Regular readers of this website will recall that we coined the acronym BLANKs in 2008 to refer to a group of extreme frontier market economies in Asia which have considerable development potential, but are being constrained by highly unusual or adverse political or geopolitical conditions. These are Burma (Myanmar), Laos, Afghanistan, and North Korea. All four countries are covered systematically on Business Monitor Online, but given that a year has passed since our last BLANKs update on RiskWatchdog, now seems as good a time as any for an update.
Burma (Myanmar): Political Reform Is Key
We’ve been saying for years that Myanmar has the potential to become a ‘second Thailand’, if only the military-dominated regime would liberalise its political system and reform its economy. During 2011, the new president, Thein Sein, appeared to embark on this path. These are very small steps, but, as the saying goes, ‘every journey has a first step’. US Secretary of State Hillary Clinton’s landmark visit last year has helped spark a sort of Myanmar mania at the present time.
The best example of this has been the trebling in the share price of Singapore-listed Yoma Strategic Holdings – a company which is involved in real estate development, agribusiness, and truck distribution in Myanmar – to a four-year high of SGD0.40 since last December. It’s hard to tell how far Yoma’s share price can keep going, especially after languishing so low for so long. However, broader investor sentiment will remain constrained by Myanmar’s complex multiple exchange rate system, high levels of corruption, and weak infrastructure.
Ultimately, political developments will be crucial. Veteran opposition leader Aung San Suu Kyi is running in by-elections in April, and any further sign of liberalisation thereafter would boost Myanmar’s international reputation and long-term prospects.
Laos: Quietly Humming Along
Laos is arguably the most ‘normal’, politically, of the BLANK states. True, it is a one-party communist state, but it has not shown the level of hostility towards the outside world as Myanmar and North Korea, and it is not at war like Afghanistan. Laos is actually experiencing rapid economic growth, thanks to demand for its natural resources and hydroelectric power. The country inaugurated its stock market in early 2011, which initially surged, but has since fallen sharply (see chart below, click to enlarge).
Going forward, Laos looks likely to be caught up in a geopolitical struggle between neighbouring China and Vietnam (and possibly Thailand). However, if Laos can skilfully play off its bigger neighbours, it can maximise concessions from Beijing and Hanoi.
Afghanistan: Western Exit To Prove Colossal Challenge
Afghanistan is probably the worst off among the BLANK economies, since it is in the grip of civil war and is in worse shape, physically, than North Korea. Over the last 24 hours, the United States announced that it would seek to wind down combat operations in Afghanistan in 2013, one year before the withdrawal of virtually all Western troops from the country. The news coincided with the leaking of a US military report stating that the Taliban, backed by Pakistan, will retake control of Afghanistan once NATO forces leave. If this prognosis is accurate, and indeed it seems to make sense, then Afghanistan’s economic prospects will remain bleak. Optimists could argue that once the Taliban regains control, the war would be over, and ‘moderates’ could still seek to attract foreign investment, but this is a long shot to say the least.
North Korea: Convergence With South Decades Away, But Upside Potential Is Vast
If Myanmar is potentially a ‘second Thailand’, then surely North Korea is potentially a ‘second South Korea’. There is no reason why the North shouldn’t eventually catch up with the South. The trouble is, this will cost trillions of dollars and probably take decades. This also assumes there won’t be war or state collapse. The death of Kim Jong Il last December at least opens the possibility of change, but so far, the signs are not good. His son and successor Kim Jong Un, although educated in the West, is maintaining the status quo, and even if he were a zealous reformer, he surely lacks the power to enact them. Kim Jong Un’s exiled elder half-brother Kim Jong Nam has been calling for reform, but there’s little he can do from his isolation in Macau.
It’s quite possible that North Korea’s powerful military leaders will eventually promote change, but so far they appear to be years behind their counterparts in Myanmar. Still, if Myanmar’s transition proves successful, it is just about conceivable that generals in Pyongyang will follow suit. According to a Bank of America-Merrill Lynch report cited by the South’s Yonhap News Agency, if the North opens up its economy, it could grow by 10-12% annually. This would make North Korea a significant investment destination.