Nay Pyi Taw/Yangon: Twenty months ago, in November 2011 to be precise, the World Economic Forum’s (WEF) executive chairman Klaus Schwab flew to New Delhi on a hush-hush mission. He hired a private jet from some old corporate friends and took a three-and-a-half-hour flight to Nay Pyi Taw, the capital of Myanmar—then still considered a pariah state globally—to engage the country’s new leadership in chalking out plans for a WEF event.

At the end of the short trip, which also included a detour to Yangon before returning to Mumbai for the meeting of the India chapter of the WEF, Schwab had concluded a deal to host the WEF event in East Asia two years later in Nay Pyi Taw.

At that time, it sounded audacious, but in hindsight, especially after the spectacular success of the event held in Nay Pyi Taw on 5-7 June, Schwab comes across as prescient.

In the time that the WEF made its bet on Myanmar—the last frontier still untouched by globalization, that is, if we do not consider North Korea—and the actual event, the Western world partially lifted sanctions and several heads of state, including US president Barack Obama, dialled into the new regime. In fact, in the last eight months, there has been a mad scramble, much to the bewilderment of the locals, by potential investors to get a toehold in a country that is not only blessed with natural resources like oil and gas, but which is also strategically located at the edge of south-east Asia, sharing the Bay of Bengal with India and Bangladesh.

This geographical location makes it strategically important. That’s something the Western bloc has recognized, especially given that the Chinese have had a head start in Myanmar. While the US and the others have only partially lifted the sanctions, Japan, which has recently begun to assert itself against China, is going all out; its development lending arm, the Japan International Cooperation Agency (JICA), has decided to lend 70% of its annual budget of $1 billion to Myanmar.

If nothing, the frenzy among foreign investors has established the potential of the nation with a population of 60 million and a gross domestic product estimated at $54 billion.

The big issue is the pace of change the country will pursue. In an ideal situation, it should opt for rapid change to bring the country up to speed after five wasted decades under the military junta.

Three years ago, Myanmar ushered in change with a bye-election to replace 45 members of Parliament (all of them joined the government and under the constitution, they automatically lost their legislative seats). Aung San Suu Kyi, the iconic opposition leader, regardless of her scepticism of the military and the new constitution, agreed to contest the election; her party, the National League for Democracy (NLD), won almost all the seats.

Ever since, the dynamics of the country’s polity have acquired a momentum of their own. This was most evident in the raft of new legislations passed by Parliament. It has, in the last three years, passed 92 laws, of which 50 are new.

Veteran U Aung Kyi Nyunt, chief whip of the NLD in Parliament, explained: “For 50 years we had no laws in place. Now, we are playing catch-up."

But this is easier said than done. Not only is a quarter of the country identified to be below the poverty line, the disruption of the education system has created a strange anomaly—the generation over 60 years is far more educated than the present one, although the demography is overwhelmingly young.

Consequently, the nation has a serious skill deficit that diminishes the employability of the workforce. So, even if there are jobs, the locals would find it next to impossible to take a crack at them. Worse, just seven out of every 100 people have a telephone connection and only one in 100 has access to the Internet. Just 10% of the population has access to electricity.

In these circumstances, if the country is hustled into rapid change by eager foreign investors, there is a very high risk of the entire situation degenerating into a mercantilist free-for-all. Like in Africa and elsewhere, this can become a governance nightmare. At the same time, there is the risk of capture of institutions by foreigners. This trend is already visible in several sectors like media.

Thant Mint-U, author of Myanmar: Where China meets India, says, “A couple of years ago, the pessimism was exaggerated. Now it is going to another extreme, the optimism is over the top. It is obvious that there is a need for balance."

So far, the country has preferred its own pace of change and foreign direct investment has remained more of a promise—last year, the best so far, FDI inflow was a little over $1 billion.

Next year, Myanmar will take charge as the head of the Association of South East Asian Nations (Asean). Interesting, because the country joined the powerful grouping, which is just four years away from its golden jubilee, only in 1997. Asean groups Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam.

Not only does the country have greater cultural proximity with Asean, it also spells tremendous opportunity for Myanmar.

The collective gross domestic product (GDP) of Asean, with a combined population of 700 million, is estimated at $2 trillion. India, with a population of 1.2 billion, has a GDP of $1.8 trillion.

Consensus has it that the next phase of growth will largely take place in south-east Asia and Myanmar has great prospects of riding this wave. The key to this is to establish connectivity, whether it be road, rail, air or sea. There are several plans to use multi-modal transport to connect the various parts of Myanmar with its neighbours, including India and Thailand. Work on several projects is well under way and these should be operational in the next few years, providing avenues for trade.

From India’s point of view, the connectivity plans hold potential as a game changer in the context of its North-Eastern region. Connectivity between mainland India and its north-east is currently restricted to the narrow passage above West Bengal referred to as “the chicken’s neck". Bangladesh has declined to allow free movement across its borders. All this may be set to change.

A clutch of projects are opening up the prospects of sea and road connectivity through Myanmar to the north-eastern region. The sea route will connect Kolkata to the upcoming port in Sittiwe, Myanmar, and from there up the river, Kaladan, to a motorable point that will eventually enter India.

Another tri-nation road project proposes to connect the north-east to Bangkok through Myanmar. So, even if Indian business, weighed by their zero-risk approach to investment, misses out on opportunities in Myanmar, the emerging dynamic in the north-east has the potential to more than make up for it.

In the final analysis, therefore, if there is clarity about one thing on Myanmar, it is that the country has enormous potential.

The trick though is whether it can successfully calibrate the interests of over-eager foreign investors with its domestic interests.

A difficult task in any circumstance; a misstep and there can be chaos—akin to being on a razor’s edge.

Officially, one dollar is worth a little under 1,000 kyat.

A dollarized economy

Myanmar is yet to have a full-fledged central bank, but it has figured out a rough-and-ready way to manage the exchange rate: by dollarizing the economy. Unlike Panama, Ecuador and El Salvador, though, there is nothing official about this.

Officially, one dollar is worth a little under 1,000 kyat, so, anyone who changes $100 for the local currency feels rich, at least momentarily. Then, you don’t really need to change. Most establishments offer the official rate and there’s practically no arbitrage. Many shops return change in dollars, unless the sum involved is less than a dollar.

Better still, no one seems picky about the dollars you change. Travel advisories warn about not carrying certain currency series and soiled notes, but no one cares.

Dollarization has its risks, as is evident from the experience of some Latin American economies.

While there is no hard and fast rule, it should work without a hitch in economies in transition, especially small ones such as Myanmar.

The creation of a central bank will likely restore currency sovereignty back to the kyat.