Why Singaporeans must be cautious about investing in Myanmar

Watch any financial program on television, read any business magazine these days and there is a high probability that they will mention Myanmar as a land of opportunity for any entrepreneur or company bold enough to enter this frontier market.

But Singaporean’s would do well to remember the harsh lessons learned by others investing in earlier frontier markets.

Myanmar has become the place to be according to many pundits. A few years ago no self respecting international CEO would have dared to tell his board of directors that he was not investing in China.

Today boards are asking their CEO, “What are you doing to capitalise on opportunities in Myanmar?” Recently Coca Cola and Unilever announced that between them they would invest over $1 billion in the country.

If respected companies such as these are making big bets on Myanmar should Singaporean companies do the same? My view is maybe – but only with caution.

Firstly be realistic about the size of the economy of Myanmar – it is somewhere between $45BN and $50BN. This puts the total country GDP at about half the size of a city like Bangkok or Jakarta. GDP per capita is one-sixth of Thailand.

Less than 5%, of Myanmar’s population, or 2.8M people, fall into the consuming class – that is people who have sufficient income to be able to buy discretionary goods after paying for essential items such as food and shelter.

That’s right – you are chasing a market of less than 3 million people. Myanmar is making great political progress but it is not yet an economic miracle. Do not expect fast returns on your investment.

But it is lessons of the past that should give you cause for concern. When I first worked in China it was almost required for expats to read a book called Mr. China by Tom Clissold. It tells the tale of how Wall Street Bankers with hundreds of millions of dollars to invest lost everything when they tried to enter the China market in the early 1990s.

If you have not read the book I strongly encourage you to do so. It is an enjoyable read and you can learn much from Mr. Clissold’s experiences.

Another recent frontier market in our region was Vietnam, which many investors rushed into when it opened up. I have seen estimates that up to 90% of investors lost money during those early years.

In contrast I made the decision, in 2006, that our company should build its first plant in Vietnam. It has been a great success and now Vietnam is one of our most attractive markets. You can wait, invest when things are more certain and still get good returns.

Although we can learn from the past, the investment climate is even more dangerous today. Despite the talk of scaling back of quantitative easing in the US there is still a lot of money in Asia looking for returns.

A market that is currently being talked up as the next great investment opportunity plus a lot of cash seeking a home is a recipe for an investment bubble where assets become overpriced. And when bubbles burst, investors lose money.

If you believe that Myanmar is for you – I wish you every success but please invest carefully, do not overpay and remember our regions recent history.