visit represented the first by a senior US official to Myanmar in 50 years. The United States has also moved to soften the economic sanctions restricting American investment in Myanmar. The United States implemented a series of economic sanctions on Myanmar beginning in 1988 in response to a violent crackdown by the ruling military junta against opposition demonstrators and related concerns over human rights. The European Union (EU) and a host of other countries imposed their own economic sanctions on Myanmar. Following in the footsteps of the United States, the EU announced on April 22 that it would be lifting all economic sanctions on Myanmar. In response to the overtures from Brussels, Naypyidaw subsequently released dozens of political prisoners on April 23.

A host of restrictions governing American and European interactions with Myanmar, however, including sanctions and embargoes governing arms sales, remain in place. Concerns over Myanmar’s human rights record have not dissipated. Myanmar continues to be the subject of severe international criticism over the circumstances surrounding the treatment of its ethnic Rohingya community. Inhabiting Myanmar’s western Rakhine State, the predominantly Muslim Rohingya population, which shares ethnic and cultural links to the peoples of India and Bangladesh, has been the target of repeated attacks by ethnic Rakhine nationalists, who are predominantly Buddhist. Sectarian and ethnic animosities sparked a series of violent riots in 2012. An apparently organized campaign of violence and pogroms targeting the Rohingya population has led to hundreds of dead and tens of thousands of refugees. At the same time, most indications suggest that the steady normalization of relations between Myanmar and the West will proceed. Once considered as a mainstay friend of China and North Korea and a pariah state by much of the West over its human rights record, incremental social, political, and economic change in Myanmar represents an important geopolitical trend that warrants closer attention. Equally important, the US engagement of Myanmar is very much reflective of the much touted “pivot to Asia” declared by the Obama administration that involves the refocusing of US foreign policy toward Asia.

Outlook

Myanmar’s incremental normalization with the international community is already having a profound impact on the southeastern Asian strategic landscape.  Myanmar’s significant reserves of crude oil and natural gas are attracting the attention of global blue chip energy majors eager to exploit these resources amid sustained international demand for hydrocarbons. Naypyidaw announced in April that it plans to auction off the rights to 30 offshore oil and natural gas exploration blocks to foreign companies. Equally important, Myanmar has also committed to offering the opportunity for foreign companies to gain full access to a limited number of exploration blocks. This decision represents a departure from previous policy that required foreign energy interests to forge partnerships with the state-owned Myanmar Oil and Gas Enterprise (MOGE).

Myanmar is also rich in other key natural resources, including copper, zinc, coal, uranium, and timber, as well as precious stones such as jade, ruby, and sapphire. It is also endowed with ample potential for hydropower and establishing deep-water seaports along one of the world’s busiest shipping corridors. All of these attributes are attracting the attention of investors keen to expand their presence in southeastern Asia. Due to its borders with China, Thailand, India, Laos, and Bangladesh, Myanmar’s geographic placement alongside busy trade and communication routes is also raising its geopolitical profile. The United States and India are increasingly viewing better relations with Myanmar as a means in which to check Chinese influence in southeastern Asia. Consequently, Myanmar’s geopolitical standing is certain to rise in the years ahead.

Risks

Despite the notable political and economic changes in Myanmar, years of entrenched authoritarianism, corruption, institutional weakness, and underdevelopment pose significant obstacles for foreign investors attempting to break into the local market. At the same time, Myanmar has set out to mitigate some of the concerns related to corruption by signing on to the Extractive Industries Transparency Initiative (EITI). Based in Norway, the EITI is a voluntary framework that focuses on encouraging good governance, financial transparency, and environmental responsibility.

Even as Myanmar moves to broaden its foreign relations, Chinese influence will remain strong for the foreseeable future. Chinese influence is particularly apparent in the economy. China is responsible for about half of foreign direct investment (FDI) in Myanmar’s economy, and over a quarter of its overall foreign trade relations. China is not likely to stand idly by as a host of foreign interests challenge its preeminent position in Myanmar’s economy.

As the crisis in Rakhine State escalates amid growing international humanitarian concerns related to the Rohingya population’s plight, companies operating in Myanmar face a series of reputational risks. Myanmar’s domestic security situation also remains a concern in parts of the country. In addition to the simmering ethnic and sectarian conflict in Rakhine State, Myanmar is also beset by numerous insurgencies led by an array of political opponents of the military regime and advocates for various other ethnic and sectarian causes.

Opportunities

The political and economic pitfalls of breaking into Myanmar are clear and reflective of many of the problems that confront investors who are seeking to expand into emerging markets. At the same time, Myanmar’s cautious political and economic opening promises to yield a wealth of potentially lucrative investment opportunities down the road. Myanmar’s rising geopolitical profile, especially in the eyes of the United States and Europe, will help propel this trend.

"Gauging Myanmar’s Cautious Political and Economic Opening" has been reproduced with the permission of Helios Global, Inc.  Copyright 2013 Helios Global, Inc.

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