Update: Myanmar's Economic Opportunities and Risks

Myanmar's Economic Opportunities and Risks

by Bryce Johnston

     Over the past two years, Myanmar has undergone dramatic political and economic reforms. In late 2010, after more than fifty years of totalitarian rule under a military junta, former general Thein Sein was elected President in a vote that many western countries criticized as lacking credibility due to the absence of legitimate opposing parties. Nevertheless, the new civilian government has responded by releasing political prisoners and allowing pro-democracy leader Aung San Suu Kyi and her National League for Democracy to participate in the political process and win seats in Parliament.

      As a result of the positive democratic steps taken by Thein Sein and the civilian government, the United States and the European Union have lifted sanctions, and many foreign corporations have prepared to conduct business in the country formerly known as Burma. Because of its longstanding economic isolation, Myanmar is perhaps the last major untapped market for consumer goods and its woefully underdeveloped infrastructure offers significant opportunities for investment. Cellular and Internet access reach a very small portion of the population, electrical grids routinely fail, and sewer systems flood. Most indicative of the isolation, ubiquitous brands such as Coca-Cola and Pepsi are just now gearing up to add Myanmar as a new front to their worldwide cola battle.

      However, despite the undeniable opportunities, those looking to do business in Myanmar, particularly those interested in financing infrastructure development, face considerable risks. Specifically, concern has arisen over the Parliament’s attempt to pass a law that would define the rights and abilities of foreign investors. After failing to pass the law for months, Parliament finally approved a version of the statute in early September on the last day of its session. However, President Sein has sent the bill back to Parliament to be amended due to what he felt was a lack of clarity and flexibility.

     Of primary concern to investors are provisions in the bill that limit foreign ownership in certain industries to a maximum of fifty percent of companies. However, the industries are defined too vaguely to provide sufficient certainty for investors. For example, one of the thirteen industries includes “business that harms the environment or eco-system.” Arguably, just about every business has the potential to harm the environment, so the unease amongst foreign investors and President Sein is certainly understandable.

     The Parliament seems to want things both ways: increasing foreign investment while maintaining tight control. As a result, the economic development of the country may be stunted. Although Myanmar’s government has gone to great lengths to convince foreign governments to lift sanctions, its insistence on preventing foreign investors from fully owning business interests and current inability to precisely define the limitations on foreign investment may result in foreign investors simply staying away until the situation is settled, as some have already decided to do.

     Without foreign investment, the country will not be able to supply the office space, hotels, or consistent electricity that modern economies require, and Myanmar currently lacks. This problem has already manifested itself, as prices for office space rentals in Yangon have quadrupled in the span of a few years. Excessive office space prices may deter companies from locating in the capital. Until potential investors can be assured that they will not lose part or all of their investment due to laws, problems such as these will only be exacerbated as interest in the country rises but available financing remains stagnant.

Suggested Citation: Bryce Johnston, Myanmar's Economic Opportunities and Risks, GEO J. INT'L L. ONLINE: THE SUMMIT (Nov. 8, 2012, 3:52PM), http://gjilsummit.blogspot.com/2012/10/update-myanmars-economic-opportunities.html.