The road to mandalay

SNAKE VENOM DOESN’T USUALLY figure in discussions when a head of state meets visiting corporate heads. But that was one of the first things Myanmar President Thein Sein asked for when he met a business delegation from India accompanying Prime Minister Manmohan Singh, this May. There are 39 species of venomous snakes in Myanmar which can cause up to 10,000 deaths each year, and Myanmar is short of antivenin. An Indian company, which was part of the delegation, offered to supply it.

India’s eastern neighbour is short on more than just antivenin. Most facets of modern life that even developing economies take for granted—mobile phones, hotels, cars, access to Internet, English education—are in short supply. The country has been closed to outside influences of note—except China—ever since the military assumed power in 1962. Of late, however, it has embarked on a new path of political and economic reforms. The International Monetary Fund (IMF), in a recent report, suggests that Myanmar could be Asia’s next boom economy if it doesn’t go back to its old ways. Meral Karasulu, mission chief (Myanmar) for the IMF, says that the momentum is strong and the changes are tangible.

For India Inc., Myanmar (or Burma, as it was known till 1989) is an economy emerging next door. Shyam S. Bhartia, chairman of Jubilant Energy, an oil and gas exploration and production company, says, “Myanmar offers immense potential in areas of infrastructure, cement, oil and gas, power, health care, banking, telecom, IT, fertilisers, automobiles, and agriculture.” The company, which has operations in Manipur, has signed an agreement with Myanmar’s Parami Energy Development for a 77.5% participating interest in an on-land oil exploration block. Jubilant Energy’s CEO, Ajay Khandelwal, travelled to Myanmar 14 times since the middle of last year before signing the agreement in May, when he was a member of the Prime Minister’s entourage.

Rajiv Bhatia, a former ambassador of India to Myanmar, describes it as a country that feels like the India of the 1970s. The real opportunity for Indian businesses, he says, is to help bring Myanmar’s virgin economy into the 21st century. Add to this a market of close to 55 million people who have not had access to most of the things freely available almost everywhere else.

India isn’t the only major economy sniffing around. Other economies of the Association of Southeast Asian Nations (ASEAN), Britain, and the U.S. have begun sending teams of bureaucrats and businesspeople to figure things out. Coca-Cola plans to re-enter Myanmar after decades; so far, only three countries in the world do not have Coke—North Korea, Cuba, and Myanmar. That could soon change.

A snap indicator of how hot Myanmar currently is: With foreigners pouring in, hotel tariffs have shot up. A hotel room in Yangon (formerly Rangoon), Myanmar’s biggest city, available for $70 ($1 works out to 853 Myanmar kyat at current exchange rates) just 10 months ago, now costs over $200 a night.

INDIA’S TIES WITH Myanmar are long and complicated. In ancient times, the countries traded with each other and Buddhism was India’s biggest export. Later, Myanmar was part of British India and was ruled first from Calcutta, and then from Delhi until the mid-1930s. Indeed, for a few years after Myanmar’s independence in 1948, the rupee was its local currency. Indians were an influential community in the country, and still make up 2% of the population, though that’s down from 7% in the mid-1930s. Yangon, where most of these ethnic Indians live, used to be an important port between India and Hong Kong before Singapore gained international significance.

In addition, Jawaharlal Nehru and Myanmar dissident leader Aung San Suu Kyi’s father Aung San, who led Myanmar’s independence movement, were also close. Later, Nehru roped in U Nu, Myanmar’s first Prime Minister, as one of the founding members of the Non-Aligned Movement. But after the military takeover, India cold-shouldered Myanmar. The thaw began sometime in the 1990s and gathered momentum in the 2000s.

The Look East policy—initiated by the Atal Bihari Vajpayee government to deepen engagement with its eastern neighbours—was meaningless without Myanmar, since it’s a geographical bridge between India and the fast-growing economies of Indonesia and Thailand. China’s deepening relationship with Myanmar also prompted India to act.

No one is sure why the military government has decided to usher in reforms at this particular juncture. Theories abound. One is that there is increasing discomfort in capital Nay Pyi Taw about Myanmar putting all its eggs in the Chinese basket, given the perception of China as a state that befriends nations with the single-point agenda of exploiting their natural resources. The growing prosperity of neighbours such as Thailand and the rest of the ASEAN is also said to have caused some unease among those in power about the economic condition of Myanmar. A member of the ASEAN since 1997, Myanmar is slated to assume its chairmanship in 2014.

What seems to have tipped the scales, however, is Cyclone Nargis, which devastated much of the country in 2008, killing some 135,000 people. While world leaders rushed to offer assistance, the military blocked international aid, saying it wasn’t needed. However, survivors claimed that they received no food or water for several days and no financial assistance after. The junta faced mounting pressure from within the country as well as globally, and this could have been a catalyst for opening up the economy.

A move towards a more democratic government followed, with the first elections in 20 years held in 2010. Soon after, the junta released Nobel Prize winner and vocal supporter of democracy, Aung San Suu Kyi, who had been under house arrest (see ‘The Myanmar Story’).

Jayadeva Ranade, distinguished fellow at the Centre for Air Power Studies, New Delhi, says this was a turning point in the way the world looked at Myanmar. The government followed it up by initiating currency reforms, freeing political prisoners, unshackling the media, and reaching out to other countries.

Not everyone believes the change in Myanmar is for real. Sean Turnell, associate professor of economics at Macquarie University, Sydney, is an expert on Myanmar, and the author of Fiery Dragons: Banks, Moneylenders and Microfinance in Burma, which examines the history of the country’s monetary and financial system. He says that the hype belies reality and the political situation is such that the process of change in Myanmar is reversible. Turnell adds that the litmus test of durability of the democratic and economic reforms will be the next general elections, scheduled for 2015.

IF INTERACTIONS with the business delegation are any indicator, Nay Pyi Taw is keen on Indian business. President Sein’s meeting with the delegation, led by Bharti group’s chief Sunil Bharti Mittal, was scheduled to last 20 minutes. It went on for an hour and 25 minutes.

During the visit, 12 agreements were signed for sectors ranging from energy exploration to education. One is for an infrastructure project to build a road connecting India through Myanmar to Thailand, bringing the ASEAN countries closer to India.

To facilitate infrastructure projects, India’s Exim bank has extended a line of credit worth $500 million (Rs 2,850.5 crore) to Myanmar. The Exim bank’s current exposure to the country is $247 million through seven lines of credit. Other Indian banks, including the Union Bank of India and Bank of India, are already in the process of opening representative offices in the country. This is crucial as the financial system in Myanmar is underdeveloped, with issues such as currency convertibility making investments challenging.

Meanwhile, corporate India is readying its Myanmar push. Confederation of Indian Industry (CII) members who participated in the visit to Myanmar say telecom major Airtel plans to pull a team out of its Africa operations and move it to Myanmar to study the market. Currently, the industry is run by the state-owned Myanmar Post and Telecommunication. However, Airtel officials refuse to comment.

Tata Motors has already set up an assembly plant in the Magway region (in central Myanmar), funded by a $20 million line of credit from the Indian government. The plant can assemble up to 5,000 trucks a year. They will be distributed by a local partner, Apex Greatest Industrial, which will also sell made-in-India Tata cars. Sources say that B. Muthuraman, vice chairman of Tata Steel, who was part of the trade delegation, has spoken of opportunities in Myanmar to several Tata Group companies. Although the Tata Group refuses to speak of these plans, insiders say there’s a definite opportunity for Indian Hotels, a group company, to tap into the growth in business and leisure travel to Myanmar.

JK Paper, a leading Indian paper manufacturer, has, meanwhile, entered into a public-private partnership agreement with the Myanmar government to operate and expand Myanmar’s Thar Paung Paper and Pulp Mill. This mill will give JK Paper an additional capacity of 70,000 tonnes of pulp. While the financial details are still being worked out, Harsh Pati Singhania, managing director of JK Paper, says, “This is a business decision for us because, to cater to growth in a market like India, we need access to pulp. We have plans to develop Myanmar as a sourcing base for pulp eventually.” Myanmar has one of the biggest forest covers in the world in proportion to its size, so raw material is easily available.

Being primarily an agrarian economy (38.2% of GDP is dependent on agriculture, and it was once the world’s largest rice exporter), Myanmar has piqued the interest of the Kirloskar group, which sees huge potential for its pump sets in the country. It has signed a memorandum of understanding with Myanmar’s Ministry of Industry. Sanjay Kirloskar, chairman and managing director of Kirloskar Brothers, the flagship company of the group, has been to Myanmar four times over the years. He says doing business with India seems to come naturally to companies there. “We [India] are not a foreign country to them,” he says, referring to the history that the two countries share.

The real winner of closer ties with Myanmar would be the underdeveloped north eastern states of India, says Ujal Singh Bhatia, a member of the World Trade Organization’s Dispute Settlement Body and India’s former permanent representative to the WTO. “If India’s Look East policy is to succeed, then the North East has to be engaged in far more economic activity than is happening at the moment. This is a great opportunity to set the ball rolling for that to happen,” he adds.

This is something that the Indian government seems to have recognised. During his visit to Myanmar, Prime Minister Singh spoke of an agreement “to set up several border markets, beginning with one at Pangsau on the border of Arunachal Pradesh in India and Sagaing in Myanmar”. The geographical proximity is something that companies want to take advantage of now.

BY 2015, TRADE BETWEEN India and Myanmar is expected to zoom to $3 billion, more than double the current figure of $1.3 billion. However, the trade balance is heavily skewed, with Myanmar exporting goods (mostly agricultural produce) worth more than $1 billion. According to CII, this will change as more Indian companies set up shop in Myanmar, and as the country begins to import more engineering goods, pharmaceuticals, vehicles, and so on.

The trouble is, in Myanmar, India is seen as a nation that promises but rarely delivers. The $120 million multi-modal transport facility on the Kaladan River connecting the Sittway Port in Myanmar to Mizoram is an India-backed project plagued by delays.

This is in contrast to the infrastructure-building spree of the Chinese. Take the case of Nay Pyi Taw, most of which has been constructed with Chinese help. In fact India is, in the diplomatic circles in Nay Pyi Taw, jokingly referred to as part of “NATO”—No Action, Talk Only. That is the perception that India is fighting. As Jubilant Energy’s Khandelwal says, it becomes important to follow through the agreements that have been signed. He adds that to highlight the distinction between India and China, it is crucial to involve the local community in the various projects that are taken up. This has, after all, been India’s model for Africa—soft diplomacy through education and health care, coupled with investments.

Countries such as the U.S., Britain, and Australia, which, in the 1990s, imposed crippling economic sanctions on trade with Myanmar, are showing signs of easing them. Japan, too, has announced that it will write off about $3.7 billion of Myanmar’s debt to help the country’s economic development. The U.S. secretary of state, Hillary Clinton, visited Myanmar last year; it was seen as a sign of thawing relations between the U.S. and Myanmar.

But even if the country chooses to continue reforms, several concerns remain. Turnell says that there’s a very real threat of an oligarchy taking root—where those who are close to the military get favoured. Tensions too remain, with reports of fresh violence between ethnic rebels and government forces filtering in. There is also a significant amount of “economic plumbing” (as Pamela Cox, the World Bank’s East Asia and Pacific regional vice president has named it) that needs to be done to bring the economic system, the banking system, the currency, and even communication tools up to date with the rest of the world. Myanmar is also that rare British colony that hasn’t picked up English. This means that interpreters are required for most interactions.

Suu Kyi herself, while addressing corporate leaders in Thailand, warned the international business community against “reckless optimism” in what was her first speech outside Myanmar in years. “Would-be investors in Burma, please be warned,” she said at the World Economic Forum in Bangkok. Accepting her Nobel Prize 21 years after she was named the winner, she said, “If I advocate cautious optimism, it is not because I do not have faith in the future, but because I do not want to encourage blind faith.”

Even so, none of these are problems that cannot be solved. As Joseph E. Stiglitz, the Nobel laureate economist who has been closely following developments in Myanmar, wrote recently: “We have seen the Arab Spring blossom haltingly in a few countries; in others, it is still uncertain whether it will bear fruit. Myanmar’s transition is in some ways quieter, without the fanfare of Twitter and Facebook, but it is no less real—and no less deserving of support.”