Matthews Asia: Myanmar, The Last Frontier

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Myanmar, The Last Frontier by Taizo Ishida, Matthews Asia

For me, Myanmar is the last of Asia’s frontier countries, and it represents an enormous investment opportunity. I first visited Yangon, one of Myanmar’s largest cities, with my colleague in June 2013 when global consumer companies were racing to set up there before their competitors arrived. I remember seeing Coca Cola’s CEO at the airport celebrating with his employees after the firm resumed bottling operations in the country for the first time in six decades. Obtaining a hotel reservation in Myanmar those days was difficult. Even as the country was beginning to open up to foreign investment, some essential infrastructure, like banking and modern telecommunications, was totally absent.

Development in the country was notoriously stifled for some 50 years under the thumb of socialist and military dictatorship until 2011. Today, Myanmar’s economy is still based on agriculture, just as it was decades ago, and the country is one of the poorest in the world. In fact, agriculture’s share of GDP rose to 44% in 2010 from 35% in 1965—quite unique in Asia where the average share of agriculture to GDP was 12% in 2010, according to a McKinsey study. Myanmar’s GDP last year was just US$64 billion—even less than that of Sri Lanka despite having double the population size.

Before we returned to Yangon in the middle of last year to check on the progress since the foreign investment euphoria, we initially sensed that the investment boom had subsided. However, after our arrival, we quickly realized this was not the case. Roadways were filled with second-hand imported Japanese autos and people everywhere were using mobile smartphones. In fact, the number of mobile subscribers has grown over five years from 500,000 to about 22 million—marking over 40% of the population. This occurred after the launch of cheap SIM cards and low-cost Chinese smartphones made by foreign companies. It is interesting to note that Myanmar skipped not only the “land line phone” technology but also the generation of regular handheld mobile phones, which are still being used in countries like Japan. This is just one of the many examples of opportunities we see in Myanmar today.

The prospects are clear: Myanmar population of 52 million boasts a sizeable young demographic, abundant natural resources—including natural gas and jade—and it sits in the heart of the world’s fastest-growing region bordering China and India. Of course, one should not underestimate the risks, including low productivity, a poor educational system, a lack of basic infrastructure, a history of religious violence and a still-questionable political regime. Then again, these are all the typical characteristics of frontier markets anywhere in the world.

One important side note is that foreigners who live there seem to consistently praise the people and speak lovingly of the country. This goes a long way when a poor country such as Myanmar requires a lot of help from the outside world in order to grow its economy. The Yangon Stock Exchange opened in early December, and while its first few companies aren’t scheduled to trade until February or March, its opening is a welcome addition to Asia’s frontier markets.

Taizo Ishida
Portfolio Manager
Matthews Asia

As of December 31, 2015, accounts managed by Matthews Asia did not hold positions in Coca-Cola, Inc.

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