Scientific Game

Myanmar Uncle

Asian entrepreneurs cast their net for casino investment opportunities in the former hermit state

Thursday, 15 December 2011 16:08
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It’s not long ago that Myanmar (a.k.a. Burma) was considered a pariah country by Western governments. The United States, European Union and Canada imposed sanctions on the ruling military junta in 2007 following an army crackdown on anti-government protestors. The sanctions included a freeze on regime members’ bank accounts and restrictions on imports of gems and timber from Myanmar. Now, fewer than four years later, Myanmar is being talked about as the next Asian tiger economy, with opportunities to build a significant mainstream casino industry. How did that happen? And is it anything more than hot air?

Myanmar already has casinos—eight on the border with Thailand and a handful on the border with China. But they are generally gambling halls with a few hotel rooms aimed at the nationals of Thailand and mainland China—where casino gambling is not legally permitted. Those establishments only survive due to the personal patronage of members of the Myanmar government—in return for a percentage of the action. It’s a big leap of the imagination to go from that to modern integrated casino resorts. Yet the idea may not be so far-fetched. It’s not impossible that a rejuvenated Myanmar, with a popularly-elected government and reintegrated into the family of nations, could become a holiday playground for the newly-rich of China and India. It shares land borders with both and has been a trading partner for the two great civilisations for centuries. India and China both avoided getting dragged in to the West’s sanctions gesture and have continued to trade with Myanmar during the diplomatic crisis that followed the 2007 crackdown. An important question from Western casino investors’ perspective is whether a future Myanmar government would pass enabling legislation to make casino gambling an officially-sanctioned industry.

Most sophisticated casino investors seem to have one of three reactions to the ‘Myanmar spring’ notion. The first is to point out that if indeed an economic and political thaw has set in, it’s still very early days. No one is likely to invest integrated resort-style amounts of cash into a casino project until it’s clearer where the country is heading, legally- and politically-speaking. The second is that the Western casino brands won’t be able to touch the place—at least officially—until Western sanctions are lifted. The third is to point out the Heath Robinson-like tendencies of Myanmar’s financial services industry.

As a Chinese businesswoman born in what was then Burma—and who speaks and reads the language—put it to this correspondent: “You can’t trust the banks. Take cash if you want to do business there.”

So under those circumstances, the usual suspects—Chinese business folk less squeamish (and less fearful) about doing business with ostracised countries than are Westerners—are likely to be the first ones in. In terms of general trade, they’ve been there for years. Not only do Chinese entrepreneurs generally have a higher tolerance for risk; they also tend to have better connections to the local power brokers.

 

The Road to Mandalay

Asian investors look at casino-hotel opportunities in the cities

“The people who would be comfortable with Myanmar as it currently is are predominantly Asian entrepreneurs who don’t have to adhere to economic sanctions the way American or European investors have to,” says Ben Lee of iGamix Management and Consultancy, based in Macau. Mr Lee recently guided some Asian investors on a trip to the country to investigate gaming investment opportunities in the main cities there.

“The people I was working with aren’t looking at the border casinos. They’re looking at hotels in cities like Yangon and Mandalay with a view to purchasing, improving and refurbishing the infrastructure, and putting a gaming operation inside—provided the properties get the necessary permission from the authorities,” he explains.

Even Asian investors can’t, however, ignore the sanctions issue.

“There are some big hotel brands interested in having a casino-hotel operation in Myanmar. But until sanctions are lifted, they will have to use secondary companies if they are going to invest—as they have done in the past,” suggests Mr Lee.

“We’re not talking about new build. There is plenty of existing infrastructure that is underutilised. There are hotels that haven’t done very well because of the [international] sanctions. That was probably because the capital investment was too high to start with, and the sanctions had an impact on room occupancy levels. But this year the number of European visitors has actually increased—in particular the number of Germans. A couple of the big German tour organisers have started taking customers there, as have the Japanese.”

“The mainland Chinese are already in there in droves. The Chinese are building a huge gas pipeline from the Andaman Sea, south of Yangon, all the way to the border with China. Jade, coal, precious and semi-precious stones, gold and silver, are all being mined in Myanmar, and in return, the Chinese trade them manufactured goods and construction material. The newly built highway that links Mandalay to the border with southern China is busy with a stream of trucks in both directions.

“We also visited one of the major hotels in Mandalay, where one and a half floors were permanently occupied by a Chinese engineering team—they even had their own dining room,” says Mr Lee.

It’s precisely at the start of the curve—before the rest of the international community welcomes back the country from political isolation—that the best investment value is likely to be available. And while China tends to get singled out for criticism due to its willingness to deal with some of the world’s less palatable regimes, in reality, where there is money to be made or strategic interests to protect, all countries tend to act unilaterally. In the case of Western countries, that often involves taking an outcast nation’s leadership to task in public, while secretly talking to it and even trading with it behind the scenes. You can see a 21st century version of the ‘Great Game’ (where Britain and Russia wrestled for supremacy in central Asia in the 1800s) being played out in Myanmar now. US Secretary of State Hillary Clinton’s recent visit to Myanmar’s leaders was just the public tip of a very large diplomatic iceberg.

“The Americans must be feeling a little bit left out in this current phase of growth,” suggests Ben Lee. “But the US—despite the sanctions on Burma—has in recent times built the largest US embassy in the whole of Southeast Asia in Yangon,” he adds.

There are good reasons for the West to cosy up to Myanmar. Not only is the country strategically important—located in the zone that divides Southeast Asia from Southwest Asia—but it is also resource-rich; with abundant natural gas, oil, jade, rubies, marble, granite and timber to name just a few of its goodies. And where there’s a resource boom, there’s very often money to be spent on gambling. China has been merrily exploiting Myanmar’s natural resources for years. But despite this early lead, it isn’t inevitable that China will remain Myanmar’s chief or dominating trading partner, or that it would necessarily dominate any openly permitted casino industry. Myanmar has a track record of periodically asserting its economic and cultural nationalism. After Burma’s independence from Britain in 1948; first ethnic Indians and then ethnic Chinese—many of whom had come there during the colonial era—were squeezed out of the economy and then the country.

 

Taming the Badlands

Would a freely-elected government push even harder for casinos than the army?

Oxford-educated Aung San Suu Kyi—the de facto leader of the opposition to Myanmar’s military government—is currently being feted in the West as the darling of that country’s democracy movement. Whether she would be as free-market minded as Western governments would like were she to come to power is another matter. She is from the old Burmese elite. Her father, Aung San, who helped to negotiate the British withdrawal, was also a founder member of the Communist Party of Burma. He was assassinated in 1947 by rightwing paramilitaries. Many in Myanmar think the British had a hand in his death.

Even if that were the case, there are sound political and economic reasons for Ms Aung to cooperate with both the West and China in the pursuit of a formalised gaming industry. Tax revenue is less important for Myanmar—with its natural resources—than it is for tiny Macau. But a fully legal casino industry could help pacify further Myanmar’s sometimes wild border areas. Military conflict with the central government started in those places soon after independence as an ethnic and party-political struggle. The border provinces are ethnically non-Burmese, poor, and historically have supported guerrilla movements. As in Afghanistan, these guerrilla movements have traditionally used narcotics production and trafficking to fund their activities. But also—as in Afghanistan—some of the guerrilla movements moved from ideological struggle to warlordism. They were aided and abetted in this process by successive Burmese military governments that effectively bought off the guerrillas by allowing them or their associates to run border casinos in order to launder their funds, grow rich and divert their energies into commerce rather than politics. Those states are now calmer than they were, but not yet entirely under the control of the central government.

The main areas for border casinos in Myanmar are Shan State in the north—where the frontiers of China, Laos and Thailand abut Myanmar’s border in the area known internationally as The Golden Triangle—and Kayin State (also known as Karen State)—which borders Thailand further south. It’s no accident that the military junta decided to move its new capital—and the bulk of its military forces—away from the coast and nearer to the main industrial city Mandalay and the occasionally troublesome Shan State.

The Chinese also have good political reasons to want Shan State calmer and quieter. Chinese criminals from neighbouring Yunnan province are said to launder their proceeds via the casinos in Mong La in Shan State. But the relationship between the border gambling venues and the authorities on both sides seems made up of many shades of grey rather than simple black and white.

“They are ‘legal’ in the sense that the Myanmar government does take its cut of the gaming revenue and they [the Burmese] do station immigration officers within the premises of the casinos to facilitate foreign visitors’ entry,” says Ben Lee.

“There are no formal gaming taxes on these operations. The government’s cut varies, depending on what arrangement it has with the casinos.”

“On the Thai border you have them in the Chiang Rai region in the far north—otherwise known as the Golden Triangle. To my knowledge there are eight casinos operating there—two in one district and six in another district called Tachilek.

“On the China part of that border in a region called Mong La there are casinos owned by a variety of people—Malaysians, Thais, Chinese—that are targeting the southern Chinese as customers. They have a love-hate relationship with the Chinese authorities—the minute the business gets too big, China shuts the border to leisure travellers. Then they [Chinese authorities] let it lie fallow for a while, then they gradually open up; it gets big again, and they shut it down again—and so it goes on,” adds Ben Lee.

“Then further south where the Thai-Myanmar peninsula narrows, there’s a town called Myeik that’s about a 20-minute flight from Hua Hin in Thailand. A casino resort has been built there. Even further south, there are a couple of islands in the Andaman Sea with casino hotels. All these places are predominantly Thai-owned.

“Away from the border, within Myanmar itself, there are no legal casinos. There was one operating in the middle of Yangon, in a pretty well-known hotel. Supposedly it was operating with the tacit consent of people within the government, but it got into trouble because allegedly either the customers or the management—which was mainland Chinese at that time—were bringing in local prostitutes. So since then there are no slot halls or full casinos operating in Yangon or in any of the other major cities.”

The anti-casino lobby might claim vindication with that anecdote. But Ben Lee says that an officially sanctioned casino industry could be more easily controlled and inspected. And at the scale of small casino hotels with perhaps 50 to 100 slots and 20 to 40 tables, it would be catering for mainly Chinese business people, not locals.

“They wouldn’t need Burmese players because of the sheer number of Chinese business people already visiting major cities like Mandalay,” states Mr Lee.

“Most Burmese would be too poor to participate anyway. But the rich Burmese that are influential enough to get an exit visa, are currently going to Singapore or Macau to gamble. In Myanmar, the Chinese business people would be the mass market. And there would be no need for junket partners. The Chinese are already doing business there and can move money crossborder for both business and gambling purposes.”

Although the first wave of Asian-backed city casino-hotels is likely to be modest in scale, Ben Lee thinks it would be shortsighted of Western operators to overlook the potential of the country.

“It depends on how the industry wants to pitch it to the government. It needs to be pitched as a tourism driver. The potential is certainly there. If Western companies don’t do anything, the Chinese are going to run away with it.”

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