The Southeast Asian nation has the same potential for rapid growth as the region’s other economies, but realizing that promise will take years of reform

STR / AFP / Getty Images People walk through a small bazaar at the Golden Rock temple in Burma's northeastern city of Kyaiktiyo, some 160 km from Rangoon, on Feb. 20, 2012

On paper at least, Burma has all the elements required to create another Asian economic miracle. With a population of 48 million, the country has a large pool of low-cost workers custom-made to attract the labor-intensive manufacturing that jump-started income growth from South Korea to Malaysia. Natural resources, such as timber and minerals, could woo billions in foreign investment. And its strategic position nestled between China and India could turn Burma into a prime location for tapping into the megagrowth of those two Asian giants.

Translating that promise into real dollars isn’t going to be easy, however. Lots of nations possess the potential for economic greatness. The problem is that few are ever able to realize it. Burma has been a case study in that failure. For 50 years now, Burma has been one of Asia’s great disappointments. After World War II, it was one of the region’s richest nations; today, it has sunk to among its poorest. Behind the woes is crushingly awful economic management by a military dictatorship that brutalized and isolated the country. While its neighbors Thailand, Malaysia, Singapore and Indonesia joined the ranks of Asia’s tiger economies, Burma wallowed in poverty, penalized by sanctions and impoverished by an unwillingness to reform politically or economically.

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In recent months, though, a nascent democratic awakening has raised hopes among Asia’s business community that Burma could finally become the attractive place to invest it has always promised to be. The long-suffering pro-democracy opposition was permitted to contest parliamentary by-elections in April. Nobel Peace Prize laureate Aung San Suu Kyi, who was released from house arrest in November 2010, was allowed to campaign for a seat in the legislature, which she won. That liberalization has convinced the U.S. and the E.U. to start lifting economic sanctions that had been imposed on the country.

The political reform has opened the door to achieving a real economic revival. Now that Burma has come in from the cold, it can start in earnest to woo the foreign investment it so badly needs. There is a window of opportunity here. China has been the 400-kg gorilla of Asia for years, sucking up vast sums of investment, especially in the low-end manufacturing that could create much needed jobs in Burma. But as costs rise rapidly in the Middle Kingdom, businesses are looking for new, cheaper destinations for their factories. Burma could very well fill the void.

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Still, Burma might find that the cash it desires won’t come so easily. Burma, officially known as Myanmar, finds itself way, way, way behind its neighbors in development. As my colleague Hannah Beech put it in a recent magazine story on Burma: “In economic terms, the country is aspiring just to become a Bangladesh.” Burma lacks the infrastructure, sound regulatory environment and trained workforce to attract foreign investment in large sums. Burma “has very strong potential, but before realizing that potential, it has to tackle challenges to its development,” says Asian Development Bank (ADB) economist Cyn-Young Park.

A report she wrote for the ADB, released on Monday, didn’t mince words when outlining these hurdles:

Myanmar also faces multiple constraints and risks that may limit its progress. Key constraints include a weak macroeconomic-management framework devoid of market mechanisms, insufficient fiscal resources and inefficient domestic-fund mobilization, limited access to finance, deficient infrastructure, inadequate social services that hamper human-capital development and limited industrial diversification.

If that sounds daunting, it is. There has already been some progress, however. In April, the government reformed its currency system, allowing for a single, market-determined exchange rate, which will help stabilize the climate for investment. But that’s just a start. The government has to marshal funds for investment in new roads and other infrastructure so manufacturers could get their products to markets around the world. More money is needed to beef up the nation’s schools to upgrade the quality of the workforce. Burma “has to invest in its future,” says Park. Achieving that will entail reform of the government itself, so that it can raise revenues and spend them more efficiently.

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Even more, Burma needs to create the legal framework for a functioning market economy. After being cut off in its own alternate economic universe for decades, the country simply lacks the clear rules and regulations foreign companies require to safely and confidently invest. My colleague Emily Rauhala found that out in April, when she attended a seminar for investors held in Hong Kong by the Burmese government. The room was packed with businesspeople, who peppered the government representatives with questions. Can foreigners own property? Will state companies play fair? The answers that came back were less than satisfying. Often, the officials had no clear response. Burma has to put in place “the basics for the market to function,” says Park. “It is going to take a while for the government to be fully adjusted to the market system.”

That may be the biggest question facing the future of Burma. Achieving all these reforms and implementing the necessary policies requires a certain degree of expertise on the part of the government — in Burma’s case, an expertise that could well be lacking. Stephen Groff, a vice president at ADB, says that “the will to move forward is very strong” but “the challenge is: How do you build the competency quickly?” Groff says there is a core group of economic experts surrounding the senior leaders, but “after that, it gets really thin really quickly.” The inexperience of Burma’s bureaucracy in running a modern economy could easily derail the implementation of new national policies. “In order for the reform effort to be sustained, it has to grow roots,” Groff says.

Still, there is reason for continued hope. If Burma manages to overcome these hurdles, its potential is undeniable. ADB estimates that growth could reach 7% or 8% annually, and per capita income could triple by 2030. After so many decades in the wilderness, such a performance would finally make Burma roar.

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