Burma and Cambodia are both developing tourism and textile manufacturing industries which could see competition for foreign investment.
In Burma’s case, “it’s very important that the government is able to maintain its reform momentum” in order to achieve the “vast economic potential,” said the study by Business Monitor International (BMI) which identified textiles, tourism and financial services among promising areas for investors.
Cambodia already has a textile industry, catering to the low-end market, which attracted capital from Hong Kong and Taiwan while Burma was politically and economically isolated. But now that Burma is opening up it is also beginning to attract investors into the sector, said BMI.
“Myanmar’s textile industry, which was once a regional power house, has fallen into disrepair in recent years. With sanctions lifted I really see potential in the garment industry, but once again infrastructure is going to be a major issue as the country still has an extremely low electrification rate as well as a seriously limited transport network,” said analyst Andrew Wood in a BMI podcast with two other regional experts.
“In order to address this we will need to see more efforts from the government in attracting more foreign investment as well as clarifying investment laws and generally fortifying the legal system. As long as there is strong progress in these areas I think that the textiles industry in really set to take off in Myanmar.”
BMI’s Head of Asia Country Risk and Financial Markets, Stuart Allsopp, told the podcast that Cambodia also had a lot of potential to expand its garment industry. Up to now foreign investors have focused on the low end of the production market in Cambodia, but the Phnom Penh government is trying to push the sector up the value chain, he said.
“This would require investment in education to improve the skills levels of the work force,” Allsopp said.
However, there is evidence that some traditional foreign investors in the sector want to leap frog Cambodia and set up businesses in Burma.
The London Financial Times reported in March that 12 Hong Kong-based garment makers had signed letters of intent to open factories in the Thilawa Special Economic Zone now under construction on the outskirts of Rangoon.
“The push to open factories in [Burma] comes as manufacturers with operations in China struggle with rapidly rising wages, mounting difficulties hiring workers and a generally stronger Chinese currency,” reported the Times.
“Many apparel companies have in recent years moved parts of their manufacturing operations from mainland China to countries such as Bangladesh in addition to locations in southeast Asia, such as Cambodia and Vietnam.”
But perhaps the biggest area of competition for foreign investment between Burma and Cambodia is tourism.
Burma has seen a spiraling number of foreign visitors and constantly struggles to provide sufficient accommodation. Tourism is now a significant contributor to the economy but it’s even more important in Cambodia where it accounts for up to 25 percent of gross domestic product (GDP) and is likely to keep rising, said Allsopp.
More foreign airlines fly directly to Cambodia, notably from China but now also Japan, and tourism “will be a dominant factor driving GDP growth,” he said.
Laos poses less of a threat to Burma than Cambodia because its potential lies in attracting foreign investment into hydroelectric developments to supply electricity to China, Vietnam and Thailand, BMI said.
While Burma is showing some reluctance to green-lighting major hydroelectric projects, such as the Myitsone dam on the Irrawaddy River, Laos has 70 dams on the drawing board, said another BMI analyst, Beng Hui Chew.
Hydroelectric schemes are the main drivers of economic growth in Laos, financed by Thailand, China and Vietnam, Beng said, and there seems to be little local opposition to the dams so far.
“Myanmar boasts extremely positive demographics, a massive natural resources endowment and a hugely strategic location,” said Wood. “While Myanmar may have stolen a lot of the spotlight, however, many of the same strengths can be found in neighboring Cambodia and Laos.”
“All [three countries] have some form of de facto or de jure one-party rule, which is often positive for political continuity and policy certainty, but raises questions over the inclusiveness of the political process, as well as the risks to foreign investors of political upheaval,” said BMI.
“[They] remain tiny relative to the global, or even the regional economy, but with corporates and investors increasingly looking to fast-growing frontier markets for growth, they will present promising opportunities across a wide array of sectors including mining, oil and gas, banking, textiles, tourism, and agribusiness.”
source: The Irrawaddy