Myanmar has become the new hot destination for countries seeking to diversify their foreign investment, outsourcing and export markets. Exchanges earlier this year by Japanese and Myanmarese leaders indicate that Japan seeks to gain a strong foothold in the country, a move which is warmly welcomed by Myanmar as both nations attempt to curtail the increasing influence of China. Whereas India can serve Japan as a strategic partner, Myanmar is a relatively untouched economic canvass on which to transplant Japanese infrastructure, technology, expertise and products, without the burden of negative political tensions.
Japan’s Burmese Bounty
1. A large supply of low cost labour
A survey by JETRO showed that Myanmar’s working age population of 46 million has the lowest wages in Asia, at around USD 1,100 per year for a manufacturing worker compared to USD 1,478 in Bangladesh, USD 2,602 in Vietnam and USD 6,704 in Thailand just across the border. Price conscious Japanese companies can consider outsourcing and relocating manufacturing to Myanmar as a way to counter increasing costs in the rest of Southeast Asia and to ease pressure off Yen fluctuations for goods produced in Japan.
2. Abundant natural resources
Myanmar is richly endowed with natural gas, oil and precious metals which can be used to supply Japanese industries in Myanmar and exported to resource scare Japan. Myanmarese oil and gas could also power Japan’s increasingly energy deficient economy due to the shift away from nuclear power.
3. Warm political ties
Japan never imposed the same sanctions on Myanmar as did many European countries and the USA, and unlike other countries in Asia, Myanmar does not have the same negative historical baggage to influence political relations with Japan.
4. Geopolitical significance
With a land-mass the size of Britain and France combined, nestled between regional superpowers China and India, sharing borders with 40% of the world’s population, Myanmar is a prime strategic location for Japanese companies operating in Asia. Myanmar’s ports in the Indian Ocean also lie above the Malacca Strait; one of the world’s busiest shipping lanes.
5. A New Consumer Market
With a total population of more than 60 million, future economic development offers the prospects of an emerging market ready to buy the latest Japanese consumer goods and technology.
A long way to go still…
Despite these attractions Justin Kent of Forbes Magazine believes that Myanmar is suffering from an “antiquated financial system, poor infrastructure, an unskilled labor force, lack of reliable data and a government bureaucracy that is ranked bottom by Transparency International.” In addition the lack of connectivity, with only an estimated 1 million cellphones in the whole country, unreliable power supplies and negligible consumer spending offers unfavourable circumstances and high set up costs for many Japanese companies. Yet where there are problems, there are opportunities to fix them.
Building Myanmar with Japan Inc.
Aside from riding off more than USD 6.6 billion in debt from this year, Japan has promised to provide loans and financial aid to Myanmar totalling more than USD 5 billion which dwarfs the USD 76 million promised by the United States and the USD 200 million pledged by the European Union. Most of these loans and investments will go towards constructing major infrastructure projects and Special Economic Zones (SEZs) and contributes to Prime Minister Abe’s current policy of tripling Japan’s infrastructure exports to USD 300 billion by 2020. Japanese corporations are expected to lead the development of the Thilawa Special Economic Zone, located on the edge of Yangon (Myanmar’s largest city). Covering more than 2400-hectares, Thilawa SEZ is planned as the future hub of Myanmar’s manufacturing and textile industries with completion set for 2015.
Image via GlobalAsia
Japan will also provide up to USD 3.2 billion in additional lending to build another SEZ and deep-sea port in Dawei, southern Myanmar (pictured above) which is designed to become Southeast Asia’s largest industrial complex and will allow western bound shipments to bypass the Strait of Malacca.
Aung San Suu Kyi, Myanmar’s pro-democracy opposition leader has called for Japanese investment and economic aid that can create jobs for Myanmar’s citizens in addition to requesting Japanese support in developing the country’s agriculture, sanitation and healthcare systems. Japan’s Ministry of Foreign affairs has also pledged to implement assistance in the development of Myanmar’s “capacity building and socio-economic institutions.”
In other Southeast Asian nations, Japan has often exploited local work forces for their low cost wages and friendly governments without nurturing key local talent and technology which could contribute to that country’s own industries. If the same happens in Myanmar then it will be a long time before local companies can compete with these Japanese corporate giants for both exports and domestic markets. Myanmar will only benefit if Japan is willing to invest in the training, education and promotion of local employees rather than just their low wages.
Yuki Akimoto of the Democratic Voice of Burma argues that Japanese investment in Myanmar should not come at the expense of protecting local environments or the rights of local citizens whose homes and lifestyles may be forcibly uprooted. Instead, Akimoto feels that Japanese companies can take the place of NGOs and implement a sustainable development strategy in Myanmar.
Competition for Asia’s Last frontier
Japan is not the only country excited by the promises of Myanmar’s opening and reform, nor is it the largest investor. In fact, Japan currently falls behind many countries in terms Foreign Direct Investment (FDI) in Myanmar (see chart bellow) whilst China and South Korea are amongst the biggest spenders. Despite its pledges to provide copious amounts of aid and assistance to Myanmar, Japanese companies have lost out on key infrastructure contracts to competitors from Asia and Europe.
Source: Ministry of National Planning and Economic Development via PwC’s Myanmar Business Guide.
China is still Myanmar’s largest patron, controlling more than a third of all FDI, but this investment has been slowing down since rising local opposition and protests has caused the halting of projects such as the Myistone dam and the Sino-Myanmar Monywa copper mining operation. This could prove promising for Japanese companies which have the potential to engage in similar projects with less opposition. Although China’s long presence and relationships with influential leaders in Myanmar ensures that Chinese companies are still granted key contracts, such as the one to update Yangon International Airport, which Japanese companies also bid for.
South Korean conglomerates on the other hand are looking to increase their investments across various sectors of Myanmar’s economy according the Korea Trade-Investment Promotion Agency. Projects include the building of a bridge linking the city of Yangon to the township of Dala, where another industrial zone will be established for South Korean companies to invest. A consortium led by South Korea’s Incheon Airport has also been awarded the project to construct the brand new Hanthawaddy International Airport, located about 70 km north of Yangon, beating a consortium from Japan that included New Kansai International Airport Corporation. Japanese companies should be concerned about the rising competition and the existing headways made by South Korean conglomerates.
McKinsey believes that Myanmar is in a key position as one of the first countries to become digitized before it gets rich, by using digital technology to counter the costs of more brick and mortar approaches to services. As a leader in digital technology Japan can act as the forerunner in Myanmar by providing digital services which rural populations can use to access business opportunities, education and healthcare.
Myanmar also plans to attract more than 7 million tourists by 2020 and considering the number of Japanese tourists visiting Mainland China (3.5 million) Taiwan (1.4 million) Thailand (1.4 million) and Singapore (0.7 million) an improved tourism infrastructure in Myanmar could ensure that a significant percentage of visitors come from Japan. It is up to Japanese hotel, airline, tour and travel agencies to engage with local partners in Myanmar in order to develop a sustainable and effective environment on which to attract more Japanese tourists.