Banks are facing growth challenges almost everywhere they look. Two areas, however, have got them salivating.
The first is the return of Myanmar, or Burma, to polite society. It’s hard to believe now, but there was once a time when everyone thought that Burma would be the next economic powerhouse in Southeast Asia. Kyle Brown of Global Edge reminds us why:
The nation is rich in many natural resources, including rare minerals, timber, and agricultural products. It also has one of the world’s largest natural gas reserves. With ports on the Indian Ocean and Andaman Sea, and a geographic position between India and China; Burma is very well positioned for international trade. As Maung Zarni, of the Burma and Myanmar Research Initiative at the London School of Economics, says, “Burma is basically the backdoor to the Chinese and Indian Markets and economies”. This holds very true, as most of the country’s trade comes from Thailand, Singapore, India, and China.
Then in 1962 the military overthrew a government that had only won independence from Britain in 1948. The military has been in power ever since. After the coup Myanmar entered a long pariah period, marked by its multi-decade persecution of Nobel Peace Prize winner Aung San Suu Kyi.
Now Burma’s government (in which the military continues to call the shots) is trying to rehabilitate itself on the world stage. It’s succeeding, as marked by Hillary Clinton’s recent visit there and her announcement that travel and financial sanctions would be relaxed. For large, international financial institutions this diplomatic manoeuvre was akin to a green flag being waved at the start of an F1 race. As the Wall Street Journal reports in Card Giants Lead Rust to Myanmar:
…international financial firms are lining up to get back into Myanmar, which has become arguably the world’s sexiest new frontier market. Standard Chartered PLC, Citigroup Inc., Australia & New Zealand Banking Group Ltd. and a host of other Western and Japanese financial firms have expressed interest in Myanmar. The potential prize is access to one of the world’s last undeveloped financial markets, with some 60 million residents, of whom only one million use banking services after decades of living under an oppressive regime. Millions more Myanmar citizens live overseas, creating a potentially giant remittances trade. And there are opportunities to serve multinational firms as they return to the country and set up offices or factories.
It remains to be seen how the government of Myanmar will handle the country’s sudden popularity. Will it throw the doors wide open or will it give local bank institutions time to catch up before forcing them to compete with the big boys? However it proceeds, providing the people of Myanmar with wider access to financial services is a positive development. Unfortunately, a second growth area for international banks is not an indisputable net good for the rest of us.
Commodities prices have been rising over the past months, especially for soft commodities like corn and soybeans. The root cause is unfavorable weather, with one of the most salient examples being the drought that has covered the majority of US farmland this summer and has given rise to comparisons with the disastrous Dust Bowl of the prior century. This price action has resulted in more interest in the sector on the part of investors and speculators. It also translates into an area of lucrative promise for large banks like Citigroup, which has just announced its intention to scale up in commodities-focused businesses. From Reuters:
U.S. bank Citigroup has launched a commodity trade finance unit, expanding into a sector once dominated by European lenders who have been shrinking their activities to cope with the euro zone debt crisis.
Banks make money by taking calculated bets on the future. Right now they are telling us that a) the future for Myanmar might be bright, indeed. And b) that the third spike in international food crises in five years still has plenty of room to run.