Burma tourism set to boom

One year into wide-ranging political reforms, this long-neglected city has some of the trappings of a boomtown.

Juergen Ritterbach | The Image Bank | Getty Images Golden Sule Pagoda, Rangoon, Myanmar

Hotel owners, whose businesses suffered during years of military rule and economic mismanagement, are raising prices for what few rooms they have available. And property prices in some areas in and around the city, the country’s economic capital, have tripled over the past year.

“Myanmar has a high growth potential and could become the next economic frontier in Asia,” said Meral Karasulu, an official at the International Monetary Fund in Washington who led a mission here in January.

Indeed, for foreign investors and investment banks that ignored the country during decades of military rule, Myanmar is virgin territory, an untapped market where only 4 percent of the population has cellphones and still fewer people have washing machines or air-conditioners, let alone cars.

But as the country opens up, many people who work in Myanmar, citizens and foreigners alike, say they are worried the country’s underlying problems could stall or limit growth. The list of obstacles is daunting, including both longstanding troubles — the shortage of skilled labor, the absence of a solid legal system, deeply embedded corruption and dilapidated infrastructure — as well as new ones, including surprisingly high prices.

One of the most troubling concerns, businessmen say, is a lack of skilled workers.

Although the government of U Thein Sein, the president of Myanmar and the main driver of liberalization, has been in office only since March 2011, there are already severe shortages of some categories of workers.

“A lot of companies are asking for top managers in sales and marketing,” said U Ko Lin, the director of Career Development Consultancy, a leading recruitment and employment agency in Myanmar. “I can’t find them the right people. It’s very hard.”

Last month, Mr. Ko Lin received a Japanese delegation scouting for business opportunities, and he was told that one of its members’ main concerns was the local pool of labor. “Everyone has the same conclusion: There’s a lack of skills,” Mr. Ko Lin said. “Because of the poor schools, you don’t have quality people.”

Myanmar’s education system was decimated during what the Asian Development Bank calls “50 years of stagnation” under military rule. Universities, once centers of political dissent, were particularly hard hit and strapped for cash.

The South Korean manager of a shoe factory in Yangon said that trying to find even unskilled labor could be challenging. “We have an extremely hard time finding employees,” said the manager, who had been advised by his company’s lawyer not to give his name for fear of jeopardizing the company’s operations in the country.

The manager, who has worked in Myanmar for three years, estimated that about half of his workers were functionally illiterate, much lower than he had anticipated.

Also a surprise, he said, was the contrast between workers in Myanmar and those his company employs in countries like Vietnam, China or Indonesia. Workers in Myanmar are gentle and friendly, he said, but “not very motivated by money.”

During the years of military rule, there was an exodus of Burmese talent, primarily to Malaysia, Singapore, Thailand and the gulf countries. The government has said it hopes to lure back Burmese who are living abroad. But for Burmese earning relatively good wages abroad, returning to Myanmar may be a question of price.

Mr. Ko Lin said that Burmese engineers working in Singapore in the oil or natural gas industries could sometimes demand salaries in Myanmar higher than what they were earning in Singapore.

The high wages that companies must pay in Myanmar to attract experienced workers undercuts some of the advantages typically associated with less developed countries

That is being compounded by prices broadly inflated by a sharp rise in speculation. Myanmar is by some measures more expensive and less efficient than its much more developed neighbor, Thailand.

The average office rent in Sakura Tower, in the heart of Yangon’s business district, is about $4.65 per square foot. That is twice the average rent for office space in the central business district of Bangkok, said Surachet Kongcheep, senior manager of the Thai branch of Colliers International, a real estate company. But unlike companies in many other large Asian cities, those in Yangon must deal with regular power failures, unreliable Internet service and primitive telephone connections to other countries.

The main problem with the Yangon rental market is a shortage of supply. Colliers estimates that Yangon has a total of 667,000 square feet of office space. By comparison, a single building in Bangkok, the Empire Tower, has more than twice that amount.

There are obvious economic bright spots. The number of foreigners — business people and tourists — visiting the country rose 26 percent last year, according to the Asian Development Bank, a boon for hotels and others who cater to visitors. (That group is likely to grow if economic sanctions imposed by the United States and the European Union are lifted, though some Western executives are already visiting to position themselves in anticipation of eased sanctions.) At one of Yangon’s most exclusive hotels, The Strand, the least expensive room this week was $430 a night.

And while the shortage of office space and the generally battered state of the infrastructure are short-term handicaps, they could be long-term opportunities for investors.

In many ways, Myanmar is a country waiting to be built. Seventy-five percent of the country’s 55 million people do not have access to electricity, according to the Asian Development Bank.

U Soe Aung, the managing director of Aung Thukha, a construction company, said he expected brisk business in the years to come. But he also cautioned that the old political patronage system, in which generals and their business partners dominated the economy, remains partly intact.

Government workers in Myanmar still have enormous sway over who gets permits and licenses, a system ripe with opportunities for corruption.

In the old Myanmar, businessmen without connections to the military always feared the authorities. Doing business “was like hitting your head against a giant stone wall,” Mr. Soe Aung said. “The stone wall is being dismantled — but only to some extent.”

Already, however, there are signs that changes, at least in the short term, are also hurting local businesses. As buildings in Yangon rise from long-neglected vacant lots, for instance, the price of bricks has risen 20 percent over the past year.

With so much at stake, some Burmese businessmen are reaching to tradition to calm their jitters, heading to fortunetellers.

They fear a loss of control if they take on foreign partners, and a loss of business if they do not. They fret over escalating prices and having to learn a new system for getting ahead if their old military patrons step back.

“They don’t believe in the system — they don’t believe it will benefit them in the long run,” said Daw Saw Yu Nwe, a prominent fortuneteller, whose clients in recent months have included hotel owners, gem merchants and shrimp farmers. As she examines their palms in an incense-filled room, she tells them that doing business in the new Myanmar will be like trying to taste “a drop of honey on a sharp knife.”

“The taste of the honey will be very delicious,” she says, “but if you’re not skillful you will cut yourself.”