GROUND ZERO: 10 Things Australian Firms Need To Know Before Joining The Myanmar Gold Rush

Last November, Myanmar President Thein Sein ratified a new law that opened the country to foreign investment after decades of political and economic turmoil.

And as Australia and its western allies lift their various trade embargoes against the South East Asian nation, corporates have been moving in.

Resources firm Woodside has major stakes in two exploration blocks off the coast of Myanmar, while the “super-regional” ANZ Bank opened a representative office in the nation’s largest city, Yangon, in June.

“This is a country that’s emerging from decades of isolation,” says Melinda Tun, a founding member of the Australia-Myanmar Chamber of Commerce and senior associate at law firm Baker & McKenzie.

“It’s very rare that you see a country of about 60 million people suddenly open up to the world. That’s a huge source of labour, a huge consumer market for a lot of companies.

“Geographically, Myanmar also shares a border with 40% of the world’s population so it’s in many ways a very strategic destination and move for a lot of companies that are already operating or looking in the region.”

Chris Freeland, Australian National Managing Partner of law firm Baker & McKenzie, describes Myanmar as “ground zero” for foreign investors looking for greenfield opportunities in the ASEAN region.

But the lawyers, who consult with Myanmar hopefuls via Baker & McKenzie’s Bangkok-based Myanmar practice, warn that being a first mover into the area isn’t easy.

Here’s what you need to know:

1. There isn't enough office space to go around.

Earlier this month, Bloomberg Businessweek reported that an influx of foreign investors had made Yangon offices more expensive than some in Manhattan.

Companies have been forced to rent non-traditional workplaces including residential villas and hotels.

'Lots of companies are moving in and being quite resourceful in their approach to finding office space, so there are lots of nice villas being rented out,' Tun told Business Insider.

'There are a couple of streets in Yangon where you drive down and see huge Japanese trading houses who've hired out huge villas and compounds to base their staff in. It's a very nice working environment for their staff.'

2. Foreigners can't buy property.

Like in Thailand and Vietnam, foreigners can't actually own property in Myanmar, whether it be built property or land.

'Foreigners can't acquire property in Myanmar,' Tun notes. 'Companies will have to ensure they have long-term lease arrangements in place.'

3. The banking system is still very basic.

Myanmar is very much a cash economy, with no ATMs, Visa or Mastercard facilities within the country until a couple of years ago.

The local currency, the kyat, floated against the USD in April last year and the government is now looking to give Myanmar's central bank the authority to implement an independent monetary policy to help keep the currency stable.

And while ANZ has a banker and handful of staff in Yangon, the 'representative office' can't actually do any business there until finance sector reforms are introduced.

That means Australian companies like Woodside wouldn't be able to use ANZ for banking just yet - they would have to open accounts with local banks and repatriate capital through those banks' Thai and Singaporean partners.

'We expect to see a staged opening up of the (banking) sector,' Tun says.

'The government has been talking about reforms to the banking sector, principally to allow foreign banks to form joint ventures with local companies to develop a lot of financial infrastructure that's needed before opening up the market to foreign banks.'

4. Laws are still in the works.

Myanmar President Thein Sein with former Australian prime minister Julia Gillard

Myanmar's going through a raft of regulatory change, with new laws for the banking, telecommunications, and mining sectors due to be introduced shortly.

That means foreign companies have to deal with a great deal of regulatory uncertainty for the trade-off of a first mover advantage. Freeland credits this first mover advantage for the strength of the ANZ and General Motors brands in China.

'There's a lack of legal and regulatory frameworks in a lot of sectors that a lot of Australian companies would want to operate in,' Tun says.

'Companies ... need to be able to navigate that landscape and bring Australian standards to their operations to be able to operate successfully inside the country.'

Although Tun says there are some large miners waiting for the passage of Myanmar's new mining law before 'pushing the button' on major projects, other companies have been more willing to take the leap.

'The way (some junior miners have) been able to get around it is by engaging extensively with the Myanmar government, civil society groups and industry organisations to understand what the basics of the industry are and the parameters around which they can operate,' she explains.

'(But) we know of Australian firms ... that are waiting to understand the risks and development profile before they go in.

'Companies like Murray Goulburn are very interested in the country. They obviously haven't gone in yet. It's about trying to understand the market, trying to understand the risk, before they go in.'

5. Outside of major cities, roads are pretty bad.

According to the CIA World Factbook, there's a total of 34,377 kilometres of road in Myanmar, including 358 kilometres of expressways.

But a vast majority of that is unpaved.

Tun suggests that this may be a logistical issue.

'The roads inside the major cities are all fine; it's once you get into the regional or outer areas of the country that the network gets more patchy,' she says.

'So if you are a manufacturing firm looking to set up a distribution network for your products inside the country, you'd want to make sure your key market segments (can be accessed by) proper transportation.'

6. Access to electricity is patchy at best.

Myanmar is saddled with a huge electricity shortage that Tun expects to persist for 'a couple more years at least'.

While international hotels tend to have their own generators, blackouts are common across the country.

Some of the poorer parts of Yangon get only an hour of electricity a day, and about two-thirds of the country has no access to the transmission grid at all.

'(The government is) trying to rectify that by setting up a few energy sector reforms, promote renewable energy (and) build power plants,' Tun says.

'All of that takes time; it's a matter of waiting for key infrastructure to be built as well.'

7. State-owned businesses dominate some sectors

There are some sectors that are dominated by state-owned enterprises, many of which operate at a loss.

Certain sectors, like mining for precious gems, are open to state-owned businesses only, while others, like tourism and the timber trade, are gradually being opened up to the private sector.

'Because of (Myanmar's) political and social history, there are a lot of sectors of which significant portions are state-owned,' Tun says, highlighting banks and energy supply as examples.

'The government clearly recognises the need to reform the economy on a structural level, which means privatising a number of state-owned enterprises as well.

'It's definitely on the cards but how far they go and how much they open up to foreign investors is a different story.'

8. It's often more about who you know than what you know.

As in other parts of Asia, doing business is Myanmar is very much about who you know.

Business people tend only to strike deals with people they know well and trust. That means foreign companies will need a well-connected, capable local partner to open doors into the market.

'(Foreign companies) need to understand the importance of having a well-connected local partner who can open doors for them and introduce them to the business practices there and what the market there is like,' Tun says.

For the moment, Tun says Australian companies will need to be on the ground in Myanmar doing due diligence and leg work to find a local partner and connections in the industry.

But Austrade is likely to play a bigger role in future, she says. The Australian Government agency opened a Yangon office in June, led by Trade Commissioner Mark Wood.

9. There's a shortage of skilled labour, so you may have to bring your own staff.

There's a shortage of skilled labour in Myanmar, so foreign companies are likely to have to staff their operations with expatriates.

Tun says legally, it's pretty easy to have expats living and working inside Myanmar, but it's relatively expensive and severely limits expansion.

'(Using expats is) the short-term solution; the longer term is about being able to develop local professionals so they can have substantial operations staffed by local people,' she says.

According to Freeland, multinational firms typically aim to 'draw on global best practice as well as local knowledge and relationships which are always important'.

10. You'll be judged on your ethics.

Tun says companies that enter emerging markets to exploit greenfield opportunities are also expected to demonstrate responsible business and investment practices and good corporate citizenship.

Businesses need to be accountable and transparent in the way they operate, and avoid the temptation to exploit legal shortcomings, she says.

'As lawyers, we know that the country has a fairly undeveloped legal system and regulatory frameworks,' she explains.

'Rather than exploiting those, it's about bringing over international best practices and where there are gaps, to fill it with best practices, international laws and rules, and applying those to that jurisdiction.

'It's about taking a proactive and responsible approach to investing inside the country.'

Now read: Here Are The Labour Conditions Of 16 Asian Nations That Have Australian Investors Worried

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