Investors and the new economy

Investors and the new economy

As Burma opens up to the world, experts warn the sharks and cowboys among the many frontier investors converging on the scene could exploit the impoverished nation.

“The sharks are circling and the cowboys are galloping in,” said one Rangoon-based business consultant, who spoke on a condition of anonymity.

“Myanmar is the perfect environment for them to flourish and the absence of big multinationals means there’s little or no competition or standards to adhere to.”

However, foreign investment is not a new phenomenon in Burma as one only has to refer to the billions of dollars spent over the past decade by countries including neighbouring giants Thailand and China, almost exclusively to reap the spoils from the resource-rich nation’s extractive sector.

For Maw Htun, an independent researcher who studies foreign investment, this is a huge concern.

“Myanmar needs investment which benefits its people,” says Maw Htun, adding greater transparency was needed in screening new investment decisions.

“We really need to see what types of investments are coming into the country,” he said.

“The government should consider how much its people will directly benefit from the foreign investment coming into Myanmar.”

The Burmese government is eager to secure foreign investment in the wake of economic and political reforms; however, experts warn too much capitalism too soon could be detrimental to the impoverished country’s development.

Jared Bissinger, a PhD candidate at Australia’s Macquarie University, says Burma could quickly fall victim to the resource curse, which has dominated foreign investment in the past decade.

“Over the past decade Myanmar’s inward foreign direct investment [FDI] has become heavily concentrated in the extractive and power sectors, while investment in manufacturing, services and other secondary and tertiary sectors has been almost non-existent,” wrote Bissinger in his latest journal article, “Foreign Investment in Myanmar”, which was published in Contemporary Southeast Asia earlier this year.

“Resources can boom and other sectors of the economy can be hurt,” says Bissinger.

[pullquote]“This is the time to attract responsible investment and discouraging responsible investors is a negative approach”[/pullquote]

Maw Htun says while the Burmese government accepting millions of dollars from foreign investors eager to exploit the impoverished country’s rich resource reserves, little financial benefit has been seen by local communities.

“Instead of inviting all those extractive industries, we should have some cooperation with well-known and renowned international companies to work with the government and improve their transparency, accountability and corporate social responsibility,” says Maw Htun. “If the government can do that, it will benefit everyone.”

Speaking at a conference in Geneva last month Burma’s Nobel Peace Prize winner Aung San Suu Kyi urged foreign governments not to allow their companies to enter into joint ventures with the state-owned oil and gas company, Myanmar Oil and Gas Enterprise, until its improved transparency and accountability.

“The Myanmar Oil and Gas Enterprise (MOGE)… with which all foreign participation in the energy sector takes place through joint venture arrangements, lacks both transparency and accountability at present,” said Aung San Suu Kyi said.

However, while her statements might have been welcomed by human rights lobby groups and encouraged senators to put more pressure on the US government, they appear to have done little to deter investors, with a Hong Kong-based corporate events company seeking a speaker from MOGE to address hundreds of fund managers and institutional investors at an upcoming oil and gas summit in Singapore.

It seems this is a risk that some impatient investors are willing to take in order to reap the rewards of investing in Southeast Asia’s final frontier.

U Ken Tun, chief executive officer and president of Burmese junior oil and gas exploration firm Parami Energy, said scaring away large, reputable investors would only leave more room for the scavengers to survive.

“This is the time to attract responsible investment and discouraging responsible investors is a negative approach,” says U Ken Tun.

“If we scare away responsible investors, instead these scavengers come in and the whole cycle will start again.”

U Ken Tun said many operating within Burma needed to change their mindset from being profit-taking and contribute to the greater wealth of the impoverished nation’s economy.

However, he said this transition would not happen overnight.

“People who are used to operating on a profit-oriented mindset will find it very hard to change,” says U Ken Tun.

“I hope businessmen who really want to improve this country can take part in this movement.”

The Burmese government have appealed to western investors to come in and change the status quo, with Deputy Minister for Ministry of National Planning & Economic Development, Dr. Kan Zaw, telling a roomful of foreign investors at a conference last month that western countries would soon replace Thailand and China as Burma’s top investment partners.

“Western investors will be the top investors in Myanmar in the coming years,” said Dr. Kan Zaw to a crowd of participants at the 2012 New Myanmar Investment Summit on 21 June.

But for now, the biggest players in Burma continue to be amongst the country’s ASEAN neighbours whom Burma understandably developed stronger ties with during the years of strict western sanctions.

However, Burma simply isn’t an attractive investment option for many western firms, according to American lawyer Steven Dickinson, who recently visited Rangoon to attend the investment conference.

“Other than for oil and gas, European and American companies won’t come to Myanmar for some time,” says Dickinson who works at Hong Kong-based law firm Harris & Moure.

Dickinson said the lack of infrastructure and high operating costs coupled with political instability and a crippled banking system would deter many western investors, particularly those in the manufacturing industry.

“That’s a bad thing for Myanmar because there are people who are going to come in here, particularly for the areas of oil and gas and minerals and teak,” says Dickinson.

“And those investors are going to strip the country bare, leave the money in the hands of a few top people and give very little back to the general population,” he says.

“Many companies, especially from ASEAN, think Myanmar is a sure bet and as a result, they will rush in and conduct business in the most shoddy and informal methods you can find,” says one Malaysian businessman.

“And at this moment, a number of local Myanmar businessmen seem to hint at using this method because the policy making is really slow,” he said.

“It’s like the Wild West here at the moment and there are a lot of cowboys coming in,” the source said.

He said the lack of formal legal structure and proper guidelines left a huge grey area for eager investors to exploit the system.

The challenge Burma now faces is how to sort the wheat from the chaff in encouraging a new strain of socially responsible investors to help redevelop the impoverished country.

Maw Htun said new, socially responsible investments were needed to improve the livelihood of local communities.

“Otherwise the local community will still be marginalized and receive only the negative impact of the investment, which will cause resentment,” says Maw Htun.

-Kate Kelly is a pseudonym for a journalist working inside Burma.

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