Changing fashions on the streets of Rangoon could portend a new era of consumerism
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No So Fast, Investor
But if Burma boasts uncommon potential, it also faces substantial challenges. The good news for companies is that the country craves almost anything from cars and bubble gum to air conditioners. The bad news is that it lacks nearly everything needed to run a business: stable electricity, ample paved roads, logistics, middle managers, an operational tax system, normal bank loans and laws governing industries attractive to foreign investors, like mining. Limited real estate means that office prices in crumbling parts of Rangoon rival those of Manhattan. After months in which former regime cronies tried to protect their coddled enterprises, a foreign-investment law was finally enacted late last year. But will it be implemented, particularly on the local level? Military-linked conglomerates, with anodyne names like the Union of Myanmar Economic Holdings, still enjoy disproportionate power and access to choice concessions. "Yes, I'm frustrated," says Winston Set Aung, Deputy Minister for National Planning and Economic Development. "But I would say I'm optimistically frustrated. We cannot expect too much, too fast."
In this sense, Burma doesn't differ from other frontier markets struggling to overhaul problem economies. What distinguishes it is the fact that it has embarked on political and economic reforms simultaneously. "I have a lot more faith in this country long term than in a China or Vietnam, which went for the economic fix but is now having to deal with tremendously complicated political issues," says Yoma's Rickards.
But despite Thein Sein's much lauded political reforms, Burma is hardly a functioning democracy. The 2008 constitution ensures that top leadership positions and a chunk of parliament are reserved for those with military backgrounds. Political prisoners still languish in jail. Local chieftains act with impunity, grabbing land from struggling farmers. Rule of law remains theoretical and the security forces do not scruple when it comes to attacking peaceful protesters. For Americans wanting to do business, a U.S. Treasury Department blacklist of certain local individuals and companies serves as a reminder of the tight bond between the Burmese military and its economic enablers.
Burma has also hosted some of the world's longest-running ethnic insurgencies, precisely in the borderlands that possess so many natural resources. Although cease-fires have been signed, battles flare in the country's northern and largely Christian Kachin state and, to a lesser extent, Shan state. The army's record of rape and forced labor in these frontier regions still looms. Sectarian violence also blazed last year in western Arakan (or Rakhine) state, between the Buddhist majority and the stateless Muslim Rohingyas, who bore the brunt of the hundreds of fatalities. Further anti-Muslim bloodshed occurred this year in central Burma, where dozens were killed and tens of thousands displaced. The communal strife has dented the tourism sector, which last year welcomed 1 million-plus holidaymakers, lured by Burma's golden pagodas, ancient ruins and unspoiled beaches.
For all the excitement surrounding Burma, many big players are still wary. Why commit to a country where there's little legal recourse to protecting assets? "If I'm a private-equity guy from Europe," says Selig, "it makes more sense to buy a power plant in Cyprus, where there's rule of law, rather than risking it in Myanmar." Other potential investors are waiting for the 2015 elections. If the polls are free and fair — by no means a certainty — the victor will likely be Suu Kyi's National League for Democracy. But the Nobel Peace Prize laureate is barred from serving as President unless the constitution is amended.
The military's proxy Union Solidarity and Development Party, which prevailed in flawed 2010 polls, will be loath to give up control, and lurking behind the scenes are conservative military elements presumably displeased by the diminishment of their power. An army coup in 1962 displaced a weak civilian government beset by ethnic violence. "We need ethnic stability if we want lasting economic development," says Win Min, another returnee, who works at the Myanmar Development Resource Institute, a quasi-governmental research group.
None of these concerns, though, have dissuaded Alisher Ali, an Uzbek-born investment manager who, after his second trip to Rangoon last June, moved his wife and four children to Burma. Last year, he set up one of the first Burma-specific investment funds for which he says he raised $25 million. His investors hail from Russia, Kazakhstan and Mongolia. Having grown up in the Soviet Union, Ali knows how painful the transition from a totalitarian system can be. "I see the risks in investing here," he says. "But what has impressed me most is how quickly Myanmar has opened up and how quickly people have shed their fear. In the long term, that's what matters."