Sunday, March 17, 2013

Myanmar – Healthcare

In March, I will be heading into Myanmar as part of a syndicated research project with the objective of profiling the country’s healthcare infrastructure. 

We will be evaluating distribution channels for pharmaceuticals, medical devices and diagnostics.  Included in our analysis will be profiles of the existing distribution companies who currently have the footprint in country to effectively and efficiently access Myanmar’s healthcare system.  We will also be profiling regulatory issues in general, as well as those specific to healthcare.

Once among the most reclusive nations in the world, Myanmar (also known to many as Burma) has begun a series of political reforms that are designed to attract foreign investment into the country.    With a population the US government estimates at approximately 55 million, Myanmar is the 24th most populous country in the world and the second largest country in Southeast Asia in terms of landmass.  Despite its plentiful natural resources such as natural gas and timber, Myanmar is the poorest country in Southeast Asia.  The country’s poverty stands in stark contrast to its relative wealth from only 50 years ago when, at the beginning of the military junta’s rule, Myanmar was the wealthiest country in Asia.

Much of the hopes foreign investors have today for Myanmar are based on a recollection of what Myanmar once was, and hopes the foundations for a prosperous country can still be found. In addition, for many multinational companies (MNCs), Myanmar further adds to the commercial opportunities in the region.  Many MNCs believe they will be able to pivot from their operations in Thailand (65.9 million people) to serve Cambodia (14.5 million), Laos (6.4 million) and Vietnam (87.8 million) and now, the possibility of Myanmar as well.  Viewing the combination of these five countries together and crafting distribution strategies tailored to the almost 230 million consumers in the region constitute an important and compelling business opportunity.

For Myanmar to become a viable emerging economy where MNCs and private investors can confidently deploy resources, the recent attempts at democratization of the country’s political system and liberalization of its economy must continue.  Neither is certain.  The country’s recent political reforms took place against a backdrop of long-standing grievances by its people regarding political and economic issues.  At a very basic level, the new government’s pledge to triple the country’s GDP in five years is a reflection of the political reality that further turmoil is likely unless the economy can find its footing.  This admittedly audacious goal may be within reach providing Myanmar is able to pivot government economic development away from central planning and military spending towards free markets and investments in education and healthcare specifically.

Political reforms have certainly created latitude for the new government to act even in the face of a similar crisis; however, the final note potential investors should keep front of mind is that Myanmar’s reforms are still reversible.  While the release of 700 political prisoners, the accommodation of certain limited but substantial democratic reforms, and the relaxation of basic freedoms are encouraging, Myanmar has a long way to go.  Nobel Peace Prize winner Aung San Suu Kyi pointed this out earlier in 2012 when she noted, “”Ultimate power still rests with the army so until we have the army solidly behind the process of democratisation we cannot say that we have got to a point where there will be no danger of a U-turn. Many people are beginning to say that the democratisation process here is irreversible. It’s not so. We must wait until after the elections to find out whether or not there have been real changes. And depending on these changes, there should be suitable changes in policy.”

The Myanmar government of today led by Thein Sein has retained many of the same military officers who previously constituted the junta.  While it is not surprising these former military officers now have positions in the new government, their resistance to key democratic reforms and their willingness to allow foreign companies to compete with previously protected domestic companies will be key to monitor.  In the same way, most of the established businesses that had found a way to survive and prosper under Myanmar’s repressive political and economic system for the last several decades are likely losers in the midst of a broad opening of the country’s economy to outside investment.  President Thein Sein’s proposed changes to the State-Owned Economic Enterprises Law (SEE Law) resulted in significant pushback from the established businesses, largely a reflection of these fears.

Regardless of these cautionary notes, Myanmar has already been successful drawing FDI. Some of the early in-bound investment has come from Chinese and Thai investors in low-wage, high labor-content industries eager to take advantage of these factors.  Other more promising areas that have driven FDI thus far have been oil and gas exploration (in particular natural gas, of which Myanmar is estimated to have the world’s 10th largest reserves of), mining and forestry.  Cumulatively, China has close to US$14 billion of investments in Myanmar, followed by Thailand (US$9.6 billion) and then third Hong Kong (US$6.3 billion). Most of these investments have gone to secure oil and gas resources as well as mining and some agricultural land.  Myanmar’s potential as a regional agricultural exporter is significant; China already is looking to source feed crops from Myanmar. Thus far, Myanmar’s FDI patterns are noticeably different than those of what are commonly referred to as the Asian Tigers.

As other resource-rich countries globally have illustrated, simply having access to bountiful natural resources does not guarantee a wise use of tax revenue and national wealth accrued as resources are extracted and exported.  Those hopeful about Myanmar’s future believe the country has the capability to develop political leaders capable of rooting out corruption and ensuring FDI and tax revenues flow towards the nation’s economic development.  One of the primary beneficiaries of such a positive approach would be the further development of Myanmar’s healthcare system.  However, the danger does exist that Myanmar’s FDI may be misdirected.  Some analysts believe the comparison between Myanmar and other regional economies is, at least thus far, an un-earned comparison.  Jared Bissinger, an academic researcher on Myanmar’s FDI policies recently wrote, “While there’s also some interest in telecoms and banking, it’s the extractive industries that are Burma’s main draw for potential investors.  The Asian Tigers, by contrast, were mostly resource-poor and relied on export-oriented manufacturing to develop.  Their foreign direct investment (FDI) was mostly in manufacturing, not resources.  They also developed in a much different international environment, one with far fewer competitive exporting countries.  They sold their wares mostly to the high-consuming countries of the West, the same countries that are now grappling with the lingering effects of the global financial crisis.”

Over the course of the next month, our blog will be introducing more details about the challenges specific to healthcare FDI into Myanmar with an eye on how to best capture the opportunity represented in the country’s recent opening to foreign investment and expertise.  We will be discussing structural issues related to basic infrastructure (power, water, road, rail, etc.) as well as very specific questions such as how to get the necessary government approvals for new drugs to be brought into the country.  Ultimately, the research completed as part of this project will be summarized in a market research report that will be available for purchase.

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