Thilawa is located some 20 miles down the coast south of Yangon, the commercial center and former capital of Myanmar in the days when it was more famously known as Burma. There, a gleaming new multipurpose port complete with 3,300 feet of berth — with a planned adjacent special economic zone likely to house a cluster of original equipment manufacturers — stands testament to the rapid transformation of Myanmar's economy.
Similar infrastructure projects and trading zones are planned, or already under construction, at numerous locations across Myanmar, which until two years ago was a virtual international pariah under its oppressive military regime.
Certainly, the liberal political and economic reforms undertaken by President Thein Sein since 2010 are helping to speed the country's integration into the global economy. Most trade sanctions — those not related to arms, at least — have been removed, and more than 20 international airlines now serve Myanmar’s airports.
With trade barriers falling, shipping, infrastructure and logistics companies are surging into a country that analysts believe can become a major new market for imports and a trade and manufacturing hub.
Within the past few months, two major Scandinavian shipping giants have issued statements of intent: MCC Transport, A.P. Moller-Maersk’s intra-Asia subsidiary, launched a feeder link between transshipment hubs in Southeast Asia and Yangon; and Wilhelmsen Ships Service opened its first office in the country as part of a global expansion program.
Most major third-party logistics providers now offer international services to and from the Southeast Asian country. In July, Damco secured a long-term operating license to offer end-to-end logistics services. In the same month, a consortium led by South Korea's Incheon Airport confirmed that it had won the bid to build Hanthawaddy International Airport near Yangon by 2018 and operate it for up to 50 years. Separately, Mandalay International Airport will be expanded to include extensive logistics facilities.
For transportation and logistics companies, the potential rewards of establishing early bridgeheads are huge. Myanmar boasts rich natural resources, and its low-wage economy and population of 60 million already is attracting textile firms. In terms of consumption and development, large parts of the economy are untapped, and rapid GDP growth is predicted over the next decade — as long as Sein’s commitment to democracy remains strong in the run-up to 2015 general elections.
Foreign direct investment jumped fivefold to $1.5 billion in the last fiscal year, almost all of it aimed at garment manufacturing. The influx of capital has accelerated this year, with some $423 million of FDI in June alone.
Myanmar also has a superb location at the crossroads between India, China and the rest of Southeast Asia and, as a member of the Association of Southeast Asian Nations economic bloc, benefits from a range of free trade agreements, most notably with China. The country also is likely to attract more foreign investment in anticipation of the formation of the ASEAN Economic Community in 2015, which will remove trade barriers between member countries.
“There are investors in ASEAN that can take investment into Myanmar and are now doing so,” said Tony Emms, managing partner at Stanton Emms Strategy Consultants. “The ASEAN Community and its FTAs with China and Australia can be a major catalyst for change, as can higher production costs in China, which could tempt some companies to transfer to Myanmar.”
The International Monetary Fund’s most recent report on Myanmar said GDP in the medium term could average around 7 percent. “In addition to abundant natural resources, it has fertile land, a young, cheap labor force and a strategic geographic position, which could provide an entry point into Asian supply chains. Investor interest is high,” the report said.
New port and trading zones are being established at Kyaukpyu, Sittwe and Dawei, and new road links to Thailand, India and China are promoting further growth. Medium-term prospects are bright, especially if Myanmar addresses key institutional constraints, analysts and logistics companies say.
MCC Transport’s new Yangon feeder service operated with French carrier CMA CGM links into global liner networks via transshipment hubs in Singapore and Malaysia. “With its sizable population, strategic geographical location and natural resources, the Myanmar market has huge potential,” MCC Chief Executive Tim Wickmann said.
The new Wilhelmsen Ships Service office will primarily serve maritime activity at the Port of Yangon, particularly in support of offshore and energy sectors, according to Bjorn Tonsberg, the company’s Asia-Pacific vice president.
He predicts the country will develop into a high-growth market. “With borders to China, Thailand, India, Laos and Bangladesh, Myanmar has strategic regional importance,” Tonsberg said. “Increased exploration activities are expected in the offshore and energy industry with the continued presence of oil and gas majors. Also, there are signs of increased trading with Japan, Europe and the U.S.”
But with great opportunity also comes huge risk. Myanmar ranks 128th out of 155 countries in the World Bank’s Logistics Performance Index, while it is 172nd out of the 176 nations included in Transparency International's 2012 Corruption Perceptions Index. The difficulty of doing business in Myanmar explains why many investors are merely dipping their toes in the water.
Tonsberg said WSS’s new office was a medium-term investment because “the market does not expect to see a significant increase in vessels calling at Myanmar this year.” Hutchison Port Holdings, the Hong Kong-based terminal operating company, declined to comment about whether its new terminal at Thilawa had attracted any regular liner services.
If Myanmar is to develop into a trading, manufacturing and logistics hub, a slew of issues need to be addressed to overcome its long history of severe macroeconomic mismanagement and low capital base. In order to translate its many favorable endowments into high, sustained and inclusive growth, Myanmar’s institutions and policies to manage the economy and financial system need to be reformed with some haste, according to the IMF. “In addition, policies supportive of private-sector investment as well as public spending on infrastructure, health and education are required,” the IMF report says.
Hanna Luchnikava, an IHS economist specializing in the Asia-Pacific region, notes President Sein’s semi-civilian government is backed by the military, and the majority of Parliament is still deeply tied to the former military junta.
“Although so far the reformist measures of Thein Sein’s administration have met little political resistance, this could become more controversial once the new economic and business order begins to conflict with the interests of Myanmar’s tycoons closely tied to the military,” she said. “Besides, given the fact that Myanmar’s largest natural resources are largely concentrated in the ethnic minority regions, growing ethnic and sectarian violence could also derail the momentum.
“Thus, it still remains critical who will continue the reform process following the 2015 elections and how the intra-national sectarian issues will be managed,” Luchnikava said.
She also believes Myanmar’s lack of experience in fiscal management could prove a stumbling block, given its rich resources, a combination that elsewhere has led to “Dutch disease” whereby large inflows of capital are mismanaged, leading to inflation, currency appreciation and the reduction of manufacturing competitiveness.
“Myanmar lacks even basic financial infrastructure, while numerous onerous restrictions on banks and financial institutions are still crippling the financial sector,” she said. “The infrastructure can be built fairly easily with help from foreign investors, but financial sector oversight and sound regulation will be difficult to achieve over the short term.”
With less than a third of Myanmar’s population able to access the national power grid, more investment in energy infrastructure also is needed, particularly as mining and manufacturing usage increases pressure. And given that the majority of Myanmar’s labor currently is occupied in agriculture and equipped with few skills transferable even into basic manufacturing and services, intensive investment in education, health care and other social services is also required.
“Even as part of the ASEAN community, Myanmar maintains a large number of protectionist policies which would need to be brought in line with the international standards to open up Myanmar’s economy to foreign trade beyond raw minerals and to raise its international competitiveness,” Luchnikava said. “These are just a few of many issues Myanmar needs to address. The key will be execution, as Myanmar currently drafts and adopts hundreds of new laws consistent with its new political and economic agenda.”
Yangon translates into English as “end of strife.” Finding a peaceful means of pushing through transformative economic, social and institutional reforms remains a tall order for Myanmar’s political leaders. But they must succeed if Asia’s brightest new star is to realize its rich potential and discard the baggage of its troubled history.
Contact Mike King at firstname.lastname@example.org.