Geopolitically, the country is at the crossroads of China in the east, South Asia - India, Bangladesh - in the west, and Southeast Asia - Laos, Thailand, Cambodia - in the south.
Before her first visit to Myanmar late last week, Christine Lagarde, Managing Director of the International Monetary Fund, noted that Myanmar is "undergoing a great awakening to countless possibilities."
Historically, international multilateral organizations, which are dominated by the major advanced economies, favor reforms that emulate their interests. As a potential emerging economy, Myanmar must engage in reforms that improve the living standards of its people.
Since taking office, Myanmar President U Thein Sein has introduced a slate of reforms and significantly improved Myanmar's ties with Washington and European countries, which has unleashed a rapid inflow of Western trade and investment.
Economically, Myanmar lost half a century of progress, due to its geopolitical insulation. In the 1960s, it was still a major rice exporter, with average prosperity 10 percent higher than in China, as measured by GDP per capita. By the onset of the global crisis of 2008, the same figure was only 45 percent of its counterpart in China.
In 2012/13, Myanmar's economy grew by 6.3 percent. Fueled by increased gas production, services, construction, foreign investment and strong commodity exports, it is on track to grow 6.9 percent in the medium term.
Externally, risks to Myanmar's outlook include a decline in commodity prices, a potential slowdown in Chinese growth, slower recovery in the US, the eurozone crisis and adverse developments in Japan.
Between 1988 and September 2012, Chinese companies invested $14.2 billion in Myanmar, accounting for about a third of the approved total of $43.7 billion. These investments focus on hydropower dams, mining projects, oil and gas. In contrast, Japanese investment was only $257 million, and from the US there was barely $243 million.
Despite the recent influx of Western money, China remains Myanmar's largest foreign investor. But not all major projects have been smooth. In 2011, Thein Sein suspended work on the Myitsone Dam on the Irrawaddy River following widespread protests.
While the project is funded by six countries, the China National Petroleum Corporation accounts for 51 percent of the investment. Although China has built new schools and clinics worth over $20 million in development aid along the pipeline, it has been criticized for assertiveness in the West.
In reality, such arguments may apply even better to Western interests, which in the postwar era resorted to regime change in the Middle East, Latin America and elsewhere to ensure access to energy resources.
Today, both Washington and Tokyo are intensifying their respective investment drives in Myanmar. Japan has agreed to cancel nearly $2 billion in debt and pledged $900 million to support a new foreign assistance program. India also has its own interests in the region.
In turn, Chinese investors should adopt a patient, long-term view of Myanmar and the country's economic development.
As it seeks to diversify its foreign trade and investment, Nay Pyi Taw is engaged in a delicate balancing act between Chinese and Western capital. To truly succeed, it must find ways to protect both its old and new investors. In the long run, the optimal way for Myanmar to attract all investors, irrespective of their country of origin, is to bolster its business environment, fight corruption and foster competitiveness.
Currently, the country is far behind its peer nations in Southeast Asia. What matters, however, is its ability and willingness to catch up with those peers.
Myanmar has few options but to use its energy resources to attract foreign investment, which could support its catch-up growth and boost its own infrastructure. The challenge will be to use these resources to diversify the country's nascent industrial structure. In the absence of adequate industrial diversification, growth will remain narrow and vulnerable - as evidenced by Russia and Nigeria, for example.
In Myanmar, economic development has great potential for fast catch-up growth. That potential can only be harvested with foreign investment, which Myanmar will need for several decades to come.
The author is the research director of international business at the India, China and America Institute in the US and a visiting fellow at the Shanghai Institutes for International Studies (China) and EU Centre (Singapore). opinion@globaltimes.com.cn
source: Global Times
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