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Myanmar loosening its long-time grip on the economy

A bank employee counts Myanmar kyat banknotes: More than two decades of isolation and poor government have left Myanmar the poorest country in Asia besides Afghanistan.


Soe Myint is making his pitch to a hotel ballroom full of representatives of foreign energy companies – come to Myanmar, he's telling them, we need your help – when one of Rangoon's regular power outages intervenes to make his point.

"Can you still hear me?" the diminutive bureaucrat-turned-private-consultant shouts into his dead microphone. A dark room full of faces lit by their laptop screens nods at him to keep talking.

"Please be brave enough, take some risks," Mr. Soe Myint continues as a backup generator roars and the lights slowly come back on at the Myanmar Oil, Gas and Power Summit. He lists off the changes he says the government of President Thein Sein will soon introduce: a new political system, free market economics, a new foreign investment law, easier visa rules – essentially, an overhaul of the country. "Don't just wait and see. Please come to Myanmar. Come grow with us."

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Blackouts aside, it has been decades since there was this much excitement about the opportunities provided by the country better known as Burma. A year of rapid political changes, capped by last week's celebrated by-elections that saw Nobel Peace Prize-winning dissident Aung San Suu Kyi win a seat in parliament (albeit a parliament still controlled by the military and its allies), has the international community preparing to drop some of the economic sanctions imposed against the long-time pariah state.

U.S. Secretary of State Hillary Clinton said Wednesday that the United States would soon appoint its first ambassador to Myanmar since 1990, when diplomatic ties were downgraded following the junta's refusal to honour a sweeping election win by Ms. Suu Kyi and her National League for Democracy. Ms. Clinton said the United States Agency for International Development will also open an office inside Myanmar, and restrictions will be lifted on non-governmental organizations working in areas such as health, education and the environment. A review of some of the tough economic sanctions in place is expected to follow.

The European Union is expected to take similar steps following an annual review of Myanmar policy that's scheduled for later this month. Canada has thus far been less enthusiastic in its assessments of what's happening, but there's debate in Ottawa too about whether there is still need or justification for some of its sanctions, which currently prohibit all trade and investment between Canada and Myanmar. The oldest sanctions have been in place since the military crushed peaceful pro-democracy protests in 1988. They were tightened again after troops fired on a monk-led uprising in 2007.

If the sanctions do start to come off, expect a rush of foreign money and companies into this country that has both abundant natural resources and a low-wage work force that speaks better English than competitors in China and Vietnam. The International Monetary Fund recently predicted Myanmar could achieve 6-per-cent growth in 2012-2013 if it pressed ahead with planned reforms.

"I think there's going to be massive interest. It used to be the pearl of Southeast Asia," said Ken Courtis, an investment banker who met with both Mr. Thein Sein and Ms. Suu Kyi on a recent visit to Myanmar. "The Proctor and Gambles of the world, the Unilevers, will all want to get in there. The issue will be whether they let just any [foreign investors]in, or whether you have to have a local partner."

The details are still being worked on, but the government has sent strong signals that it now considers foreign investment desirable and has begun loosening its long-time grip on the economy. In the past week alone, it allowed the country's currency, the kyat, to be traded on currency markets for the first time (though at a managed rate), cut the commercial tax rate in half to 5 per cent, and said it will allow foreign banks – and the country's first credit cards – to enter the country in the months ahead.

"At the moment, the opportunities in Myanmar are similar to what China offered in the late 1980s and 1990s," said Michael Aldrich, a managing partner of the international law firm Hogan Lovells. He was one of the 330 attendees from 35 countries at the energy summit held at Rangoon's Traders Hotel. "There are very large, Fortune 500 companies that are very mindful of the sanctions. But there's no sanctions on acquiring information about the market. … Their expectation is the sanctions are going to change."

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Mr. Thein Sein's government says it wants foreign companies to help build up the country's patchwork transportation and telecommunications infrastructure, and assist in developing recently discovered gas deposits. It dreams of luring labour-intensive textile factories away from other parts of Asia.

The government is also looking to foreign investors to modernize the country's agriculture industry, which now sees many farmers reliant on oxen-pulled carts. Burma, as it was then known, was the world's biggest rice producer before the military seized power in 1962.

Tourism is another industry that seems poised for rapid growth. The changes over the past year have already encouraged many European tour groups to break the informal travel blockade that was in place while Ms. Suu Kyi was under house arrest for most of the past two decades. Every hotel in Rangoon was at full occupancy last week, sending once-modest room rates skyward. It's easy to see a boom in travel to a country that offers many of the same attractions – Buddhist temples, pristine beaches and healthy cuisine – as neighbouring Thailand, only with an added sense of adventure.

But even if some sanctions are lifted and there are no political setbacks, Myanmar will still be a challenging place to invest. More than two decades of isolation and poor government have left Myanmar the poorest country in Asia besides Afghanistan.

Corruption is the biggest problem, with Myanmar consistently ranking near the bottom of Transparency International's annual list of places to do business. For decades the country's military rulers have pillaged the country's natural resources, and the political changes seem likely to leave the generals and their cronies in control of most of the key industries. "Myanamar's economic future: South Korea or Nigeria?" the semi-independent Myanmar Times newspaper asked last week.

The health and education systems are in tatters, and anyone with money sends their relatives abroad for schools and hospitals. The roads are potholed messes, even between major cities like Rangoon, Mandalay and the capital Naypyidaw. Having a mobile phone conversation usually takes several tries, and Internet speeds – where there's a connection at all – are easily the worst in the region. Electricity, as the would-be investors at the Traders Hotel discovered, is an occasional luxury. Rangoon lacks a modern sewage system and the tap water is undrinkable.

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And despite the sweeping changes at the top, the bureaucracy has been slow to adapt. An order given by one department often needs to be faxed from one office to the next in Naypyidaw to acquire all the needed signatures and stamps. The result can be a long wait between the approval of something like a visa for a foreign national and that visa actually being issued by the relevant embassy abroad.

"It's no longer about whether there's political will to change, to reform. It's now skill and technical knowledge and know-how that's missing," said Daniel Gelfer, a former Canadian diplomat now working as an independent consultant based in Rangoon. "They don't know how to design economic policy, they don't know how to design fiscal policy, they don't know how to attract investment."

But, for the first time in decades, Myanmar's rulers say they understand the country's problems and want to change. "Our staff and our employees are qualified, but the system is not ready. We don't use modern things like the Internet," said Tint Zaw, a member of the international relations committee of the ruling Union Solidarity and Development Party. "We are going to change this system and lessen the bureaucracy."

Many foreign governments, however, are likely to be skeptical of such reassurances and to wait for Ms. Suu Kyi's judgment on when the time is right to life the restrictions on trade and investment. The National League for Democracy has thus far taken a wait-and-see approach, imploring its allies in the international community not to reward the generals too early, before the reform process is complete.

"An election alone will not change the country," Ms. Suu Kyi said at a press conference before last Sunday's vote. "If we achieve our aims, I think we can say the investment climate will be much, much healthier."

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About the Author
Senior International Correspondent

Mark MacKinnon is currently based in London, where he is The Globe and Mail's Senior International Correspondent. In that posting he has reported on the Syrian refugee crisis, the rise of Islamic State, the war in eastern Ukraine and Scotland's independence referendum.Mark recently spent five years as the newspaper's Beijing correspondent. More

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