The United States Begins Lifting Sanctions on Myanmar

This week, following the by-elections in Myanmar that were dominated by Aung San Suu Kyi and the National League for Democracy (NLD), the United States, and other leading Western countries, have begun the process of removing sanctions first put into place nearly two decades ago. The sanctions are a complex tangle, and require congressional approval to remove all of them, but the Obama administration has some leeway to waive certain sanctions by executive order, and it is about to do so.

This is the right step, as long as the United States goes relatively slowly toward full removal of sanctions. As I have mentioned before, the by-elections are an important sign of the future, but the real test will be the national elections in 2015, and since so much rides on the health of both President Thein Sein and Suu Kyi, and their relationship, the future still looks a bit murky—even if much better than anyone could have predicted two or three years ago.

Also, it is clear that, with sanctions being lifted in parts, both American and other Western companies are extremely eager to enter Myanmar. In a recent talk, prominent financial author and investor Jim Rogers told a conference, “If I could put all my money into Myanmar, I would,” since the opportunities in natural resources and other areas in the once-closed country were so enormous. Rogers may be right, particularly in natural resources, where companies are used to dealing with nations with poor infrastructure and labor with weak skills, as well as a lack of the rule of law. But I want to highlight a recent Financial Times article I wrote, to note that, in many areas, Myanmar will be a far greater challenge than companies anticipate:

“Investors expecting Myanmar to be another Vietnam are likely to be disappointed. Instead, they are likely to find a market more akin to Angola: a shattered nation with minimal human capital. Myanmar has a large labour force, but unlike Asian exporting powerhouses which focused government resources on education, the quality of its labour is extremely low. For nearly two decades, the former military regime shuttered the finest secondary schools, to prevent students from gathering for protests. Today there are only a handful of well-educated younger Burmese skilled in information technology, communications, or management, which would make it hard for multinationals to build an office of any size in Myanmar.

In much of northern and north-eastern Myanmar is dominated by powerful ethnic insurgencies and narcotrafficking organisations. In many of those unstable regions, Myanmar lacks any infrastructure at all. These weaknesses could put transport costs on the level of the more expensive places in Africa, as well as contributing to corruption: Transparency International recently ranked Myanmar the second most corrupt nation in the world.

Unlike in China in the late 1970s, Myanmar’s economic reforms also could be easily overturned. In China, reforms had the support of Deng Xiaoping, clearly the most powerful leader. But while Myanmar’s president, Thein Sein, has shown reformist instincts and theoretically controls government, the former military rulers have not died or clearly retired. In fact, officials and activists privately worry that General Than Shwe, the former military ruler, is still exerting influence through his allies. He never had much interest in reform. If liberalisation threatens the (illicit) wealth he and his cronies have amassed, he could try to stop the process of change.”