As has been seen across a number of countries in Asia over the last hundred years, political transitions that accommodate economic liberalization are not always in sync with democratization. The political theories for why this is the case are interesting, but less relevant to potential investors in Myanmar who need to ensure their expectations about the form and speed of political reforms are grounded in Myanmar’s political realities. In particular, theongoing ethnic tensions and too=frequent violence that erupts in the country should serve as reminder that, assuming Aung San Suu Kyi wins the Presidential election in 2015, she will be confronted with many of the same internal structural challenges her father also faced.
In addition, and perhaps more important, many of the country’s military who have receded into the background, remain wary over how their personal, political and financial interests are going to be protected as liberalization advances. In other countries that have successfully made this transition, past power brokers were satisfied as they saw their political strangle hold loosen at the same time their economic clout increased. Co-opting these voices internally will be critical if Myanmar is going to make it through the 2015 elections and beyond, a possibility made more likely if the military can come to clearly understand how they stand to benefit as the economy grows.
Given Myanmar’s geographic position, it also must manage the expectations of America, China, India and Japan. Each country has their reason to court Myanmar. America and Japan view Myanmar as a potential regional counter-balance to China. China wants access to Myanmar’s natural resources and equally wants to ensure internal political stability so Beijing can protect a key oil and gas pipeline that passes through Myanmar (this particular project being one of the highest visibility Chinese projects in Myanmar, but certainly not the only one). India similarly sees Myanmar through both economic and political terms: economic in that Myanmar offers a potential route to a port city that would allow India to economically develop one of its poorer regions, politically because like America and Japan, India sees Myanmar as a player that can be leveraged against China. To the great good fortune of Myanmar, each of these countries have a vested interest in the country staying open to foreigners, in ongoing reforms, improved connectivity to the outside world, and stability. Myanmar’s legacy of relative independence from deep intertwined relationships and commitments to foreign powers should also serve the country well as it encounters each of these global powers and their own agendas.
These factors, along with the country’s under-developed Foreign Direct Investment (FDI) law, have thus far kept FDI at levels slightly below initial expectations. In 2013, FDI into Myanmar was roughly $3.5 billion. Some anticipate that even with the uncertainties surrounding the 2015 election, that number will double in 2014. Much of this FDI is going into basic infrastructure, a necessary expenditure that will take some time to come on line. As such, some of the manufacturing and related export sectors may struggle to take shape over the next 12-18 months, simply because roads and electricity remain problems that prevent aggressive manufacturing led economic growth. Similar problems have long plagued Vietnam, and been a small part of why some of the economic renaissance there has come short of early expectations. In Myanmar, financial liberalization remains an area in need of work with profound limitations in the sort of transactions they are capable of handling, including securitizing new projects.
Foreign companies remain cautiously optimistic about Myanmar’s potential, in large part because of at least three things: its abundant natural resources, its pre-junta legacy informed by British political institutions which have shaped the country’s legal system, and a unique appetite for – and pursuit of – education across the country. In my next column on Myanmar I am going to focus on the question of how the country’s healthcare sector is developing, with a particular eye on the opportunities and challenges multinationals are encountering as they work to develop market access strategies specific to Myanmar’s hopeful middle class.