Myanmar has received outsized media attention since its transition to civilian power in 2011. The country’s election of the first civilian president in more than 50 years has unleashed yet another torrent of global headlines.
For foreign companies interested in doing business in this new market, analysing political developments play by play is energy poorly spent. Investors should think ‘big picture’.
While Myanmar’s transition from pariah to darling of the investment community has been eye-catching, very few individual political events have the weight to sway the long-term trajectory of the economic growth path the country is now on. Myanmar’s economy grew at an average rate of 6.7% between 2009 and 2014. Excluding mega-projects in oil and gas, electric power and mining, foreign investment approvals have skyrocketed from $32.9m to $4.4 billion between 2011 and 2014.
Large swathes of the economy have been liberalised. Telecommunications licences granted to Norway-based Telenor and Qatar-based Ooredoo have helped bring in $3.3 billion in direct investment. Banking licences have been granted to 13 foreign banks and insurance licences are expected to follow.
The country has kicked off keystone economic reform that is bigger and more irreversible than almost any political change. But for a newly sprung military coup and a complete shutdown of economic and political affairs, like that of 1962, or more recently in 1990, little stands in the way of Myanmar’s economic path. If Myanmar achieves IMF economic growth forecasts of between 7.7% and 8.5% between 2015 and 2020, the country’s GDP per capita will reach $1,977 – an increase of 677% since the start of economic reforms in 2003 and a 98% increase since the start of political reforms accelerated in 2010.
When we take clients through the analytical process of defining the critical and important factors that drive their decision-making on new investments, few are swayed by the stories that make up many of today’s headlines on Myanmar. The most important question investors should be asking themselves is: ‘Can the newly elected National League for Democracy (NLD) keep growth on track in the long term?’ Provided the military doesn’t stop the music, the new government will be hard pressed to derail growth.
Myanmar is starting from such a low base, and has had growth in productivity, artificially constrained through political will for so long, that the country will enjoy robust growth north of 6% almost without trying.
The risk to foreign investors considering deploying fixed capital is that the NLD-led government is either too distracted by social and peace deal issues and/or lacks the experience and capability to deliver critical hard and soft infrastructure needed for long-term growth.
If Myanmar’s economy continues to grow at north of 7.7%, robust performance will threaten to breed complacency. Pressure on electric power, ports and industrial zone infrastructure limiting more rapid, job-creating industrialisation is going to become more acute. Investors must be confident that newly appointed President Htin Kyaw’s government will have the foresight to prioritise building a foundation for long-term growth.
To provide an objective picture of Myanmar’s attractiveness as a place to invest, we compared it to other countries (Vietnam, Cambodia, Indonesia and Thailand) by identifying quantitative metrics for eight measures of investment attractiveness. We then scored each country’s individual factor score against that of each other. We gave the country with the best factor a score of 100 points, and the country with the worst factor a score of 0 points. Myanmar today scores the lowest on almost every criteria, except availability of unskilled labour.
In an effort to imagine scenarios for improvement, we adjusted Myanmar’s scores in a range of possible configurations.
In scenario one, we increased metrics for political stability, rule of law and regulatory quality – all things investors hope the new administration will improve – by 25%. With all other factors weighted equally, Myanmar’s combined score triples, but its poor performance on individual factors still makes it the poorest scoring economy in the group, with only 18 out of 100 points.
Imagining a more optimistic scenario of what Myanmar’s investment attractiveness fundamentals might look like if the new administration gets everything right during its first term, we made a second set of changes.
Increasing political stability, rule of law and regulatory quality by 75% and all other factors (excluding availability of unskilled labour) by 50% causes a bigger jump in Myanmar’s relative ranking. In this second scenario, Myanmar scores 67 out of 100 points bringing it into the same league as the Vietnam of today. Dramatic improvements like these will not come easy, and Myanmar’s competitors for foreign investment will not stand still.
While Myanmar is likely to enjoy strong, region-leading growth in the short- to medium-term, major investments in critical hard and soft infrastructure are needed to improve its competitive position as a destination for FDI relative to its peer group. While optimism runs high on the heels of Myanmar’s first democratically elected president in 50 years, hard work lies ahead for this young government.