Is it time for investors to look to Burma?

"Burma is open for business once more" has been the cry that has gone up from many on hearing the news that EU sanctions are to be suspended on the military-dominated state. Indeed many have declared a gold rush, but for British businesses and investors alike there is opportunity and obstacle in equal measure in this underdeveloped nation.

Burma is an attractive prospect, with massive precious metal and gem reserves, 22 trillion cubic feet of gas and 215 million barrels of oil, a 60 million population baying for prosperity and the spending power that goes with it - and all this situated between economic powerhouses, India and China.

Despite a paucity of foreign investment, the Burmese economy is expected to grow by 6% this year and the relaxation of investment regulations is likely to cause this to accelerate, with GDP expected to have increased by 60% in five years from now.

EU sanctions were not as restrictive as their US counterparts and only banned involvement in precious metals, logging, gems and defence. However, the unwillingness of companies to weather the public relations storm that inevitably went with involvement in Burma kept all but the hardiest away.

British company Premier Oil wrapped up its operations in the country in 2002 after pressure from human rights groups (although it maintains that the move was motivated purely by commercial considerations). French company Total has proved more resistant to calls for it to pull out of the country and has continued to extract gas.

So there is a great deal up for grabs. However, Western companies might find themselves a little behind in the rush for Burma's riches. Investment from neighbouring countries, unhampered by sanctions, has been pouring in for a while now, with China leading the charge.

Since total foreign investment only comes to £450 million a year at the moment, compared with around £6 billion in Vietnam, there is still a long way to go, and much for Western companies and investors to capitalise on.

However, getting exposure to the Burmese economy is not all that easy. There is no stock exchange (although the Japanese are working on setting one up) and until recently rules on foreign investment were highly restrictive. However, a number of British companies are known to be sniffing around the once pariah state and may be ones to watch for investors.

After an 18-year absence, Royal Dutch Shell may return to Burma's booming oil and gas sector. The Anglo-Dutch company is said to be in talks with Thai state-owned company PTT with a view to the shared development of the M-11 block offshore the Gulf of Martaban.

JCB has also expressed an interest in greater involvement in the country. The digger manufacturer already has marketing and distribution deals in the country but is looking to expand its operations in the country substantially.

Speaking to Burmese paper Irrawaddy, JCB regional head Rajen Nair said: "I think [Burma] has great potential for growth in the coming years. We are new to that market, but I have explored many options.

"We expect to be in full swing by mid-year [2012]."

Standard Chartered has expanded its Asian business in recent years and is rumoured to have met with the UK Foreign Office to discuss opportunities in Burma.

A Standard Chartered spokesman told The Independent: "We make 70% of our income in Asia, and Burma is one of the very few countries where we don't have a presence. We would look at any market where we are able to operate, but only open for business when it is safe and makes economic sense to do so."

Some retailers, such as Marks and Spencer and the Body Shop, already have units in the glistening new malls in the cities, and will inevitably be planning to expand as the emerging middle class scramble for their aspirant products.

Associated British Foods, parent of Primark and numerous grocery brands, also has distribution licences in the country and should be well placed to accelerate its involvement as the economy takes off.

Emerging markets fund opportunities

Another option for tapping into Burma's growth comes in the form of emerging markets funds. While none have direct exposure to Burma, many have holdings in Thailand, which, as one of the most advanced economies on Burma's borders, looks set to make major gains from its neighbour's growth.

Caroline Shaw of Courtiers Investment Services thinks this a good way to get a real, if minor, slice of the action: "Vehicles such as Aberdeen's emerging markets trust and Edinburgh Dragon Trust have a great deal of holdings in the region. For example, they both have shares in Siam Cement, which could be in a position to do very well out of any Burmese boom."

In March, Burma further reformed its foreign investment laws. Investors can now own 100% of businesses without the need of a local partner, there will be a five-year tax holiday for foreign firms, and companies can now lease land from individuals as well as the state. But new restrictions were put in place that mean all unskilled and 25% of skilled workers must be Burmese after five years, with this figure rising to 75% in 15 years.

Nevertheless, those in the know have warned against a headlong rush into the country, highlighting a number of pitfalls for those looking to move into the market.

Ranjiv Biswas, chief Asia economist at IHS Global Insight, said: "The transition towards a more market-driven economy will itself create challenges, as Vietnam and others would agree. Some of the key challenges facing [Burma] are the need to improve the business climate, reform of the state-owned enterprises, development of the financial sector, and vital corporate governance and anti-corruption initiatives."

Expectations for the political reforms are high, but investors should be wary of over-optimism. Burma has a long history of broken promises in this concern and if the military see their power slipping away too rapidly they may reverse reforms as quickly as they have realised them. Inevitably, with that would come the return of sanctions and pressure on any companies doing business in Burma.

Caroline Shaw is cautious: "It's very early doors. Things could change very quickly, and add on top of that the dire lack of infrastructure, and we're not just talking road and rail, but even the most basic of communications networks, and it looks like people are jumping the gun."

That said, Burma's future does look bright and it's not totally unrealistic to imagine it emerging as the region's newest tiger economy. There are likely to be big rewards in the medium term for those who can make savvy investments. However, the terrain is risky, the road unclear and the declaration of a gold rush mightily premature.

Can emerging markets continue to grow? Is BRIC still the story and will Africa catch up? And which parts of the eurozone should be worrying us most? Brian Coulton considers all these questions in: What's in store for emerging markets?