Myanmar is one of the least developed countries in Asia with both unique opportunities and considerable obstacles for foreign investors. It can be seen as one of the last green fields in the most dynamic economic region in the world ready to be shaped in all sectors of public life and business. This publication aims to analyse the major opportunities and threats that this country provides for investors.
We will start by giving an overview of hard facts and the status quo of the national development. According to the Human Development Index of the United Nations, Myanmar is one of the least developed countries on earth. The GDP per capita is among the weakest in ASEAN together with Laos and Cambodia. Only 3 Million out of its 53 Million citizens belong to the consuming class (people with at least $7,500 annual income).
40% of Myanmar´s GDP is generated through agriculture, which makes the economy vulnerable in case of natural disasters such as flooding. Moreover, more than 70% of the workforce works in agriculture, and only 10% of the population has completed secondary schooling. After years of political instability and isolation, Myanmar is slowly opening up its economy to the world.
Therefore, we can ask a question: “Why would a foreign investor consider investing in Myanmar?” The answer lies in the diverse opportunities that the country’s market offers.
Myanmar has an excellent strategic location. Situted on the crossroads between China, India, Bangladesh and other ASEAN countries, it borders with markets that are home to about 3 billion people. By 2025, more than half of the world´s consuming class will live within a five-hour flight of Myanmar.
The Burmese domestic market is sizable, with over 53 million people.
When it comes to investment opportunities, the country is one of the last green fields in Asia. Although there are still some restrictions to foreign investments, Myanmar shows a clear trend towards opening up its economy. The government is willing to liberalize the market and attract foreign investors. A proof thereof are three Special Economic Zones (SEZs), which are currently being set-up with one already implemented. Those SEZs provide simplified set-up processes and other investment incentives for businesses.
The infrastructure in the country is underdeveloped, which is both a challenge and an opportunity. The government encourages foreign investors to support the construction of highways, international sea ports and airports. This shows that authorities are aware of the opportunity that the strategic location offers and of the need to develop proper infrastructure networks to provide a connection between some of the key international economies.
Moreover, the country starts to include itself into international relations. Bilateral Free Trade Agreements (FTAs) are being concluded and Myanmar is integrated into important economic communities such as ASEAN Economic Community (AEC) and the ASEAN-China Free Trade Area. On the other hand, Myanmar still benefits from preferred tariff schemes due to its classification as a least-developed country (LDC). This is a clear advantage for investors who are willing to manufacture in and export out of Myanmar.
In terms of economic development, Myanmar shows constant GDP growth figures of about 8% since 2012.
Investors start to see those benefits and opportunities that Myanmar offers. The value of Foreign Direct Investments (FDIs) went up to 9.4 billion US Dollar in 2016. Compared to 2013, this is an increase of 129%!
The most promising sectors for investments are power, manufacturing and infrastructure.
In the power sector, Myanmar possesses abundant and immediately available resources. The potential in hydropower, solar and wind power, and natural gases is enormous. Petroleum gas is the most important export good of Myanmar, as it accounts for 38% of the country´s total exports.
In terms of manufacturing, especially labour intensive industries such as garment, footwear and toys are under demand due to the low labour costs. Furthermore, there is a potential in agriculture-related manufacturing. The agricultural sector as the backbone of the Burmese economy is aimed to be modernized and automatized. Besides that, all manufacturing activities that support the building industry and urbanization process are under high demand.
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Besides the infrastructural challenges, companies in Myanmar have to deal with an underdeveloped business environment. The economy is mostly cash-based, even in B2B transactions. Communication is hard due to the lack of a comprehensive and reliable telecommunication, internet and mobile phone network.
According to a McKinsey study, general management skills in the country are not up-to-date. There is a lack of best practice implementation in the country. As an example, the McKinsey study found that in half of the observed factories, less than 50% of the space is actually used for operations. There is still a big potential to increase productivity.
Before investing in Myanmar, investors should be aware of both opportunities and risks. There are clear obstacles for an investment due to the underdeveloped structures in the country, but those could be worth taking regarding the big opportunities that Myanmar has to offer. Especially manufacturing and activities that support the country´s urbanization and modernization are promising.
If you consider investing in Myanmar, do not hesitate to contact us for deeper market insights and information.