Myanmar - Challenges on the new frontier

Myanmar's political reforms are encouraging and won't be rolled back, but investors see overhaul of the entire economy, financial system and skilled labour pool as a bigger challenge.

Myanmar, the new frontier of Southeast Asia, is unlikely to reverse the course of its current reform drive, and Thai businesses are being urged not to miss the boat the way they did when Vietnam began opening up to the world two decades ago.

"If you look at how the private sector reacted to the emergence of Vietnam, it can be said that Thai corporates were not fast enough," said Korn Chatikavanij, a former finance minister and a deputy leader of the Democrat Party.

Mr Korn said there may have been various reasons for the slow response in Vietnam, among them "inertia" stemming from a historically cool relationship between the two countries that viewed each other as competitors.

"But this is different in the case of Myanmar," he said at a recent seminar in Bangkok on new opportunities in Myanmar for Thailand and India.

"The rise of Myanmar will not be a threat but an enormous opportunity for Thai companies."

As well, he said, a richer neighbour would help Thailand to attract larger numbers of tourists.

He noted that France attracts as many as 75 million tourists annually, partly because all of its neighbouring countries are rich, and visitors come not just to see France but to travel to nearby European destinations as well.

The opening up of Myanmar, he said, therefore was not a threat to any industry, be it manufacturing or tourism, but instead an opportunity for value addition.

Other speakers at the event agreed, saying that the changes in the country were irreversible now.

"They are on a path of no return and are too far ahead to go back," said Jean-Pierre Verbiest, the former Thailand country director of the Asian Development Bank and now working for West IndoChina.

His words were echoed by Thai government officials and executives of companies such as PTT Exploration & Production Plc and Yoma Strategic Holdings, a Myanmar-based company that is listed in the Singapore Exchange (SGX).

They noted the vast potential of Myanmar as a country as its geographic size is nearly twice that of Vietnam, with a population of 60 million and vast reserves of natural resources that went untapped during five decades of isolation. Its strategic location between India and China and in Asean is also a very positive point.

Participants acknowledged that the country remains one of the poorest in Asia with a per capita GDP of $744 in 2010, or purchasing power parity estimated at $1,196 in 2009.

Myanmar is the supplier of about 25% of the natural gas that Thailand consumes for its electricity generation. This figure is likely to continue to rise as companies such as PTTEP are looking to raise their production capacity by bidding for new oil and gas fields.

Myanmar's gas production, Mr Verbiest said, was set to double by 2014 and the country has gas reserves for the next 50 years.

Even in the worst-case scenario, he forecast the country's GDP was likely to grow by about 5% a year as it has over the past few years, but if the reform process continues, the growth rate could reach as much as 8-10% annually.

But despite the vast opportunities available to the investors, newly emerging markets such as Myanmar present various pitfalls. The new elected government as a result has to do many things apart from managing its political reform process.

A major overhaul of the macroeconomy is needed in order to address problems of very low official government revenue, high expenditure, and controlled negative real interest rates.

There are other weakness as well, such as the low savings rate, lack of implementation capacity and governance, and an underdeveloped banking and financial system.

The dependence on exports of natural resources and agricultural products to generate foreign exchange revenues is another drawback to the economy.

Poor infrastructure, institutions and the business environment generally are major challenges in Mr Verbiest's view.

However, he believes that by 2030 Myanmar's per capita income will rise to as much as $3,500, and the overall economy will be worth about $250 billion _ nearly a quarter of Thailand's estimated GDP by that time.

But the speakers said that one of the biggest challenges in the near term would be the need to rebuild Myanmar's human capital.

Like China Myanmar has experienced the phenomenon of a "lost generation", deprived of opportunities when the junta shut down universities and other higher education institutions after the 1988 pro-democracy uprising.

"There is a vanished generation in Myanmar and our biggest fear is of losing people as the country did not have universities for 20 years," said Vivek Dhawan, the chief executive of Mega We Care. His pharmaceutical company is based in Thailand but has a large operation in Myanmar where it employs as many as 1,000 people.

This was a concern raised by other executives, who say that although there is enough unskilled labour, the lack of skilled labour continues to be a strain on the system.

Bangkok Post

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