Business in Burma: Show me the money, but only if it's crisp

It may take more than a lifting of sanctions to revive Myanmar's isolated economy.

As Myanmar's reform-inclined government undertakes a political opening, Western businesses are watching to see if this leads to an end to Western sanctions imposed during the country's brutal military rule.

But even if sanctions are removed, potential investors would face many hurdles in an economy where opaque rules and edicts have made life tough for ordinary citizens.

“We are still living in the dark ages, we haven't seen many changes,” says Aung Zeyn, who runs a small business repairing photocopiers, and whose opinion echoes similar sentiments across Yangon.

One example: Peering with the gimlet eye of a gem trader as he examines a crisp new $100 bill, one of Yangon's hundreds of black-market money traders says, “we can only accept the new, no old.”

Just any old $100 is no good in Yangon.  In order to exchange money and get the best rate on the black market, a visitor needs crisp, new bills. The trader holds the note up to the light, checking for blemishes that could render it worth substantially-less than the average unofficial market rate.  The scenario, completely normal for most Burmese, highlights the dual exchange rates: the official government rate and the unofficial "Myanmar rate," or black market exchange.

The official rate is $1 per 6 kyat (pronounced “chat”), but unofficially, $1 is worth about 800 kyat, a discrepancy that Myanmar's opposition allege allows the government to hide billions of dollars in oil and gas revenues.

Some speculate the government will adopt a more flexible approach to exchange rates.

Sean Turnell, an economist and Myanmar (Burma) expert at Australia's Macquarie University, visited the country in early February. He says that an exchange rate reform is just one of numerous changes needed there before Myanmar and the West can mutually benefit from any opening.

“The government needs to introduce a new foreign investment law, and present the budget in a transparent way and – above all – using the parliament to rescind many of the old laws, some of which date from the socialist era, that greatly restrict legitimate enterprise,” says Dr. Turnell.

Government pledges to open up

For decades, a military dictatorship ran Myanmar with an iron fist. Less well-known than the junta's propensity for human rights violations, is that the country's rulers embarked on a disastrous “Burmese way to socialism.” But even that old-school system of self-sufficiency was infused with arcane whims such as a 1987 re-denomination of the country's currency into notes divisible by 9, deemed a lucky number by superstitious ruling strongman General Ne Win.

Money hassles easily encountered by visitors are just a minor problem compared with the day-to-day difficulties faced by Myanmar citizens struggling to make a living in an economy that seems frozen in time – even as the government pledges to open up to Western investors and institutions.

"We have begun the process of re-engaging with the government to support reforms that will benefit all of the people of Myanmar, including the poor and vulnerable,” said Pamela Cox of the World Bank, in comments posted online on Thursday.

In the past, Asian countries such as South Korea, Thailand, and Malaysia underwent economic reforms before democratization, but Myanmar seems to be going at it from the opposite direction.

"There has been something of a miracle, politically, with all the reforms that have happened,” says Luc de Waegh who heads up West Indochina, a consultancy that advises prospective investors in Myanmar. “But economically speaking, it is impossible to have such an impact straight away. It is a complex and difficult task and will take time," He says. 

The double edged sword of investment

Nonetheless, the country's recent political changes – such as the freeing of political prisoners and the relaxing of media restrictions – have raised the prospect of Western countries reducing or eliminating economic sanctions, and with that in mind, potential investors from Europe and North America are jockeying for position.

Investment could bring much-needed jobs and change laws that currently throw up fences for business owners.  But, it can be a double-edged sword, and, in another squeeze on ordinary Burmese, property prices in Yangon are increasing, partly due to the prospect of Western investment returning to the country. 

Aung Myo immigrated to South Korea in 2005 to work in the country's car industry. He joined several million compatriots who fled the Army ruled repression in Myanmar that lasted from 1962-2011, and an economy ranked as one of the poorest in Asia, despite its lush resources such as gas, oil, hydropower, gems, and timber.

Mr. Aung Myo's wife, Phyoe Thein Tar, who owns a clothing shop, last saw her husband more than two years ago. “He will return to Myanmar for good later this year,” she says as her young daughter clambers onto her lap. “I will keep my shop and I hope he can drive a taxi, ”she says, “but it is not easy to buy a car here.”  

When Aung Myo returns, the family will come up against the country's corrupt and tangled car permit system, which limits the number of new cars and forces even the Burmese who are able to afford one to haggle for vastly-overpriced, late-1980s Japanese models. "I applied for a car permit a year ago," she says, "but have not received any reply."

Yangon streets were visible through the floormat-sized holes in the floor of the taxi that maneuvered its way toward Ms. Phyoe Thein Tar's shop. It is just one of thousands of such beat-up old cars on Yangon's streets. Driver Myint Naing said his father helped him purchase the 1986 Toyota five years ago, for the equivalent of $15,000. “That is Myanmar price,” he laughed, pointing to the rusting bits of steel visible through the cracked and faded dashboard, and alluding to the country's high rates of inflation.

Phyoe Thein Tar says she has grown her business, moving from a streetside stall to the 12 x 10 shop she now rents, and hopes to find a bigger place next year. She pays 180,000 kyat ($225) per month to rent the space, but the going-rate for the size and location is usually closer to 400,000 kyat ($500). 

 “The owner of the building is a friend of my mother so he gave me the good price,” Phyo Thein Tar says, adding that without that concession and remittances sent by Aung Myo from Korea she would not have been able to start her business.  “We cannot get bank loans here,” she says, another thing that the government says it will change.

The International Monetary Fund (IMF) is talking up Myanmar's economic prospects, saying it "could become the next economic frontier in Asia."  But for most people, prosperity is distant dream. 

One third of Myanmar's citizens live on less than $1 per day and the country's estimated $50 billion GDP pales in comparison with neighboring Thailand, which has a similar-sized population but a $348 billion GDP.

The government has said it wants to help some of the migrant workers overseas return home, as investment increases and jobs become available. But Aung Zeyn, the photocopy repair shop owner, is instead thinking about emigration. “I am taking an IT class now,” he says. “Once I am done I might try to get a job in Singapore."

He would prefer to stay in Yangon, he says, but he’s not convinced there will actually be any promising IT jobs in Myanmar any time soon.