Insight - opportunities in Myanmar
This insight by Michael Abrahams, retiring General Manager, Growth and Emerging Markets, appeared in the Australian Financial Review, 26 July 2013
What happens when a pariah state comes in from the cold after years of economic stagnation and isolation?
I was finally able to answer this question on my very last overseas trip for Austrade.
This month, I spent some time in Myanmar's largest city, Yangon, where Austrade is re-establishing a presence after almost 60 years. In my four decades as a trade diplomat, I have witnessed fundamental changes to the international economic system and the daily routines of commercial life. But the principles and practices of trade diplomacy have remained pretty much the same.
When I started out in the 1970s, China's economic rise was a distant prospect, Britain had joined the then European Economic Community and our focus was on looking for new markets in the Soviet Bloc and the Middle East. Although we had just renewed ties with China after 30 years, only a quarter of our trade commissioners were stationed in Asia; few could have imagined the shift in global economic power to our own region.
Over that time, I have learnt a lot about the way Australian businesses work in emerging markets, the challenges they face and the enormous contribution they can make to local economies.
Most observers, myself included, would agree there is no one-size-fits-all strategy for Myanmar but all of us are guardedly optimistic about its longer-term prospects.
In a lot of ways, I found it not unlike its Asian neighbours when they stood on the brink of their own period of rapid economic change. Like them, Myanmar's sudden emergence onto the global economic stage will see the adoption of advanced technologies by a society once largely immune to their influence.
The country's embrace of mobile phones, for example, will take many straight from no-G to 4G. For some Australian businesses, this presents a tantalising opportunity; a new honey pot and the chance to make money.
Others, prepared to take a longer-term view, argue social and economic settings are not yet right to commit significant resources, both capital and labour. This is the paradox that is Myanmar. Is the best strategy to go early or go later?
To a large extent, the merits of going early depend on the sector, the company's experience in emerging markets and management's appetite for risk. During my time in Myanmar, I met a company that had been active in the market for more than a decade but never got a government contract, until now. Reputation and integrity are beginning to count and there are other good signs the new Myanmar is serious about its international business reputation. As part of its deregulation agenda, for example, the government recently held firm on its decision to award two telecommunications licences to international bidders.
For those interested in going early, some of the most immediate opportunities might involve foreign-funded aid projects. The World Bank's International Finance Corporation, for instance, is seeking to build capacity around infrastructure and financial systems, as well as find ways to improve the investment climate. Elements of these programs will be open to bids from external providers.
Yet, there are challenges to going early.
Manufacturers, miners and major investors need basic infrastructure, such as transport, rail, ports and power, all of which are underdeveloped in Myanmar. Power shortages are endemic and the country lacks a deep-water port. The costs of entering the market are high, the legal system needs significant improvement and operating conditions can be difficult for foreigners to negotiate.
Cautionary comparisons can be made with Vietnam, which proved to be a source of some bitter experiences for early movers when it opened to the world in the 1990s. It took close to a decade before Vietnam's institutions and infrastructure, aided by overseas development assistance, bilateral agreements and its WTO ascension, matured to the point where complex projects could be pursued profitably. In the case of Myanmar, some companies have decided to adopt a wait and see attitude in the expectation that chronic infrastructure and skills gaps will be addressed over time.
Those who have decided to wait need not necessarily fret over missed opportunities. The very nature of emerging markets suggests future demand will exceed the capacity of early movers to supply. If the reform process is successful, the quantum of opportunities available in five years will be far greater than today.
Michael Abrahams, General Manager for East Asian Growth Markets, retires this month after 41 years of public service.