Myanmar has opened its doors to investors, but they must take their risks to reap rewards
MYANMAR may be Asia's last frontier, an important missing link in a globalised roadmap. It presents investors a conundrum no less challenging than the China of old before trade liberalisation kicked in.
Momentum is on its side. Myanmar enacted a new foreign investment law on Nov 2 and recently received the honour of being the first stop of a regional tour by US President Barack Obama. The country is building a special economic zone outside its former capital Yangon - touted as the largest in Southeast Asia - which is slated for completion in 2015. It is also opening its arms to embrace foreign investors.
Myanmar's man in charge of screening foreign investment, Aung Naing Oo, director-general of the Myanmar Investment Commission, underscored the country's determination to return to the global trade system in a forum in Hong Kong yesterday by stressing that investors will be able to own 100 per cent of operations, with very few exceptions such as in agriculture.
He quickly ticked off a long list of new incentives made possible by the new foreign investment law. Foreigners can now lease land for 50 years - and up to 70 years through two extensions of 10 years each. Tax holidays are granted for five years to all investments, with export tax rebates available to foreign manufacturers and more tax holidays promised through a new law governing special economic zones. The minimal capital commitment from foreign investors - US$500,000 in manufacturing and US$300,000 for services - can be reduced in future.
On the ground, however, investors see the country's less alluring side: patchy infrastructure from banking to power to transport. "It's like China 20 years ago," says Francis K Liu, managing director of Guangdong (International) Capital Ltd, which invests in Myanmar through its partner, Singapore-listed Yoma Strategic Holding.
Till recently, private banks and companies could not handle foreign currency. Credit card payment, through Mastercard, has just been introduced. Power outage is a fact of life, occurring regularly once or twice a week. Banks do not provide mortgage loans to consumers. In April, the government sent its currency into a managed float but its value has fluctuated widely. Mr Liu expects Myanmar's banking, insurance and securities sectors will not open to foreign investment before 2015.
Yesterday, Mr Aung was at pains to convince investors of the merits of investing in an uncertain market that has suddenly lost its cachet for Hong Kong investors; trade between Hong Kong and Myanmar was just US$51 million this year, compared to nearly US$2 billion last year.
Hong Kong is a top investor for Myanmar after Mainland China, with accumulated investment of more than US$6 billion, out of a total of US$41 billion that Myanmar has drawn since 1988. Most of these foreign investment projects are in resources, hydropower and mining, though the picture may be radically redrawn with the recent lifting of sanctions by the US and Europe.
This month, Intel signed a distribution agreement, announced in Yangon, to support products that use its technology in the country. Companies and multinationals based in Vietnam have voiced enthusiasm about investing in the country. And Mr Aung's colleague, Thida Tin, deputy director-general at the Ministry of Information, revealed a delegation of 70 executives from 38 US companies had visited the country, the first in 27 years.
Mr Aung was quick to alleviate investors' anxiety. On the country's decrepit infrastructure - such as its reliance on feeders, small boats to ship goods to ports in Singapore and Malaysia - he said this was a sector seeking foreign investment.
On investors' wariness about the possibility of labour unrest - after the police cracked down last month on a protest against a copper mine jointly owned by local and Chinese companies - Mr Aung pointed to Myanmar's ban on labour unions in the past and said: "Unions in our country would not be so active because we are in an early stage."
When a garment factory executive expressed her "keen interest" to invest in countries outside China and sought assurance from Myanmar, Mr Aung responded by saying: "We want to invite investors from Hong Kong to invest in the garment sector. I encourage them to come to the economic zones, or industrial parks."
He added that the country has only 212 garment factories exporting less than US$1 billion a year, compared to Bangladesh's US$5 billion and US$3 billion for Cambodia.
When an investor pressed the Myanmar government to follow in China's footsteps and allow foreign ownership in real estate in perpetuity, even though in name China's case is done by automatic extension of current leases, Mr Aung said the government has plans to open real estate further to foreign investment.
"Foreigners will be allowed to invest in condominiums for good. In the past, foreigners could lease for only 30 years. The land utility committee will decide on what is the best way for Myanmar," he said. "There will be a fair environment in our country."