The Next Big Story in Asia
“It’s like Thailand was 50 years ago,” Alexandre de Lesseps told me. We were talking about the next big emerging market to bloom in Asia. It may surprise you, but it is one heck of a story… and opportunity. It also fits our grand thesis on emerging markets and is the subject of my upcoming book, World Right Side Up. The country I’m talking about is Myanmar (or Burma, as most people still seem to call it).
I caught up with Alex over the holidays because I remembered his infectious enthusiasm for the country. He is an accomplished investor of frontier markets, those half-forgotten realms on the fringe of the investing world. Alex has been investing in Burma for 15 years as a partner at SPA Capital Partners, working with Serge Pun & Associates. The latter is an investment holding company that has been in Burma since ’91. (And yes, Alex is the great-great-grandson of Ferdinand de Lesseps, the French developer of the Suez Canal, who also oversaw the early construction of the Panama Canal.)
I first met Alex at a dinner at a pleasant riverside restaurant in Phnom Penh, Cambodia. My friend Doug Clayton of Leopard Capital arranged the dinner. (We’ll hear from Doug in a bit.) I was in the middle of a swing through Thailand, Cambodia and Vietnam. When I asked investors in these places what the next big story to emerge from Southeast Asia would be, the answer was always the same: Burma.
Burma is beginning, at last, to thaw. The grip of the military junta is loosening, by its own hand. (“This is very important,” Alex said. “The decision to change the country came from within. It speaks to the depth and substance of the changes taking place.”) The market is beginning to open up. Political prisoners have been released. Press censorship rules have been relaxed. Things are happening quickly. Even Hillary Clinton visited late last year, the first US Secretary of State to do so in 50 years.
Alex told me he’s never seen anything like it in all his years in Burma. The hotels are full. Many are already sold-out for the first few months of the year. And Burma gets more and more mainstream attention nearly every week. Why is Burma important?
In short, it has everything the world craves — in size. The Wall Street Journal reported: “Myanmar’s potential is too great for some investors to ignore. One of the last, large frontier markets in Asia, it is rich in oil, gas, timber and gems and has the potential to be a major rice and seafood exporter.” Estimates of natural gas reserves, for instance, would make Burmese fields the 10th largest in the world. Labor costs are low, which could support basic manufacturing.
Doug Clayton visited Rangoon (Yangon) and wrote about it in his newsletter (it is available free at www.leopardasia.com — well worth the visit). Doug notes that Burma has the largest landmass in mainland Southeast Asia and big fertile river deltas. It has 1,240 miles of uninterrupted coastline, deep-water port sites on the strategic Indian Ocean, plus 600 little-used tropical islands.
As home to more than 2,000 pagodas and temples and miles of pristine beaches, Burma could support a larger tourism business. “From my own wanderings in both countries,” Doug concludes, “I would rate Myanmar’s long-term tourism potential just as strong as Thailand’s — which draws 14 million tourists a year, versus Myanmar’s 300,000.”
The comparison with Thailand is hard to miss, and Doug pursues it further. “To comprehend Myanmar’s potential, look over the border at Thailand, a country of comparable size and population,” Doug continues. “Around the time of World War II, colonial Burma’s economy and development surpassed Thailand’s.” Since then, though, Thailand’s economy is now 10 times bigger than Myanmar’s. Doug reckons that “the gap between these historical peers seems likely to narrow as Myanmar introduces a political system more similar to Thailand’s.”
This is essentially the motive force behind the “world right side up” idea — this narrowing of historically anomalous large gaps in development to a world more in tune with longer historical experience (and hence, right side up).
One of the books I read over the holidays was Thant Myint-U’s Where China Meets India: Burma and the New Crossroads of Asia. Thant continues the theme. Rangoon was once the rich capital of British Burma. It was an exporter of rice, timber and oil. “By the late 1920s,” Thant writes, “Rangoon exceeded New York as the greatest immigrant port in the world… Rangoon became a hub for all of Asia.” By the 1930s, Burma’s economy, on a per capita basis, was at least twice that of China’s. Today, China’s is about six times as great. That is a gap that ought to narrow as Burma opens up.
Simple geography also anchors Burma’s importance. It sits between China and India like a hinge. It is a big country, the size of France, with 60 million people. Thant makes Burma’s unique position clear. If you draw a 700-mile radius around Mandalay, Burma’s second-largest city, you encompass a population of 700 million people — nearly one in 10 of all the people on the planet.
It is a natural crossroads. Already, work has begun on a network of pipelines and highways and railways — all with Burma as the bridge to the two potentially biggest markets on earth, China and India.
“There will be opportunities to invest,” Alex told me. Indeed, he’s already seeing investors line up. In the next several months, new funds will launch. The Tokyo Stock Exchange announced it would help Myanmar develop its stock market. Many companies are already trying to elbow their way in Burma. These are mostly Asian companies, as they are not covered by the sanctions imposed by the US and Europe. But some Western companies are already making inroads. Unilever sells soap and soup. Caterpillar, too, has a business there. And a few are still there as exceptions to the sanctions, such as the French oil giant Total.
Overwhelmingly, the foreign investment has focused on oil and gas, mining and power. And Burma’s biggest investor has been China. (One Chinese businessman quoted in Thant’s book says, “I hope the sanctions last forever.” And why not? It keeps out the competition.) There is plenty of opportunity in basic things like cement and automobiles and hotels.
And it’s all just beginning. We’ll keep an eye on Burma as opportunities open up. It’s an exciting time to be an investor as the world turns right side up.