It was one of the most secretive countries on earth, gripped for decades by the iron fist of military rule for almost 50 years. Now, since the historic by-elections on April 1, 2012 were won almost entirely by Aung San Suu Kyi’s opposition National League for Democracy party, Myanmar is opening up, not just to a new political persuasion, but to Asia’s economic boom. Despite the army’s proxy faction, the Union Solidarity and Development Party (USDP), which is still firmly in control of the legislative body, has approved plans for the country to get a new stock exchange after the Tokyo Stock Exchange and Daiwa Securities received preliminary approval to help with its initiation. Both companies are now forming a relationship with Myanmar’s central bank to establish the exchange by 2015. The move is sign as the surest sign of a country entering a new era of democracy.
righting past wrongs

Only a few years ago, the economical situation in Myanmar was as dire as it was draconian. As stewards of a nation rich in natural resources, corrupt generals proved themselves incompetent to look after it. A climate of semi-official corruption had become so entrenched that whole swathes of the population earned their living from it. The government was unpredictable – many people fell foul of policies that seemed to change on a whim: “One minute farmers were told to grow potatoes to export to India,” said one NGO worker. “The next minute the authorities wouldn’t allow it, and all that investment had been wasted.”

The corrupt economy filtered all the way down to everyday consumerism: telephones would fetch up to $3,000 on the black market, and for many household goods, there was a two-tier pricing system – if you knew someone influential, you could buy at the government price, otherwise you might have to pay up to ten times as much on the black market. Petrol was another underhanded commodity – an ordinary citizen was only allowed two gallons (nine litres) per day at the government price – and even then, queuing could sometimes take hours.

The country once dubbed ‘The Rice Bowl of Asia’ could hardly feed itself and had gone from being the richest in the region to one of the world’s more impoverished nations. The average farm worker was earning around 1,000 kyats ($0.80) a day and the average income per capita for each individual was about $715 per person. A constitutional referendum which promised a “discipline-flourishing democracy,” was held on May 10, 2008 and the Union of Myanmar was changed to the Republic of the Union of Myanmar.

Although general elections were held under the new constitution in 2010, the UN and Western countries condemned them as fraudulent. The claim that the USDP had won 80 percent of the votes was widely disputed and it was asserted the military had engaged in rampant fraud to achieve its result.

However, somewhere along the way, new President Thein Sein has embarked on a series of reforms toward liberal democracy, mixed economy, and reconciliation. These changes include the release of Aung San Suu Kyi from house arrest, the establishment of the National Human Rights Commission, general amnesties of more than 200 political prisoners, the institution of new labour laws that allow unions and strikes, the relaxation of press censorship and regulations of currency practices, the consequences of which are far-reaching. The Association of Southeast Asian Nations (ASEAN) members have approved Myanmar’s bid for ASEAN chair in 2014, and Hillary Clinton visited the country in December 2011 to encourage further progress, the first visit by a US Secretary of State in more than fifty years.

Open for business
Myanmar is now set on introducing reforms designed to stir economic growth. The new nominally civilian-led government has started to open up a previously restricted market – car prices have been slashed by up to 80 percent and an influx of international buyers and a promise of further reform has triggered a speculative boom in property investment.

There has also been a surge of new wealth and new opportunities for the under 25s. The business world is now turning up to check it out, almost with the dynamic of a gold rush – if you don’t elbow your way in, you will miss out.

The biggest prize on offer is Myanmar’s natural resources, including timber, oil, gas and gems, and the Chinese have had a flying start. China has already invested the equivalent of nearly $14bn into the country, equal to 35 percent of Myanmar’s total foreign investments, according to a report in Eleven News in the capital, Rangoon. Their latest contribution was in November 2011, with $4bn into the power energy sector. Most of the deals are in sectors involving hydropower energy, oil and gas and mining, making China Myanmar’s number one investor, surpassing Thailand.

“A 771-kilometre pipeline that will transport oil and natural gas from Kyaukphyu, Burma, to Yunnan Province in China is expected to be completed in 2013.”

The Asian Development Bank said that Myanmar’s economy is poised for substantial growth if tough Western sanctions are lifted and the government continues to permit reforms, and it seems the EU, the US and Canada cannot ditch them fast enough. Most recently, Australia and the US lifted travel and financial restrictions, and has also promised to ease sanctions on some business sectors, while allowing in humanitarian groups, following the hordes of investors from Japan, South Korea, India, China and Thailand who had started to flow into Myanmar after the most recent reforms under President Thein Sein since he took office in 2011. David Cameron, recently in Myanmar, said the EU should suspend all sanctions, while maintaining an arms embargo, following Norway’s recent lead.

Leveled playing field
One reason why sanctions are being lifted is because of the unshackling of Myanmar’s kyat currency. In one of the biggest economic reforms that the country has seen, the government introduced a managed float policy for the exchange rate in April 2012, which will unify all the exchange rates, currently totaling about 10. The new strategy is intended to make it easier for firms to invest in Myanmar and should bring an end to the divided system of foreign exchange rates.

Associate Professor of Economics at Macquarie University in Sydney Sean Turnell says the significant move should help Myanmar in the future: “The exchange rate regime that had been in place for 50 years had been a momentous impediment to the economy, foreign investors, and foreign trade,” he said. “It had also been the most extraordinary invitation to corruption – the fact that it’s been ended with this float is very significant. It makes Myanmar a more rational and attractive place to do business.”

Turnell believes, that while there is going to be quite a considerable amount of foreign investment, the decision to float Myanmar’s currency will by no means provide a ‘silver bullet’ for solving the country’s economic problems, and the process of unifying the currency system will take some time: “Considering their financial markets are quite marginalised and isolated, it will probably be around 2013 before it will happen,” he predicted.

Luc de Waegh of West Indochina, a consultancy firm in Singapore said: ““It is difficult, it is challenging to do business to an international standard in this ‘not so sophisticated’ environment, but I believe it’s worth it and this is what ordinary Myanmar people are aspiring to. Only Myanmar’s natural resources have attracted significant investment.”

Still, early interest indicates many Western executives are keen to size up a potential market of 54 million people with an estimated GDP of $52bn. Consumer brands are also busy dusting off their marketing plans as many of their products are already distributed via Thailand and Singapore. And while US law, for the meantime, forbids all investments, European sanctions don’t apply to sodas, shampoos and sauces. This gold rush could well become a stampede.

Future investment
As multilateral lending agencies prepare to seriously re-engage with Myanmar for the first time in decades, the country should watch out for the unintended consequences of economic reform, according to The Wall Street Journal. Journalist Alex Frangos writes: “All that new openness could come with short-term pitfalls, including a large current-account deficit, an unstable currency and disruptions for big state-owned companies.”

The good news is Myanmar might be able to handle such a deficit through inflows of foreign investor capital. As sanctions ease, there will also be money flowing in from the likes of the Asian Development Bank, the International Monetary Fund and the World Bank. If it can’t attract the capital, however, the kyat could depreciate. If Myanmar attracts too much capital, it could face the opposite problem, a rising kyat, which would hurt local businesses.

The Asian Development Bank estimates Myanmar’s foreign-currency reserves are nearly $8bn – equal to nine months of exports, by economists’ reckoning, enough to withstand a financial shock. But it’s not much compared with the reserves of neighboring Thailand, which has $175bn. The critical process of the new stock exchange will depend on the government’s own priorities, and few claim to know exactly where those lay.

The opening of a stock market in the Asia-Pacific region will never really play a major role in resource allocation, as the stock exchanges of this part of the world are primarily secondary markets facilitating their portfolio construction by domestic and international investors. Market developments may affect the level of fluctuations in the national income and consequently economic stability and growth, through their influence on the aggregate propensities to consume, save and invest.

We need to ask if the Myanmar stock exchange is a genuine commitment to change, to democracy, and to human rights, or if it’s an attempt to get the sanctions lifted so that more business and investment will flow in, and certain people who are already in a position of advantage and privilege will gain even more.

Director of Policy at the Institute for Human Rights and Business Salil Tripathi believes foreign businesses face formidable challenges in making sure their investments in Myanmar are both profitable and based on international standards. “It’s clear the road ahead will be uneven,” he said. “Much will depend on how the government and the new president acts to avoid the resource curse that many countries with abundant natural resources have faced in the past. But foreign investors – potential and existing – will have to act in an accountable and transparent manner. Myanmar’s long-suffering people deserve no less.”