On a tree beside a crumbling road in Myanmar’s biggest industrial estate, Thein Oo hangs plastic sheets, part of the trash he collects and sells for recycling to support his wife and five children.
Behind his pile of scavenged bags and cans, a gated empty lot, filled with weeds and stray dogs, is valued at more than $500,000 an acre, about 10 times the price of industrial land in Orlando, Florida.
The contrast of Thein Oo, 55, in his ripped shirt, dirt-stained shorts and red flip-flops, and the soaring price of the land by his makeshift thatch house illustrates the government’s challenge in opening the country without leaving most of its population behind. Lots in the Hlaing Thar Yar zone have risen more than 100-fold in the local currency since the park opened in 1995, driven by billions of dollars from jade miners who had few other investment outlets.
“The government needs to do more for us,” Thein Oo said, surrounded by children playing among the rubbish. “There’s no permanent work here.”
President Thein Sein is trying to undo economic distortions caused by sanctions and military rule that resulted in $100,000 used cars, $500 SIM cards and the need to carry stacks of crisp, unblemished $100 bills. With foreign investors rushing into the country after the U.S. and Europe began lifting sanctions this year, office and residential rents are also soaring.
“Attempts to protect the little guy through rules, regulations, legislation usually just end up in rampant corruption and no protection at all,” Sean Turnell, an associate professor who researches Myanmar’s economy at Macquarie University in Sydney, said by e-mail. “There really has been very little in the way of implemented investment in areas that would employ large numbers of people.”
The economic inequality is typified by the jade trade. After the U.S. banned imports of Myanmar jade in 2008 and tightened rules to hinder financial transactions among gem traders, the industry underwent a boom due to Chinese demand, according to Renaud Egreteau, a research assistant professor at the University of Hong Kong. Jade export revenues topped $1.75 billion in the 2010-2011 fiscal year -- a fifth of Myanmar’s exports -- he wrote in a paper last year.
The resulting funds pushed property prices “to a point that is totally ridiculous,” said Moe Kyaw, a member of a presidential advisory committee and an official in the Union of Myanmar Federation of Chambers of Commerce and Industry. Traders sold 527 million euros ($681 million) of gems at a nine-day sale in March, according to state-run Myanmar Gems Enterprise.
“These are jade miners who are not that clever in how they part with their money,” said Moe Kyaw, founder of Yangon-based Myanmar Marketing Research & Development Co., which conducts market research for companies such as Unilever NV and Nestle SA. “Because of the American sanctions, they can’t even get a credit card, so they plow their money into property. They don’t realize they can have a beautiful condo in Thailand or Singapore because they are just too scared to go outside the country.”
The jump in real estate prices is a deterrent to foreign manufacturers who could bring jobs to Myanmar. With factory land selling for as much as twice the price of lots in neighboring Thailand, the millionaire miners are hampering the country’s fledgling efforts to draw labor-intensive industries.
“It is a significant barrier to attracting foreign investment,” said Cyn-Young Park, the Asian Development Bank’s assistant chief economist, referring to high property prices. “Administrative measures wouldn’t help in this situation. Provision of adequate infrastructure would help mitigate these pressures on property prices by allowing more land to function efficiently for any business purpose.”
Since Thein Sein took power in March last year, he has freed hundreds of political prisoners, eased media restrictions and started peace talks with ethnic minorities. The moves prompted the U.S. to allow companies to invest in Myanmar for the first time in 15 years and ease a ban on imports.
Opposition leader Aung San Suu Kyi, who met President Barack Obama last month on a trip to the U.S., backed the easing of sanctions. The former political prisoner joined parliament for the first time in May after reaching an agreement with Thein Sein in 2011.
The president has pushed policies to improve the investment climate, including a managed float of the currency in April. He is now working with parliament to pass a new law to encourage more foreign investment to lift the economy. The IMF estimates Myanmar’s per capita gross domestic product this year at $855, compared with $5,851 for Thailand.
“Economic development must not lead to the widening of the rich-poor gap,” Thein Sein said last month in a speech to the United Nations General Assembly in New York. “Citizens’ rights are to be protected; the natural environment is to be preserved; our workers are to enjoy rights in line with international standards.”
Tackling inflated real estate prices may be harder. Vacant lots in Hlaing Thar Yar, in western Yangon, have risen to about 450 million kyat ($523,000) per acre, from about 3.5 million kyat in 1995, according to Serge Pun, chairman of Yoma Strategic Holdings Ltd., a Singapore-listed developer of properties in Myanmar. That compares with $40,000 an acre for industrial land offered on the Internet last month by real estate broker The Barnett Group Inc. for a 171-acre industrial site in Orlando.
“It’s not going to be an easy process to get prices to come down in a free-market economy,” Serge Pun said. “If people build new developments, build new industrial estates and have a new policy, then maybe it will solve the problem.”
Office rents have tripled from a year ago to $65 a square meter, and may rise to $150 in the next few years, according to Tony Picon, associate director of research at property broker Colliers International Thailand, who moved to Myanmar this year.
Poor states of renovation, transport and utilities will also be a deterrent, he said.
“This is going to be a serious hardship posting for expats who start to come to this country over the next few years,” Picon told a group of more than 500 investors in Naypyidaw, Myanmar’s capital, on Sept. 12. “For a family you don’t want your electricity going out all the time.”
Some respite may come from plans for new industrial zones near waterways with sea access to overseas markets. Japan aims to complete a feasibility study this year to build a port and industrial estate at Thilawa, 25 kilometers (15.5 miles) south of Yangon. Italian-Thai Development Pcl, Thailand’s biggest construction company, is also trying to get Japan to finance an $8.6 billion deep-sea port and industrial zone in Dawei, less than 300 kilometers from the Thai capital, Bangkok.
Thein Sein’s efforts have helped make some imported goods such as cars and phones more affordable for the country’s 64 million people.
Bo Bo, the sales manager at a Yangon car dealership that opened a year ago, said he has “too many” customers after the government made it easier to import automobiles. The cheapest vehicles now cost about $14,000, down from about $100,000 a year ago, he said.
About 18 of every 1,000 people in Myanmar has a vehicle, compared with 250 in Indonesia and 370 in Thailand, the Asian Development Bank said in an August report.
While BlackBerry service isn’t yet available, the government is inviting foreign investors as partners to help add 40 million new mobile-phone subscribers by March 2016, according to a report in September by research firm Paul Budde Communication Pty. Currently 1.3 percent of the population has access to fixed lines, and 0.03 percent have broadband Internet subscriptions, the ADB said.
SIM card prices have fallen to about $230 from about $580 a few years ago, said Ye Nyi, who mans a family-run shop in Yangon selling everything from $30 Chinese-made handsets to the latest models from Espoo, Finland-based Nokia Oyj. The store has seen sales rise fivefold since last year, he said.
“I’m happy the government has opened up,” Ye Nyi said. “I’d be even happier if they did more to bring down costs.”
For foreigners and locals, one of the biggest hurdles to transactions is the money itself. At Radiances, a downtown store selling Lenovo computers imported from China, accountant Than Than Soe inspects a $100 bill, ensuring that it was produced after 2006 and has no marks, folds, creases, holes or mold.
“If there is the slightest mark, the banks won’t accept them,” she said. “Then we have to sell them on the black market for a cheaper rate.”
Seventeen banks set up a payment union last month that will allow citizens to pay for some goods with local debit cards. MasterCard Inc. and Visa Inc. are looking for ways to expand in the country, though cross-border transactions will probably wait until the U.S. fully lifts sanctions, Maung Maung Win, the central bank’s deputy governor, said in a Sept. 14 interview.
“We cannot export our foreign currency notes because of sanctions,” he said. “That’s why our banks and our money changer counters don’t like old and marked notes. If we can export the U.S. dollars to other countries, then we can manage the problem.”
At a Kanbawza Bank Ltd. branch near Yangon’s Shwedagon Pagoda, daily exchange rates have been displayed on a digital board since the currency was floated in April. Zaw Lin, who works at a trading company, said the government’s new policies have made it easier to exchange cash at banks.
Other than that, for him, and for Thein Oo scratching a living from garbage in Hlaing Thar Yar, the government’s policies have yet to make much difference.
“Things are changing a lot here, but at the local level it’s pretty much the same,” Zaw Lin said outside the bank as he waited for the monsoon rains to subside. “The rich seem to benefit just as before.”