Myanmar’s emergence as Asia’s next tiger economy is more potential than reality as a rush of investors finds little to spend money on besides a limited supply of hotel rooms after six decades of isolation.

“Every day, another delegation, another delegation, another delegation, and no one’s putting money on the table,” says Tony Picon, associate director of property broker Colliers International Thailand. “The business community that’s visiting Myanmar must be honest and say ‘We’re just looking, we’re not going to buy,’ and not leading a false sense of anticipation from the local community.”

Investors’ first hurdle is the sanctions maintained by the U.S. and Europe, which policy makers are preparing to review following by-elections next week that include dissident Aung San Suu Kyi. Even then, restrictions on capital flows, lack of a developed stock exchange, an untested legal environment and rudimentary infrastructure will offer plenty of reasons for holding off putting money in the former dictatorship.

A flow of corporate executives and tourists to Yangon, the former capital and largest city, has “astronomically” lifted hotel prices in the past few months to as high as $400 per night, according to Picon. At the same time, many businesses are balking at long-term deals, making local agents reluctant to deal with foreigners, he said.

‘Difficult Market’

“Nobody is putting money anywhere at the moment,” said Luc de Waegh, founder of business-advisory company West Indochina Ltd. who helped set up British American Tobacco Plc (BATS)’s Myanmar operations in 1993. “It’s a difficult market, it’s a small market, it’s a market where people don’t have much disposable income. The future looks very bright, but in the meantime there isn’t much money there.”

Opportunities in the country of 64 million people are clear. Investor Jim Rogers, the chairman of Rogers Holdings who predicted a global commodities rally in 1999, said Feb. 22 he’d put all his money in Myanmar if he could.

Myanmar’s total land area, second only to Indonesia in Southeast Asia, contains deposits of gold, copper and gemstones. The nation is positioned between India and China, astride maritime trade routes between Europe and East Asia and was in British colonial times the world’s largest rice exporter -- a title now held by neighbor and onetime enemy Thailand.

France’s Total SA, Chevron Corp. (CVX) of the U.S. and Malaysia’s Petroliam Nasional Bhd. entered the nation years ago to tap offshore energy reserves. Even so, large swathes of its waters sit unexplored, indicating the potential is greater than the proven gas reserves that the BP Statistical Review estimates to amount to one-eighth the size of Malaysia’s.

Energy Riches

“Arguably though, Myanmar’s gas reserves are much higher given the unexplored areas of its extensive coastline,” CLSA Asia-Pacific Markets said in a research note this month. “The development of Myanmar’s energy resources, along with the connecting of the Asean transportation network, will boost foreign investment flows into the region.”

Myanmar’s per capita gross domestic product amounts to $2.25 per day, about half that ofVietnam and 14 percent of neighboring Thailand’s, according to International Monetary Fund estimates. Only one in 30 people has a mobile phone and even fewer have Internet access, Nomura Holdings Inc. said in a March 14 report.

The nation attracted about 800,000 tourists in 2010, 20 times less than neighboring Thailand, as its hundreds of kilometers of coastline sit undeveloped. The total amount of office space in Yangon is equivalent to about a third of that available in Empire Tower, the biggest office building in Bangkok’s central business district, according to Colliers.

Backwater Legacy

The relative underdevelopment is a legacy of military rule that eschewed international engagement. The seizure of power and confiscation of private assets took an economy that theWorld Bank in 1960 said had “many elements of strength” and turned it into one of Southeast Asia’s backwaters.

President Thein Sein, who took power after elections in 2010, is now taking steps to loosen controls on the economy, moves the IMF said in January could make Myanmar “the next economic frontier in Asia.”

Draft legislation in parliament may extend tax exemptions for foreign companies investing in the country to as long as eight years from the current three, according to Rupert Haw, an attorney with the DFDL law firm in Bangkok who monitors Myanmar.

Other measures may be less appealing to overseas businesses, by easing the provisions for nationalization and strengthening quotas for local employment, Haw said. Restrictions on rights of foreign investors to buy private equity in enterprises owned by Myanmar citizens also needs to be addressed if the country wishes to attract foreign capital, he said.

‘Mixed Bag’

“The draft bill presents something of a mixed bag of reform on the one hand and rather more protectionist measures on the other,” Haw said by e-mail. “It is doubtful that this bill will in itself stimulate a huge increase in investment.”

Foreign banks may get a chance to operate in the country in 2015, when an agreement to integrate with the 10-nation Association of Southeast Asian Nations takes effect. Authorities are currently working to dismantle a complex multiple-exchange- rate system that has contributed to an economy being largely run on cash, depriving small business of credit needed to expand.

Banks such as Standard Chartered Plc (STAN) are waiting for sanctions to be lifted before considering a return, said Neeraj Swaroop, head of Southeast Asia excluding Singapore for the U.K. lender that earns more than two-thirds of its profit in Asia.

‘Still Early’

American sanctions ban investment in Myanmar and imports from the country, restrict money transfers, freeze assets and target jewelry with gemstones originating in the nation. The European Union bans weapons sales and mineral imports.

“It’s still early and we will have to wait and see how it pans out before we make any formal commitments,” Swaroop told reporters last week in Bangkok. “We will follow our clients and the clients will obviously go in when they see some of this enabling stuff becoming easier.”

Standard Chartered has reason to be cautious. A predecessor of the current London-based company was one of more than a dozen banks nationalized in 1963, when Myanmar’s generals seized control of most major industries.

“If a company lacks any kind of economic or political leverage, they will continue to be exposed to creeping expropriation risks,” Johannes Lund, a Singapore-based analyst at Control Risks, said by phone. “You will encounter entrenched, established interests.”

To contact the reporter on this story: Daniel Ten Kate in Bangkok at dtenkate@bloomberg.net

To contact the editor responsible for this story: Peter Hirschberg at phirschberg@bloomberg.net

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