Investing in Myanmar…

Nick is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Now that sanctions (for Americans and Europeans) are lifting from one of the more promising markets (of 1948), investors need to ask if they want to bet on Myanmar or Burma. Myanmar is the country ruled by the authoritarian and nutty junta of generals for the last several decades.  In contrast, Burma is a confused and motley assortment led (at least in theory) by Aung San Suu Kyi, a Nobel Laureate and daughter of the Burmese general considered the father of the nation (at least by the Bamar majority, not so much the dozen ethnic minorities that comprise over a third of the population).

It appears General Electric (NYSE: GE) is sending in their head of East Coast Television and Microwave Oven Programming to give Myanmar a go.  However, it remains to be seen if their two-faced approach that has served their bottom lines well in China and on their US tax returns will work in Burma’s very different political landscape.

<img src="/media/images/user_115/scarecrow_large.JPG" />
“...Of course, people do go both ways.” 

Recently Stuart Dean, CEO of GE for ASEAN (Southeast Asia) gave his Scarecrow of Oz analysis as, “Our view is that you've got to look at the risk of going into an emerging market like Myanmar.  But at the same you've also got to look at the risk of not going into the country.”  He then summed up his risk assessment, “They need electricity. I can’t imagine that we ship some turbines there and they don’t pay us for them.  Who else is going to ship turbines once that story gets out?”

Answer:  Probably China.  If not some company like GC China Turbine (NASDAQOTCBB: GCHTE.OB), then maybe Jiangsu Tianue Energy and Chemical Group, which already supplies GE with advanced gas turbine power generators.  This wouldn’t be the first time a Chinese partnership has gone unexpectedly.  In Brazil, China is already selling (in direct competition) the trains it developed from “re-innovating” technology it “shared” with its foreign partners - supposedly for use in domestic projects in China.  America should also know that the People’s Republic does not discriminate as Chinese state and private corporations have been liberal in their interpretation and use of technologies from France’s Alstom (NASDAQOTH: ALSMY.PK), Canada’s Bombardier (TSX: BBD.B), Japan’s Kawasaki (TYO:7012)(PINK:KWHIY), and Germany’s Siemens (NYSE: SI).

One Chinese railway joint-venture partner explained the national rationalization: “We attained our achievements in high-speed train technology by standing on the shoulders of past pioneers.”  Additionally, profits made by these foreign multinationals from other divisions operating in China as well as a resignation that the Chinese courts are unlikely to rule in their favor (which is based on much precedent) have abetted the Chinese ethic.  Kawasaki has been alone among the four to suffer "an onset of outspokenness."

Still, some Chinese corporations have been beaten at their own game in Russia, and don’t always win in fairer competitive bids in other markets (including several emerging ones).  Whether this is because companies like Alstom make better pitches or also employ their own forms of extracurricular persuasion is unclear.

The Chinese have another advantage in the competition for Burmese market share.  GC China and other exporters to strategic clients are likely to have an understanding with politicos in China (similar to Boeing's BFF status with the US Ex-Im Bank).  Beijing’s interest in Myanmar as a pearl in its geopolitical strategy pretty much guarantees it will literally insure its national majors against Naypyidaw’s perfidy.  (Myanmar's capital officially moved from Yangon, formerly Rangoon, to Naypyidaw after a government soothsayer divined its necessity.  Like the breakaway-breakaway Republic of Ingushetia’s Magas, or the former Ivory Coast’s Yamoussoukro, government ministers have constructed some of the prettiest vacant buildings the world will never see.) 

Chinese government backing can also go a long way to smoothing over complications that can arise like the recent resignation (firing?) of GC China’s CFO as well as a board member within days of one another.  Studying Chinese-style operations are also worth potential Myanmar investors’ time since on several occasions the generals, including President Thein Sein, himself a retired general, have indicated that the People’s Liberation Army has been a guiding light to their reformist path.  Myanmar's junta, like other praetorians such as Iran’s Revolutionary Guard or China's PLA, has extensive commercial holdings, which further stymies and undermines any economic reforms of consequence.

For observers that speculate that Thein Sein is a promising partner since he approved Aung San Suu Kyi's release, it still remains that he is also still powerful enough to confine her once again to house arrest or even bar her re-entry to the country (as was her fear for decades).  In the generals’ minds her exorcism would likely result in a tamer, prolonged transition similar to what occurred after China lopped off the head of its radical democrats in 1989.  Presently, the Burmese democracy movement lacks anyone that could replace Aung San Suu Kyi’s compelling personal narrative and international appeal.  Over the decades, the democrats have failed to demonstrate even a scintilla of ability to impact the junta, let alone the country.  Just because the West has declared a victory of sorts still does not will a democratic or capitalist Burma into existence.

Granting too much logic to the junta’s motives can be dangerous, but recent tensions with their Chinese partners may be the driving force behind what has been mischaracterized as reforms.  After all, nothing of consequence has occurred besides the release of Aung San Suu Kyi.  Once the two authoritarian regimes settle their spat, there is every reason to believe Myanmar will return to “normal.”  Nevertheless, as noted analyst Ian Bremmer points out, a small authoritarian country does not have the ability to change the global rules like a big authoritarian power such as China.  Strengthening the democrats by encouraging more people-to-people private investment will be a key component of real reform and long-term success.

[continued in “…Investing in Burma”]

Nick Slepko has no position in any company mentioned here at the time of publication.  The Motley Fool has no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. If you have questions about this post or the Fool’s blog network, click here for information.

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