Myanmar - Hope, Hype and Reality

April 2013 marks the first anniversary of a momentous by-election in Myanmar. Though the election meant little in terms of who really rules the country, it affirmed that the military was at last willing to share power with popularly elected civilians. Aung San Suu Kyi formally took her place in parliament and began her journey as a rock-star politician, receiving numerous accolades. Cast alongside her as a quiet yet dynamic reformer, President Thein Sein pushed through numerous political and economic reforms.

Much has happened since then. Political and business leaders have rushed to visit the country, economic sanctions have been lifted or suspended, debts forgiven, the constitution amended and the media unshackled. These liberalising gestures have been surprising because of their pace and trajectory, adding hope that the government is serious about reform.

With vast untapped natural resources, a large and relatively young population, a geographic position connecting it to India and China, and membership in several large international organisations, including ASEAN and the WTO, Myanmar already has an enviable base from which to grow. We forecast that it could grow at an average 7% a year for the next decade, reducing poverty by half and raising its per capita income to around US$2,500. This assumes it unlocks its energy and natural resource potential, and makes sure the fruits of those industries are circulated to the wider economy.

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Yet many still argue for caution. Decision making in recent months has slowed down as an untrained bureaucracy struggles to keep up with the pace of change. The government’s handling of the country’s ethnic minorities – notably the Kachin and Rohinghya – has earned it a black mark in the court of international public opinion, leading Western governments to vow to monitor events closely while deciding on further economic support and development aid.

Indeed, now that the euphoria has died down, Myanmar’s shortcomings are becoming abundantly clear. Most are the result of the country’s decades-long isolation from global realities as the junta concentrated on maintaining power and eschewed any sort of economic reform or development. A dysfunctional banking sector, conceived over half a century ago and modelled on a Stalinist economic system, could be one of the most serious brakes on Myanmar’s economic recovery. Although the government seems to have stabilized its currency since floating it in April last year, macroeconomic management and market mechanisms are generally weak, the government has little fiscal power and its citizens have limited access to finance. The country’s sagging infrastructure is in need of massive investment. The education and healthcare systems are in a poor state, hampering the development of human capital. Natural resource and commodities dominate the economy, and many other industries are either non-existent or stuck in the dark ages.

Myanmar graph 2


Yet in adversity there are opportunities, some more immediate than others. In the fast lane are tourism, media and telecommunications.

Doors open

With its authentic and unspoilt image, the opening up of new zones and the implementation of investment laws, the tourism sector in Myanmar is poised for rapid growth. The World Travel and Tourism Council (WTTC) estimates that the contribution of the tourism industry to GDP is set to grow at about 5% over the next decade. The number of visitors increased by 30% in 2012, and the same is expected in 2013.

At the moment, Myanmar is largely the preserve of older, wealthier tourists, a large chunk of whom are business travellers. This is due to the high cost of travel—flights and hotels are in short supply and vendors charge accordingly–and the lack of ATM facilities. Room rates have risen 200% over the past two years, with occupancy rates at a jaw-dropping 90%.

As cheaper hotel rooms are added, and the tourism infrastructure develops, this will change – the country can expect more backpackers and families with children. With lush forests, miles of untouched beaches and snowcapped mountains, there is plenty to see and do.

The challenges will be infrastructure, both hard and soft, and whether the untrained bureaucracy can get a firm grip on planning to avoid the sacrifice of its tourist assets to unchecked development, whether that be architectural gems or natural assets such as beaches and forests. Downtown Yangon is the first obvious opportunity—and challenge. There are numerous neoclassical Victorian structures, Art Deco buildings and other colonial era showpieces. Most are abandoned, made relics by a sudden shift of the government headquarters and capital city status to Napitaw in 2005.

Efforts to develop these architectural gems, while integrating them into the urban and cultural soul of the city, could transform Yangon into a beautiful city, peerless in terms of preservation in Southeast Asia, while conserving an important part of the Burmese psyche. Burmese academic Thant Myint-U was recently interviewed by the Wall Street Journal about his preservation efforts. “Right now, Yangon is a colonial treasure with no parallel in Southeast Asia. But Yangon is also on the verge of a construction blitz, where its historic architecture could disappear like a mirage.”

There are currently 11 zones open to tourists in Myanmar—the so-called hotel zones. The government plans to increase the number of hotel rooms by 25% and open more zones, like Mrauk-U, the ancient capital of Rakhine, which is older than Bagan, famed for its temples.

Another opportunity lies in the provision of high-quality hospitality service—but investors will need to be prepared to develop from the ground up. A good example is Sharky’s in Yangon. The boutique food shop sells a range speciality foods, such as cheeses, salt, jams, beef, bread and ham that are made from local products. It embraces the concept of slow food, and taps on the agricultural bounty of the country. The owner, Ye Htut Win, says “I want this to be an experience, for people to come into the shop, spend some time and appreciate the food that we make. It’s all made in Myanmar.” Aside from training his shop staff, Htut Win has had to invest in training farmers, cheesemakers and chefs in order to fill a local talent gap. He has passed on the art of gelato and cheese making, while bringing in others to help with such things as making artisanal Myanmar salt, which he calls Ngapali fleur de sel.

Htut Win sees more room for high quality service. “The food part of this business is not one that can be expanded easily. But the development of talent is something that there is a real need for.”

Entering the 21st century

Myanmar has much work to do to create an environment that will enable private business to flourish, from overhauling the financial system to building roads and other infrastructure. These things will take time. But in at least two important areas there are signs that progress could be rapid. One is media, through which Myanmar’s citizens will learn about the modern world outside their borders—and development within them. The other is telecoms and technology. Both areas are of interest to the numerous fast-moving-consumer-goods firms who have piled into Myanmar over the past year and are in need of channels through which to reach consumers.

Since the government scrapped censorship rules in August 2012 and approved the launch of daily newspapers starting next month traditional print media are expected to blossom. Already there are 15 dailies dedicated to football – the most popular sport in the country – and about 200 weekly publications. A shake-out is expected as the new dailies make most weeklies seem redundant. But a truly free press seems unlikely. The latest iteration of the media law includes restrictions such as reporting on clashes between ethnic groups and writing articles that are critical of the constitution, although pressure from media associations has resulted in the government holding off on passing the legislation.

The government has also left vague media investment laws – it is unclear whether law explicitly bans foreign investment in the printing and distribution of publications. The government has also yet to liberalise government-owned broadcast media. But strong growth in internet media is expected given government efforts to increase connectivity.

A major challenge facing all media outlets will be lack of editorial skills. On average, media groups investing in dailies have doubled the size of their editorial teams. Given that the media profession has been associated with the risk of jail and exile, and the lack of strong journalism schools, there is a huge shortfall of media talent to cope with burgeoning demand.

Another piece to the puzzle is figuring out the logistics of distributing the dailies. Most companies cannot afford their own printing presses, and so there is a demand for independent printers. The same people that are working on the first dailies will likely also see their demise. With high cost pressures, a competitive environment, and increasing internet connectivity, mobile media will eventually dominate.

But that dominance is still some way off. As might be expected, Myanmar’s telecommunications industry currently is the most outdated in ASEAN, with mobile phone penetration rates that are lower than North Korea and costs that are prohibitively high compared to average wages. Sim cards cost US$250 while average annual wages are around US$1,500. The regulatory environment around competition and licensing is still being overhauled but the creation of new telecoms licences has already attracted interest from 91 international firms. The government plans to increase teledensity from 6% currently to 15% by 2015 and aims to raise the number of mobile subscribers to 30m by 2015. Mobile subscription rates have grown by 140% over the past three years.

Whereas once internet connections and mobile phones may have been viewed as luxuries in a poor country, today they are accepted as powerful tools that will speed development. This should be especially true in Myanmar, where literacy rates are high. For example, mobile and internet banking could enable a rapid increase in the number of “banked” citizens. Much of the population has access to only basic healthcare, with healthcare spending at 2% of GDP, half of what Thailand spends. That throws up opportunities for mobile-enabled healthcare education and services. Mobile services could also be used to alleviate problems surrounding water supply, sanitation and rural connectivity. But this will require rising incomes and lower prices for mobile services, and innovation, bravery and the right type of partnerships – with aid groups or local healthcare companies – on the part of the providers.

There will obviously be plenty of opportunity for firms that supply network infrastructure, things like base stations, towers and antennae. Plugging the holes to make the Internet Myanmar-friendly will also require creative solutions, like a standard Unicode for Burmese text.

But companies will need to invest before they can reap profit. Cisco’s first big announcement on Myanmar involved not a huge contract or investment in manufacturing. It concerned its participation in a USAID programme and subsequent announcement that it would set up two technology training centres in the country. For many big companies considering Myanmar, this type of investment is likely to be the rule rather than the exception, at least in the short term.

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