Strategies & Market Trends : Myanmar (formerly Burma)

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From: Glenn Petersen4/12/2012 6:28:56 PM
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Stumbling Blocks in a Booming, Newly Opened Economy

New York Times
Published: April 12, 2012

Adam Ferguson for The New York Times

The price of bricks has risen 20 percent over the past year in Myanmar, one of many ways the country is struggling to cope with the sudden shift in its economic landscape.

YANGON, MYANMAR — It is a time of exuberance and hope in Myanmar, but the business owners who file into the office of Daw Saw Yu Nwe, a prominent fortuneteller, are fretting about the future. Ms. Saw Yu Nwe’s clients — including hotel owners, gem merchants, contractors and shrimp farmers — arrive in a room filled with Buddha statues and wafting incense, but they are laden with worries.

“They don’t believe in the system — they don’t believe it will benefit them in the long run,” Ms. Saw Yu Nwe said.

As Myanmar opens up to the world, foreign investors and investment banks that ignored the country for decades are viewing it as virgin territory, an untapped market where only 4 percent of the population has mobile phones and still fewer people have washing machines or air-conditioners, let alone cars.

“Myanmar has a high growth potential and could become the next economic frontier in Asia,” said Meral Karasulu, an official at the International Monetary Fund in Washington who led a mission to Myanmar in January. She described the country today as having a “historic opportunity” to lift living standards.

But many people who work in Myanmar — both natives and foreigners — say they are worried about the shortage of skilled labor, the absence of a solid legal system, deeply imbedded corruption, crumbling infrastructure and surprisingly high prices.

Despite pervasive poverty and dilapidation, real estate prices have soared to levels higher than those in central Bangkok, the modern Thai metropolis that is an hour away by airplane but decades ahead in terms of economic development. Property prices in some areas in and around Yangon, the country’s economic capital, have tripled over the past year.

The disorienting changes in the country are driving many of the wealthy and influential in Myanmar to traditional fortunetellers, who are often consulted before important decisions. As she examines the palms of her clients, Ms. Saw Yu Nwe tells them that doing business in the new Myanmar will be like trying to taste “a drop of honey on a sharp knife.”

“The taste of the honey will be very delicious,” she says, “but if you’re not skillful you will cut yourself.”

A gold rush mentality among foreigners has overwhelmed the dozen or so top-tier hotels in Yangon. The number of foreigners visiting the country rose 26 percent last year, according to the Asian Development Bank. Available rooms are scarce, and hotel lobbies are filled with bankers and executives wearing expensive shoes and suits cut from fine cloth, a sharp contrast with the grittier foreign visitors — adventure travelers and aid workers — of years past.

At one of Yangon’s most exclusive hotels, The Strand, the least expensive room this week was going for $430 a night, the equivalent of three months’ salary at one of the garment factories on the outskirts of the city.

There are signs that Myanmar is struggling to cope with the sudden shift in its economic landscape, and with the economic speculation such changes generate. With buildings in Yangon rising from long-neglected vacant lots, for instance, the price of bricks has risen 20 percent over the past year.

“This is the highest price I can remember,” said U Mya San, a 42-year-old brick seller. “My customers are amazed. They can’t afford it.”

Although the government of U Thein Sein, the president of Myanmar and the main driver of liberalization, has been in office for only one year, there are already severe shortages of some categories of workers.

“A lot of companies are asking for top managers in sales and marketing,” said U Ko Lin, the director of Career Development Consultancy, a leading recruitment and employment agency in Myanmar. “I can’t find them the right people. It’s very hard.”

Last month, Mr. Ko Lin received a Japanese delegation scouting for business opportunities, and he was told that one of its members’ main concerns was the local pool of labor. “Everyone has the same conclusion: There’s a lack of skills,” Mr. Ko Lin said. “It all comes back to the education system: Because of the poor schools, you don’t have quality people.”

Myanmar’s education system was decimated during what the Asian Development Bank calls “50 years of stagnation” under military rule.

The South Korean manager of a shoe factory in Yangon said that trying to find even unskilled labor could be challenging. “We have an extremely hard time finding employees,” said the manager, who had been advised by his company’s lawyer not to give his name because that could have jeopardized the company’s operations in the country.

The manager, who has worked in Myanmar for three years, estimated that about half of his workers were functionally illiterate. “Their education level is much lower than I expected when I came here,” he said.

Also a surprise, he said, was the contrast between workers in Myanmar and those his company employs in countries like Vietnam, China or Indonesia. Workers in Myanmar are gentle and friendly, he said, but “not very motivated by money.”

During the years of military rule, there was an exodus of Burmese talent, primarily to Malaysia, Singapore, Thailand and the Gulf countries. The government has said it hopes to lure back Burmese who are living abroad. But for overseas Burmese earning relatively good wages abroad, returning to Myanmar may be a question of price.

Mr. Ko Lin said, however, that Burmese engineers working in Singapore in the oil or natural gas industries could sometimes demand salaries in Myanmar higher than what they were earning in Singapore.

Southeast Asian countries are integrating their economies with the aim of forming a single market in 2015, but in some fields the supply and demand for labor have already become borderless.

“If companies can’t pay the amount that the market is paying, they won’t get the right people,” Mr. Ko Lin said.

The high wages that companies must pay in Myanmar to attract experienced workers undercuts some of the advantages typically associated with less developed countries.

With prices broadly inflated by a sharp rise in speculation, Myanmar is by some measures more expensive and less efficient than its neighbor, Thailand.

The average office rent in Sakura Tower, in the heart of Yangon’s business district, is $50 per square meter a month, or about $4.65 per square foot. That is twice the average rent for an office in the central business district of Bangkok, said Surachet Kongcheep, senior manager of the Thai branch of Colliers International,a real estate company. But unlike companies in other large Asian cities, those in Yangon must deal with regular power failures, unreliable Internet service and primitive telephone connections to the outside world.

The main problem with the Yangon rental market is a shortage of supply. Colliers estimates that Yangon has a total of only 62,000 square meters of office space. By comparison, a single building in Bangkok, the Empire Tower, has more than twice that amount.

The shortage of office space in Myanmar and the generally battered state of the infrastructure are short-term handicaps for the country, but they could be long-term opportunities for investors.

In many ways, Myanmar is a country waiting to be built. Seventy-five percent of the country’s 55 million people do not have access to electricity, according to the Asian Development Bank.

U Soe Aung, the managing director of Aung Thukha, a construction company, said he expected brisk business in the years to come. Myanmar will adopt more modern construction techniques and build taller buildings, he said.

But he also cautions that the old political patronage system, in which generals and their business partners dominated the economy, remains partly intact.

Government workers in Myanmar still have enormous sway over who gets permits and licenses, a system ripe with opportunities for corruption.

In the old Myanmar, businessmen without connections to the military always feared the authorities. Doing business “was like hitting your head against a giant stone wall,” Mr. Soe Aung said. “The stone wall is being dismantled — but only to some extent.”

These days, bureaucrats are more shy when asking for bribes, he said: “Previously they would say, ‘If you want to do this, then you will have to pay this amount.”’ Now, he said, “corruption is not totally eradicated. But the level has gone down.”

Where does this leave foreign investors? The South Korean shoe factory manager said that doing business in Myanmar could pay off — but only for those with a lot of patience.

“Myanmar is just waking up from a long sleep,” he said.

Poypiti Amatatham contributed reporting from Bangkok.
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