Wednesday, May 6, 2015

For businesses in Myanmar, the promise is unfulfilled

RANGOON — The Globe and Mail
Published  Tuesday, May. 05 2015

Six years ago, Jon North started collecting data on Myanmar. He bought maps, secured satellite imagery and started scouting. He has travelled the world kicking rocks, and liked what he saw in the Southeast Asian nation.

A banana-shaped arc of young volcanic rock curves through the Southwest Pacific, and its gold deposits have fed rich mines in the Philippines, Java and Sumatra. Those very same rocks “make landfall in downtown Rangoon – and the geology goes all the way up the middle of Burma to the Indian border,” says Mr. North, the president of Toronto-based junior mining explorer Northquest Ltd.

But it’s also among the fastest-growing countries on Earth – with an 8.5-per-cent increase in gross domestic product last year, and a government forecast of 9.3 per cent this year – and the kind of place that can make a miner salivate. Take the shimmering Shwedagon Pagoda, the landmark that towers over Rangoon, a talisman of good fortune that is made with an estimated 60 tonnes of gold.His is among a crush of companies drawn to Myanmar, the country formerly known as Burma, for the resources and labour coming out of seclusion after a long period of isolation. But for foreign investors, entering Myanmar has meant entering a land with a byzantine web of dated regulations, a cloistered business sector tightly interwoven with the military and, in some cases, no proper rules at all.

“It’s gold-plated, not gold foil,” Mr. North says. “That’s all placer gold that was mined in Burma. And that gold has to come from some bedrock source – some local bedrock.”

So when Canada dropped its heavy economic sanctions against Myanmar in 2012, Mr. North was ready to move. He got on a plane, and spent a few weeks in the country. A few months later, he was back, renting a car and hiring some local geologists to trek across Myanmar’s potholed back roads. “We saw some things that we really were interested in,” he said.

But then the questions started. Myanmar has no modern mining law, unlike just about any other country on Earth. That means it’s not clear what rights a mining company might have to land it wants, what tax rate it might face, how much in royalties it would pay or even whether it could pay executive salaries to foreign professionals.

More than three years later, those questions remain unanswered. Myanmar has the draft text for a new mining act, but its military controlled parliament has been unable to pass it amid wrangling over how resource revenues will be shared. Investors won’t put money into a project when they don’t know what they’re getting into.

So Mr. North waits.

For miners, as for many other would-be investors, the great expectations that accompanied the opening up of Myanmar have soured, falling victim to the realities of a country whose long isolation cannot be overcome in short order. It is a study in the hardships that often accompany business on the edge – and Myanmar has been called one of Earth’s last frontiers.

“It’s got terrible infrastructure, it’s got an unclear and inconsistently applied regulatory environment, a very difficult import-export regime. It’s got extreme costs of residential and commercial real estate,” said Josh Brown, chief Myanmar representative for Tractus Asia, a business advisory firm. “All of the sewage [infrastructure] is 100 years old, so the streets flood in the rainy season up to your knees.” Change, he said, “is not going to happen overnight.”

When Myanmar suddenly ended its half-century of isolation and military dictatorship in 2010, the global business community took notice. With a population of 51 million, the Texas-sized country occupies a sprawling river valley that borders India, China and Thailand. With the Himalayas to the north and the Andaman Sea to the south, it was once one of the world’s top rice exporters and its mineral bounty has supported a thriving illegal jade trade, as well as a controversial copper mine once operated by Canadian mining promoter Robert Friedland. It is connected with Southeast Asia as well as neighbouring giants India and China.

Some of the earliest movers have had success: Carlsberg and Coca-Cola now bottle beverages in Myanmar. But even some of the world’s most sophisticated investors have yet to establish a foothold. Myanmar remains without a single McDonald’s, KFC, Starbucks or 7-Eleven. One Tony Roma’s restaurant recently opened in Rangoon, its principal city – an odd outpost of Western branding in a country where outside influences have had trouble penetrating. Even the special economic zones Myanmar has set aside remain largely empty amid an internal debate over how much things should change.

“There’s a lot of nationalistic tendency – ‘Why do you bring in the foreigners? You are putting us out of business.’ Every day I have to struggle with this,” said Aung Tun Thet, economic adviser to Myanmar President Thein Sein.

Then add a crony economy not keen on giving up its profits. Ko Myo Min, the founder of Rangoon’s PS Business school and a well-known local business consultant, estimates that fully 80 per cent of Myanmar’s wealth is tied up in sprawling private conglomerates, or the military, and it’s sometimes tough to tell the difference between the two.

“The large business groups here have very well-developed roots. So you’re not coming in to a virgin landscape,” said Hal Bosher, chief executive officer of Yoma Bank, one of Myanmar’s largest commercial banks. And, he said, “all these business groups are very savvy, and they have cornered the market in some areas.”

Outmoded rules haven’t helped. Banks are barred from providing credit cards and the economy is so cash-heavy that Yoma runs a fleet of some 60 vehicles just to move around physical money. The rules also mandate bank hours of 9 to 3, which haven’t been updated even as the government has sought to open up the sector.

“So instead of changing the bank hours, you bring in nine foreign banks,” Mr. Bosher said. The dislocations are part of what happens in a country “trying to compress 150 years of development into five.”

In short, “Myanmar is a hard place,” says Wayne Farmer, president of the Canada-ASEAN Business Council. Canadian companies have struggled alongside the rest of the world, with only a few even showing interest. Several Bombardier jets now fly in Myanmar, although they were bought used. Some potash, pulp and paper has also been sold, but through third parties based in Singapore. Ottawa network equipment maker Optelian has also generated sales in Myanmar.

On a recent delegation to the country, Mr. Farmer was joined by representatives from Waterloo, Ont.-based software maker OpenText Corp. and Toronto’s Newcon Optik, which makes night vision and laser range finders for defence buyers. Myanmar is “new territory for a lot of us,” said CEO Peter Biro, who also works for the Jane Goodall Institute.

“What scares me from a corporate perspective is the political instability and legal uncertainties,” he said. “It just creates a very very difficult business environment.”