Myanmar is in the grip of extraordinary change. The country is basking in the goodwill being shown from the international community keen to support its remarkable process of change towards achieving democracy, peace and a market economy.
As international investors, including multinational corporations and Asian businesses, pour in to gain first mover advantage in a market expected to see consumer spending triple from $35 billion today to $100 billion by 2030, large marketing agencies are similarly following suit and setting up shop. But what is the true reality being faced by regional brand directors and Hong Kong brands seeking to tap into Myanmar?
Of the country’s population of 60 million, some 46 million are of working age, while an estimated three to five million migrants work overseas whose skills and experience are expected to benefit the country.
Furthermore, it’s forecast that purchasing power parity could rise to $5,100 by 2030, lifting some 18 million people out of poverty.
Progressive easing of sanctions by the US and the lifting of sanctions by the EU has helped boost investors’ confidence in Myanmar, and seen leading consumer and electronic companies return.
This, and the country’s assets, particularly its natural resources such as its rich endowments of natural gas and oil (the government is planning to increase the number of blocks available for oil and gas drilling), precious and semi-precious stones (about 90% of the world’s jade production derives from Myanmar), and forestry (it supplies about 30% of the world’s teak used in furniture and boat decks), have given further rise to optimism.
Furthermore, its shared borders with two of Asia’s most populous and rapidly developing countries, India and China, means Myanmar is also well positioned to take advantage of and cater to their growing middle classes. Shipping goods through Myanmar, which has 1,200 miles of coastline on the Indian Ocean, would be less expensive than going through the Straits of Malacca, which connect India and the Pacific oceans.
But while the above may give a flavour that there is everything to play for, the flip side is the risk of major disappointment.
Corruption remains endemic. Myanmar ranked 157th on Transparency International’s Corruption Perceptions Index 2013, placing it on a par with Zimbabwe, and out of 175 countries in “Transparency”, below the Democratic of Congo and Tajikistan.
While president Thein Sein has sought to address the issue through the introduction of an Anti-Corruption Law, its effects are far off from being felt, with bribes, sometimes referred to as “tea money”, taking place in both the private and public sector.
Instability and lack of transparency when it comes to the rule of law also make for nervous investors. There is little separation of power, with the military effectively controlling the legal system and judges, and even known to influence judicial decision-making.
Foreign investors involved in companies with close ties to the military understand they cannot count on due process when it comes to disagreements.
Despite this, there is hope the 2015 general elections may bring about greater reforms if Aung San Suu Kyi, who recognises these issues, becomes the next president, although this currently seems unlikely.
Commenting at the World Economic Forum, she warned that investors should view opportunities in the country with healthy scepticism and not reckless optimism.
Myanmar’s weak and out-of-date infrastructure requires heavy investment. The World Bank’s Logistics Performance Index 2014 placed the country 145, lower than any of its Asian peers.
Electricity is chronically in short supply and blackouts remain common, requiring businesses to invest in expensive back-up power generators.
Furthermore, its transportation network is in serious disrepair leading to higher costs, particularly for manufacturers whose operations are often far away from the nearest port.
The education system, meanwhile, also requires that the country develop managerial talent to train workers for complex tasks or technologies.
In the supply chain, there are increasing issues of use of child labour, labour strikes, etc.
Entering Myanmar is a long-term commitment and companies seeking to establish their brands in the country need to understand the parameters in which they are operating in.
Their success in the country’s business environment will not only be reliant upon building market share, but more crucially, establishing business relationships, particularly with local companies, which can provide a platform for more rapid growth.
But in this opaque business climate, where even the best laid plans fail, seeking the advice of knowledgeable experts, who can provide strategic advice on market entry, will assist in avoiding the pitfalls.
Undertaking an appropriate-level of due diligence that goes beyond the norms of financial checks, corporate records and sanctions lists, to ascertain the integrity of joint venture partners, suppliers and distribution networks, political and government associations, reputational concerns, and particularly the identification of corruption or bribery related concerns, will better equip investors in identifying and dealing with risks and making fewer costly mistakes.
Stuart Witchell is senior managing director and co-leader of the Asia Pacific global risk and investigations at FTI Consulting in Hong Kong.