Bagon, Myanmar

Scarcely a week goes by without a visit to Myanmar (Burma, as was) by western politicians and businessmen. Billionaire George Soros popped over at the start of the year. Microsoft founder Bill Gates is going over any week now.

Everyone talks of the importance of philanthropy. Myanmar’s new president Thein Sein refers to peace, stability and economic development.

The truth is more prosaic. Businessmen are sensing profits because, in the absence of an effective tax system, Myanmar needs their money to rebuild its shattered infrastructure. Finance from partnerships with China and oil majors to develop natural resources can only stretch so far, after heavy expenditure by the military on their own lifestyles, plus a new capital city, Naypyidaw.

Members of the military also control most of the businesses in Myanmar, including their banks. They won’t get a big bang for their stolen bucks until western governments lift sanctions imposed on the country in protest at its woeful record on human rights.

So Thein Sein needs to create the democracy denied to Myanmar by two successive military dictators to run the country over the last fifty years. The first, Ne Win, is dead. The second, Than Shwe, has been seriously ill. Lucky, that.

Thein Sein, although a former general, is relatively pragmatic and starting to get a taste for reform. He has authorised the release of political prisoners and allowed democracy campaigner Aung San Suu Kyi to stand for parliament along with 47 of her colleagues at the start of April. Even if they all win seats, the military regime will stay in control, but Suu Kyi will be offered a government position to get the money flowing.

If you ask a private banker whether you should invest in Myanmar, you get a dismissive response. They have quite enough complaints on their hands as a result of the credit crisis, without sanctioning punts on frontier markets.

The seriously rich should ignore them. It’s not every day you get presented with an opportunity to participate in the opening up of a frontier economy with an abundance of natural resources, ranging from agriculture to oil. Myanmar also has a population of 52 million who are prepared to work for low wages but lack the taste for armed struggle. Tourism potential is huge: the 4,000 temples of Bagan have the potential to become the most popular destination in South East Asia.

Inward investment will require better legislation relating to human rights, ownership and investment protocols. The local currency is no, as yet, traded internationally. Where ethics permit, an assessment of the possible investments needs to start now, along with the cultivation of local contacts.

The more obvious opportunities would include agricultural partnerships and property opportunities in the major cities, particularly Yangon (Rangoon), whose crumbling colonial buildings offer stunning refurbishment opportunities. The government has plans to create a special enterprise zone in the city, as well as a more effective deepwater port.

In a recent report, agents Colliers International said the supply of commercial space is tight, with most building 100% occupied. Many businesses and aid agencies are forced to occupy residential space or hotel rooms.

Residential property is also worth a look, although there are issues relating to security of tenure for apartments above the ground floor, where the most sought after apartments can be found. One agent warned: “You need to check the small print of any contract you sign. Not every phrase is as it seems.”

The country has a central bank, issues government bonds from time to time on the tiny Myanmar Securities Exchange Centre, part-owned by Daiwa Securities of Japan. The Tokyo Stock Exchange is keen to fund the market in competition with the Korea Exchange, which is also sniffing around.

If you are desperate to speculate in local stocks, two companies are fully traded: Forest Products Joint Venture Corporation and Myanmar Citizens Bank. A range of them are traded over-the-counter including First Private Bank and First Myanmar Investment, founded by a wealthy individual called Serge Pun, who, as is often the way in Asia, controls a broad range of interests including banking, hospitals and real estate. Myanmar’s leading media company, Eleven Media, has promised to list in the near future.

The performance of stocks in Myanmar has been mixed over the years, due to a paucity of investment capital. Companies have been forced to pay generous dividends to raise equity finance. But a dramatic improvement in their performance can be expected when western capital starts to arrive.

You can almost hear the generals licking their lips.
Photo Credit: Camden FO