Is the Rush Into Myanmar Creating a Bubble Economy?

In a dimly lit ballroom, Myanmar’s investment czar gushed about his nation’s dazzling future to a congregation of foreign investors. Each had paid $1,500 to hear the government’s big pitch: Long an economic basket case, Myanmar is now an investment gold mine.

Golden Sule Pagoda, Rangoon, Myanmar
Juergen Ritterbach | The Image Bank | Getty Images
Golden Sule Pagoda, Rangoon, Myanmar

“Myanmar is no longer a pariah,” declared Kyaw Zaw Maung, head of the nation’s Directorate of Investment and Company Administration. His PowerPoint sermon hit the high points: The country is squeezed between behemoth markets India and China and blessed with oil and gems. Most important, it's ending its long chapter of despotism.

He reminded investors about Hillary Clinton's recent, game-changing declaration: After 15 years of heavy sanctions, Americans are now urged to do business in Myanmar. Kyaw Zaw Maung’s slideshow clicked over to a photo of the US secretary of state grinning and holding a wine glass aloft.

The bureaucrat had arrived at his punchline. “The Myanmar people,” he said, “want to taste her American wine!”

In two short years, a reform movement led by ex-generals has transformed a junta-run backwater into Asia’s new investment attraction.

Most American or European business deals in the country, formerly called Burma, would have triggered criminal charges just months ago. Now they're encouraged by Clinton and her counterparts in London, Berlin, Tokyo and beyond.

A celebration has commenced in the country’s halls of power.

“Hillary was kind enough to tell them to start investing, to start looking at Myanmar. This releases the No. 1 headache,” said Moe Kyaw, a Yangon-based marketing magnate and presidential advisor. “So we are really open for business, OK? You don’t have to wait. Please, do business here.”

After 15 years inside a sanctions cage triggered by a response to brutal suppression of ethnic groups and pro-democracy dissidents, Myanmar is brimming with business to do. The government is aggressively showcasing the gems in its hills, the eager workforce in its cities and the natural gas buried offshore.

The president, an ex-general named Thein Sein, has proclaimed that foreign investment and know-how will help yank Myanmar out of the darkness. In a June national address, he declared a new national goal: tripling per capita GDP to $3,600 by 2016.

That goal is far-fetched, but these are heady days, especially in Yangon, Myanmar’s commercial capital, where starry optimism is replacing decades of despair.

Most political prisoners are free from their gulags. Leaders are relaxing top-down controls on commerce, as well as police state tactics that urge citizens to rat out unpatriotic neighbors.

To prolong this honeymoon phase, once-reclusive bureaucrats are working as pitchmen.

A series of “New Myanmar” summits, arranged by a Singaporean events agency, puts paying investors face to face with the officials who can authorize their projects. One such conference in late June attracted Indian tea farmers, Canadian mining firm Ivanhoe and US conglomerates General Electric and Dow Chemical. Along with hundreds of other firms, they were implored to stop fidgeting and start investing.

“The changes are happening right now,” said Ken Tun, CEO of Parami Energy, a Myanmar-based consortium that erects gas pipelines, explores oil fields and even manages a gold course.

“As a businessman, if you wait until 2015, then I really don’t know what opportunity will be left for you,” he said. “The genie will not go back into the bottle.”

Golden Euphoria

There is surely substance behind the excitement over Myanmar, a country equal parts broken and beautiful. Still unknown is whether foreign capital will bring sweeping benefits to its people, who have persevered through five decades of oppression, neglect and war.

Myanmar’s economy has been stunted by military rulers who have sprinkled less then 2 percent of GDP on schools while pouring billions into their armed forces. But broke schools and heavy censorship have somehow failed to blunt the former British colony’s intellectual streak. The United Nations puts the country’s literacy rate at 92 percent, a figure that bests India, South Africa and Brazil.

And they will work for a pittance: $80 per month for laborers, and $350 per month for chief accountants, according to an analysis by Alessio Polastri, a Yangon-based commercial consultant and co-founder of the P&A Asia law firm. “English is pretty popular here,” he said. “The salaries are relatively low. And Burmese people are notoriously hard workers.”

Bewhiskered and blessed with a wild black pompadour, Soe Thein is among the Yangon go-getters exhilarated by his country’s potential. Three years ago, the 64-year-old geology professor left his local university for a flashier pursuit: digging up minerals from Myanmar’s unruly hinterlands.

Soe Thein now runs an upstart business, Adventure Metal International Mining, from his home office in a shabby cement apartment block. “The Burmese kings and the British did much digging for gold,” Soe Thein said. “But they didn’t find everything.”

Clad in a beige sarong, Soe Thein knelt on a floor mat, unfurled a map and traced a finger over his most magnificent discovery. He claims to have identified Southeast Asia’s largest vein of gold. Purportedly 100 miles long and 50 miles wide, it begins in Myanmar’s war-torn Karen State, arcs towards the sea and plunges underwater.

By one mining official’s own admission, the professor may be on to something. “Is it true? Maybe,” said Kyaw Htet, director of Myanmar’s Ministry of Mines. “We really don’t know yet.”

Educated at Australia’s University of South Wales in the 1980s, Soe Thein said he pinpointed his find using complex satellite maps mail-ordered from Landstar Digital Technology, a Beijing mapping firm. One Landstar map depicting a single square kilometer costs $10 to $20, he said.

The entrepreneur laments that he cannot afford more American “Hyperspectral Imaging” maps that more precisely identify mineral deposits from space. Those go for roughly $1,000 per square kilometer, he said.

Soe Thein is seeking a partner, preferably Western, who can join his search for gold and gems. Until recently, Western sanctions limited the explorer to the company of less desirable collaborators. “A Russian once contacted me. He was looking for uranium,” Soe Thein said. “I put a stop to it.”

If Soe Thein hits the jackpot, so will Myanmar’s government. The state demands a 20 percent cut of all ruby, jade and diamond sales. Mining projects now account for $2.3 billion in capital and more than 7 percent of Myanmar’s approved foreign investments.

Mining is an easy earner for the government. State policy now dictates that the government shall “not make investment on its own” in mining but instead “encourages foreign and local investors to invest with advanced technologies.”

But the official sales pitch often glosses over an inconvenient fact: most of Myanmar’s precious minerals are located in terrain still claimed by indigenous guerrilla armies.

“Yes, most mining areas are insurgent areas,” Kyaw Htet told foreign investors at a recent conference. “You should request from local authorities for secure conditions. We will assist your request. But the department is not responsible for these matters.”

Soe Thein has his own means of appeasing armed factions that roam mountains rich in gold. “Just pay them. They need money,” he said. “You give them enough and, trust me, they’re satisfied.”

Late in life, Soe Thein has become a gadget freak emboldened by Myanmar’s market reforms. Until recently, officials priced cell phone registration chips at more than $1,500 to keep them beyond the reach of most citizens and allegedly to prevent a communication network too massive to spy on. Today, street kiosks rent insertable chips for less than $50.

“This would have cost me $3,000 a few years ago!” said Soe Thein, gleefully brandishing his Samsung smartphone. He is enamored with its GPS feature, a valuable tool when navigating the countryside. “Within two meters, it tells me where I am.”

There is only one region in Myanmar where Soe Thein will not tread: northern Kachin State, a battleground between state forces and the native Kachin Independence Army. “There is a lot of gold in Kachin State,” he said, “but also a lot of fighting.”

He is more keen on eastern Karen State, where villagers using ancient panning techniques are driven out by larger operators with industrial blast hoses. “The villagers don’t know what they’re doing,” he said. “They only look for solid yellow rocks. If it’s mixed with another substance, they just throw it on the ground. Such a waste.”

At last, the fall of sanctions has freed Soe Thein to summon the sort of partner he has awaited for decades. “A Canadian friend is landing this weekend,” he said. “We will go treasure hunting!”

China’s Power Push

However coveted, Myanmar’s mineral reserves are only its third most-popular investment among foreign operators. Mining is dwarfed by energy, a sector dominated by hydro-dams, oil jetties and gas pipelines. But any Western newcomer seeking a slice of this market will find that it is already dominated by the Chinese.

As Beijing struggles to power its development spree, Chinese energy projects have overwhelmed Myanmar’s foreign investment picture. According to government spreadsheets, a staggering 83 percent of current foreign investment pledges, most of them from Beijing, are classified under the headings “power” or “oil and gas.”

If realized, Beijing’s grand designs could transform Myanmar into China’s gas station and its de facto second coast.

As it stands, oil tankers inbound from the Middle East must chug for weeks around mainland Southeast Asia. But by 2013, 600 miles of oil and gas pipelines will connect Myanmar’s coast directly to China’s booming Yunnan Province. In addition to Arabian oil arriving by ship, the pipelines will also pump Myanmar’s own oil and gas deposits from rigs erected offshore.

These energy-focused developments are planned in tandem with a series of coastal ports that will receive cargo from all points west of the region. A web of Chinese-built superhighways will link Myanmar to the far coast of Vietnam and every major city in between. “It’s very strategic for the Chinese,” Kyaw Zaw Maung said. “You can save fuel and you can save time.”

This deluge of Chinese investments has been secured in the old way of doing business, namely closed-door agreements with generals and their confidantes. But a growing number of Myanmar-based enterprises are eager for a business model that treats Yangon CEOs as equals and props up their projects with Western technology.

“We look for companies that share with us and treat us with respect,” said Ken Tun, the energy conglomerate CEO. He claims to reject outsiders who expect his firm to broker with officials behind the scenes, take a check and step out of the way.

“People come to my office and say, ‘Hey, I want this project. Can you influence the government?’” Ken Tun said. “I’ve had enough of this. I say, ‘No, if you want that, go find another partner.”

A Boom Town in Flux

Romantics fall hard for Yangon, where golden spires glow above a low skyline of British colonial structures in decay.

But any executive drunk on Myanmar’s hype will sober up shortly after landing in the city. Though evolving fast, it remains a hostile place to those weaned on business-class convenience.

Hotels cannot not take Visa or Mastercard, although Visa announced recently that visitors will be able to use cards "within a matter of months." The decrepit power grid shorts out on a near-daily basis. Sluggish internet speeds recall the 1990s era of screechy dial-up modems. Open sewers abound.

Moreover, many foreign firms will find themselves paying through the nose to set up shop here. Yangon, one of Asia’s poorest major cities, is reeling from a speculation-fueled property bubble.

“It’s like being a star overnight,” said Antony Picon, a Yangon-based associate director of research with the Colliers International real estate services firm. “For any country, that’s difficult to deal with.”

After an extensive study, Picon has determined that Yangon offers just 60,000 square meters of office space. That's paltry: the largest office building in neighboring Thailand holds nearly triple that space. The supply crunch, Picon said, has sent Yangon’s going rate soaring to $60 per square meter. He expects the figure to peak at $150 — overshooting typical rates in Beijing ($140) and New York ($120) — before slinking back down.

Those who control Yangon’s properties have overestimated the depth of foreign firms’ pockets, Picon said. “They think guys are going to come in with billions of dollars, helicoptering in and saying ‘Here you go. Here’s your briefcase,’” he said. “It’s not going to happen.”

This is a symptom of what Yangon marketing mogul Moe Kyaw terms “jade disease.” Locals who’ve grown rich “exporting that green rock to China,” he said, have led a spree of speculation purchases in the high-end property market. “What they did, because they’re not that educated,” he said, “is buy property.”

“I do think there will be a burst in the bubble soon,” Moe Kyaw said.

Such are the uncertainties that scare off the meek and make wildcat investors salivate. To stoke their appetites, the government is offering a flurry of incentives: five-year tax holidays, cheap rents at industrial zones with 24-hour electricity and the right to own companies outright with no local partnership.

Myanmar’s true test will not come until 2015, the year its army-backed parliament has vowed to hold the first truly free election in 25 years. But those bullish on Myanmar contend that its ascent is guaranteed — provided the generals and their cronies continue relaxing their stranglehold on Myanmar’s markets and its people.

“This is a beautiful country. People fall in love with the place,” Picon said. “Even through adversity, people will develop an even stronger connection. Even investors will have a sentimental edge.”