Is Burma's opening up irreversible?

  • 6 June 2013
  • From the section Business
  • comments
Tin Tin
TinTin dreams of a better life, but growth has so far been confined to the cities

Here in Burma, at the largest World Economic Forum meeting outside of Davos, the overwhelming consensus is that the country will not turn back. Economically, it can't afford to.

International businesses are here in force to assess the country for investment. They are counting on political and economic reforms continuing.

For instance, Visa and Mastercard are tempted by the prospect of a country the size of the UK transforming from a cash to a credit society.

Right now, only 10% of the population have access to a bank account. The first ATM appeared just a couple of years ago and there are only 130 in the entire country. To make that shift would seem daunting. But, it is also a huge opportunity.

Politics crucial

Tin Tin's son
Children go to school for an average of just four years

It's not just for large, foreign businesses. Young entrepreneurs from Burma also say that they believe the reforms won't be rolled back.

It all hinges on the politics, notably the reforms of President Thein Sien, and the rapprochement with Burma's most famous figure Aung San Suu Kyi.

There is a sense of wariness when I spoke with people in Burma. A hope tinged with worry that reforms won't continue or benefit them.

A mother in a village near Rangoon living in a thatched hut without electricity or running water told me that her dream was for her son to be educated. But, money is tough and she is struggling to make a living as a small vendor.

The growth in the cities hasn't yet been felt in the rest of the country which is largely agrarian. Only 16% of the population have electricity, and the average years of schooling is just four years. Needless to say, credit is scarce for those like Tin Tin.

But, those are the key traits needed for a country to industrialise. Manufacturing requires infrastructure, a semi-skilled labour force and credit to start a business. Burma needs all three to develop to lift its people out of poverty.

This is why there is an overwhelming hope that reforms must continue as there is still so far for Burma to go.

Impact of detente

Incomes have already risen significantly even before the political detente as the country is richly endowed in natural resources.

It has reserves of oil and gas, and 90% of the world's jade. In 2000, average incomes were the equivalent of 10% of those earned in Thailand in 2000. They have risen to nearly a quarter of the Thai average income now.

Imagine what it is capable of growing at if it industrialised and joined global production chains - as the cheapest link in Asia.

The executives here at the World Economic Forum certainly can, and have descended on this modest capital in force. With bidding opened for a range of licences from resource extraction to telecoms, global businesses are eyeing one of the last potentially double-digit growth economies in Asia.

A risky business

But, there are risks for both Burmese and foreign companies, including reforms stalling.

For Burma, there is a risk that the country does not gain the positive spillovers from foreign investment. These include learning from more advanced know-how, utilising technology, and adopting best practice in management.

This is the key to imitation that can allow a country to catch up and grow quickly. Policies towards foreign investment should bear this in mind to ensure that the country benefits rather than just letting in multinational corporations who can dominate the local market and squeeze out domestic firms.

In extractive industries, there is a danger in specialising in commodities that can run foul of the so-called "resource curse."

That curse could manifest itself by depressing manufacturing through a currency strengthened by commodity exports that then hurts manufactured goods sold abroad. Or, seeking control over resources could lead to more conflict, adding to what the country is contending with on different fronts.

It is worth bearing in mind that one of the strongest correlations with economic growth is the absence of conflict. Pushing the right reforms forward will be more important than ever for the country once known as the Golden Land that bridged South and East Asia.