The winners and losers of Burma's business boom

In the lobbies and bars of Rangoon’s high scale hotels, the shady pasts of Burma’s business elite do not seem to deter the hordes of Western businessmen here to seek their fortune in the resource-rich country.

“Right now, Burma is a blank canvas,” one investor says.

“And we’re the artists.”

And bringing Burma into the 21^st century is surely a Michelangelo-esque challenge to these investors, as they sip their cold drinks and discuss plans to paint Southeast Asia’s Sistine Chapel with the bold strokes of new roads, train lines, ports, electricity grids and telecommunications networks.

 One of the most under-developed countries in Southeast Asia, Burma’s, (also called Myanmar) economy has been crippled by decades of economic mismanagement and restrictive international sanctions.

Access to the country’s business circuit has been controlled by a small elitist circle of business tycoons with close ties to Burma’s former military regime, which still control the majority of private enterprise.

And as Burma opens up for business, foreign investors invariably have to deal with the tycoons who control access to the country’s crippled economy.

Some notable Burmese business figures include Tay Za and Zaw Zaw, the former labelled a “notorious henchman and arms dealer” by the US Treasury for his association with Burma’s former junta. 

Last week, hundreds of gigantic yellow Caterpillar dump trucks and expensive mining machinery were sitting in Rangoon’s ports and shipping yards, proof that the business boom has arrived on Burma's shores.           (Photo by Derek Stout)

He remains on the EU and US sanctions list and his major business interests include Htoo Group and Air Bagan, the country's first and only fully privately owned airline.

Zaw Zaw’s friendship with former dictator Than Shwe saw him labelled a “regime crony” by the US Treasury Department, which also slapped him with targeted financial and travel sanctions.

The owner of Max Myanmar Group, Zaw Zaw’s business holdings reportedly range from construction and luxury resorts to rubber plantations, timber and gems.

Advocacy groups and opposition party, the National League of Democracy (NLD), have voiced concerns that as the investment boom hits Burma, the only Burmese benefiting from the gold rush are the crony capitalists linked to the former regime.

Chairman of democracy icon Aung San Suu Kyi’s NLD party U Tin Oo, says all new foreign investment is going straight to the pockets of the former regime.

“We are concerned that right now the power and money is concentrated in the hands of just a few cronies,” Mr Oo says.

“Everyone is worried, the whole people are worried that if the investment comes in, all will go by the patronage of the military and go to their cronies,” he says.

Advocacy groups have echoed these concerns and call for greater transparency of revenue in the wake of easing economic sanctions.
A recent report by Arakan Oil Watch warns Burma’s military continues to benefit from oil and gas revenues and the NLD continue to call for all government ministers to disclose business interests.

But this hasn’t deterred eager investors from flocking to the impoverished nation since the easing of sanctions by the international community, the response to a series of reforms by President Thein Sein’s government.

In the corner of the bustling 50^th Street Bar in downtown Rangoon, an American, an Australian and an Italian are discussing the merits of setting up a business council to provide a one-stop advisory shop for Western businessmen.

“It’s a little bit like the Wild West here at the moment and we’re going to see a lot of cowboys coming in,” one business source says.

“Some investors think they can just fly in and do a sweet deal over the weekend, but that’s not how it works here.”

“Currying favour with the movers and shakers of the Burmese business scene is part and parcel of doing business in this country,” he says.

One disillusioned New York property investor arrived two days ago and says he’s already making plans to return home, frustrated by the lack of visible business options.

“I want to buy one of these old buildings, restore it and turn it into a backpackers hostel, maybe stick a jazz bar in there,” he says, gesturing at a looming colonial block across the street from the Traders Hotel.

“But I’m reading the newspapers, there’s no advertising, nothing for sale.”

A French national lights his fifth cigarette from the same number of packets – no, he’s not a chain smoker, but instead setting out to sample the various cigarette brands on offer amongst Burma’s bustling tobacco trade.

“We want to sell tobacco processing equipment to the Burmese,” he says, but with the prices ranging from 200 kyat (around $US 0.25) for the cheapest packet to 700 kyat for the popular Red Ruby brand, he’s not sure how the investment will ever pay off.

He says he’s also in negotiations to sell some second-hand aircraft to Burmese business tycoon Tay Za’s Air Bagan, but swears he’d never fly with the domestic airline as their incident rate is too high.

 A British representative of Sir Richard Branson’s Virgin Group’s holiday arm, Virgin Holidays, tells me he’s on a tight itinerary around the major centres to evaluate the potential for packaged tours to the reclusive nation, which promises to be Southeast Asia’s next hot spot for tourists.

At another table, a group of businessmen discuss the best location to grow olives in Burma. They decide Mandalay would have the most suitable climate.

Although a lot of deals are being discussed, not much money is actually exchanging hands, says Australian economist and Burma expert Sean Turnell.

“There is certainly a gold rush of interest, but so far little cash on the table from Western investors,” Mr Turnell says.

He says many investors are surprised by difficult it is to do business in Burma and limited infrastructure and restrictive legal and economic conditions are the main hindrances to international investment.

Burmese economist and former government adviser, Khin Maung Nyo says the country’s economic reforms have opened the playing field however access to capital is one of the greatest barriers to many Burmese would-be entrepreneurs.

He says the greatest advances on the domestic front are small to medium enterprises (SMEs) involved in manufacturing and domestic trade.

“But I’m afraid there are not many businesses which can compete with foreign investors,” he says.

Mr Nyo says the majority of the country’s foreign investment still comes from China, Thailand and Singapore, despite the easing of sanctions by major economies Australia and the United States and a decision by the European Union to suspend sanctions for one year.

Director of Rangoon-based private equity firm E&O Group Christian Oram, whose company is aiming to raise $30 million in funds for a portfolio of projects including the telecommunications, agribusiness and property sectors, says he’s optimistic about the government’s reforms however the international community has not done enough to reward Burma for its progress.

“Myanmar has been judged differently to other countries in Asia. Vietnam is not democratic, Laos is not democratic, China of course is another example, yet Myanmar is the only country which has had punitive sanctions for having a regime government and that’s been unfair,” Mr Oram says.

He notes a level of frustration amongst the Burmese government and business circuit and says the international community needs to remove sanctions which are counterproductive to the reform process and the country’s development.

Mr Oram says the European Union’s carrots and sticks approach towards Burma has failed.

“Regarding the EU sanctions, the Burmese government has done everything they were asked to do and the EU has effectively moved the goal posts.”

“They’ve said they’re not convinced and need another year to decide, but what more can the Burmese government do? Suu Kyi taking the seat, that should have been it,” he says.

Mr Oram says foreign investment and development is crucial to securing reform in Burma.

“The country needs investment to secure the reform, so if you put up barriers that prevent investment, you’re basically giving ammunition to the hardliners to say, see, whatever we do, it’s never good enough,” he says.

“That’s a correct argument which gives the hardliners power and could potentially slow things down and reverse with reform process, which nobody wants. It doesn’t make sense. “

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