Burma’s road to business acceptance

Euromoney, February 2012

With every step Myanmar takes towards political reform, western bankers are moving closer to being able to move in to a new emerging market. When they do, they might want to look at the experience of other countries in the region that have made the same transition.

Until as recently as a year ago, Myanmar – Burma, if you prefer – was an utter pariah in the world economy: a repressive regime, holding political prisoners (one of them very famous indeed), cruel to its citizens and in particular to its ethnic minorities. Then came an election – hardly a model of democracy, but a start; then Aung San Suu Kyi’s release; then a promise of a civilian leadership; and most recently a freeing of political prisoners. Now Hillary Clinton has visited and upgraded diplomatic relations, the EU has ended travel restrictions, and – crucially – Suu Kyi has stopped calling for a tourist boycott.

So the direction is very clear, and it seems that it won’t be long until US and European banks are allowed to do business in the country – perhaps not directly with the big state-owned oil and gas players at first, but certainly with the nascent private sector.

In working out how all of this will play out, it’s instructive to look at two other Asian countries: Indonesia and Vietnam.

The Indonesian example is useful because it shows us what happens when a country moves from a military-led dictatorship to a democracy. Lesson one: it isn’t easy. In fact for years, it’s horrible. Lesson two: but it can eventually work out fine. That doesn’t necessarily mean ushering in the pro-democracy figurehead with open arms; Indonesia’s president is a retired army general. But the compromises along the way can be managed, and the economy can grow mightily along the way.

The Vietnamese example is illustrative because it tells you how little a country has to move for the west to decide it’s OK to engage with it. No free elections in one-party, Communist Vietnam; not the slightest hint that there ever will be, just like in China. Vietnam is not noticeably any nicer to its citizens today than it ever was, yet it has attracted bounteous FDI, portfolio flows, and foreign commercial and investment banks. In other words, a country only has to open up a bit for it to become officially OK to be pitching for business there, and once that happens, it’s open season.

So what’s in Myanmar for international, western banks? One problem is that they’re late to the party. It has never bothered Chinese, or Thai, or any Asian banks that the rest of the world doesn’t like Myanmar’s generals. It’s in Asean, and therefore they’ve always done business with it. But still, the trade flows between Myanmar and the rest of Asia represent an opportunity for commercial bank involvement, and one can already envisage a path towards a more active stock market (remember Vietnam’s only start in 2000, with just two stocks) and a privatisation program of the big oil, gas and even teak enterprises.

What’s next? There will be a by-election in April, in which Suu Kyi’s National League for Democracy will participate, and after that the US will make a decision on the sanctions it has had in place since 1988, which among other things freeze assets and curb money transfers. The UK and EU will be watching closely too. If it goes well, it’s not too hard to picture branches of HSBC, Standard Chartered and Citi on the historic street corners of central Yangon before too long.