Burma: Asia's last frontier is opening up

 
Burma

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.

Playing 'catch-up'
Shwedagon Pagoda in Rangoon The Shwedagon Pagoda dominates the Rangoon skyline

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.

Social stability

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.

 
Linda Yueh Article written by Linda Yueh Linda Yueh Chief business correspondent

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  • rate this
    0

    Comment number 57.

    Interesting article about the rising cost of Chinese labour. Has the lion roared too early for the masses have tasted the good life and want more. They now move from a great powerhouse to an open market for the west. As stated in the past they need double digit growth just to stand still however this looks like not happening so what happens next will be very interesting!!!!!

  • rate this
    0

    Comment number 56.

    Beware investing in any country that is not a true democracy. The wheels can come off very quickly....

  • rate this
    0

    Comment number 55.

    17.powermeerkat - ".......Just like McDonalds and KFCs have not destroyed French, Italian and Polish cuisine....."


    Whilst simultaneously being respinsible for making vast swathes of the population of those countries nearly as obscenely obese as the avergae American is these days........

  • rate this
    -2

    Comment number 54.

    Suddenly Burma has become a democracy, we don't see regular attack on Burmese "military junta" on BBC and CNN, while they are still at the helm. As long as west can exploit resources, military junta can happily take their share of it and enjoy. Long live "democracy".

  • rate this
    +2

    Comment number 53.

    "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."

    The Burmese people may like to see how well economies in the rest of the world are doing with these foreign banks.

  • rate this
    +2

    Comment number 52.

    Didn't the Burma govt kicked out China and many Chinese investments for over $$$$$$$$$$$$$$$$20bln in USD fake money just to suck up to Obama and for Coke, Big Mac and KFC.

    They are doomed to repeat the errors of false pride and running back to the old colonial masters.

  • rate this
    +1

    Comment number 51.

    @comment...2.RememberTS

    She will sell out the people and give back the land to the UK old masters.

    Her masters are waiting.

  • rate this
    0

    Comment number 50.

    #2 rememberTS

    " Get rid of the army, get in the leader everyone wants--and she can lead Burma..."

    --She loves the Burmese army --her father formed it --has even said it herself.

  • rate this
    0

    Comment number 49.

    Asia's last frontier Linda? What about North Korea?

  • rate this
    0

    Comment number 48.

    I was reading an article a few months ago looking at the prospect of 200 billion dollars worth of LNG in Mozambique waters. Profit to Mozambique after the investment costs? 5 billion dollars.

    What wasn't mentioned was the profit to the businesses "investing". That would have been an interesting comparison.

    It would be nice to see an article that reviews the value of resources to host nations.

  • rate this
    +3

    Comment number 47.

    Witness the shabby stampede of big business on its way to loot one of the last unexploited countries. Let's hope the Burmese hoof out this sorry bunch. Sadly, the Burmese government is probably in bed with them already.

  • rate this
    +2

    Comment number 46.

    By the time locals may see any benefits in terms of money, then education and awareness, the country will be looted by outsiders who bought all that could be and extracted, sold off resources leaving nothing. Rich company heads, wealthy ruling elites who took as much as they could. What will be left for the average Burmese, nothing as was foretold. Not yet, but a matter of time. its in progress.

  • rate this
    +1

    Comment number 45.

    Fundemental global economics.

    Lesson one ~ Because governments continue to insist on guaranteeing bank deposits, there is no logical excuse to prevent each depositor being a bank.

    Your essay please on overhauling bank sort codes?
    Your theseis please on political moral jeopardy and banking.

  • rate this
    +2

    Comment number 44.

    Linda,
    I think you need to brush up on the history of Burma during the last 60 years, it's unsettling reading.
    As for exploitation its the same old same old, corrupt politicians and local leaders all along the way.
    Society needs to find an equitable answer to the distribution of wealth from natural resources (some hope, but I can dream).

  • Comment number 43.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 42.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • rate this
    +1

    Comment number 41.

    Burma is one of military buffer zones between regime China & rest of world, similar to Tibet, North Korea

    As demonstrated in China, capitalism can thrive hand in hand with brutal regime. Horrors of the factory producing goods for very low wages easily controlled, made profitable by dictatorship.

    I doubt that military rulers have gone away. Just pretending & looking forward to all that money.

  • rate this
    +4

    Comment number 40.

    #32 United Dreamer - sadly I can't see it happening either. I never cease to be disappointed & disgusted in equal measure how capitalist multinationals and brutal corrupt dictatorship regimes make such happy bedfellows!

  • rate this
    -1

    Comment number 39.

    38 further ~ The advanced West, particularly the Calvinist EU hearland has fostered fiscality as the new religion although the ethos of bulanced badgets is not explained in any way other than being the primordial objective.

    Fiscal policy is about profit and who provides it, presented in terms of your pension. It actually is about is lazy profligate big business and war on the middle classes.

  • rate this
    +1

    Comment number 38.

    The answer of course is education of the masses but this so often follows cultural, political and religious bent. So.... the first economic objective is commercial education. Rather like putting a gun to kids heads unless of course they are enlightened with philosophy. N'est ce pas?

 

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