In 2013, Coca-Cola became one of the first US firms to invest in Myanmar (also known as Burma) after economic sanctions against the country, once governed by one of the world’s most authoritarian military regimes were suspended.
Coca-Cola’s investment reflected the wealth of opportunity provided by Myanmar’s emergence from isolation. Following the historic 2015 elections that brought Aung San Suu Kyi’s National League for Democracy (NLD) to power, Myanmar has seen a flood of investment, as the country seeks to liberalize its economy. According to the World Bank, Myanmar’s economy grew at 6.8 percent in 2017/18, and is expected to remain steady through 2021, which is underpinned by government policies whose stated aim is to attract foreign direct investment. However, despite this initial surge of investment, and strong growth numbers, ongoing human rights abuses, internal conflicts, corruption and weak governing institutions has sidelined western foreign direct investment.
Myanmar given its geographically strategic location near India, China, Thailand and Indonesia - and its young demographics – median age of 27, is an attractive opportunity for emerging market investors, particularly from China and other neighboring States. China is Myanmar’s top international investor and largest trading partner – investing $14 billion USD, accounting for one third of all foreign investment in the country. China’s investment in the country centers around power, oil and gas and mining. China views Myanmar as key in diversifying its energy imports and allowing the Chinese with alternate access to the Indian Ocean, so it doesn’t have to be reliant upon the Straits of Malacca, which remains vulnerable to outside influence.
The investment opportunity in Myanmar lies in its relative lack of development. It remains one of the least developed economies In Asia. This is a source of frustration for some investors, increasing their investment risks and costs. However, in frustration there also lies opportunity, particularly in the infrastructure sector.
U Aung Htun, managing director of Myanmar Investments International, highlighted the opportunities in this sector: “…there is a market where every type of infrastructure needs to be improved…power and transport are important as well as financial, medical and educational infrastructure…trade facilities, interbank lending and liquidity in the stock market are all required to make things work.”
Indeed, many foreign companies have begun to invest in projects related to Myanmar’s infrastructure, and the telecommunications sector has been the main recipient of this influx of cash. In 2010, SIM cards were only available on the country’s black market for as much as $1,500, a price far out of reach in a country where the annual income per capita is $1,140 USD.
Following a $2 billion deal agreed between the state-run provider, Myanmar Posts and Telecommunications (MPT), and two Japanese firms, KDDI and Sumitomo, to develop Myanmar's telecommunications infrastructure, the price of SIM cards dropped to $1.50 USD, leading to a huge expansion of mobile access and usage – 50 million SIM cards were recorded in April 2017, when the government began enforcing registration. Nevertheless, to support this huge growth in users, existing physical infrastructure must continue be improved. In 2014, the International Finance Corporation calculated that the government’s target coverage of 70 percent would require the erection of 17,300 telecoms towers, when only hundreds existed. Current estimates suggest that 14,500 have been built, though these towers are still primarily located in urban centers like Yangon and full coverage would require as many as 8,000 new sites. U.S. firms like TPG Capital have recently begun to take advantage of these gaps in infrastructure, backing the merger of Apollo Towers Myanmar Limited with Pan Asia Majestic Eagle Limited. According to Bloomberg, TPG plans to become the majority shareholder of the combined entity, which would encompass more than 3,000 towers and an enterprise value of $700 million.
Despite the wealth of opportunities for investment, businesses face systematic challenges with ongoing human rights abuses and poor governance, which has seen investment and tourism particularly from Western countries drop significantly in the past year. FDI in the first four months of Myanmar’s 2018 fiscal year, reached just $1.34 billion, down from $3.14 billion during the same period a year before. The ongoing ethnic conflict in the country’s northern Rakhine state threatens to derail the economic growth and political liberalization that began with the first free elections in 2015. A UN report in September 2018 accuses Myanmar’s military leaders of carrying out genocide, and crimes against humanity targeting the minority Rohingya Muslims, which led to 740,000 Rohingya’s fleeing to Bangladesh. In addition, according to a recent report by Amnesty international, the Myanmar military’s push to quell the Arakan Army, which is one of several insurgent groups fighting the government forces, has seen “the Myanmar military committing horrific abuses against ethnic groups in Rakhine State.”
These same issues, which cause concern among Western investors will likely decline prospects of investing in the country over time, hence Myanmar will probably pivot towards China, Thailand, and other investors based in the region. Already, Starbucks which had planned to open 20 coffee shops in the country with an initial investment of $6 million has put its plans on hold over deteriorating human rights situation. In addition, the country’s nascent government, which remains unstable, will struggle to implement institutional reform and develop infrastructural support, frustrating daily commercial operations and increasing the risks to foreign investors.
Though as western governments push Myanmar on human rights abuses, and target military leaders, broad economic sanctions are not expected. According to U.S. Ambassador Scot Marciel, the U.S. government remains committed to supporting private sector growth in Myanmar. Through the Overseas Private Investment Corporation (OPIC) – the development finance institution of the US government, OPIC has committed $280 million to support inclusive private sector growth.
While there are risks associated with investing in any emerging market, and Myanmar is no different, these risks can be mitigated through thorough market research, comprehensive due diligence investigations, the identification of capable local partners, and a close understanding of the country’s political situation and trajectory, and its stakeholders. Investors looking to enter Myanmar will have to weigh all this, as well as strongly consider potential repercussions of public sentiment given ongoing human rights concerns.