Investing in ASEAN: Myanmar

Investing in ASEAN: Myanmar

“Following recent democratization measures, including the release of hundreds of political prisoners, cease-fire agreements with ethnic rebels, and the incorporation of long-time human rights champion Aung San Suu Kyi into the political process, it is apparent that Myanmar is determined to become fully integrated into the international community,” says Leopard Capital, which manages investment funds in overlooked frontiers.

“After being isolated for the better part of the last three decades,” they continue, “Myanmar is emerging as a potentially high growth target market for private equity investment due to its abundance of natural resources, including oil and gas, attractive tourist destinations (more on that below), and young, well-educated labor force eager to work at regionally-competitive wages. These attributes, coupled with its strategic location bordering China, India, Thailand and Laos, give Myanmar the potential to emerge as one of the most dynamic economies of the twenty-first century”.

Among the reasons to invest there cited by Leopard are:

  • A government that is dedicated to reforming the economy
  • The suspension of economic sanctions
  • Increased international support
  • Natural resources
  • Increasing trade integration
  • Improving transport connectivity
  • An under-penetrated, growing domestic consumer market
  • The future upgrade of the stock exchange

Myanmar is no longer an “overlooked frontier”. The country is viewed as ripe for business expansion, given that only an estimated 30% of the population have access to electricity, for example – and the IMF predicts growth of 8.5% in the country this year, one of the fastest growth rates in the world.

Background

Burma, as Myanmar was formerly known, was a British colony until gaining its independence in 1948. The following 5 decades saw various military juntas and dictatorships in power.

The current government of the Republic of the Union of Myanmar is nominally a civilian parliamentary government that took office in March 2011. On 30 March 2011, the State Peace and Development Council (SPDC) formally transferred power to a new Union Government headed by President Thein Sein, former general and prime minister for the SPDC. The new regime has since embarked on a series of sweeping changes and reforms, which along with the April 2011 by-elections, have led to widespread praise from the international community and immediate actions to ease the sanctions against the country to support its transition to democracy and its economic development.

Doing Business

“Myanmar is one of the least developed countries in the world, with a high level of poverty,” says PwC Thailand in its report South East Asia – Investment Opportunities, Tax & Other Incentives. “It has suffered from decades of stagnation, mismanagement and isolation. Infrastructure in major urban areas is rudimentary at best and almost non-existent in most rural areas. The quality of the education system has deteriorated over many years, resulting in a severe shortage of skilled workers, not to mention qualified individuals to manage the economy. The financial sector is primitive, with an antiquated banking system. The country suffers from an exchange rate policy that is neither uniform nor unified. Multiple exchange rates exist in the market that are hundreds of times higher that the official pegged rate. This has not only caused distortion in the market and in prices, but has also negatively affected exports and imports”.

Myanmar also lacks many of the basic business and commercial laws and regulations required for a functioning business environment, the report adds. Outside of the agricultural sector, much business activity is concentrated in state-owned enterprises or enterprises controlled by former regime members. Crony capitalism is rampant.

Opportunities & Incentives

Myanmar is still very much an agrarian society, with agriculture representing a disproportionate percentage of the economy in comparison with other ASEAN countries. Myanmar is rich in natural resources such as arable land, forestry, minerals and natural gas, as well as freshwater and marine resources, gems and jade, and has recently emerged as a natural gas exporter, with exports to neighbouring countries providing an increasingly important revenue stream and accounting for much of its recent growth.

The most productive segments of the economy are currently the extractive industries, in particular oil and gas, mining and timber. Other areas such as manufacturing and tourism, which represent a small share of economic activity, are largely accounted for by state industries. In contrast to most of the other ASEAN states, there is no real middle class and no real consumer economy other than in basics like food, clothing and shelter.

“The enthusiasm of the global business community to get in on the ground floor of an opening Myanmar is understandable,” says PwC. “However, caution and prudence are the watchwords when assessing opportunities in Myanmar. Much depends on the sustainability of political and economic reforms and the commitment of the government to continue the reforms that it has begun”.

“The government that took office in March 2011 has an opportunity to rejuvenate the economy after more than 50 years of stagnation, they add. “In a promising start, the authorities took steps to unify the multiple exchange rates and are preparing other reforms, including a new National Development Plan”.

The government is also preparing a new Foreign Investment Law that is expected to offer tax breaks to investors and allow them to lease private land and repatriate investment proceeds using market exchange rates. Special economic zones in Dawei in southern Myanmar, Thilawa near Yangon, and Kyaukphyu on the west coast are being established to attract investments. Meanwhile, relaxing foreign exchange controls is expected to propel imports upward and contribute to a widening of the current account deficit.

All this has not been lost on Korean investors. A story in the Korea Times last month said that China used to be the hot spot in Asia for Korean investment, and tens of thousands of Korean manufacturers, large and small, rushed to set up plants there after the two countries established diplomatic ties in 1992, eager to take advantage of the cheap labour and wide range of benefits given to foreign firms by the Chinese government.

 

“However,” the paper added, “an increasing number of those companies left the world’s second-largest economy since it became less profitable to produce goods in mainland China due to surging labor costs, higher taxes, increased state regulations and other unfavorable business conditions”.

 

“On the back of its young population and rich natural resources, Myanmar has rapidly become a new production center in Asia,” Korea International Trade Association researcher Song Song-i said. “Many companies from Europe, Japan, China and India have already established a presence – and domestic manufacturers need to move fast to set up plants in Myanmar before it is too late”.

The Tourism Sector

Those with experience in the hospitality sector may want to look at pioneering some more shelter for tourists. In 2010, 791,505 foreign travellers visited Myanmar. In 2012, the number reached a record 1 million, in contrast to about 20 million for Thailand, but there are only 27,000 hotel rooms in all of Myanmar, compared to more than 42,000 in Bangkok alone. In 2013, the number of foreign arrivals reached more than 2.04 million, if you count both air and overland arrivals.

“To travel here is to encounter men wearing skirt-like longyi, women smothered in traditional make-up, and betel-chewing grannies with mouths full of blood-red juice – and that’s just at the airport!” says Lonely Planet. “One of the most fascinating aspects of travel in Myanmar is the opportunity to experience a corner of Asia that, in many ways, has changed little since British colonial times. It’s also a country of many incredible and sometimes surreal sites. Contemplate the 4,000 sacred stupas scattered across the plains of Bagan. Stare in disbelief at the Golden Rock teetering impossibly on the edge of a chasm. Ride a horse cart past colonial-era mansions. Meet multitalented monks who have taught their cats to jump, or feisty elderly Chin women, their faces tattooed with intricate designs”.

With the number of truly fascinating places in the world rapidly shrinking, it may well be the time to consider investing in a country that has all the ingredients of a major regional tourism player – and a critical shortage of accommodation.

“We face skyrocketing hotel room rates in every tourist destination here, but the facilities offered aren’t worth those rates. Hotels are really greedy. They charge USD 150 a night for a room that’s worth only 40,” said a spokesperson from one travel company who asked not to be named. And the Myanmar Times reported that, “the Nyaung Shwe Tour Guide Association has built its own guest house for visiting guides because there are no rooms available”.

 

In Nyaung Shwe, the tourist hub and jumping-off point for Inle Lake and Inlay Lake Wetland Sanctuary, the vice chairman of Taunggyi Hotel Zone, U Win Oo Tan, said, “We need proper management immediately, in time, not only to deal with the hotel room shortage, but also for transportation charges from Heho Airport to Nyaung Shwe.”

 

Call Us First!

 

Since 2000, AD Asia Group and AD Asia Consulting have been providing investors with tailor-made A-to-Z turnkey solutions, applying a wealth of local knowledge to hand-picking the best developers and contractors for each project to create crafted architectural and interior designs in a wide range of unique world-class development styles that combine the best of both East and West. We are currently engaged in projects for Frigel Asia Pacific, Akaryn Resort Khanom and The Lanta Secret, and would be happy to talk with you before you take the plunge into any new regional market.

 

Categories: ASEAN, Myanmar

Write a Comment

Your e-mail address will not be published.
Required fields are marked*