Petaling Jaya (The Star/ANN) - The euphoria about Myanmar's economic reforms remains just that - euphoria. A lot has been written about Myanmar being the next economic frontier in Asia but in reality things haven't changed much in the most reclusive country in South-East Asia.
No doubt U Thein Sein has been making the right moves and buzzes to attract global attention to his regime's self-initiated reforms. Since "winning" power through a controversial general election in 2010, his administration has released hundreds of political prisoners and detractors.
He had impressed the international community after he persuaded Nobel Laureate Aung San Suu Kyi's party, the National League for Democracy, to participate in and legitimise the April by-elections for 44 seats vacated by his Cabinet ministers.
Aung San Suu Kyi's party won a landslide victory and she was formally sworn into the parliament after a short stand-off with the government over the script of her oath. Her endorsement of Myanmar's political process and her confidence in U Thein Sein's sincerity to implement reforms are seen as key catalysts in pushing for Myanmar's re-integration with the international community, especially Asean.
U Thein Sein has warned that "conservatives who do not have a reformist mindset will be left behind" while the country is on its path to change. The premier has admitted that there is a real desire for national development and his government must improve their service at each administrative level to measure up to the people's expectations.
However, Myanmar's economic reforms can prove to be very difficult, challenging and time consuming. Despite calls for international investors to invest in the country, the level of bureaucracy, centralisation of power and lack of a formal investment and economic development framework are deterring factors.
Most foreign companies stationed in Myanmar are still playing the waiting game. They are waiting for the announcement of full and detailed investment guidelines, which the government has promised to release. The guidelines would need to be passed in the Myanmar parliament and are expected to be enacted by the third quarter of 2012.
Without proper official guidelines, foreign investors are facing a bureaucratic merry-go-round and "ridiculous" terms as they seek approvals for land or building leases. Foreigners are not allowed to own or buy building or land in Myanmar. The government has announced its intention to allow leasing of colonial buildings for more than 50 years through tenders.
However, the government has not approved any tender in the last 12 months due to bureaucratic uncertainty, and there is no benchmark for subsequent tender applications. A British Myanmar chief executive who is familiar with the tender process said his company has been waiting for the last four months to be informed if it has been shortlisted for a tender for a colonial building along the popular Strand Road. He hinted that some companies may be asked to pay a hefty "signing bonus", which may run into millions of dollars, to obtain relevant approvals.
He added that despite the euphoria for change, the mindset and culture of the administration and people might take a longer time to adjust.
U Thein Sein has admitted that his administrators may find it tough to keep up with the pace of his reforms. His call for decentralisation may still fall on deaf ears. It is a fact that Myanmar does not have the right institutional structure to help him implement the changes he has envisaged.
Foreign companies going into Myanmar and hoping to find an immediate pot of gold may find the road to Yangon (the country's economic centre) is covered not with precious stones but obstacles and out-of-the-world circumstances. It is not that easy even to incorporate a local company in Myanmar. Those who are interested must obtain a support letter from their own embassy and submit documented proof that the company is genuine and has a strong financial background.
Final approval must come from the Myanmar Investment Committee (MIC) before a company can assume its legal identity. Even after going through the tedious process and paying US$2,500 for incorporation, a foreign company is not allowed to participate in trading activities in Myanmar.
The main governing body for foreign investment law in Myanmar, the MIC must approve all foreign investments going into the country. It is the epitome of over centralisation. Apart from approving foreign investments and new company registrations, the MIC also decides on applications for any property and land lease above one year. The approval process normally takes up to two months if the application meets all legal provisions.
Talking about out-of-the-world circumstances, rental or lease rates in Yangon may shock many unprepared foreign investors. A barely 600 square foot commercial space along the busy streets can cost up to US$6,000 per month in rental. A decent apartment unit or flat can go up to US$3,000 per month.
It is well known that Yangon does not have proper infrastructure to support a modern economy. It is not uncommon to experience multiple interruptions in electricity supply throughout the day even in the classiest hotels. But its mix of old colonial elements and a heavy dose of Buddhist culture can be quite alluring.
It is a simple law of demand and supply. The price is high when demand is scarce. With barely 3,000 proper hotel rooms in Yangon, the average room rate of approximately US$80 per day is even higher than in Kuala Lumpur or Penang. However, an average hotel employee earns just US$100 a month.
Despite the present challenges and difficulties, Myanmar offers tremendous opportunities to patient and smart investors. Foreign investors should start by learning about the country and its rich culture. Here, a good understanding of local culture and norms can help to mitigate risks and build useful local networks.
For now, we can only hope for the best for Myanmar and her people. It is obvious that U Thein Sein's reform initiatives need sustainable, genuine and committed support and participation of the international community.
Foreign investors who don't have the appetite for risk can wait until 2015 before making a move on Myanmar. It is expected, by January 2015, to comply with the Asean trade normalisation schedule. Under this schedule, all companies from Asean operating in Myanmar will receive the same treatment as their local counterparts.
Khoo Kay Peng is a business consultant and a policy analyst.