ASEAN KEY DESTINATIONS
Myanmar opens for business, India Inc treads cautiously
15 May 2012
Foreign direct investment (FDI) into the country — one that is rich in resources but remains deeply impoverished — has grown over 100 times in the past few years. In 2010-11 alone, it soared to $20 billion from a much smaller $300 million during the previous year, according to IHS, a global information firm. However, much of this is still led by the Chinese.
Over 70 per cent of total FDI inflows came from Chinese companies in the hydrocarbon sector, IHS data indicate. Three large Chinese projects, including one that involves constructing two pipelines for transporting Myanmarese and West Asian gas into China, were worth $8.27 billion. Hong Kong entities accounted for another $5.8 billion of investments in 2010-11, followed by Thailand, South Korea, Singapore, Malaysia and Japan as other major investors. India, on the other hand, is only the 13th largest investor, with an investment of around $189 million in five projects.
India, on the other hand, is only the 13th largest investor, with an investment of around $189 million in five projects.
ONGC Videsh (OVL), a wholly owned subsidiary of state-run energy firm ONGC, and natural gas major GAIL have minority stakes in two offshore gas assets on Myanmar’s north-western coast, which were picked up in the last decade.
“The initial interest was in getting the gas back to India, but now most of it is being transported to China,” a GAIL spokesperson explains, adding the company also has a small stake in a gas pipeline venture in Myanmar. But, GAIL isn’t currently looking at any further opportunity, the spokesperson clarifies, as “ideally the gas (from existing assets) should have been brought to India”, which wasn’t the case. Automotive major Mahindra & Mahindra, with a significant farm equipment division that has, in the past, supplied to Myanmar through government lines of credit, admits there is business to be done across the Bay of Bengal, but is limited by the presence of a government-promoted market.
“There is a business opportunity. Myanmar is an extension of the Indian market, especially in the farm equipment sector. But, the instability is a concern. It is not a civilian market,” says Pravin Shah, chief executive of Mahindra’s automotive division and former head of international operations in the automotive and farm equipment sectors.
Punj Lloyd, one of the engineering, procurement and construction (EPC) contractors for the Myanmar-China oil and gas pipeline, sees good business opportunities in Myanmar “with many favourable economic reforms having taken place”. But, P K Gupta, director at the Gurgaon-headquartered firm, says, “To realise this huge potential for further business, it is important for all sanctions to be lifted.” The country’s resource sector, however, remains attractive.
Myanmar’s proven oil reserves stand at about 216 mmbbl (million barrels) of crude oil and 16,154.65 BSCF (billion standard cubic feet) of natural gas, according to government data, with much of its assets understood to be yet unexplored. Unsurprisingly, the resource sector has emerged as one of the key reasons for much enthusiasm about the rapprochement between the country’s authorities and other western governments. So far, western sanctions had ensured that few non-Asian oil majors could enter Myanmar for exploration and production.
“Apart from the oil and gas sector, there are huge opportunities in agriculture, infrastructure and tourism sectors. Tourist arrivals, for instance, have gone up by 30 per cent in the last year, but are less than one million annually. We believe this could double in five years. So, I think there is great potential in Myanmar,” says Rajiv Biswas, chief Asia economist at IHS Global Insight.
With a large population, comprising a workforce of about 32.5 million, abundant resources, newfound investor interest and a strategic location, ensconced between China, India and the Association of Southeast Asian Nations (Asean), Myanmar is likely to see GDP growth in excess of six per cent until 2020, feels Biswas.
“But whether fully free and fair elections will happen in 2015 remains a big ‘if’. There are still a lot of risks involved, although the mood at the moment is very positive,” he adds.
For Tata Motors, the entry into Myanmar was on the back of a line of credit extended by the Indian government to set up a truck assembly facility, with an annual capacity of 1,000 trucks, which became operational last year. Although the car maker is not currently planning an expansion, it does not rule out playing a greater role in the market. “It is a country that will require automobiles and Tata Motors has a full range of offerings. There are opportunities (in Myanmar) and we will consider them at the right time,” a company spokesman says.
Not only are there risks from arbitrary executive decisions, according to IHS analyst Jan Zalewski, because of continuing opacity in the decision-making process, ethnic conflicts in certain border regions that pose a threat to supply routes passing into neighbouring countries such as China, Thailand or India. At the same time, the ongoing political transition and economic liberalisation carry their own set of risks with regard to how social movements are controlled.
Shyamal Banerjee, director at Lookeast Business Consultants, which helps Indian investors enter Myanmar, thinks Indian firms are being “over cautious”.
“Indian companies need to show to Myanmar’s authorities that they are interested in making long-term investments, but they also need more support from the Indian government. Chinese companies are being able to do so well because they obtain the tacit government support. Indian firms don’t do this, and instead expect a red carpet welcome,” he says. “When in Rome, do as Romans do.”
Courtesy: Arakan Oil Watch (AOW) is an independent, community-based, non-governmental organization operating in Burma. Founded in 2006, the organization’s mission is to ensure that community rights, livelihoods, and environments are guaranteed and protected, and to monitor the activities of multinational oil and gas projects and their human rights, environmental, and financial impacts in Arakan State and the country of Burma. AOW is an active member of Oilwatch Southeast Asia, and networks with a variety of Burma-based organizations and international NGOs that monitor resource extraction and impact.
Letters that do not contain full contact information cannot be published.
Letters become the property of AseanAffairs and may be republished in any format.
They typically run 150 words or less and may be edited
submit your comment in the box below