The relaxation of the Burmese military’s iron grip on the economic life of Burma has been enthusiastically welcomed by the country’s neighbors, eager to compete with China to tap into what the International Monetary Fund (IMF) terms the “next economic frontier in Asia.”

But big business players in Western countries, notably the oil and gas giants, remain on the sidelines—and not just because economic sanctions are still in place.

Despite the apparent enthusiasm of the IMF, others think a question mark remains over the feasibility of doing business in Burma, drawing comparisons with the one-party corruption of Cambodia and the stifling bureaucracy of Indonesia, where foreign investment is stymied by red tape.

Sean Turnell, a professor of economics at Australia’s Macquarie University and editor of the Burma Economic Watch bulletin, believes Western oil firms will remain reticent to return to Burma any time soon.

“Western energy firms I think are still some time off,” Turnell told The Irrawaddy this week. “US sanctions, even if lifted in part after the [Burmese] by-elections, will still stymie big projects for a bit.

“The natural gas market is in glut at the moment, and given the attendant risks I am not sure they would bother [to enter Burma].” 

Gareth Price, of the Royal Institute of International Affairs at Chatham House in London, urges caution by Western countries and big business, warning that there may still be a power struggle in process within the Burmese military which could knock the country’s nascent economic and political reforms off course.

“The military may be attempting to juggle a reduction in its political power with an increase in its economic power,” thinks analyst Price.

“If reformers within Burma’s military are constrained by hardliners, the West should offer early rewards to encourage continued reform. If, however, the lifting of sanctions is the end-point envisaged by the military, the West must be clear on the conditions that need to be met before policy towards Burma is recalibrated.”

These cautious views are in sharp contrast to those of a just-completed IMF fact-finding mission to Burma, which concluded that the isolated Southeast Asian country could be a new frontier for oil, gas and other natural resources development.

“Myanmar [Burma] has a high growth potential and could become the next economic frontier in Asia, if it can turn its rich natural resources, young labor force, and proximity to some of the most dynamic economies in the world, into its advantage,” said the IMF’s Asia and Pacific Department deputy chief, Meral Karasulu.

She forecast that Burma’s economic growth in the current financial year would increase 5.5 percent, led by resources exports and higher foreign investment.

Increased gas exports will be the main driver of fiscal balance in the medium term, she said, citing planned new production at the offshore fields of Shwe and Zawtika.

Shwe, in the Bay of Bengal, is being developed by a South Korean-Indian consortium, while the Thailand firm PTTEP is developing Zawtika in the Gulf of Martaban.

Burma’s Southeast Asian neighbors have been the first to rush to invest since the regime eased controls. Thailand, Malaysia and Singapore firms have won new onshore oil exploration licenses and a Thai construction company has achieved the seemingly glittering prize of developing Burma’s first special economic zone around the sleepy coastal town of Tavoy, now also called Dawei, on the Andaman Sea.

“The Dawei project is clearly backed by the Thai government which sees it as a new route to Indian Ocean markets, as well as offering a convenient relocation for dirty petrochemical industries now facing environmental restrictions inside Thailand,” Bangkok energy industries consultant Collin Reynolds told The Irrawaddy.

“Lots of big-name companies such as the Thai state oil and gas group PTT have been linked with Dawei, but so far there is little firm financial commitment beyond Thai government support for a new cross-border highway and that of the lead contractor, Italian-Thai Development.

“What everyone’s waiting to hear is whether Chinese money will be involved.”

PTT has been linked with proposals for a large refinery and petrochemicals complex within the Dawei economic zone; however, a Chinese firm backed by Beijing state cash is also touting a big new refinery for Burma.

Guangdong Zhenrong Energy Company’s chief executive Xiong Shaohui told Reuters his firm is interested in investing US $2.5 billion in a 100,000 barrels-per-day refinery in Burma, and Dawei is among the possible locations.

A refinery of that size would provide at least 60 percent of current fuel products demand in Burma, which has a small decrepit refining capacity and must import most petrol and diesel.

Such plans contradict suggestions that the new Burmese government has gone cold on China in the wake of the surprise suspension of China’s huge hydroelectric project at Myitsone on the Irrawaddy River.

“The Burmese military hopes that Western sanctions will be lifted, suggesting that it hopes to dilute Chinese influence,” says Chatham House’s Price. “This provides significant opportunities for the West, and for the US in particular, to effect change. At the same time, the West needs to be careful not to antagonize China, which remains the country with the greatest leverage over Burma.”

Macquarie University’s Turnell thinks the halting of the Myitsone project reflected “genuine disquiet amongst so many over excessive Chinese domination of the economy at both the macro and micro levels.”

That’s not a view shared by Ian Storey of the US conservative think-tank Jamestown Foundation. He believes it was little more than a check in the balance of relations between Naypidaw and Beijing.

“The two neighbors will seek to maintain close and cordial relations in recognition of inescapable geographical realities and to protect important shared interests,” opines Storey.

“Above all else, Beijing values stability in its Southeast Asian neighbor. Particularly, China’s interests are to protect its massive investments; secure uninterrupted access to the country’s rich natural resources, including oil, gas, minerals and lumber; ensure the safety of an estimated one to two million Chinese nationals living and working in Burma; and preserve peace and stability along their border,” said Storey.

The enthusiasm with which most of Burma’s neighbors have reacted to recent changes seems as much aimed at winning a slice of the potential business pie in a revitalized Burma as in any deep concern for democratic principles and human rights. They are clearly prepared to take a punt on the business climate getting better regardless.

However, some observers suggest that these early economic adventurers into a country where business has been moribund for decades could be in for a rocky ride.

Chatham House’s Price believes that more dramatic change “in one form or another” is inevitable in Burma.

“Few authoritarian rulers who try to manage a transition towards political liberalization have managed to maintain power throughout. Most lose power along the way either because of a putsch by hardliners or because they cannot hold back the momentum that they have created.”