Vietnamese Lessons for Burma; What Asia’s new investment hot spot can learn from the successes—and failures—of the last Big Thing

Vietnamese Lessons for Burma

What Asia’s new investment hot spot can learn from the successes—and failures—of the last Big Thing.

CURTIS S. CHIN AND JOSE B. COLLAZO

Nov. 20, 2013 11:42 a.m. ET

There’s an undeniable buzz about Burma among business leaders these days, with investors betting on the long-stagnant economy becoming the next Asian tiger. But as exciting as this situation is, it helps to recall that it is not unprecedented. The case to study is Vietnam, another once-hot economy that has fallen out of favor, and now offers investors pointers on things to watch out for in Burma, as well as tips to Burma’s leaders on traps to avoid.The recent rush of foreign investors to Burma is reminiscent of Vietnam’s reforms of a generation ago. Both countries were similar in their pre-opening phase: politically repressive and economically sealed off from much of the world. And liberalization started in both places suddenly and rather unexpectedly.

In Vietnam, the opening came in 1986 when the Vietnamese Communist Party rolled out its ” doi moi, ” or “renovation,” program. Hanoi reduced barriers to trade and foreign direct investment. Other critical reforms over time included abolishing Vietnam’s system of highly centralized management based on state subsidies, and allowing the private sector to compete along with state-owned enterprises in non-strategic sectors.

The policy was an early success. Investment poured in, particularly attracted by the prospect of inexpensive labor, a stable regime, abundant natural resources and a market that at the time consisted of some 60 million consumers. Growth followed the investment boom, as Vietnam became Southeast Asia’s fastest growing economy, posting annual growth rates above 5% and in some years above 8%. In 2000, Vietnam signed a free-trade agreement with the U.S., which is now its largest export market. In 2007, it joined the World Trade Organization. From 2005-2010, it was one of the world’s top investment destinations.

So far, so similar to today’s Burma. Yet, in a cautionary note for Burma, Vietnam has squandered many of its advantages mainly by losing its reform momentum. The government has shied away from banking reforms and a new tranche of tough liberalizations. State-owned enterprises still account for 40% of GDP, yet are characterized by lagging productivity and allegations of corruption.

And while in retrospect, the prospects for political reform in Vietnam alongside economic opening might have been overstated at times, the lack of political liberalization now poses an ongoing threat to the economy. For instance, the regime’s inability to foster true rule of law stifles business along with the political dissent the regime targets. And attempts to crack down on online dissent are leading to tighter controls on communications that threaten to dent Internet businesses.

Frustration over lack of progress in key reforms is exacerbating other investor concerns. Labor costs are increasing, and population growth is slowing. Foreign direct investment has dropped far off its peak and shows little sign of coming back.

Burma’s leaders should ask how they can avoid that fate. In some respects, they’re off to a good start. Burma’s economic opening already has been accompanied by a much greater degree of political reform than was ever the case in Vietnam. Burma’s first wave of reforms is more aggressive than Vietnam’s. Burma’s new foreign investment rules allow for 100% foreign ownership in a range of industries, including retail, wholesale, agency, franchising, and most food and beverage outlets

Even in sectors such as construction and real estate, transport, mining and spirits where joint ventures are required, the relatively business-friendly rules allow up to 80% foreign ownership. Vietnam’s law, in contrast, still restricts outside investors to 49% foreign ownership in numerous sectors.

Vietnam’s story suggests the most important thing for Burma is for leaders to continue and to sustain economic reforms. An early test will be the government’s implementation of what President Thein Sein has billed as an aggressive, transparent and competitive privatization strategy for state-owned enterprises. Already Norway’s TelenorTEL.OS -1.05% and Qatar’s Ooredoo in June were awarded licenses to launch nationwide telecom services after a competitive tender process.

Now the government needs to extend that pattern to other industries, and especially highly lucrative utility businesses such as electricity and other infrastructure. Vietnam’s experience shows that if these are not privatized early or effectively, their lingering inefficiencies weigh on the rest of the economy while their patrons within the government entrench themselves, making reform harder later.

At the heart of Burma’s reform process must be a sustained commitment to tear down new “bric” walls built of bureaucracy, regulation, interventionism and corruption. The prescription for economic growth is straightforward – improve the bureaucracy, regulate fairly, intervene rarely and stamp out corruption.

The nascent reform process in Burma already has led to increased economic activity and opened up new opportunities. The International Monetary Fund estimates that the country’s GDP will grow 6.8% this year, compared to last year’s 5.5% growth rate. Ultimately, though, it will be a strong rule of law and a growing private sector that will drive and sustain this budding economic growth. Burma has a chance now to act on a lesson with which Vietnam still struggles.

Mr. Chin, a former U.S. Ambassador to the Asian Development Bank, is managing director of advisory firm RiverPeak Group, LLC. Mr. Collazo is a frequent commentator on Southeast Asia.

 

Burma Begins to Bloom

Inter-faith and inter-ethnic initiatives are promising, but Burma still has work to do.

BENEDICT ROGERS

Nov. 20, 2013 11:47 a.m. ET

In Rangoon two weeks ago, I caught a glimpse of how Burma could be. At the former office of Burma’s independence leader General Aung San, 150 people from different religious, ethnic and political backgrounds gathered to hear speeches on diversity and peace-building. The dinner was organized by the National League for Democracy (NLD), the party led by General Aung San’s daughter, Aung San Suu Kyi.

The message of the evening was three-fold. First, it was a testament to Burma’s path toward change. Everyone knew that such a gathering would have been inconceivable a few years ago. The Catholic archbishop of Rangoon, Charles Bo, the chief convenor of the Islamic Centre of Myanmar, and Dr. Thein Lwin of the NLD spoke, while two Buddhist monks endorsed the occasion with their presence. This collection showed that there are opportunities for interfaith freedom of expression, political actors and media in Burma.

Second, the event underscored the challenges that remain, not least the question of how to build a nation that celebrates religious and ethnic diversity and puts an end to decades of conflict.

Third, in the face of such challenges such as the ongoing ethnic and religious violence, the event reminded us that people look to Aung San Suu Kyi and the NLD for leadership. They, together with the government and leaders of all religions, have a responsibility to respond.

Outside the NLD, there are growing initiatives to promote diversity and counter hateful acts. In October, one of Burma’s most respected Buddhist monks, Sitagu Sayadaw, hosted an interfaith academic conference. This resulted in a joint statement advocating further dialogue and grassroots reconciliation work.

The day of that conference, further anti-Muslim violence broke out in Rakhine state. Within a week, Sitagu Sayadaw and Islamic leader U Aye Lwin visited the affected area together in a symbolic show of interfaith cooperation.

These are important initiatives deserving international support. Burma is a multi-ethnic, multi-religious society in which non-Burmese make up as much as 40% of the population and inhabit 60% of the land. While the country is predominantly Buddhist, many of the non-Burmese ethnic nationalities (such as the Chin, Kachin and Karen) have significant Christian populations. Muslims may account for up to 10% of the population.

Decades of civil war between ethnic nationalities, and a history of anti-Muslim prejudice and violence, have plagued the country.

In recent weeks progress appeared to have been made toward ending the ethnic conflicts. An unprecedented conference of ethnic armed resistance groups held at the headquarters of the Kachin Independence Organisation (KIO) resulted in a six-step roadmap and a framework for political dialogue. This conference was followed immediately by a dialogue between ethnic armed groups and the Burmese government in the Kachin state capital. Talks are still premature, yet the prospect of guns falling silent across Burma for the first time in over 65 years may be closer than ever.

During my visit to Burma I travelled to Hakha, Chin state, a region until very recently closed to foreigners. Now foreigners can visit Chin state without a permit, and I contributed to a workshop on human rights. These policies demonstrate that reforms that have taken root in Rangoon are now beginning in more remote areas, too.

But at the same time, we heard testimonies of sexual violence, forced labor and religious discrimination from Chin Christians. Over the years, Chin state has suffered from a chronic lack of basic services, including infrastructure and medical care, thanks to the previous regime’s deliberate policy of subjugation. If real change is to be secured, policies based on ethnicity or religion must end.

Key to real change, however, will be the behavior of the Burma Army. Just as progress toward peace appeared in the conference rooms, the Burma Army defied the regime’s promises and escalated attacks in Kachin state on Oct. 22, according to reports from the Free Burma Rangers, a humanitarian relief organisation working in Burma’s ethnic conflict regions. Eight days later, a 15 year-old girl, Sumlut Roi Ja, was gang-raped by Burma Army soldiers. Last week, I received reports of the rape of an 8 year-old girl. These are just the latest in a well-documented pattern of sexual violence by the army. This week, 2,000 civilians fled further attacks.

In her recent interview with BBCRadio 4’s Today Programme, Aung San Suu Kyi claimed anti-Muslim violence was caused by fear. She was roundly criticised for her remarks but was essentially correct. All extremism is motivated by fear, albeit often misplaced, exaggerated or unfounded. The question is how to address such fears in a way that is constructive, not destructive.

Burma has made significant progress in the past two years. But there is still an urgent need for real change in the system. That includes constitutional reform, clear condemnation of hate speech and violence, proper policing to prevent further violence, an end to human rights violations by the army and reform of the 1982 Citizenship Act to bring it into line with international standards. The forthcoming U.N. General Assembly resolution must accurately reflect the truth of Burma today, good and bad.

Building trust between different religious and ethnic communities across the nation will be a painstaking process requiring courage, creativity and transparency. If systemic political changes are implemented, the climate of impunity ends, and violence and hatred cease, we can say that Burma is truly changing. Until then, all we can say is that perhaps the beginning of the beginning has begun.

Mr. Rogers works for Christian Solidarity Worldwide, an international human rights organization, and is the author of three books on Burma, including “Burma: A Nation at the Crossroads.”