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Asia's newest emerging market also has its risks

It's a familiar story: Every new emerging market presents its opportunities—and its risks.

A Burmese woman walks by billboards in Yangon, Myanmar.
Getty Images
A Burmese woman walks by billboards in Yangon, Myanmar.

President Barack Obama's visit to Myanmar for an economic summit this week demonstrates how far that state has come from its darkest autocratic days, and how much farther it has to go in order to avoid facing sanctions again.

"The United States and other outside partners have a lot of leverage for economic development," Rand Corp. analyst Jonah Blank said. "If Myanmar does not make good on its promises, Myanmar may find it in the same economic situation as it was in the '90s."

Coca-Cola, Hilton Worldwide and Gap are just a few of the U.S.-based conglomerates that have entered Myanmar in the last few months and hope to make the most of that market.

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The lifting of many U.S.sanctions on Myanmar in 2012 opened up an attractive market to Western multinationals, which have taken the first steps into the country in recent months. Myanmar has been under often brutal military rule for half a century.

"Every company that is investing in Myanmar right now is making a bet on the future," Blank said. "Up until a few months ago, that looked quite promising."

Two years ago, Obama became the first U.S. president to visit Myanmar while in office. He makes second trip there when Myanmar hosts a gathering of Southeast Asian leaders on Wednesday.

Obama's deputy national security adviser, Ben Rhodes, noted the close connection between the political and economic situations.

To him, Myanmar's future hinges on three things: a democratic election next year, a national ceasefire in ethnic insurgencies and better inclusion of the country's Rohingya Muslims, who have fled the country under pressure from the government of late.

"We have been pressing the government to allow [them] to be integrated to the country," he said. "If they don't do that, it will be hard for the United States and others to give a housekeeping seal of approval."

Although the United States has kept a few restrictions on trade with military groups in the country formerly known as Burma, the relaxation of many economic sanctions has been "swift," said Debra Eisenman, director of the Asia Society Policy Institute. But she noted that the country's economy still needs reform because of joblessness.

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China has been a major investor in Myanmar, but analysts said the economic giant's operational model has been to export its own workers along with Chinese companies. That practice is especially widespread for large infrastructure projects in countries such as Myanmar, Sri Lanka and parts of Africa, Blank said.

By comparison, Western firms expanding into Myanmar could bring the biggest lift to Myanmar's domestic economy, since they tend to hire locals for manufacturing jobs.

Coca-Cola, which entered Myanmar earlier than most, opening a bottling plant in June 2013, plans to invest $200 million into the country over five years. One of Coke's packaging suppliers, Colorado-based Ball Corp., plans to supply cans locally for Coke by the middle of next year, a Coke representative said.

At the end of October, Hilton Worldwide opened its first hotel in Myanmar's capital, Naypyitaw, where this week's summit will be held, and has plans to open five more properties in the country by 2017 under the Hilton Hotels & Resorts brand, in partnership with Eden Group.

This summer, Gap partnered with a South Korean vendor to begin operations in two factories that produce a quilted vest and jacket set now available in Old Navy and Banana Republic stores.

'Very high and unrealistic expectations'

But Lex Rieffel, a former U.S. Treasury economist and senior executive at the Institute of International Finance, said the multitude of foreign demands on the newly opening Myanmar is too much for the country to handle at the moment.

"There's too many people in Rangoon trying to push their own agendas, not good at listening to what the Myanmar people need," he said, adding that the entry of Western firms and the opening of nine foreign banks in the country was not necessarily beneficial to the locals. He said the only companies that helped Myanmar were telecoms, which gave locals communication through mobile phones.

"The U.S. government is among those who have created very high and unrealistic expectations for transition in Myanmar," he said. "The challenge for Obama is to get out of Burma ... without making things worse."

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However, Rhodes and other analysts have hope that businesses will pressure the local government to undertake reforms.

The companies themselves are also optimistic on what they can achieve. Gap highlighted its labor practices and initiatives for empowerment of women.

"Myanmar—there's such a great opportunity because we're building it," said Debbie Mesloh, senior director of government and public affairs at Gap. She highlighted how the retailer wanted to help set a precedent for other manufacturers in the country.

Both Gap and Coca-Cola are exceeding United States' minimum business reporting requirements in Myanmar, an attitude that might change the environment in Myanmar in the future.

If (local officials) do the right thing this could become another Southeast Asian success story," Rhodes said. "We're kind of in the middle of things."