Western investors target Burma

Rangoon's hotels are now full of foreign delegations keen to explore the nation's potential von Ben Bland and Robin Kwong, Rangoon and Taipei

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When it opens its doors once a month, the British Club in Rangoon is normally packed with diplomats, NGO workers and English teachers buying drinks on an old-style chit.

But since the long-isolated government recently launched political and economic reforms, a new group of people is propping up the bar at the club in Burma's former capital: western investors. "We're interested in Burma's mining potential and we want to have a closer look as we think things might be changing," says one private equity fund manager.

Decades of isolation and tough western sanctions imposed in response to repressive military rule have left Burma as one of Asia's poorest countries, forced to rely on billions of dollars of Chinese investment in extractive industries to stay afloat. But since the military junta handed power to a nominally-civilian government in March, Thein Sein, the new president, has unveiled a series of tentative reforms that have reignited speculative interest from foreign investors in one of Asia's last untapped frontier markets.

  A historic visit prompts hope for reform: Hillary Clinton met with Burma's President Thein Sein.

"The business community here think this is the time," says Wael Elmawie, a Burma resident since 1999 who runs PEB Steel, a Lebanese company that builds pre-engineered steel factories. "If the government goes back on the recent changes, they will lose the trust of the world for good."

Investors hope that Hillary Clinton's visit to Burma in November - the first by a US secretary of state for 50 years - could help to accelerate reforms, prompting the US and the European Union to consider easing the sanctions that have kept many western companies out of the country.

Underscoring the renewed interest in Burma, Rangoon's top hotels are full of visiting business delegations, and many multinational companies are looking for advice on doing business in Burma, particularly in the oil and gas, telecoms and consumer goods sectors.

Vietnam and the Chinese province of Guangdong have both held trade fairs in Rangoon recently, while the American Chamber of Commerce in Singapore held a seminar on investing in Burma.

Even though sanctions prevent new investment by US companies, Caterpillar, the world's biggest maker of earthmoving equipment by revenue, and others are doing business in the country already through third parties. Caterpillar says this trade is in full compliance with all applicable laws.

"Almost every major US company is working on a Burma or Myanmar [as the country is officially known] folder right now," says Ernest Bower, who heads the south-east Asia programme at the Washington-based Center for Strategic and International Studies.

There is no doubting the potential of Burma which, until the military took over, was a major Asian rice exporter and a strategic entrepot located between China, India and the rest of south-east Asia.

In addition to an undeveloped domestic market of about 60m people, Burma is endowed with plentiful natural resources such as oil, gas and minerals. Tourism also has good potential, according to Frank Janmaat, the Dutch deputy managing director of a Burmese hotel group. Burma received just 300,000 foreign tourists in 2011, little more than a 10th of the number who visited its smaller neighbour Laos.

But many challenges lie ahead. The country lacks functioning banking and telecoms systems and a legal framework, and the economy remains dominated by a handful of politically-connected cronies. Moreover, the government has a history of dramatic about-turns after periods of reform.

Foreign investment has so far been concentrated in the oil and gas, hydropower, mining and other extractive industries with France, South Korea, Thailand and, most notably, China leading the way.

Sean Turnell, an expert on the Burmese economy at Macquarie University in Sydney, Australia, says these industries create relatively few jobs and impose large environmental costs on the local population, so that they are doing little to create "the foundations for future growth".

In recent decades, most Asian nations - from Thailand and Vietnam to Taiwan and Japan - have focused on export-led manufacturing to drive growth and reduce poverty. While Burma's poor infrastructure limits its manufacturing capacity, a few pioneers have been testing the waters.

Taiwan's Asia Optical, for example, has been making lenses in Burma for the world's biggest camera brands since 2003. Simon Cheng, a company spokesman, says the company believes that in the "long term Myanmar could be a good base to expand".

Even if the reforms continue, foreign investors will still need to deal with a lack of skilled workers, after the generals closed universities for many years and laid waste to the education system. "The people are keen to see a better future but it will take a long time to train them," says Mr Elmawie.