Investors adopt wait-and-see stance on post-election Myanmar (Feature)

By Ko Ko and Peter Janssen Oct 25, 2010, 4:56 GMT

Yangon/Bangkok - At Yangon airport, Min Aung shook hands with a South Korean businessman in town to assess opportunities in the 'Golden Land,' Myanmar's slightly misleading nickname.

'He said he would come back after the election. He wants to wait and see,' said Min Aung, who did not want to be identified by his real name.

Myanmar's junta will hold an election for the first time in 20 years on November 7, but few are expecting significant changes to either the political or economic environment.

Western democracies and the United Nations have condemned the junta for excluding the main opposition National League for Democracy party via skewered election regulations.

Democracy icon Aung San Suu Kyi, the NLD head, will be under house arrest until November 13, scheduled for release a week after the election.

The pro-junta Union Solidarity and Development Party is expected to win the polls and, since it is packed with ex-military men, the new government will amount to little more than a wardrobe change for the regime.

While Western democracies often accept the outcomes of sham elections in one-party communist states such as China, Laos and Vietnam, they may be disinclined to do so in Myanmar.

Western firms, at least multinational ones, a waiting for a go-ahead from their governments before rushing in.

'A lot will depend on the reaction of Western governments,' said Stefan Buerkle, director of the German-Thai Chamber of Commerce. 'If Western governments say this was a 'sort of election' and we can work together in the future, then presumably also businesses would change their policies.'

At present, most multinational Western firms do not venture into Myanmar for fear of the stigma attached to doing business with the sanctioned pariah state, which could prove bad for sales in markets such as the US and Europe.

The Myanmar stigma, however, has not stopped Asian firms from going where Westerners fear to tread.

Foreign investment approvals surged in the first seven months of 2010 to 16.1 billion dollars, according to the Ministry of National Planning and Economic Development.

During the previous 20 years, Myanmar's total approved foreign direct investment amounted to only 16 billion dollars, although only a fraction of that was actualized.

As of mid-2010, Thailand maintained its position as top investor, with 10.3 billion dollars in projects, while China came second with 6.4 billion, followed by Hong Kong with 5.9 billion dollars.

Analysts expect China to overtake Thailand soon. South Korea is another rising star with 2.4 billion dollars worth of investments approved in 2010 alone.

Most investments so far have been in petroleum, mining and hydroelectricity projects.

'Now investors also explore opportunities in other sectors like infrastructure and banking. Some came with the proposal of bullet trains projects,' a Yangon-based diplomat said.

On paper, Myanmar's macroeconomic performance is looking good.

The country has enjoyed a trade surplus for the past eight years, thanks to increasing exports of natural gas to neighbouring Thailand.

In the last fiscal year through March 31, Myanmar's exports amounted to 6.9 billion dollars, 38.4 per cent of which were gas sales to Thailand.

Deputy Commerce Minister Aung Tun said the country's gross domestic product grew 10.4 per cent last year. Inflation was only 2.4 per cent and the kyat currency has actually appreciated against the dollar to 920 kyat on the black market compared with 1,000 in 2009.

The government's statistics are notoriously unbelievable. Also, the entire state system will require a complete revamp if the country is to become attractive to Western investors.

'Instead of functioning amidst formal rights and laws, economic activity in Burma exists according to a set of parallel rules of the informal economy - rules determined by arbitrary procedures for dispute settlement, nepotistic patron-client relationships between the military, state and business, extralegal allocations of natural resource concessions and of licences to engage in external activity, and by a governing apparatus that is as unpredictable as it is predatory,' Australian economist Sean Turnell wrote.

With the election expected to bring the same generals back to power, prospects for significant economic reforms are bleak.

'Investors expect that there may be changes after the election,' said one Yangon-based economist. 'They will not invest until they see real change.'

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