BoAML: great uncertainty in Myanmar game change

Author: | Published: 3 Apr 2012
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Bank of America Merrill Lynch (BoAML) has warned of over-enthusiasm and great uncertainty in the opening up of Myanmar. 

In a  Myanmar research report  published today, the bank’s Global Research Head of Emerging Asia Economics, and report author, Chua Kah Bin said Myanmar’s potential was significant. But cautioned political reforms were still at an early stage.

"The opening of Myanmar is a game-changer," he said. 

"Myanmar sits at the crossroads of some of the largest and fastest growing Asian economies. The 62 million population base is relatively young. The British also left behind a legal system which is better developed than the rest of Indochina," he said.

But he said, as with any gold rush, there was probably some over-enthusiasm. "There is great uncertainty over how the military will manage the challenge and erosion to its influence and control," he said.

Other potential foreign investors have said this ambiguity poses a considerable challenge to increased involvement in the country.

Dragon Capital’s Dominic Scriven told IFLR it would be very constructive if the Myanmar authorities were to make public its reform agenda. 

The Myanmar government is now being assailed from all sides with foreign interest groups requesting tax codes, employment and trade liberalisation, Scriven said. "It is unfair to expect any government to address all of those concerns at once."

But if a reform agenda were to be made public, outlining the calendar of change anticipated to the rest of the world it would help to better manage expectations, he said. "It would go some way to stopping every exporter out there believing that Myanmar is immediately going to open up to be a viable market for them," he said.

A realistic, well-researched and patient approach to investment in the country was vital, he said. 

"There is a lot of good will on both sides and a lot of enthusiasm on the Myanmar side to engage with would-be investors," he said. "But the principle law should be caveat emptor until the feasibility of investment becomes clearer."

There remains a great deal of uncertainty as to foreign investors’ ability to deploy capital, as well as their ability to put investments to work in a way that has sufficient scale and a level of predictably, he said.

BoAML’s Chua Hak Bin said that the central bank will have to keep inflation contained and the local kyat currency stable, amid a surge in capital inflows. "An overvalued kyat - driven by a commodity boom - may also risk jeopardising prospects for both the manufacturing and agriculture sector, which generate the bulk of employment," he said.

Scriven likened the situation in Myanmar to that in Vietnam two decades ago. "This is a country that has been isolated for decades and that means business practices are also decades removed from the rest of world, he said. "Pitfalls must be expected."

One Yangon-based market participant said it was impossible to know where you stood.

"You simply don't know what directive will come next or when," he said. "The government is in such a state of disarray that even the civil servants often do not understand what it is that they are supposed to be doing."

"Forget the pretty pictures you've seen of the new capital and structured appearance, the truth is somewhat different," he said. "Just today I was submitting an application for a permit at one of the ministries and the guy behind the desk told me to call back on Monday as government policy in the mornings was different to that in the afternoon. 

"He laughed, I laughed, but it was understood he wasn't joking. There has to be clarity, and right now there isn't."

Myanmar has announced a series of reforms across the country’s political and economic landscape in recent weeks, in a bid to open the country to foreign investment after years of harsh economic sanctions. 

These include a new communications law, an updated foreign investment law and the introduction of currency reform, unifying up to seven different rates used by business, government and consumers on April 1.