Foreign investor interest grows in Myanmar's newly opened economy

Considered to be the last frontier market in Southeast Asia, Myanmar remains focused on creating the right set of conditions to attract and facilitate foreign investment to spur economic development. Following decades of military rule that maintained a socialist and centrally planned economic model, cutting off access to the world’s financial markets and main trading routes, the country’s ongoing transition towards a market economy and electoral democracy has caught the attention of investors worldwide.

The gradual removal of economic sanctions, initially by European governments and later by the US, contributed to putting Myanmar on the map, gaining a reputation as an increasingly attractive investment destination in the early 2010s. Investors have been drawn in by the size of its internal market, abundant natural resources, fertile land and strategic geographic location between the world’s most populous countries, China and India.

The pivotal event in this transition was the first openly contested national elections, held in November 2015, which resulted in the victory of the National League for Democracy (NLD). The landslide victory of Daw Aung San Suu Kyi’s party expressed the people’s collective aspiration for change, and generated widespread excitement among the local and international business community. After three years in power, initial enthusiasm has slowly given way to scepticism, as the NLD grapples with the challenges posed by economic and institutional reform, as well as the international community’s perception of Myanmar’s internal affairs.

Geography

With a total land area of 676,552 sq km, Myanmar – known as Burma until 1989 – is the largest country by area in mainland South-east Asia, around 20% larger than Thailand and twice the size of Malaysia. Its heartland lies along and around the Ayeyarwady River, which flows from north to south, starting at the confluence of two other rivers, the N’mai and Mali, which carry Himalayan melt waters from the glaciers of upper Myanmar and flow through the northern state of Kachin.

The Ayeyarwady then stretches for 2170 km, eventually emptying into the Andaman Sea via a major delta system. On its path, the river passes through the country’s central basin, an area of plains and dry forests, which is also watered by the Chindwin River. To this day, the Ayeyarwady remains one of the country’s most important commercial waterways, while also constituting a unique ecosystem that is home to animals such as the Ayeyarwady dolphin and some 43 different species of fish.

Surrounding the river basin and its tributaries, are several mountain ranges, which lie in an arc from west to east, forming natural frontiers and historic barriers to trade. In the north, the Hengduan mountain range delineates the border with western China. It is also home to Myanmar’s highest peak, Hkakabo Razi, at approximately 5880 metres.

To the west lie the Arakan Mountains, which constitute a boundary with India and include the Chin and Naga Hills. At the southern tip of this range, a coastal area abuts the Myanmar state of Rakhine to the Bangladeshi division of Chittagong.

Further to the east, the Shan Hills rise, reaching a peak of some 2563 metres and – along with the Karen Hills – form a natural frontier with Thailand. These remote and difficult-to-access ranges also border neighbouring Laos. A further coastal strip of territory runs along the shores of the Andaman Sea. This is also a mountainous area, consisting of the western slopes of the Bilauktaung range, a feature running down into the Malay peninsula.

Main Cities

The largest city in the country is Yangon (formerly known as Rangoon), which the 2014 census counted as the home of 5.2m people, although more recent data estimates there were 6.2m inhabitants in 2017. Located in the Ayeyarwady Delta, Yangon is the economic centre of the country and one of its most ethnically diverse cities. In 2018 most of the population is of indigenous Bamar descent. Yangon was also the country’s capital until 2006, when the title was transferred to Naypyidaw. The new capital, 320 km north of Yangon, had a population of 1.16m in 2014 and is the third-largest city after Mandalay. The latter had a population of 1.22m that year and lies in the heart of the country, on the Ayeyarwady River, in the central basin.

Founded in 1857, Mandalay is still the chief centre of economic and commercial activity in Upper Myanmar, with a large concentration of businesses with links to China, mainly due to its geographic proximity and ethnic ties. Naypyidaw, for its part, is poised to grow rapidly through the presence of all the country’s governmental institutions. Other important urban centres include Mawlamyine in Mon State, with a population of 451,000, and Taunggyi, the capital of Shan State, which had a population of around 381,000 in 2014.

Climate

Myanmar has a tropical, monsoon climate, although there is considerable variation across the country, stretching as it does from the Andaman Sea to the foothills of the Himalayas. Still, there are two major monsoons that affect the whole country.

The first is the north-east monsoon, which lasts from November to April, while the second is the south-west monsoon, which runs from May to September or October. The first of these brings cooler, drier weather, while the latter features a hotter, wetter season. Indeed, during the south-west monsoon, which comes in off the Indian Ocean, some three-quarters of the country’s entire annual rainfall descends. Coastal hills and regions in the north and east get the heaviest rains, with approximately 2000-2500 mm each year. Other, more sheltered areas get about half of this.

The time before the south-west monsoon and immediately after it begins is also the hottest of the year. Between March and June, and in the lowland areas in particular, daytime temperatures can reach as high as 40°C. In the months following this and into the north-east monsoon is the cooler season, which is the most popular time for tourism. Average monthly temperatures between November and February are between 20°C and 24°C. In the north, upper-central and eastern regions, however, temperatures are generally lower all year round, given the higher altitude. Night-time temperatures in these areas may drop to the single digits.

Natural Resources

The country’s climate and geography provide it with a substantial bank of arable land, forestry and fisheries, and Myanmar is also home to a wide variety of minerals and ores. These natural resources form the staples of the country’s economic wealth as they underpin many local industries and also constitute the target of the majority of foreign direct investment (FDI) inflows.

The Department of Geological Survey and Mineral Exploration lists 62 commodities present in the country, which can be found in more than 2000 locations. The minerals portfolio includes precious stones, such as the largest deposit of jade in the world, located in Kachin State. The region of Mogok, in Upper Myanmar, has been known as the Land of Rubies since around the 13th century. In addition, substantial deposits of lucrative metals exist, such as tin, copper, gold and zinc, along with industrial minerals, such as fire clay, bentonite, feldspar and asbestos (see Mining chapter).

Myanmar has a relatively long history of extracting hydrocarbons, with crude oil first being exported in the mid-19th century during the British colonial era. Recoverable crude oil reserves are estimated at approximately 3.2bn barrels, and the government is looking to bring in foreign players to increase oil production from the country’s 53 onshore blocks. Myanmar also has a reputation as a natural gas producer, with four offshore gas projects – Yadana, Yetagon, Shwe and Zawtika – that total an estimated 18.3trn cu feet of reserves. In 2017 the French oil major Total started production from the Badamyar project, an extension of the Yadana gas field (see Energy chapter). The opening of the Badamyar low-compression platform in May of that year shows that despite lower oil and gas prices, international hydrocarbons firms have continued to invest in the sector. While there is optimism about Myanmar’s potential gas reserves, there is also a large degree of uncertainty, particularly at a time when production from existing gas fields is starting to decline.

Following recent gas discoveries offshore, the Ministry of Electricity and Energy (MoEE) has announced a series of exploration and production tenders for 2019, which aim to develop the remaining 15 or more oil and gas fields. In addition, the MoEE has stated that it is reviewing the fiscal terms of its production-sharing contracts in order to make the country more internationally competitive.

Into the Woods

The country has large forestry resources as well, particularly of tropical hardwood varieties, such as teak, ironwood and padauk (cherry wood). However, rapid deforestation has taken place, with Myanmar registering the third-highest annual rate of forest reduction in the world in 2010. According to the UN Food and Agriculture Organisation, between 1990 and 2015 Myanmar lost around 15m ha of forests and other wooded land (see Agriculture chapter). Nevertheless, the total area covered by forests and wooded land is still significant, at about 43% and 22%, respectively. As forestry remains a major resource for the country, sustainable management of this reserve is vital to the nation’s future, with nearly 70% of the rural population depending on it for their livelihood.

Meanwhile, with 2228 km of coastline, several large estuaries, many offshore islands and major rivers such as the Ayeyarwady, fisheries are also a notable natural resource and is an industry receiving increasing levels of government support.

A large amount of arable land contributes to making Myanmar the seventh-largest rice producer in the world. In addition, the country’s farmers produce maize, peas, onions, sugarcane and groundnuts, among other crops. Cultivated land currently accounts for approximately 15% of Myanmar’s entire surface area, with around 18,700 sq km of this irrigated. Furthermore, the country has some 1045 cu km of renewable water resources, giving its farmers plenty of water for irrigation and other uses.

Demographics

The census conducted in 2014 was the first in more than 30 years and was undertaken with the financial support of the UN Population Fund (UNPF). The survey determined the country’s total population to be 51.4m; the UNPF estimates the number of inhabitants in 2018 at around 53.9m. The survey took place under difficult circumstances, however, with some ethnic groups boycotting the process, and conflict and displacement affecting counting. Despite concerns over the accuracy of the results, the 2014 census provided a demographic snapshot of a country where consolidated data remains limited.

Of the 51.4m inhabitants in 2014, the census showed a fairly even gender split, with females comprising 51.8% of the total and males 48.2%. Geographically speaking, 29.6% of the population lived in urban areas. As a growing number of rural residents look for new opportunities in major cities, this percentage is increasing. Still, despite the growing number of people migrating to the main urban centres – particularly Yangon – Myanmar is still predominantly a rural country, with agriculture playing a fundamental role as one of the main income sources for local families.

Yangon is Myanmar’s most urbanised region, with some 70% of its population living in urban wards. Yangon is also the most densely populated region in the country, containing 14.3% of the population. This represented a 11% rise when compared to the population of the city at the time of the previous census in 1973, which illustrates the economic attraction of the country’s primary metropolis.

However, due to decades of political seclusion and economic isolation, the military regime did not invest in the development of Yangon’s infrastructure and housing. Transport networks remain uncoordinated and there is an increasing number of people living in slum conditions. To address this demographic pressure, the regional authorities have promised to take measures to provide affordable housing by commissioning the construction of low-cost apartments. A response to these conditions is critical, considering projections by UN Habitat that Yangon’s population will grow by 4% per annum to reach more than 11m habitants by 2040.

Alongside internal movement, migration to other countries is a relevant issue for Myanmar. Some 2m citizens live and work abroad – approximately 70% of them in Thailand. Around 60% of these migrants are male. Outward migration has long been a factor in the country’s demographics, with internal ethnic conflicts prompting displacement to neighbouring countries. Poverty at home and higher wages abroad have also led many to leave.

Another interesting conclusion of the 2014 census is that Myanmar has a youthful and literate population. The median age at the time of the survey was 27, with some 55% of the population under the age of 30. The percentage of literate people is 89.5%, compared to 80% in Cambodia and 73% in Laos. This combination draws the picture of an educated, young population with few dependants – a profile that implies a positive outlook for the country’s short- to medium-term economic development.

However, as experts widely point out, sustainable growth will only be possible with increasing investment in education. Despite being one of the electoral planks of the NLD, the sector remains poorly funded, memorisation prevails over the cultivation of critical thinking and syllabi are generally outdated (see Education & Health chapter).

Religion

Myanmar is home to a wide variety of religious groups, as its population sees religious affiliation as an important part of life. Buddhists make up the largest group, with the 2014 census showing that 87.9% of the population identified as such. The majority are Therevada Buddhists, who are followers of the orthodox “school of the elder monks” that uses the Pali canon – a collection of scriptures – as its doctrinal core. This is the school of Buddhism most prevalent among residents of South and South-east Asia.

Myanmar is commonly thought to have the highest proportion of Buddhist monks per capita in the world, with the Sangha – the Buddhist monastic order, including monks, nuns and novices – playing a key role in the country’s recent history and politics. There are two primary orders of monks: the Thudhamma Nikaya (88% of all monks) and the more traditional Shwegyin Nikaya. Seven other orders are also officially recognised.

Myanmar’s Christian community is the next largest, accounting for 6.2% of the population in the 2014 census. Largely introduced by Western missionaries from the 18th century onwards, around four-fifths of Christians are Protestant and the remainder are mostly Catholic. There is also a relatively small Armenian Orthodox community centred in Yangon. Most Christians belong to minority ethnic groups, such as the Karen, Chin, Lisu and Lahu.

The third-largest religious group is Muslims, at 4.3%, although discrimination and controversy have cast some doubt on the true size of this community. For example, the Rohingya, one of the largest groups of the local Muslim population, were not counted in the 2014 census as they are not officially recognised as an ethnic designation. The history of Islam in Myanmar stretches back to the 7th century, followed much later by a major wave of Muslim immigration from India in the 19th century. The majority of Muslims are Sunni, with the main concentrations being the Rohingya and Kamein in Rakhine State; Indian-descent Muslims in Yangon; the Panthay, or Chinese Burmese Muslims, in Shan State and the central basin area; ethnic Malay Muslims in Kawthaung; and Zerbadi Muslims, descended from marriages between South Asian or Middle Eastern people and local Burmese.

In addition, there are populations of Hindus (0.5%) and people following traditional, tribal animistic beliefs (0.8%). Although religious customs are generally practised in peace in Myanmar, unrest continues in certain regions, particularly in northern Rakhine State. Acts of discrimination have drawn the attention of international media and have had negative effects on the economy.

The US Department of Treasury announced in August 2018 it had imposed economic sanctions on a further four members of the Myanmar military and border guard commanders for their role in “widespread human rights abuses”. This follows the imposition of sanctions against a military general in December 2017, amid growing concern among Western trade partners and foreign investors. In October 2018 the EU also announced it was reviewing trade preferences granted to Myanmar under the Generalised Scheme of Preferences due to concerns over human rights violations and labour rights abuses.

Language & Ethnic Groups

Myanmar contains 135 officially recognised ethnic groups. The largest of these is the Bamar, accounting for approximately 68% of the population. The Bamar speak the Myanmar language (formerly known as Burmese), which is a member of the Sino-Tibetan group of languages, and live largely around the Ayeyarwady basin. The primary religion of this group is Buddhism, and historically the Bamar have dominated political, military and economic life in the country.

The second-largest official ethnic group is the Shan, with around 9% of the population identifying as such. This group is related to the Thai people and are mainly adherents to Therevada Buddhism. The majority live in Shan State, a large region bordering Thailand, Laos and China in the country’s central east. The Shan speak a variety of languages, some Tibeto-Burman and others Mon-Khmer. They have a long history of independence, with recent times seeing armed conflict in Shan State and its neighbours. A nationwide ceasefire agreement, which was signed in 2015, ended most hostilities, but rival Shan groups have since been in conflict with each other over this agreement.

The third-largest ethnic group is the Karen, making up around 7% of the population. This community primarily resides in Karen State in the south-east, with large numbers having crossed over into Thailand due to conflicts between Karen separatists and the Myanmar military. Karen people speak a Sino-Tibetan language, and while the majority are Therevada Buddhist, approximately 35% are Christian.

The next-largest recognised group is the Rakhine. These constitute approximately 3.5% of the population and live in Rakhine State, alongside the unofficial Rohingya Muslim group. Formerly known as the Arakanese, they have relatives in neighbouring Bangladesh and India. They are predominantly Therevada Buddhists and speak Arakanese, which is close to the Myanmar language.

There are also ethnic Chinese in the country – around 2.5% of the population – while roughly 2% of people belong to the Mon ethnicity. This particular group has great historical significance in the country, being credited with bringing Therevada Buddhism to the region and being inter-related with many Thais, including the Thai royal family. They mainly live in Lower Myanmar. The Kachin, meanwhile, constitute around 1.5% of the population, ethnic Indians some 1.3% and Chin about 1%.

Power Struggles

Harmonising Myanmar’s mosaic of diverse religions and ethnic groups is perhaps the most challenging task facing the NLD government. Ethnic divisions are the historical legacy of a region that is a bridge between the Indian Ocean, China, Indochina and the Pacific. Over the centuries, successive waves of demographic groups have moved across the mountains and plains that constitute modern-day Myanmar, with the ethnic majority Bamar establishing a powerful empire in Bagan during the 11th century.

Throughout the ensuing centuries, the Mon, Mongols, Chinese and Shan also exercised their influence over the country. When European colonial expansion started gaining ground, the Portuguese were the first to arrive, bringing with them the Catholic faith. The Burmese conquered the periphery regions of Arakan (today Rakhine State) in 1785 and Assam over the course of 1817-19.

These wars brought contact with the British Empire, with whom Burma would engage in a total of three wars. During the last of these, in 1885, the country was invaded and conquered. The period of British rule was turbulent and, similar to a large number of other territories under colonial rule, nationalism began to define the character of the resistance against the ruling country. Under the leadership of General Aung San, the Burmese Independence Army took shape and was quickly dragged into battle following the outbreak of the Second World War in the Pacific. After the war ended, the country moved rapidly to establish its independence, which was achieved in 1948.

Exhausted from the war effort, and with a relatively weak government unable to create inclusive political and economic institutions, the new nation embarked on a very tumultuous period. General Aung San’s initial efforts for national reconciliation following the Panglong Agreement of February 12, 1947 were ruined after his assassination just before independence. A period of infighting between communist and non-communist groups followed, and ethnic conflicts also broke out between the Shan, Burmese, Chin and Kachin.

Military Rule

This period of political uncertainty paved the way for General Ne Win’s military coup in 1962, which declared the creation of a socialist state run by the Union Revolutionary Council. Unable to develop political and economic institutions that took into account all of the country’s different groups, Ne Win’s government and the others that have since followed have not been able to put an end to the conflict between the Myanmar government and ethnic minorities organised under the Kachin Independence Organisation and the Shan State Army.

Decades of seclusion and inwardness then made the nation a mystery to the outside world, and cut it off from international technological innovation and the necessary tools for social mobility and sustainable economic growth. The development of extractive economic and political institutions dominated by a military minority transformed Myanmar from the richest country in South-east Asia to the poorest.

Under military rule, there were regular crackdowns on political protests until the weakness of the regime started to become increasingly evident. A major anti-government uprising led by university students broke out in 1988, shaking the foundations of the regime. Consequently, General Saw Maung took over and dismantled the campus of the University of Yangon to control academic political resistance. In 1989 he changed the country’s name to Myanmar and held an election the following year. This was won by the NLD, led by Daw Aung San Suu Kyi, General Aung San’s daughter. However, the military refused to accept the result, and put leaders of the NLD under house arrest. Daw Aung San Suu Kyi’s imprisonment and democratic activism turned her into a globally recognised icon, eventually leading to her nomination for the Nobel Peace Prize.

In 1992 General Than Shwe took power, but the pressure on the regime was becoming increasingly difficult to resist. Internal ethnic conflict continued, and new cases of social unrest and protests against the government erupted. The Saffron Revolution was the most emblematic of these uprisings. It was sparked by a steep hike in fuel prices that quickly turned into a popular protest led by Buddhist monks – mostly Sangha – against the military-led government. The Buddhist monks’ support of the protests was a sign no leader in Naypyidaw could ignore.

In May 2008 the devastating effects of Cyclone Nargis exposed even more of the regime’s leadership shortcomings, and in the same year the government announced a referendum on a new constitution and elections for 2010. Before the elections, Daw Aung San Suu Kyi was released from house arrest, and two years later by-elections gave her and the NLD seats in the military-dominated Parliament installed in 2010. In 2011 former General Thein Sein became president, unleashing an unexpected set of economic and political reforms that started to produce firm results and generate economic growth.

Nationwide elections in 2015 delivered a landslide victory for the NLD. Although constitutionally barred from becoming president, Daw Aung San Suu Kyi became the state counsellor and the country’s de facto leader. As many of her public interventions made clear, she came to power with two primary objectives in mind: to revive the legacy of her father, General Aung San, and to build national unity. These have been her priorities since, and much-needed economic reforms sometimes took a back seat.

In 2015 eight out of 14 armed groups in the country signed a ceasefire agreement, and in 2016 the 21st Century Panglong Conference – a forum to negotiate a roadmap to national reconciliation – was spearheaded by Daw Aung San Suu Kyi.

Head of State

According to the 2008 constitution, which remains in effect, the president is the head of state and of the government. On March 28, 2018 U Win Myint was elected president by the bicameral legislature, the Assembly of the Union (Pyidaungsu Hluttaw in Myanmar), which chooses from among three candidates, one put forward by each of the three committees constituting the electoral college. These committees consist of deputies from the House of Nationalities, the House of Representatives and the military. The president appoints the Cabinet, made up of the various department ministers. However, the constitution stipulates that the military appoints the defence, interior and border security positions. Other Cabinet ministers appointed from the Assembly of the Union must resign their seats, paving the way for by-elections.

Legislative Powers

The House of Representatives, or Pyithu Hluttaw, is composed of 440 members – 330 of whom are elected, with the remainder appointed by the military. Elected seats are allocated on a township basis, with each choosing one representative for a five-year term, according to a first-past-the-post system. Members of the Sangha Buddhist clergy are not allowed to vote. As of end-2018 the NLD held 255 of 330 elected seats, with the Union Solidarity and Development Party (USDP) – the military’s preference – holding 30. The Arakan National Party (ANP) had 12 seats, as did the Shan Nationalities Democratic Party. Other parties, mainly ethnically based groups, hold 13 seats, with one independent and seven seats vacant due to conflict.

The upper legislative body, the House of Nationalities (Amyotha Hluttaw) has 224 members, with 168 directly elected and 56 chosen by the military. In 2018 the NLD had 135 of the elected seats, while the USDP held 11, the ANP 10 and the rest by smaller, largely ethnic-based parties.

JUDICIAL PROCESS: The Supreme Court of the Union is the highest judicial body, with the legal hierarchy then descending to the High Courts of the Regions and States. The latter hear and determine civil cases, while also acting as appellate courts in criminal cases determined at lower courts. District Courts are those under the High Courts, along with courts of the self-administered division or zones, where administrative entities exist. These lower courts hear original criminal and civil cases, provided the damages of the subject matter do not exceed MMK500m ($354,000). Beneath this level are the Township Courts, which hear criminal cases where a punishment of not more than seven years in prison is possible and civil cases in which up to MMK100m ($70,700) in damages could be awarded.

Local Government

Myanmar has seven states and seven regions, along with six self-administered zones and one self-administered division. Each of these has its own local government, headed by a chief minister, with a state or regional Hluttaw as the local legislative body. Members of these are placed in the same fashion as the national Hluttaw, with seats either elected or militarily appointed. States and regions are constitutionally equivalent, with the main difference being that states are primarily for non-Bamar ethnicities, while regions form subdivisions within the majority-Bamar ethnic areas.

The self-administered zones and one division are run by Leading Bodies. These are headed by a chairperson and constitute both the legislative and executive branches. They are composed of deputies elected to the House of Nations for the zone or division, plus military appointees. Naypyidaw has its own local authority, directly under the jurisdiction of the national president. Day-to-day business in the region is conducted by a council, led by a chairperson.

The smallest administrative unit in rural areas is the village, with a village tract being a group of several of these; urban wards, for their part, are at a similar level as villages. Village tracts and towns are grouped together to form townships. Collections of these in turn form districts, with groups of districts forming states or regions. At these lower administrative levels, there is a mix of elected officials and positions that are appointed by the General Administration Department of the Ministry of Home Affairs.

Outlook

Wide-spread optimism came with the 2015 general election results, but the challenges facing the NLD have since become increasingly clear, and three years of administration have not been without criticism. The government has three main goals, the first of which is national reconciliation – Daw Aung San Suu Kyi’s greatest priority. However, as history shows, the task will prove difficult, and requires the development of inclusive political and economic institutions capable of launching the foundations of a federal state. The second priority – which is necessary for the first – is to root out corruption from public institutions. The third is to promote national and economic development.

While there have been visible steps towards eradicating corruption, with a number of contractual and tendering processes becoming more transparent, concern among the business community regarding the pace of economic reform is growing. Myanmar’s potential has been lauded, but investors have voiced worries regarding the lack of regulatory clarity and legislative predictability that affirms their confidence to make long-term investment decisions.

In response to the business community’s concerns, the government held various meetings throughout 2018 with local business leaders in an attempt to ensure their demands reach the respective ministries and to legislate accordingly. Key reforms in 2018 that directly affect business processes included the implementation of the Companies Law; the introduction of a new fiscal year, running from October to September, rather than the pre-existing April-to-March cycle; and progress towards the liberalisation of the wholesale and retail markets and the insurance sector. Moreover, the Central Bank of Myanmar has begun allowing foreign banks to offer financial services.

FDI is recognised as a major contributor to Myanmar’s growth and development. Therefore, the Myanmar Investment Commission (MIC), the regulator tasked with authorising local and foreign investments, has put into motion administrative reforms to speed up registration processes and make them more cost efficient.

FDI slowed in industries such as hotels and tourism during 2018, at a time when the international community expressed concern over the country’s internal affairs. Despite this, monthly FDI figures from MIC show that foreign investor confidence remains high for specific sectors, including manufacturing, transport and communications. The government forecasts FDI inflows of $5.8bn for FY 2018/19, which began on October 1, 2018. Singapore, China, Thailand and Japan are among the countries with the highest amount of FDI contributed across all sectors.