Burma: Asia's last frontier is opening up
- 2 June 2013
- From the section Business
Investors call the country the "final frontier". The Star Trek reference aside, there is a sense of the yet-to-be-explored about Burma.
It is the last large Asian economy to become globally connected.
A country about the size of Britain and France in population, endowed in natural resources, and situated in the fastest growing region of the world, is opening up.
It's no wonder that firms ranging from Visa to Starbucks are hankering to gain access.
The statistics tell the story: only about 10% of the population have a bank account. Since opening up in the past two years, 28 foreign banks have set up representative offices in Burma.
Strikingly, only 6% of the population have access to a mobile device. The government is auctioning licenses to raise it to 80% by 2016. That type of growth rate in three years unsurprisingly attracted a significant number of bids including one from billionaire George Soros.
But it is what investors call a frontier market - a riskier place to do business than emerging economies, which are developing countries with demonstrated growth potential.
That's why it's perhaps unsurprising that the world's largest mobile companies, Vodafone and China Mobile, have pulled out of bidding for a telecoms licence.
After decades of military rule, Burma is under-developed and is the poorest country in Asia. But, with the right types of reforms - which aren't assured - it also means that it has significant potential to grow quickly.
And being sizeable, unlike many smaller countries in developing Asia, Burma can grow relying on its own market as well as exports.
This explains the interest of multinational corporations who eye an under-served market. Plus, it is endowed with natural resources such as oil, gas and minerals.
Thus, Burma is one of the countries that can attract foreign investment for all three reasons that typically motivate multinational companies: resources, lower costs, and markets.
About 70% of the population are employed in the agriculture and resources sectors, which account for over half of the country's economic output. It means that there is a lot of scope to industrialise, which can launch a country into a rapid growth phase as it "catches up".
The East Asian "miracle" economies of South Korea, Taiwan, Singapore and Hong Kong all did it before. They enacted targeted reforms to integrate into regional production and supply chains that allowed them to industrialise through plugging into worldwide manufacturing.
State-directed credit also helped to avoid specialisation in less desirable areas such as primary products.
For Burma, plugging into regional production chains that produce significant swathes of the world's consumer electronics will be key. Otherwise it risks specialising in resources and being crowded out by more competitive foreign firms.
It is in the right region to exploit that potential, since about half of the world's consumer electronics are produced in Asia.
Burma has the potential to grow in a diversified manner and could grow rapidly if it industrialises successfully. But the bumpier road of some of its South East Asian neighbours suggest that success cannot be taken for granted.
And it will depend on government policies, including in the crucial area of social stability.
The East Asian tigers had also enacted land reform and other forms of redistribution that allowed their growth to be accompanied by greater equity. By contrast, China's lack of such policies contributes to it having levels of inequality that have been described as causing worrying levels of social resentment.
It is an issue that the world's most populous country is contending with, which is leeway that may not be available for smaller nations.
With pacing and sequencing of reforms, including managing globalisation and the social aspects of development, the once-bright economy in South East Asia can again re-emerge and take its place in the fastest growing region in the world.