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Economy

Three years on, Myanmar is a country on the rise

Much has happened in Myanmar since early 2012, when the country started to re-engage with the international community after a long period of isolation. Multinationals such as Coca-Cola, Ford, Samsung and Unilever have since entered the country in anticipation of a growing consumer market. Their continuing enthusiasm suggests that claims by some observers that Myanmar is "backsliding" are overblown and based overwhelmingly on political developments.

     On the economic front, reforms are continuing at a rapid pace, and the economy is expected to accelerate in the medium term as restrictions on foreign direct investment are eased. Gross domestic product is expected to grow by 7.8% in both 2014-15 and 2015-16, according to the Asian Development Bank.

Plenty to praise

During the past three years, the government has made great efforts to welcome international investors, while also navigating the concerns of the local business community, which has sometimes been reluctant to accept free-market competition. Senior officials are also taking a pragmatic approach to growth in key business sectors, such as telecommunications, energy, and financial services, with a certain degree of success. The challenge for foreign investors lies in distinguishing reality from hyperbole. This is essential for a sound business strategy in Myanmar, at a time when economic reforms implemented earlier are bearing some fruit.

     There is also a growing realization among foreign investors of the need to take into account the concerns of local businesses. The International Finance Corporation, the arm of the World Bank that works with the private sector, and the Union of Myanmar Federation of Chambers of Commerce and Industry, the country's key business association, are working to bring foreign and local businesses together with the government in the Myanmar Business Forum. Modeled on the Vietnam Business Forum, the forum aims to promote cooperation in areas of common interest, although as yet, it is only a work in progress.

     Businesses are becoming more familiar with the levels of bureaucracy in Myanmar and the difficulties involved in carrying out simple functions such as the monthly payment of salary taxes. (Onerous penalties are handed down for minor errors in filing company documents.) Three years on, remitting funds into Myanmar from offshore is still difficult, although businesses are working around this. Singapore is used as the primary conduit for international remittances. However, international banks are still generally reluctant to deal with individuals in Myanmar, and businesspeople arriving in the country sometimes find that their previous banking relationships have been terminated.

     There is no interbank clearing in Myanmar, which means that simple transactions such as transfers between two domestic banks can often take up to half a day to process. Some progress has been made in relation to the number of ATMs visible on the streets of Yangon, which has ballooned over the past two years. This is good to see -- although not all the ATMs work all the time, due to power shortages and a general lack of Internet capacity.

     There has also been significant legislative reform. A foreign investment law, passed in 2012, and a new telecommunications law, passed in late 2013, have facilitated the entry of substantial amounts of foreign investment in many sectors, including the rollout by Norway's Telenor and Qatar Telecom's Ooredoo of two new mobile networks. Further reforms are likely to follow in the current session of parliament. An arbitration law and a new financial services law are on the list for debate, and there are likely to be further economic liberalization measures.

     The widely watched bidding process in 2013 for two mobile telecommunications licenses is generally considered to have been run in accordance with international standards, and has been replicated to a certain degree in such areas as the recent foreign bank licensing process. This is a positive sign, and these successful bidding processes will provide a blueprint for other industry sectors where there is potential to liberalize, including the insurance sector. Foreign companies are expected to be invited to apply for licenses this year, initially for limited operations in a special economic zone.

     Both the telecoms and the bank licensing processes were subject to considerable lobbying from the local business community, which is understandably concerned that international gorillas will muscle out local players, possibly forever. These concerns may explain the slow pace of liberalization in the power sector -- such as awarding licenses to foreign independent power producers -- where we are only now starting to see real progress.

     Oil and gas, the only sector in which the international business community was heavily involved before 2012, has proceeded reasonably well, with a recent issue of licenses to foreign bidders for both onshore and offshore blocks. Much remains to be done, however, and new production will not be on tap until around 2020. In the longer term, investment in oil and gas will bring much needed revenue, providing funding for a number of significant projects intended to raise people's living standards.

     Any overall judgment on developments in Myanmar over the last three years would have to be positive. Some substantial projects are underway, the growing number of new businesses on the ground is palpable and fresh momentum is obvious. Unsurprisingly, there has been some grumbling from those who want reform to move faster, but these complaints need to be put into perspective. Myanmar has only recently emerged into the international business community after decades of isolation, and it will take time for things to work out. The country will also have to negotiate the outcome of parliamentary elections due in late 2015. Whichever party wins, it is important that political tensions do not derail Myanmar's successful but incomplete reform program.

Simon Makinson is chairman of the ASEAN group at Allen & Overy, and he also heads the law firm's Myanmar practice.

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