Hardly a day passes without the announcement of a new investment initiative in Myanmar, the long-isolated nation that in 2011 began the process of opening its economy to foreign firms.
From the telecommunications and oil sectors to banking, health care, and legal services, multinationals are scrambling to get a foothold in one of the world’s few true frontier markets. Indeed, the country approved $1.8 billion of foreign direct investments between April and August this year—surpassing the $1.4 billion invested in the entire previous fiscal year.
But, as Quartz has reported, investors face significant challenges, from a shortage of office space in the capital, Yangon, to erratic electricity and crumbling infrastructure. Other issues include corruption, a murky regulatory system, subpar schools, and a lack of modern financial services.
Many firms rushing into Myanmar seem to overlook another crucial issue: Most of the country’s 60 million people are very poor. The World Bank notes that Myanmar’s GDP per capita is approximately $800-$1,000, and 32% of the country’s children under the age of five suffer from malnutrition. Although the country is largely untapped by foreign firms, the market is not exactly overflowing with buyers eager, or able, to spend on smartphones, automobiles, or many other consumer goods.
Another challenge is that Myanmar’s population density is just 80 people per square kilometer, making it much more sparsely populated than other Southeast Asian countries like Thailand (130), Indonesia (135), and Vietnam (283). This could present logistical challenges to businesses that depend on economies of scale to maximize profits on the low-margin goods that Myanmar’s consumers can currently afford.
Investors eyeing the prospect of short-term riches in Myanmar would be wise to consider the case of China, says Peter Birgbauer, a Yangon-based consultant for Johns Hopkins University’s School of Advanced International Studies. As he wrote recently in The Diplomat, when Beijing opened up to international investment in the 1990s, companies in “nearly every sector” rushed in. But it took time for most to gain “traction and momentum,” Birgbauer says. As a result, the more impatient firms “either left the market or bled money trying to survive.”
Foreign firms must decide whether they think they can turn a quick profit in Myanmar—in which case, they should think again—or if they are willing to invest for the long-haul. “The best way to avoid potential pitfalls is to avoid getting caught up in the frenzy of new market opportunities,” Birgbauer writes. “Just because your competitors open up offices in new markets does not mean you have to as well.”