Myanmar, once an isolated pariah state, is now Southeast Asia’s fastest growing market. The country is drawing the interest of investors from around the world with its new democratically-elected government, led by Aung San Suu Kyi, and a rapidly liberalizing economy. As the country undergoes significant political and economic reform, multinationals should take note of three important trends that will determine the level of opportunity in Myanmar going forward:
- Gradual regulatory changes will improve the business environment: The previous government, under President Thein Sein, set a solid economic reform plan in motion, which the new government is expected to maintain. Three upcoming laws will be especially significant: the Myanmar Investment Law, the modified Companies Act, and the new Arbitration Law. These laws will streamline procedures for investment, ease restrictions, and protect investors. However, the pace of improvement will vary by sector. The business environment in the infrastructure, transport, telecommunications, manufacturing, and construction sectors is expected to improve faster than many of the ‘sensitive’ sectors like agriculture or natural resources.
- Asian investment will continue to dwarf western investment: Recently, foreign investment into Myanmar has been increasing at an exponential rate. Total FDI into the country is estimated to have reached US$ 9.5 billion in 2015-16, up 19% from the US$ 8 billion in 2014-15. However, despite increased attention and the change in government, western investment into Myanmar will continue to lag behind regional investment in the short-term (see chart below), as western multinationals are likely to be more cautious. Additionally, while Chinese investment will continue to play a significant role in Myanmar’s FDI, stronger integration between the ASEAN countries will further increase regional investment into the country. With this in mind, multinationals should expect to face stiff competition from regional companies in most sectors.
- The cost of doing business in Myanmar will remain relatively high: The overall cost of doing business in Myanmar, which includes logistics and corruption, will remain high for the foreseeable future. Logistics costs will stay high as basic infrastructure is lacking, while corruption, which is endemic and largely institutionalized in Myanmar, will remain one of the most serious barriers to investment (see chart, below). Investors should set realistic timelines for progress, as the country is now in a period of transition and suffering from teething pains, with the relatively inexperienced authorities keeping the cost of doing business high. Multinationals should take into consideration the high cost of investment as they evaluate Myanmar’s market potential.
While the overall outlook for Myanmar is positive, the country is still in the early stages of its development. Multinationals should keep this in mind and use the above three trends to evaluate medium- to long-term market potential as the country gradually becomes an integral part of a well-balanced ASEAN portfolio.