After emerging from nearly half a century of economic isolation, Myanmar has become an investment darling thanks to reforms launched by military leaders four years ago. The surge in foreign direct investment (FDI) has been substantial despite restrictions remaining in some sectors and uncertainties surrounding the upcoming general election.
Even though some investors have adopted a wait-and-see approach toward the November election and pending national ceasefire agreement, analysts say FDI is projected to continue to flow into Myanmar, capitalising on projected strong economic growth in the years to come.
"I really see Myanmar growing at 7.5% to 8% in the next few years, and I think the country can become a tiger economy in Asean along with Indonesia and probably the Philippines," said Sunnil Seth, country head for Myanmar of Tata International.
"A recent McKinsey report forecast the GDP will reach US$200 billion by 2030. My sense is Myanmar can achieve this a lot earlier."
Tata has in Myanmar five years and its first investment in the country is an automobile plant in Magwe. The giant Indian conglomerate has also become one of the largest trading companies in the country, sending beans and pulses to India.
Mr Seth said Tata has already signed a memorandum of understanding for a $2 billion coal-fired power plant in Myanmar to supply to India's national grid. The group would like to study building a steel plant in the country, as the property sector is growing rapidly and most of the steel used is imported.
"Myanmar first needs basic infrastructures," he said. "Thailand has a similar population and it consumes 17-18 million tonnes of steel per year. Myanmar uses only 2 million tonnes and 90% is imported."
Peter Brimble, principal country specialist of the Asian Development Bank's Myanmar Resident Mission, said it foresees Myanmar's GDP continuing to grow at 8% a year, becoming a middle-income country by 2030.
Connectivity between Myanmar and neighbouring economies is key to promote trade, boost exports and stimulate government taxation, he said. Myanmar has geographical advantages, being located between China and India.
"Myanmar has tremendous potential to establish industrial zones to fit into the global value chain and to attract foreign companies to come invest here," said Mr Brimble.
He said while many investors are on the sidelines ahead of the November election, the outlook is positive.
"I believe they have shown they are serious about the election process. It is part of opening up the country and sometimes it won't be smooth. But I'm very bullish about Myanmar's prospects."
Stefano Poli, president of the Singapore-based Toshiba Mitsubishi-Electric Industrial Corporation Asia, said the country has attracted interest from European firms, especially in the services and infrastructure sectors.
"The European business community in Myanmar has been growing," said Mr Poli, who is also vice-president of the European chambers of commerce in Singapore and secretary of the EU-Asean Business Council.
"I see lots of companies coming in or looking at Myanmar. There is a lot of interest from Europe, and most are small and medium enterprises."
He said Japanese investors have made inroads in Myanmar as the country has been moving in the right direction opening up.
"After the general election, I do not expect a major change in terms of businesses. I feel that positive momentum will continue. What could change is the speed in which Europeans invest," said Mr Poli.
Limitations remain
Investors joining the Myanmar Global Investment Forum held in Nay Pyi Taw recently mentioned the restrictions for trading businesses and stability of electricity as limitations.
"As a foreign company, you are not allowed to trade. That puts certain limitations on your comfort of doing business," said Mr Seth. "Going forward, I'm sure most foreign companies would like to be allowed to get into trade at an appropriate time."
To grow the country Myanmar needs basic industries such as steel and cement, but lack of a stable power supply limits such investments, he said.
Mark Bedingham, president and chief executive of the consultancy Singapore Myanmar Investco, said concerns remain in terms of licensing and transparency.
"It's not unusual for emerging economies to have licensing issues," he said. "Quite a lot of restrictions are unnecessary and will hold back investors. I think the speed can improve and you can get things done easily with an increase in transparency and clarity."
"The more sectors that open up, the more sectors we can invest in. A lot of banks and financial institutions are still a little bit hesitant to back investments in Myanmar because currency, assets, and legal frameworks remain a concern."
Aung Naing Oo, director-general for the Directorate of Investment and Company Administration and secretary of the Myanmar Investment Commission, said his country is committed to opening up more industries, especially the banking sector to allow more foreign players to enter.
"There will definitely be more liberalisation in the financial sector, but that will be step-by-step," he said. "Now there are some limitations, but the government's will is to facilitate business communities in the country. I understand we have some obstacles to overcome."
There are three promoted sectors in Myanmar, said Aung Naing Oo. Manufacturing is important to create jobs, he said, while infrastructure development, particularly power generation, port facilities and roads, is badly needed. The third promoted sector is agriculture.
"Two years from now there will be a better legal framework because of the new investment law. We plan to modernise other laws to improve the business environment and infrastructures," he said. "We are on the right track. We are now on the runway about to take off."
Special Economic Zones
Foreign investments in the manufacturing sector are expected to accelerate with opening of Myanmar's long-awaited first special economic zone (SEZ) located 25 kilometres southeast of Yangon.
Covering over 2,300 hectares of land, Thilawa SEZ is backed by the Myanmar and Japanese governments with the aim of simplifying foreign investment by providing a package of land, utilities, access roads and a nearby river port.
Nikolas Myint, senior social development specialist at the World Bank, said SEZs help address Myanmar's shortage of utility supplies and poor infrastructure development.
Finding and leasing land suitable for industrial use is one of the biggest challenges foreign investors face. Within cities, especially Yangon, land is in short supply and priced highly, while water and electricity is scarce or non-existent in outer areas.
Along with Thilawa, Myanmar has been working on two more SEZs – Dawei in the east and Kyauk Phyu in the west. They are meant to complement one another.
Dawei, initially a joint venture between Thai investors and the Myanmar government, is now partially funded by the Japanese government. It will serve investors interested in relocating from Thailand because of high labour costs.
"Compared to Bangkok and Laem Chabang [on Thailand's eastern seaboard], transportation from Dawei is easier, faster and cheaper to reach markets in the Middle East, Africa and Europe. It can provide a short-cut for cargoes shipped to these destinations," said Win Myint, principal and consultant urban planner of Win2Win Advisory Group.
Thilawa is meant to employ young workers from Yangon and neighbouring areas. "We think Thilawa is the fastest growing SEZ. Land in the first phase sold out, with a number of Japanese factories looking to develop there," said Win Myint, who is also a member of the management committee at Kyauk Phyu SEZ.
The Myanmar government is negotiating with foreign bidders on three investment packages at Kyauk Phyu. After several delays, a conclusion is expected this year for groundbreaking to take place in early 2016.
Located in Rakhine State, Kyauk Phyu will be equipped with a deep-sea port to accommodate vessels of up to 300,000 tonnes. The project will serve as a key feature of the Shwe pipelines energy corridor, transferring gas sourced from the Bay of Bengal and oil shipped from elsewhere into China's isolated southwestern provinces.