Myanmar is changing at great pace and has seen fast economic transformation in the past years on the back of political changes. In 2011, after 50 years of international isolation under a military junta, President Thein Sein multiplied signs of economic and democratic openness (political prisoners freed, media censorship relaxed…) and started a dialogue with opposition leader Aung San Suu Kyi. Myanmar could take off. Political reforms were rewarded by a significant external debt relief before paving the way for a sharp easing of international sanctions. Normalisation with external creditors and reintegration into the global economy contributed to lift GDP growth to an average 7.8% in 2012-2014, i.e. Asia’s second highest rate, with a forecast above 8% in the medium term.

The factors behind Myanmar’s strong performances and high investor attractiveness are straightforward. It is rich in natural resources (gas, mining…), has a cheap and young workforce for the manufacturing sector that is faring positively with regional competitors, notably in textile, and has high potential in hydropower and agriculture. Moreover, long isolation means that everything has to be done, from developing very poor infrastructures to expanding a largely untapped consumer market. As a consequence, FDIs are on an upward trend (first in energy, followed by telecom and manufacturing), boosted by several special economic zones and a new FDI law. They should also benefit from a suitable location between China and India. The ongoing reform drive, which has led to a unified exchange rate system and an independent Central Bank, and alleviated trade hurdles, helps building confidence. All those developments have enabled Credendo Group to remove cover restrictions on short-term credit transactions and upgrade its ST political risk rating to 5/7 early this year.

Nevertheless, many structural risks mitigate the optimistic stance

Despite impressive progress, Myanmar still presents many risks that should persist for long. Most of the population is poor and doesn’t benefit from the economic boom which is a source of instability in a climate of rapid development. This complicates the task of inexperienced authorities which are faced with complex macroeconomic management issues in spite of the country’s good fundamentals. Moreover, given that Myanmar is reliant on gas for 30% of its exports, tumbled energy prices could affect low but still adequate foreign exchange reserves and maintain the kyat on a depreciating path. Of high concern, the business environment is very difficult and volatile, with one of the world’s deepest corruption, an uncertain rule of law and infrastructure bottlenecks. Another impediment to business lies in the small and underdeveloped banking system. Though recent fast credit growth has been testimony of speedy improvement, many restrictions still hinder access to financing and increase international transfer risks in what mainly remains a cash economy.

The domestic security situation is a rising political risk. Long-lasting ethnic conflicts in border regions and rising Buddhist and nationalist radicalism against the Rohingya minority (and Muslims) represent high risks of unrest and violence which could be further exacerbated by the rapid economic development. Social protests have indeed much increased in past years as a result of environment degradation and contentious land acquisitions for industrial projects in a still massively rural country.

Myanmar’s fate at a turning point

Landmark general multi-party elections are scheduled next November. The most likely outcome is a victory of San Suu Kyi ‘s party and a continued political transition. However, as the political process is slowing down and constitutional reforms are facing resistance – Mrs San Suu Kyi is barred from presidency -, the military elite is expected to stick to their vested interests and limit political reforms by keeping a blocking minority in Parliament. Disappointed democratic expectations could fuel internal instability, increase ethnic tensions and cloud the economic outlook. Though Myanmar irreversibly seems on its way to economic openness and development to remain a promising frontier market, huge challenges, notably political, could hold it back and leave the risk outlook uncertain.

Strengths Weaknesses
Low external/public debt High political uncertainty beyond upcoming elections
Vast mineral wealth (net fuel exporter) Many conflicts in multi-ethnic Myanmar
Competitive labour costs and young workforce Weak institutional capacity
Location between India and China Difficult business environment (infrastructure bottlenecks, underdeveloped banking system, heavy corruption...)