The looming potential that US and EU sanctions will be significantly eased or lifted in the near future dominated the Burmese business headlines last week, with regional interests continuing their efforts to get a foothold in Burma before Western competitors enter the fray.

Momentum Builds Towards Easing of Western Sanctions

Seizing the opportunity presented by an in-depth interview with The Washington Post, Burmese President Thein Sein made his case for immediate sanctions removal.

He argued that Burma has already met the Western requirements for the lifting of sanctions and that 20-plus years of sanctions were the sole reason why his country was mired in dire economic straits, with a poverty rate of about 26 percent and 3 million workers having left the country in search of better employment opportunities.

Thein Sein’s government has clearly met some of the conditions previously set for the lifting of sanctions, including the opening up of dialogue with opposition leaders such as Aung San Suu Kyi and the release of a significant number of political prisoners.

Burma has also taken important steps towards meeting other Western conditions, with an effort underway to achieve a nationwide ceasefire with ethnic armed groups and a good start towards a free and fair by-election in April that will see the participation of Suu Kyi and her National League for Democracy.

However, fighting is still taking place in Kachin State, there are still some political prisoners in Burmese jails and the rigged 2010 general election has not yet been forgotten, so the Burmese government has some work remaining if it wants to see sanctions removed entirely.

That being said, representatives from both the US and EU sent clear signals last week that if the Thein Sein administration stayed on the reform path and held a free and fair election in April, it could expect to be rewarded sooner rather than later with at least the easing of sanctions.

US Senate Majority Leader Mitch McConnell, previously one of the main proponents of US sanctions, traveled to Burma last week and pronounced Thein Sein a “true reformer.”

McConnell met with the Burmese president in Naypyidaw, where he reportedly said that if Burma’s government wanted US sanctions to be removed—which requires US Congressional approval—it should accept the presence of international observers for the April by-election, cease all fighting with ethnic armed groups and discontinue questionable relations with North Korea.

He also said that the views of Suu Kyi would be given great weight on the issue of sanctions removal, a perspective echoed later in the week by US Senators John McCain and Joe Lieberman, who arrived in Burma on Sunday. The two Senators also called for international observers for the April by-election, which seems to be the new mantra emerging from Washington.

McCain weighed in heavily on the sanctions discussion and sent some conflicting signals. He first said on Saturday that a free and fair by-election on April 1 could prove a watershed event that could bring sanctions to an end. Afterwards—in a seeming debate with himself—he said that the US should not move too fast and that there were “about ten other things” that Burma needed to do to ensure it was on the right track—although a free and fair election could be reason to ease sanctions to some extent.

"My personal view is that we should not lift any sanctions before April," and possibly not even then if enough progress isn't made, he was quoted as saying in the Wall Street Journal. "We should all applaud what is happening in Myanmar [Burma] but there are many times in history where we learned things aren't what we thought they were."

"Let's not rush into judgments we may regret later on," he said.

Part of McCain’s hesitation may come from the realization that if sanctions are lifted and US and EU businesses rush to invest in Burma, the genie will be out of the bottle and impossible to put back in—it will not be feasible after removing sanctions to turn around and put them back in place.

In contrast, although there may be international political repercussions to such a move, most of the reforms that Burma has enacted thus far could conceivably be reversed—for example, prisoners could be rearrested and the lid put back on the media.

But the trend seems to greatly favor sanctions reduction, and the EU and several of its members have signaled that it may act even more quickly and substantively than the US.

The EU foreign ministers are scheduled to meet in Brussels on Monday, and an EU diplomat told the AFP that they would most likely provide some reward to Burma for reforms to date by announcing a willingness "to consider initial steps in February" as a start to the lifting of sanctions, which otherwise come up for an annual review in mid-April.

Asian Firms Looking to Increase Their Head Start

With at least an easing and possibly a lifting of sanctions beginning to sound almost inevitable in the first half of 2012, Asian countries and businesses are wasting no time getting into Burma.

China

The Rangoon-based Eleven News Journal confirmed last week what most Burma business observers had already surmised—that China has become Burma’s leading investor. Burma’s giant neighbor to the north has now invested nearly US $14 billion in Burma, mostly in oil and gas, hydropower and mining.

Despite Thein Sein’s suspension last year of the China-backed Myitsone hydropower dam project, this trend looks to continue.

China’s Guangdong Zhenrong Energy Co, an oil and commodity trader partly owned by state-run Zhuhai Zhenrong Corp, told Reuters that the Dawei Special Economic Zone is the leading potential location of its proposed US $2.5 billion, 100,000 barrels-per-day refinery.

The company’s CEO said that it would partner with the Htoo Group of Companies, run by Burmese business tycoon Tay Za, and an unnamed military-affiliated company. Burma currently imports almost all of its domestic refined fuel needs, and the proposed refinery could meet 60 percent of the country’s demand, he said.

Thailand

Thailand now ranks as Burma’s No. 2 investor, and Thai companies are following the trail into Burma being blazed by Italian-Thai Development PCL, which is in charge of developing Dawei.

As the Burmese business environment opens to foreign investment, infrastructure is one of the sectors that observers believe will be immediately targeted, and the Thai engineering firm Hydrotek, which is looking to expand in Southeast Asia, is already making a move into Burma’s waste-treatment and water-management business.

The Nation newspaper, based in Bangkok, reported that Hydrotek views Burma as an attractive market because the country lacks a wastewater-treatment system to serve its industrial sector—which will most likely grow by leaps and bounds if sanctions are removed—and also lacks sufficient tap-water supplies. The Burmese government is reportedly planning to issue a regulation on restricting wastewater from manufacturers in a few months, making such systems a necessity in the future.

Hydrotek told The Nation that it will initially establish a joint venture between local Burmese partners, Thai partners with experience doing business in Burma, and Hydrotek, and the company has already set up an office in Burma.

In addition, Siam Cement PCL, Thailand's top industrial conglomerate which is looking to expand its business in Southeast Asia, told Reuters on Tuesday it was looking to invest in a new cement plant inside Burma, with the final decision resting on the investment promotion and mining policies of the Burmese government.

Foreign Investment Laws in Focus as Burmese Parliament Set to Convene

During Thein Sein’s interview with The Washington Post, he was asked about further steps that may be required to attract foreign investment, such as a strengthening of the rule of law in Burma. The president responded that changes have already been made and all that was left to do was to lift sanctions.

This statement, together with his claim that Burma’s economic woes are solely the result of Western sanctions, could be viewed by the investment community as a troublesome denial of the need for further economic and investment reforms that will be required to attract the kind of foreign direct investment that creates jobs and opportunities for the Burmese population as a whole.

More than likely, however, Thein Sein’s claims will be viewed as a negotiating position rather than statements of true belief, as the Burmese president has displayed an understanding that internal changes need to be made in the economic arena if Burma is to progress.

However, there will be much work to be done in this area when the Burmese Parliament convenes on Jan. 26, and Thein Sein still faces some resistance from powerful entrenched interests.

In a report titled “The Time Has Come for Economic Reform in Myanmar [Burma]” delivered on Jan. 12, Bradley Babson, a former World Bank official and UN Consultant on Burma, argued that the economic underpinnings needed for a successful democratic transition in Burma have not yet been addressed.

These foundational steps, he said, include: (a) policy reforms and actions to tackle emerging macroeconomic problems such as exchange rate appreciation and inflation; (b) concrete measures to stimulate the private sector; and (c) reforms in the exchange rate, financial system, investment policies, and state-owned enterprises that address entrenched military interests and control over economic resources that are impeding national economic development.

Babson said that foreign governments are partly to blame for the lack of progress in these areas, with the West placing almost all of its focus on political issues, and regional trading partners like China and Thailand looking mainly towards their own geostrategic and economic interests.

He went on to argue that it is “high time for a rethink of economic engagement policy with this important and proud country. Nothing will advance the interests of the people of Myanmar more than sensible economic reforms coupled with a commitment to respect their rights of citizenship under national law.”

Babson added that “Ramping up humanitarian and development assistance is not the answer, although such resources can be helpful. What matters is a domestically motivated and managed economic reform drive that taps all good ideas and reinforces collaboration between the government, private sector, civil society and the international community.”

These statements will probably ring true to most economic experts and potential business investors. In the end, however, what may most motivate Burma to proactively undertake managed economic reform will not be the demands of foreign governments, but rather the demands of the foreign investment market.