Most of these visitors are aware of the basic challenges of investing in Myanmar: significant corruption; untested legal systems; inadequate infrastructure; underdeveloped human resources and other issues. At Leonard Capital, we note that early investors in other emerging countries such as Cambodia and Laos faced similar limitations, but managed to mitigate these risks and make successful investments. From our experience in all these countries, the top challenge for investors in Myanmar will be finding reliable business partners who will properly align their interests with those of the foreign partner.
Virtually all foreign partners will need to provide substantial training, technical assistance and oversee many corporate functions. There is a common misconception that Myanmar has few “investment grade” companies or that most are wedded to the military or its cronies. The reality is that Myanmar has a surprisingly large and diverse manufacturing base with many independent and reasonably successful companies.
Most business segments lack a dominant company or a clear market leader, which provides early investors the opportunity to help create the future leaders of Myanmar Inc. The companies we work with most often say their main objective in tying up with a foreign group is to obtain technical assistance, strategic guidance and access to new markets, rather than to obtain capital. Finding and evaluating a Myanmar partner is no easy task. Extensive networking and rigorous due diligence is required.
Several professional groups provide match making services for foreigners, including the Union of Myanmar Chamber of Commerce and the trade associations that represent most industries. Exhaustive due diligence is a necessary — and costly — endeavor. Character references and background checks can be conducted by legal firms, global security companies and “trusted Burmese elders.” Conducting financial due diligence on the companies and structuring deals requires an equally creative and patient approach as most Myanmar companies lack transparent financial records and are not yet accustomed to standard corporate governance practices, such as granting board seats to minority investors or establishing positive and negative covenants over company decisions.
In the end, is Myanmar really worth all the effort? Is it now ready for foreign investment? We argue yes to both points. If early investors in Myanmar employ the best private equity practices that have proven successful in other Asian frontier markets, they will win the favor of the best local partners and reap the advantages that go to the first mover.
Kenneth Stevens is a Managing Partner of Leopard Capital, which manages private equity investments in Myanmar, Cambodia, Laos, Bangladesh and other Asian frontier markets.