Pariah No More: Despite setbacks, Myanmar remains full of potential

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In 2007, Myanmar, the Southeast Asian nation formerly known as Burma, was so isolated from the West that it restored diplomatic relations with fellow pariah state North Korea. The ruling military junta was considered one of the most oppressive regimes in the world. In 2005, Condoleezza Rice labeled Myanmar an “outpost of tyranny,” a term that placed the nation in the company of North Korea, Cuba, Iran, Belarus, and Zimbabwe.

But just four years later, after a devastating cyclone and a series of protests, the ruling junta abruptly ended its long period of isolation as it began to loosen its iron fist and open the nation to the West. In a symbolic move, Aung San Suu Kyi, the Nobel Peace Prize winner, was released from house arrest and subsequently won the nation’s parliamentary elections by a large margin. As part of its early steps toward democracy the regime loosened rules against political protest and released some political prisoners, and in response many Western nations suspended their sanctions on Myanmar. Wedged between India and China, the newly open nation of 55 million people presented numerous political and economic opportunities for foreign investors and governments. Today, the spotlight is back on Myanmar after it hosted the ASEAN summit in November 2014. Despite significant setbacks, the nation remains an important frontier in global development.

Myanmar has significant assets that offer opportunities for investors and good prospects for its own growth. To start, the nation has large endowments of natural resources, including jade and other gems, natural gas, and arable land. These resources have the potential to bring important revenue into Myanmar, especially since domestic and international demand for them is expected to increase rapidly in coming years. Indeed, other underdeveloped nations have become very wealthy by exploiting their natural resources—the Persian Gulf alone provides an example. However, economists often warn that the exploitation of natural resources alone is not necessarily a net benefit for the economy. Reliance on natural resources not only makes the national economy vulnerable to swings in commodity prices, but can also increase the value of the currency, thereby making other exports less attractive. The prospect of currency appreciation is an especially important risk for Myanmar, which, according to a report by the Harvard Kennedy School, has an already overvalued currency. Moreover, natural resource industries are rarely labor-intensive. A regime looking to avoid an outright revolution may be wary of investing in industries that generate vast revenue but few jobs.

Many of Myanmar’s neighbors have seen tremendous economic growth in recent years largely thanks to the development of manufacturing. For years, businesses have been moving factories from China to Southeast Asian nations like Vietnam and Cambodia, where wages are lower. Wages are lower still in Myanmar, and some companies, like Gap Inc. and Coca-Cola Company, have already moved production there. Myanmar has a large working age population that could help the country develop the kind of burgeoning middle class seen in nations like China. However, Myanmar’s manufacturing sector still suffers from much lower productivity than those of neighboring economies. Similar potential exists in the tourism industry, but again observers warn of potential pitfalls, such as underdeveloped infrastructure.

The biggest roadblock to development in manufacturing and tourism is, not surprisingly, a lack of infrastructure. Myanmar has little political or physical infrastructure, and its population is unskilled compared to neighboring countries. Investors worry about basic transportation and guarantees as basic as the rule of law. Though new laws and a clause in the constitution bar the government from nationalizing industries, the political climate is anything but stable, and there is no guarantee that a state with a history of nationalization will not return to its old ways. Moreover, according to McKinsey & Company, the average Burmese has just four years of education. These structural challenges pose problems to the development of any industry and put Myanmar far behind its neighbors.

Just years after being compared to nations as oppressive and isolated as North Korea, Myanmar has the potential to rival other growing Southeast Asian nations, in an opening to the world that is beneficial for both foreign investors and the people of Myanmar. Geographically and demographically well-suited for growth, Myanmar must make serious efforts to improve infrastructure and education, reassure investors that their investments are safe, and continue democratization. The regime has been harshly criticized for backsliding in these efforts and has been charged with serious human rights abuses against its Muslim minority. In spite of these serious challenges, Myanmar’s turnaround from pariah state to one with seriously investment potential remains a marvel for all observers.

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