The Americans are lifting their long-standing sanctions on doing business in Myanmar, opening the floodgates for new business opportunities.
By Tan Zhi Xin
During a recent meeting with de facto leader Aung San Suu Kyi, President Barack Obama has pledged to lift the remaining sanctions and restore long-lost trade benefits to Myanmar. This long-awaited gesture is hugely significant – it symbolises the acceptance of Myanmar as a member of the international community.
Although trade restrictions have been gradually eased over the last few years, bans on doing business with about 111 Myanmar companies and individuals who have ties to the former military regime, and the import of jade and rubies remained. The lifting of these last sets of limitations is expected to herald a new era for Myanmar; one that will be characterised by an influx of business.
Right now, Myanmar has an untapped economy. It is rich in natural resources and has an abundance of relatively cheap labour, but only a handful of U.S companies are making deals there. This is because of the high costs associated with sanctions so their removal would allow them to compete on a level playing field with other companies fo the first time.
It seems clear that the new move will attract more foreign direct investment to Myanmar. And at the same time, the restoration of trade benefits, such as lower import tariffs will fuel a boom in Myanmar’s export-oriented manufacturing sector. Specifically, improvement should be expected in the export of garments and textiles. More jobs will be created in the process and the standard of living will improve.
Unfortunately, these expectations are not certain. And they are not likely to materialise quickly thanks to Myanmar’s largely weak infrastructure, shortage of skilled labour, and domestic political situation.
A “gold rush of interest”, not a “gold rush of investment.”
Erin Murphy, founder of Inle Advisory Group described Myanmar as experiencing a “gold rush of interests” by U.S companies instead of a “gold rush of investment”. He was not wrong. Even with the lifting of sanctions, Myanmar continues to be a challenging environment to do business; at least in the near future.
Although Myanmar has a considerable comparative advantage because of its natural assets it is unable to realise its full potential due to its underdeveloped telecom and logistics infrastructures. Roads and railroads are scarce, let alone quality ones. An electricity supply is also not guaranteed, even in the capital Naypyidaw. It is therefore not purely sarcasm when Murphy joked that “if you don’t require electricity or water, your company can do well”. It is a serious problem.
Furthermore, the country lacks a pool of skilled labour. While most of the population hold a post-secondary certificate, many of the young people are still unprepared for positions that require particular qualifications. As such, many potential investors would be reluctant to set up businesses since they have to either bring in their talent from overseas or cultivate local training. Either way, extra costs would be incurred, and this is undesirable when the country’s initial appeal is its low cost of production and operation. Why would they spend such huge amount of money in Myanmar when they could invest in other countries that will yield a greater profit?
The financial sector in Myanmar is also extremely underdeveloped. Apart from the lack of capital, the Organisation for Economic Cooperation and Development (OECD) also highlights poor trade facilitation and high customs-related fees. Sit this alongside cumbersome licensing and permits and you see the main problems hampering foreign investments.
Meanwhile, the uncertain legal environment is also holding back progress. While the government is working on streamlining investment laws many sectors still lack adequate regulations that would safeguard business interests – a hitch that readily deters potential investments.
Last but not least, one of the main reasons for the mixed reaction towards America’s decision to lift sanctions is that the fear that it will slip Myanmar into a period of political instability. While there is currently a civilian government, the military still holds lots of power. The lifting of sanctions might further empower the military by making it easier for them to make money. This means they could become powerful again, and more determined than ever to make a political comeback in 2020. It is also worth remembering that lifting the ban on trading in jades and rubies could lead to ethnic tensions. A forceful attempt by the majority Barman to extract the resources could result in ethnic conflicts.
This means they could become powerful again, and more determined than ever to make a political comeback in 2020. It is also worth remembering that lifting the ban on trading in jades and rubies could lead to ethnic tensions. A forceful attempt by the majority Barman to extract the resources could result in ethnic conflicts.
Increase but not influx
But fortunately, every cloud has a silver lining. Although an influx of business in the near future is unlikely, Myanmar can still expect a gradual increase in investments, albeit at a slow rate.
The U.S’ pledge to lift the remaining sanctions is more than an economic decision. It is a well-thought-out political strategy to strengthen its “pivot to Asia” in the power struggle vis-à-vis China. China has long seen Southeast Asia as its traditional backyard and has been the largest trading partner of Myanmar, despite the alliance being nothing more than a marriage of necessity.
“If U.S. companies don’t come here, then I’ll have to work with Chinese companies who will monopolise the economy,” said Khin Shwe. “We won’t have a choice” he added. And the U.S will not let its efforts go down the drain. In that sense, there will be pressure to gradually channel more investments to Myanmar because otherwise, Myanmar can only turn to China.
Meanwhile, the combination of a nascent democracy and a power-thirsty military means that the current civilian government will work hard to create a business-friendly environment. This is because it is aware that economic success is perhaps the easiest way to prove to the people that democracy is the “right” way for Myanmar, cementing its legitimacy and authority in the country. Until then, all we can expect is slow and sluggish progress.