Investors flirt with Myanmar again, but WB warns of risks
Investors flirt with Myanmar again, but WB warns of risks
By Juergen Dauth
SINGAPORE (DPA): Hong Kong textile manufacturer Joe Pang set up in Myanmar to take advantage of the country's cheap labor and ended up paying a very high price for it.
"We believe that Myanmar has great potential," Pang says with a shrug, but politics is something that is beyond his control. Fearing sanctions and customer boycotts, clients in Europe and the United States stopped dealing with his firm.
Others are still tempted, Halpin Ho for example. Another Hong Kong entrepreneur, Ho was afraid of missing out on the much- awaited surge in the Myanmar economy and invested in a business center in the capital city, Yangon.
But he soon discovered that the planned financing for the Thuwanna New Business District was completely unrealistic -- the military government retroactively charged him for the costs of the infrastructure.
Small wonder, then, that the World Bank and the Asian Development Bank are warning potential investors not to take hasty decisions on Myanmar. The legal system in the country is murky and the government's economic program inadequate to guarantee steady growth.
Myanmar's 45 million people are among the world's poorest, with an education level near the bottom of the international table: only one in four children completes primary school. Moreover, the ruling military government devotes a combined total of only about 20 percent of its annual budget to education, health and social programs.
"Defense," on the other hand, gets about 45 percent. And the current account deficit is running at about 6 percent of gross domestic product.
According to the World Bank, the result is poor prospects for stable economic development. The junta did announce a privatization program, encouraging an investment euphoria in the country, but it has faded, leaving the state still dominant in all sectors of the economy.
Myanmar's biggest "entrepreneurs" are the ministries. The Union of Myanmar Economic Holdings is 40-percent owned by the defense ministry, and foreign investors wishing to deal with any of the vast conglomerate's many divisions cannot avoid involvement with the generals.
Foreign investors have put some US$4 billion into Myanmar since 1990, but only 30 percent of them have managed to find local private partners, mainly because of domestic firms' difficulties in raising sufficient capital.
Since the imposition of a U.S./European Union economic boycott on Myanmar, the flow of foreign finance has essentially dried up and state-owned enterprises have been grabing the lion's share -- about 80 percent -- of all capital generated domestically.
Private partners inside Myanmar, the World Bank has warned, generally have little staying power. And the government cannot be relied upon to live up to its commitments to develop necessary infrastructure.
The junta -- officially named the State Law and Order Restoration Council (SLORC) -- is bankrupt, and financing its spending with the central bank's printing press -- not to mention slave labor.
Accordingly, the monetary situation raises a huge question mark for investors: while the SLORC insists on an official rate of six kyats to the U.S. dollar, the Myanmar currency's unofficial rate is 150 to the dollar.
Foreign oil and mining firms, more than any others, are willing to enter Myanmar, despite the uncertainty, in order to gain access to the country's rich natural resources.
The French oil company Total, building a $1.2 billion gas pipeline from the Gulf of Martaban to Thailand, has found that operating in Myanmar can be extremely expensive: it is having to pay for essential port facilities, roads and bridges.
Still, as the last large, undeveloped economy in southeast Asia, Myanmar is playing host to many foreign companies looking forward to the day when the economy must finally begin to take off.
No one wants to come too late, "even though we are not making any profits at present," said Mike Nagai, the local manager for the major Japanese firm Mitsui.
With an eye to future investors, the Muenchner Messegesellschaft, a Munich-based exhibition organizer, will open Myanmar's first-ever industrial fair later this month.
The political consequences of this opening in Myanmar cannot be foreseen. Small foreign firms have not been alone in being burned by international politics as it affects Myanmar.
Threatened by human rights organizers with a boycott, the American soft drink maker Pepsico was embarrassed into dropping its plans to move into Myanmar. Heavy protests also convinced two major breweries, Dutch-based Heineken and Denmark's Carlsberg, that Myanmar remains simply too hot to handle.