Lingering Fears About Myanmar's Political And Economic Realities May Hinder Direct Investment

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A man talks on his mobile phone by the street side of Yangon, June 21, 2013.

Leaders from the Association of Southeast Asian Nations (ASEAN) are meeting in Yangon, Myanmar this week to discuss economics, trade and investment. But critics say the country has a long way to go before it can truly meet the standards of this and other internatinoal economic organizations. 

Despite a concerted effort from Myanmar’s post-dictatorship administration, recent political developments and uneasiness with a lingering military elite may hinder the nation's efforts to attract foreign capital to one of the world’s last truly frontier markets.

“The rich and powerful find it very easy to get whatever they want.; that’s fine for today but leads to problems down the road,” said Lex Rieffel, Southeast Asia expert and former U.S. Treasury economist.

More recently, the country has been wooing foreign investment through banking reforms and a push towards developing its vast stores of natural resources. But large amounts of cash from abroad may do more harm than good if handled incorrectly.

“If you get the wrong kind of foreign investment in the wrong way at the wrong time, it could be damaging,” Rieffel said. “The good investors aren’t always the ones that pay the most money.”

Myanmar emerged from a generation of dictatorship just four years ago, and has made some positive steps.

“Myanmar is leaving behind decades of isolation, fragility and conflict,” the World Bank wrote in its 2012 profile of the nation noting the history of tight economic nationalization and severed ties with the outside world that started after a 1962 military coup by General Ne Win. Even after he resigned in 1988, the government’s violent suppression of political opposition incited strong Western sanctions, which further isolated the economy.

But President Thein Sein, elected in 2010, signaled a relatively new direction, World Bank analysts wrote. Along with the release of Aung San Suu Kyi and other high-profile political prisoners, he halted controversial development projects, and made a few notable steps toward decentralizing the country’s economy and opening the markets to foreign investment and the international community through the World Bank, IMF and the Asian Development Bank.

The World Bank projected its economy to grow 6.8 percent this year.

But despite reforms, it’s not all rosy in Myanmar. The nation ranks 157th out of 177 countries on Transparency International’s Global Corruption Perceptions Index.  Last week, the leading opposition party recently said it collected five million signatures on a petition to reduce powers of unelected military parliament members, which seems to be an ongoing trend.

“Economic liberalisation can perpetuate the political and economic dynamics of the resource curse,” wrote Stuart Larkin of the Institute of Southeast Asian Studies, in a Financial Times op-ed on Wednesday.

“Foreign direct investment can fall into resource enclaves while the elite benefit from increased resource rents and their recycling into real estate and consumer import booms. Under this dynamic, the elite’s power is enhanced, allowing them to adapt and to exploit Myanmar’s nascent democracy,” he wrote.

In recent years, most foreign direct investment in the country has been concentrated in extractives, with oil, gas and hydropower taking the top spot, followed by mining. But this resource wealth is also a major potential problem.

“How the government receives, manages, or uses oil and gas revenues is not publicly disclosed, the role that military enterprises play in revenue management and use remains unaccountable, and a total lack of benefit sharing is prolonging Burma’s resource curse,” wrote researchers from Arkan Oil Watch, a Myanmar-based NGO,  in a 2012 report on the issue.

Exports  of natural gas is Myanmar’s  single largest source of foreign income, accounting for more than 40 percent of its total exports. It has been sending gas to Thailand since the 1990s, and was ranked the largest gas exporter via pipeline in the Asia-Pacific by BP in 2007.

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