YANGON, Myanmar — Alisher Ali knew on the morning of his second day in Myanmar that the long-closed country was a risk worth taking. Less than two months later he moved his wife and four children to crumbling, tree-lined Yangon and opened Myanmar's first-ever investment bank with $1 million of his own money.
This places him in sparse company. While many chatter about the economic potential of one of the world's last frontier markets, very few foreigners have actually set up shop. The first thing Ali had to do was explain to people in Myanmar, including some of his new employees, what an investment bank is.
Decades of isolation have left Myanmar with a weak education system, feeble banks, questionable courts, uneven electricity supply, entrenched corruption and an underdeveloped mobile phone network. In the last two years, sweeping political change has resulted in the release of hundreds of political prisoners, the election of Nobel Peace Prize winner Aung San Suu Kyi to Parliament, and the lifting of most U.S. and European sanctions.
Today, the Southeast Asian country's bureaucracy is scrambling to keep pace with multiple transitions, from socialism to capitalism, dictatorship to democracy, and conflict to peace. The legal environment for investors remains murky, and beneath the flurry of reforms, many feel a tug of doubt: Will this change endure? Have the country's military rulers, under the leadership of reformist president Thein Sein, really surrendered the power they grasped with such violent fervor for nearly 50 years?
These things don't bother Ali.
Looking at the early sun on Yangon's Inya Lake from a hotel balcony on his second day in Myanmar, Ali saw a country with enormous untapped potential, a bit like Mongolia — where he made his name and his money — only with 20 times more people and in a better location.
"It's an enormous bet," he said. "Over the last 20 years, you don't have any precedent where an economy of 65 million people is joining the global economy."
Ali sees his investment bank, Mandalay Capital, as a bridge between foreign investors keen to find their way into Myanmar and local companies that need capital and guidance. The business is modeled on Eurasia Capital, a boutique investment bank in Ulan Bator, Mongolia, which has attracted loyal clients and a raft of awards since Ali founded it in 2008. Ali, who was born in Uzbekistan and educated at Columbia and Oxford universities, has also raised $25 million for Myanmar's first dedicated investment fund, which closed its fundraising last month.
Many things are missing in Myanmar. There is no local equivalent of a Securities and Exchange Commission that might grant Ali a license. There is not even a provision for an investment bank in Myanmar's existing financial services law, according to Sean Turnell, an economist at Australia's Macquarie University. A much debated foreign investment law was recently sent back to Parliament for further modification.
Such deficiencies scare off some people, particularly Westerners who tend to seek safety in the letter of the law. But to others, like Ali and his investors and clients from Kazakhstan, Mongolia, Russia and Uzbekistan, they look like opportunities.
Marat Utegenov, executive director of Mongolia Development Resources, a property developer based in Ulan Bator, is one of Mandalay Capital's first clients. Utegenov wants Mandalay to help him find and structure real estate deals in Myanmar, where foreigners need a local partner, or nominee, to own property, he said.
"If we wait until the rules are in place and I can legally buy property without nominees, I will have to give up a sizeable amount of profit because prices will be different," said Utegenov, who is planning an initial investment of around $5 million.
Oil and gas and mining account for 99 percent of foreign investment into Myanmar's $52 billion economy. But Mandalay Capital is staying away from extractive industries, in favor of fast-growing sectors more likely to be free of cronyism, corruption and political baggage, like information technology, telecom services, media, education, health care, real estate and financial services. Ali said he's targeting a rising generation of local entrepreneurs, rather than cultivating relationships with established crony businessmen.
Htet Nyi is one of Mandalay Capital's first local clients. The son of a clinical psychologist and a doctor, Htet Nyi started Myanmar Finance Co., a trading company, 17 years ago. He launched a business specializing in small loans for the poor in March and is now in talks with foreign companies about setting up a joint venture or raising capital to grow the microfinance business. "So far I'm financing it from my own pocket," he said. The only funding he can get now is a local bank loan at 14 percent interest a year, down from 18 percent last year, he said.
Mandalay Capital's five employees work from a bungalow in a residential neighborhood, rather than an office. Yangon has just 678,126 square feet of office space — that's less than half as much as in a single skyscraper, Empire Tower in Bangkok, according to Colliers International, a real estate company. With such limited supply and rising demand, prices have shot up.
"The landlords demand rates that don't exist anywhere besides Singapore," Ali said. Rather than pay $150,000 a year for a small office, he rented a bigger house for a sixth the cost in Yangon's coveted Golden Valley neighborhood.
Ali said the biggest challenge has been finding the right people to hire. The local education system withered under military rule and Mandalay Capital has found it difficult to convince Myanmar nationals educated and living abroad to return to the country.
Alyor Khasanov, head of human resources at Silk Road Finance, Mandalay Capital's parent company, said he has been trying to convince a Myanmar expat that his career opportunities in Papua New Guinea pale in comparison to what Myanmar has to offer, but it's been tough to overcome the man's skepticism.
"My task is to make him understand this dramatic change, because here is a country of tremendous opportunity," Khasanov said.
Khine Zyn Tha, 25, returned to Yangon after studying accounting in New Zealand and became Mandalay Capital's first research analyst.
She has no investment banking experience, but did manage to explain to her parents what an investment bank is.
"I had to explain it's not a bank bank," she said. "It involves finance. There are investors who would like to invest and there are people who need funds to develop their business. We are the intermediaries."
She wanted to stay in New Zealand — the good medical care and ability to get a mortgage, an impossibility in Myanmar, were deeply tempting — but had to return for family reasons. At first she was unhappy, discouraged by the lackluster professional standards of the local auditing firm where she worked.
"I wanted to become a professional," she said. "I have a huge appetite for higher education. If I go to Bangkok and I see my peers from other countries, if I can't speak at the same intellectual level as them, I feel inferior."
Now that the world is coming to Myanmar, Khine Zyn Tha's ambition is finding a new outlet. With each passing day, the possibility that this opportunity will be curtailed strikes her as ever more remote.
"We've already tasted freedom," she said. "They cannot take it back."