(Bloomberg) -- Among business leaders in Myanmar, would-be investment from the U.S. and Europe is known by the wry acronym NATO.
“No Action, Talk Only,” Sean Turnell, special economic consultant to Myanmar’s leader Aung San Suu Kyi, said in an interview, underscoring the country’s history of missed opportunities and unfulfilled potential.
As Southeast Asia’s fastest-growing economy began the transition from five decades of military rule to democracy with the swearing in of the first popularly-elected government in March 2016, western investors adopted a wait-and-see approach. That extended into 2018 as reports of violence against the country’s Rohingya Muslims -- that forced nearly a million refugees into neighboring Bangladesh -- dominated international media since last August.
“The thing about western investment is not that it has stopped flowing, the truth is that it never came,” Turnell said.
Myanmar has attracted just over $30 billion in foreign direct investment since the 2014-15 financial year, with Singapore topping the list of foreign investors in the country with $14.5 billion, followed by China and Hong Kong with $7.1 billion, and $2.6 billion from countries inside the European Union, according to data supplied by Myanmar’s Directorate of Investment and Company Administration.
The situation may not improve before parliamentary elections in 2020. Suu Kyi’s government is facing daunting domestic challenges, such as building an infrastructure base that can facilitate sustainable economic growth, and bringing the banking system into the 21st century. There’s also the task of trying to untangle the many tribal conflicts that have made some parts of the country almost ungovernable for decades.
“Her biggest problem today is that most people see no concrete change or improvement in their daily lives,” Khin Maung Nyo, a former deputy director of the Myanmar Prime Minister’s Office under the previous government and now a political analyst, said in an interview. “Ordinary people have high expectations.”
The International Monetary Fund noted that while Myanmar’s economy was rebounding from weak agriculture production and exports, the medium-term outlook remains favorable.
“Myanmar’s initial phase of economic liberalization led to an impressive growth takeoff and poverty reduction; now a second wave of reforms is needed to sustain the momentum,” the IMF said in a November report.
Despite the investment shortfall from the U.S. and Europe, strong capital inflows from Japan, China, South Korea and Singapore helped make Myanmar one of the strongest performing economies in Southeast Asia, notching up gross domestic product of 6.4 percent last year and an expected 6.8 percent in the current financial year. The World Bank has forecast 7.2 percent growth over the medium term.
Although firms from Western countries have yet to fully embrace the country, business leaders such as Hal Bosher, special adviser to the chief executive of Yoma Bank, remain optimistic.
“Everybody is always surprised when they come to Myanmar,” Bosher said in an interview. “I think the economy is far bigger than the official figures of $60 billion to $70 billion. All in, I think true GDP is probably double the official estimate,” he said.
Still, the government’s treatment of the Rohingya remains a problem.
The current crisis was sparked in August last year when militants from the Arakan Rohingya Salvation Army attacked police and army posts, killing a dozen security officials in Rakhine state. The military responded with what it calls “clearance operations,” but both the U.S. and UN Secretary-General Antonio Guterres have condemned Myanmar’s treatment of the Rohingya as “ethnic cleansing.”
“The Myanmar narrative is so bad right now,” said Ken Tun, chief executive of the Parami Energy Group of Companies. “Even we in the private sector, the first thing to come up is ‘Rohingya’. We need to get the Myanmar narrative right.”
But in a country where the commander-in-chief of the armed forces still has the constitutional power to appoint one quarter of Myanmar’s parliament, as well as full control over the key ministries of Defense, Border Affairs and Home Affairs, it’s a delicate balance.
The civilian government has "no control" over the army, border affairs, or security services, said Turnell. “But that’s a hard message to sell, because the military would find that message distasteful.”
The broader impact is that Myanmar has failed to reap the “democracy dividend” that many were hoping would flow from the arrival of large multinational corporations.
“Companies that we really wanted to see, the companies that bring methodologies, technologies, ways of doing things for a country isolated for such a long time, that was the democracy dividend,” Turnell said.
Not everyone is staying away.
After Grab, Southeast Asia’s leading ride-hailing service, launched the trial of its GrabTaxi service in Yangon in March last year, the company continued to build its operations, including testing a three-wheel vehicle service in Mandalay. It now has more than 6.6 million micro-entrepreneurs including drivers, merchants and agents, on its platform.
“We’ve had a really fantastic series of engagements with the government,” Russell Cohen, Grab’s head of regional operations, said in an interview. “We’ve grown phenomenally fast,” he said.
After Myanmar confirmed in June that new laws allowing foreigners to invest up to 35 percent in local companies would come into effect on August 1, there is an expectation that more foreign investment will follow.
Soe Win, a member of the ruling National League for Democracy’s central economic committee and now the country’s Finance Minister, acknowledged in an interview that Myanmar “cannot stick to 35 percent,” if big regional players such as Standard Chartered Plc and HSBC Holdings Plc are to enter the country.
“Whether and under what restrictions the insurance and banking sectors as well as YSX-listed companies open up to foreign investors, is being watched,” said Romain Caillaud, director with consultancy Asia Group Advisors, said in an email. “This is not a silver bullet but the new company law contributes to further improving Myanmar’s business environment.”
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