Burma's business

Blessed with enviable natural resources, this isolated country has found that its nearest neighbours are happy to trade.

by Michael Backman, World Business
Last Updated: 23 Jul 2013

Burma is a beautiful country with huge reserves of natural resources - the densely forested country is the world's largest exporter of teak and it has important offshore gas and oil deposits. But it is also one of the world's poorest and most isolated countries; its economy is riddled with corruption and the armed forces have been accused of large-scale trafficking in heroin, of which Burma is a major exporter. Military-run enterprises control key industries, and corruption and severe mismanagement are the hallmarks of a black market-driven economy.

The military junta, which suppresses almost all dissent, stands accused of gross human rights abuses, including the widespread use of forced labour, including children. Few of the junta's generals have been educated overseas; similarly, the country's civil servants have little exposure to modern economic theory and practice, and due to the country's isolation few foreign policy advisors are there to help.

As a consequence, the Burmese economy is constantly tinkered with: regulations, licensing and permits are changed at whim; budget deficits are funded by printing money that has made the Burmese currency (the kyat) almost worthless, caused hyper-inflation and contributed to the collapse of the banking system. The closest comparison is with North Korea, an equally isolated country with which Burma has just restored diplomatic relations after a break of more than 20 years.

It's not surprising, then, that Burma is seen as a pariah state by the West, which has imposed sanctions since 2003. But these sanctions, say some, have virtually handed the country to China on a platter, in diplomatic, military and commercial terms. Following the military junta's refusal to give up power after the 1990 elections (the country's first multiparty elections for 30 years and won by a landslide by Aung San Suu Kyi's National League for Democracy), the US withdrew its ambassador from Rangoon. It has opposed Burma's membership of various multilateral financial organisations and imposed economic sanctions, followed by other Western governments.

But the sanctions haven't worked - largely because Burma's neighbours don't comply with them. China has provided Burma with sophisticated military assistance and the border between the two is very porous - the commercial centres of northern Burma are largely in the hands of mainland Chinese businesspeople, and China maintains an impressive consulate in the northern city of Mandalay, in stark contrast with the dilapidated local government buildings.

Burma has the world's 10th largest natural gas reserves and sits in the middle of a region increasingly hungry for energy. Chinese companies have been awarded various oil and gas exploration rights, and China's National Development Reform Commission approved plans in 2006 to build a pipeline that will carry Middle East oil from a deep-water port off Sittwe across Burma to China's Yunnan province, thus providing an alternative route to the Malacca Straits.

In Burma, the China National Offshore Oil Corporation (CNOOC) leads a consortium that has signed a production-sharing contract for oil and gas exploration with the state-owned Myanmar Oil and Gas Enterprise; the consortium will carry out oil exploration in Burma's western Rakhine State. Total of France and Unocal of the US have helped build a pipeline from Burma to Thailand (work on the pipeline commenced before sanctions took effect) and now Thailand buys about $1.2 billion in natural gas from Burma annually.

In 2006, Thailand's state-controlled PTT Exploration & Production announced a "significant" natural gas and oil find in the Gulf of Martaban, off the south coast of Burma, where it has the sole right to explore for oil and gas in three projects. Also that year Russia's state-owned Zarubezhneft oil company was awarded a contract to explore Burma's offshore oil and gas reserves, and in January 2005 India signed an agreement with Burma to build a pipeline across Bangladesh to import Burmese gas. Singapore, which uses sand for land reclamation, has done a deal with Burma to import sand, cement, granite and other construction materials.

The main preoccupation of Burma's military rulers is the preservation of the state; its dominance over its ethnic minorities has been the source of considerable tension and fuelled separatist rebellions. For the junta, defeating separatism is a unifying cause: it ensures the military's centrality in national affairs. The army is one of the biggest and most experienced in the world, battle-hardened from decades of fighting insurgency movements. It has also been rearmed, thanks to the profits from natural gas and technical assistance, sophisticated weaponry and military IT supplied by China and Singapore.

Attempts to embarrass Burma's rulers are fruitless: the UN General Assembly has passed 16 consecutive resolutions calling for change in Burma. The regime has ignored each one. In 2005, the administrative capital was moved from Rangoon to Pyinmana, which was renamed Nay Pyi Taw, a hitherto largely empty location, about 320 kilometres north of Rangoon. Some observers say that the government felt less vulnerable to outside attack than in Rangoon. However, the government is now more open to attack from guided missiles from a US-led force eager to avoid civilian casualties.

The junta will never voluntarily give up its rule; that's not the Asian-Confucian way. The way forward is not regime change, but regime modification, as has happened in Vietnam, which has gone from international pariah to poster boy in little more than a decade. It wasn't necessary to overthrow the communist party to bring about economic reform; instead, reformers have been allowed to rise from within. It is the most obvious and likely path for Burma, too.

A BRIGHT FUTURE?

- With more than 47 million people, Burma will be competitive on labour costs and will have a significant domestic market

- It has the world's 10th largest natural gas reserves

- It is the world's biggest producer of gem-quality jade and rubies

- Other natural resources include petroleum, tin, zinc, copper, tungsten, lead, coal, marble and limestone

- Unlike neighbouring Thailand, enormous reserves of timber still remain

- Almost 2,000 kilometres of coastline give it considerable fishing rights

- The culture is industrious, outward-looking and English is still widely spoken, unlike Vietnam

- The legal system is based on English common law

- The country is near strategic Indian Ocean shipping lanes.

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