Myanmar is often described as Asia's last frontier. The long-isolated country has more than 60 million people, yet many industries have little or no competition.
Does this make Myanmar ripe for investment?
For investors who are not up to speed on the developments in Myanmar over the last few years, here's a brief recap.
In 1962, the military enacted a coup and took control of the country (called Burma at the time), marking the beginning of socialist rule for nearly the next 50 years. Western sanctions prevented economic growth and expansion, and Myanmar was closed off from the outside world. In 2011, talks of reform began to take place. In 2013, the EU and the United States lifted most economic sanctions, paving the way for foreign investment to return to the country after decades.
If the California Gold Rush was the "Wild West," then Myanmar is the "Wild East." Companies are scrambling to become the first movers in a new, growing market.
A year ago, Coca-Cola opened a manufacturing facility in Yangon with local distribution partner Pinya Beverages at a cost of around $200 million.
Coke products have been imported to Myanmar from Thailand for decades. Anyone willing to spend around $1.50 could get a can of Coke. Coke's new factory is expected to allow its products to reach more than 100,000 retail outlets, creating a wider presence and lowering prices for Coke products in Myanmar. Establishing a local presence builds the strength of the iconic Coke brand. The only two remaining countries without an "official" Coke presence are North Korea and Cuba.
Coke is taking care not to jeopardize its reputation as it moves into this troubled nation. For example, the Coca-Cola foundation is working with local organization Pact to offer business classes to nearly 25,000 Myanmar women. And in a statement, the company said:
The Coca-Cola Company's well-established global standards for corporate ethics are being incorporated into Coca-Cola's business practices in Myanmar. This includes strict adherence to its global human and workplace rights policy, supplier guiding principles, code of business conduct and anti-bribery policies.
In June, The Gap announced it will be the first U.S. retailer to have garment factory operations in country, likely drawn by the large garment-related workforce and relatively low wages.
Significant potential risks
Despite reforms, significant political, religious, and social tensions persist throughout the country. If tensions escalate, Western companies might feel pressure from social-media campaigns and public scrutiny. Sanctions that were recently lifted could suddenly be reversed.
Myanmar's President Thein Sein, who took office in 2011 and introduced the reforms that led to the country's transformation, has announced he will not run for re-election in 2015. And Daw Aung San Suu Kyi, the pro-democracy opposition leader who is popular among Myanmar's citizens, will not be allowed to run for president. The U.S. has expressed disappointment with the ruling, and there are no other frontrunners at the moment. This leaves a lot of uncertainly regarding whether the sweeping reforms will last.
Myanmar has potential, but it will be a trial-and-error environment over the next few years. Investors would be wise to stay on the sidelines and continue to asses the risks and evaluate the progress. Being a first mover is not always the best strategy. Businesses need to make smart decisions with qualified local partners and constantly asses the risks in an ever-changing environment. For these reasons, do not get too excited about Myanmar -- yet.
Mike Fee has no position in any stocks mentioned. The Motley Fool recommends Coca-Cola and PepsiCo. The Motley Fool owns shares of PepsiCo and has the following options: long January 2016 $37 calls on Coca-Cola and short January 2016 $37 puts on Coca-Cola. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.