Resource-rich Myanmar is seen as a hot new business frontier as reforms tempt investors, but with currency distortions and a banking system in tatters, analysts say the economy could be slow to bloom.
International economic experts meeting in Naypyidaw last week agreed there was almost a contagious faith in the country’s potential as it opens up after years of isolation.
Aside from its abundant natural resources, including oil and minerals, Myanmar has huge scope to develop its tourism industry after years of boycotts against the former ruling junta.
The country was once known as the “rice bowl of Asia” because of its agricultural riches, but economic mismanagement over nearly 50 years of direct military rule have left the country deeply impoverished.
Today, as a new government pushes through political reforms at a rate that has stunned observers, many hope it can take advantage of its opportunities and a strategic location between China and India.
“In many ways, the country is well-positioned to provide enormous investment opportunities,” Nobel Prize-winning economist Joseph Stiglitz, of New York’s Columbia University, said at the meeting of experts. “The fact that there has been so little investment in the past means the potential returns are very high.”
The government, which remains dominated by former generals, took power last year and has since been hailed for reforms such as the release of hundreds of political prisoners.
Western countries are now considering lifting economic sanctions, fueling the huge growth in interest by outside business.
Myanmar’s government said last month that it planned to offer eight-year tax exemptions to foreign investors as Western companies rushed to build ties with the one-time international pariah.
The IMF has pointed to Myanmar’s “high growth potential,” estimating real GDP growth in the 2011-2012 fiscal year could hit 5.5 percent.
However, it said currency reform is a priority in the country, which currently has an informal exchange rate almost 100 times better than the official one.
It’s a view shared by Stiglitz, who said there was a need for “not only the unification of the foreign exchange, but bringing down the foreign exchange rate, which is adversely affecting the competitiveness of their economy.”
Myanmar’s banking system is almost non-existent following a major crisis in 2003.
A recent report by the British risk analysis group Maplecroft said Myanmar had the world’s worst legal system for doing business, retaining a position it has held for the past five years despite recent reforms.
The country must also professionalize its administration, which is stamped with a military culture and chronically under-skilled.
“The political changes, in a way, have gone very well and the story is relatively well-known now,” Myanmar historian Thant Myint-U said. “But the economic story is still very murky.”
“I think the government is trying to undertake a lot of very wide-ranging reforms, but how it’s actually going to come together, how it’s actually going to strengthen not weaken the political process, I think remains to be seen,” Thant said.
The government of Myanmar President Thein Sein appears to be pulling out all the stops to persuade the EU and the US to lift sanctions.
All eyes are now on April 1 by-elections, which opposition leader Aung San Suu Kyi has been allowed to contest after years of detention and marginalization.
If the vote is perceived as free and fair, the country is likely to be rewarded by a further thawing of international relations — and more foreign direct investment.
“We have to make sure it’s responsible, that it is not just coming here for a very short-term and then just run away with the profits,” Myanmar economist Aung Tun Thet said. “But we really want serious partners.”
Myanmar is likely to receive support from ASEAN, of which it has been a member since 1997.
ASEAN wants to build a single market, giving Myanmar access to a network of regional trading partners.