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Myanmar's Untapped Investment Potential in Key Sectors
1.
An
overview
of
Myanmar’s
investment
environment
Fadi
Haddad
March
2013
fyhaddad@gmail.com
2. Myanmar:
investment
and
political
background
Myanmar,
formerly
known
as
Burma,
is
a
country
in
Southeast
Asia
bordering
Bangladesh,
India,
China,
Laos
and
Thailand.
It
has
a
population
of
68
million,
among
the
largest
in
the
region
and
of
a
similar
size
to
Thailand.
The
country
has
a
range
untapped
natural
resources
sought
after
by
foreign
investors
such
as
oil,
natural
gas,
construction
materials,
gems,
metals,
textile,
wood
products
and
agriculture.
For
the
past
50
years,
Myanmar
was
ruled
by
a
military
government,
which
caused
most
Western
countries,
and
notably
the
USA,
to
implement
sanctions
against
it
and
isolate
Myanmar
from
the
rest
of
the
world.
In
2010,
the
situation
changed
with
the
new
president
U
Thein
Sein’s
decision
to
open
the
country
and
put
an
end
to
the
military
rule
–
a
decision
that
has
been
welcomed
by
the
United
States
with
both
President
Obama
and
Hilary
Clinton
visiting
Myanmar
in
2012.
Since
then,
investors
from
all
over
the
world
are
entering
the
country,
mainly
from
China,
Japan,
Thailand
and
Malaysia.
The
country
still
struggles
with
a
poor
human
rights
record,
conflict
zones
and
heavy
corruption.
The
military,
although
officially
out
of
the
current
government,
is
still
very
much
involved
in
the
politics
as
well
as
in
the
economy,
running
some
of
the
largest
holding
companies
in
the
country
such
as
the
Union
of
Myanmar
Economic
Holdings
(UMEHL).
This
is
to
be
expected,
as
the
country
is
still
in
the
very
early
stages
of
democratisation
and
the
situation
will
likely
normalise
over
time.
What
the
investor
should
focus
on
is
the
great
potential
of
Myanmar
and
its
advantages:
large
population,
cheap
labor
(about
80
USD
per
month
–
although
largely
unskilled),
numerous
natural
resources,
shared
borders
with
China
and
India,
an
extensive
sea
access,
aging
industries
waiting
to
be
refurbished
and
an
enormous
tourism
potential.
Myanmar
is
part
of
the
Association
of
South
East
Asian
Nations
(ASEAN),
a
free
trade
agreement
between
all
of
the
Southeast
Asian
nations
promoting
trade
and
tourism
in
the
region.
Myanmar
will
be
a
full
active
member
soon
and
will
host
next
year’s
ASEAN
summit
for
the
first
time.
The
major
attraction
in
Myanmar,
besides
its
countless
temples
and
pagodas,
is
its
under-‐developed,
almost
virgin
economy.
Myanmar
lags
behind
in
almost
every
essential
industry:
banking,
telecoms,
retail,
tourism
and
construction.
Banking
The
financial
industry
is
among
the
most
rudimentary
and
archaic
in
the
country.
There
are
22
banks
in
Myanmar:
3
are
government
owned,
2
are
military
owned
and
the
rest
are
privately
owned.
Only
a
handful
has
computers,
as
electronic
payments
are
not
yet
common.
Every
bank
has
a
Western
Union
office
for
transfers
and
credit
card
services
have
only
been
available
in
two
banks
–
CB
Bank
and
KBZ
–
since
December
2012.
This
doesn’t
seem
to
bother
the
local
population,
as
less
then
10%
currently
own
a
bank
account.
3.
Foreign
banks
are
naturally
trying
to
get
in
to
the
market,
but
just
as
in
China
25
years
ago,
the
government
is
restricting
this
move
and
foreign
banks
can
only
have
representative
offices
in
Myanmar.
In
a
few
years,
the
government
will
allow
them
to
make
basic
financial
operations,
such
as
forex
and
only
when
the
local
banks
are
brought
up
to
international
standards
will
the
market
be
totally
liberalised.
There
have
been
some
reports
of
the
government
authorizing
joint
ventures
in
the
banking
industry
between
foreign
and
local
entities.
Telecoms
The
other
industry
currently
struggling,
although
making
rapid
progress,
is
the
telecom.
The
number
of
cellphone
holders
is
second
to
last
worldwide
after
North
Korea
–
a
pre-‐pay
SIM
card
costs
over
150
USD
and
the
“one-‐time-‐use”
SIM
card
costs
20
USD
–
leaving
this
industry
seriously
underserved
and
an
opportunity
for
international
providers.
Internet
is
among
the
most
expensive
in
the
world:
installation
cost
for
the
wiring
and
router
ranges
between
500
and
900
USD
with
a
monthly
fee
ranging
between
50
and
100
USD,
depending
on
the
speed.
On
the
plus
side,
3G
technology
has
been
introduced
recently
and
rumour
suggests
that
the
price
of
the
pre-‐pay
SIM
cards
will
fall
to
10
USD
at
the
end
of
April.
Myanmar
is
catching
up
in
this
field,
as
in
Yangon
many
people
already
own
the
latest
Samsung
or
iPhone
and
small
telecom
shops
have
invaded
the
city’s
main
shopping
streets.
Retail
The
retail
industry
is
going
to
grow
very
big,
very
fast
–
Myanmar’s
68
million
strong
market
is
a
big
incentive
for
foreign
investors.
International
brands
such
as
Bata,
Lacoste,
Converse
and
Nivea
have
started
to
flood
the
market,
charming
local
consumers
who
have
been
seeing
the
same
products
on
their
shelves
for
the
past
50
years.
Though
it
is
still
unclear
what
is
actually
in
Myanmar
and
what
is
“legally”
imported
from
Thailand.
Nevertheless,
even
though
the
population
is
still
mostly
poor
with
one
of
the
lowest,
if
not
the
lowest,
purchasing
power
of
Southeast
Asia,
the
new
and
encouraging
economic
reforms
should
create
a
large
middle
class
eager
to
spend.
An
important
indicator
reflecting
the
successful
economic
reforms
is
car
ownership.
It
has
significantly
increased
and
for
the
first
time
in
the
history
of
Yangon,
there
are
traffic
jams.
This
has
been
made
possible
due
to
the
cheap
imports
of
used
cars
from
Japan
and
the
drastic
reduction
on
import
duties.
Tourism
Tourism
is
one
of
the
most
important
industries
in
Myanmar
as
it
brings
in
direct
foreign
capital,
something
that
the
other
industries
are
taking
more
time
to
do.
The
country
has
temples
and
beaches
that
can
rival
Thailand
and
Cambodia’s
once
the
infrastructure
is
properly
established.
Tourism
is
increasing
on
average
20%
year-‐on-‐year
with
over
1
million
tourists
in
2012
and
more
are
expected
to
come
in
2013.
Myanmar’s
perceived
4. ‘authenticity’
is
attracting
tourists
from
all
over
the
world.
This
is
a
relatively
small
figure
compared
to
Thailand’s
20
million
yearly
tourists
but
may
also
be
an
indication
of
what
to
expect
in
the
future.
Moreover,
Myanmar
will
host
the
27th
South
East
Asian
Games
in
December
of
2013
in
Nay
Pi
Taw
(the
new
capital),
Mandalay
(the
second
largest
city)
and
Yangon.
Unfortunately,
the
hotel
industry
is
highly
unprepared
for
this
surge
of
tourists,
athletes
and
journalists.
There
are
currently
8’000
hotel
rooms
in
Yangon
(compared
to
42’000
rooms
in
Bangkok)
and
28’000
throughout
the
country.
Building
hotels
is
one
of
the
main
drivers
of
the
ongoing
works
in
Myanmar,
as
over
300
hotels
are
estimated
to
be
under
construction
today.
The
number
of
rooms
in
Yangon
is
expected
to
increase
by
37%
per
year
by
2016
mainly
driven
by
big
international
hotel
chains
from
across
the
globe.
This
shortage
has
pushed
hotel
room
rates
up
350%
in
5
years
and
prices
are
expected
to
increase
a
further
25%
in
2013.
This
doesn’t
seem
to
bother
tourists
whose
number
increased
54%
in
2012
alone,
many
of
whom
are
sleeping
in
the
temples
as
hotel
occupancy
is
100%
in
the
dry
season.
This
situation
is
expected
to
continue
for
the
next
5
to
10
years,
as
there
are
fewer
than
2’000
rooms
in
Yangon
that
meet
international
standards.
Construction
and
public
infrastructure
This
construction
boom
is
not
only
limited
to
hotels
but
extends
to
everything
else
in
both
the
private
and
the
public
sector.
In
the
private
sector
the
demand
for
office
and
residential
buildings
as
well
as
malls
is
increasing.
There
is
about
the
same
office
space
in
all
of
Yangon
than
in
one
60-‐story
building
in
Bangkok.
The
set
up
of
small
shared
and
serviced
offices
by
westerners
is
on
the
rise
and
provides
a
good
short
term
solution,
though
for
a
more
sustainable
answer,
the
government
is
looking
for
investors
to
start
building
Yangon
Business
Center.
This
project
will
combine
high-‐rise
office
buildings
and
malls
in
the
township
of
Insein
–
north
of
downtown
Yangon.
The
influx
of
expats
and
“returnees”
(wealthy
Burmese
migrants
returning
to
Myanmar)
as
well
as
the
growing
upper-‐middle
class
are
driving
the
demand
for
new
residential
buildings
and
condominiums
with
international
standards.
A
short
drive
around
Yangon
is
enough
to
witness
the
ongoing
construction,
mainly
in
downtown
area.
On
the
other
hand,
the
public
sector
has
a
lot
more
investments
to
do.
One
of
the
downsides
of
doing
business
in
Myanmar
is
the
very
poor
infrastructure,
notably
the
lack
of
electricity
and
the
very
old
road
network.
Much
of
the
infrastructure
still
dates
from
the
British
era,
which
ended
in
1948,
and
has
only
marginally
evolved
since
then.
For
that
reason,
the
government
has
started
making
investments
in
heavy
infrastructure,
such
as
dams
to
provide
electricity
to
the
70%
of
the
population
estimated
to
be
unplugged,
and
in
roads
and
bridges.
The
Asian
Development
Bank,
the
IMF
and
the
World
Bank
promised
loans
to
the
government
for
up
to
5. 900
million
USD;
that
is
excluding
the
18
billion
USD
in
loans,
aid
and
debt
forgiveness
from
Japan
over
3
years,
200
million
USD
from
the
EU
on
a
two-‐year
programme
and
about
20
million
USD
from
the
Australian
government.
For
other
projects
such
as
new
airports,
ports
and
free
economic
zones
around
the
country,
the
government
is
eagerly
looking
for
foreign
partners
interested
in
doing
private-‐public
partnerships.
The
three
notable
projects
today
are
the:
1) The
Thilawa
port
project:
the
current
Yangon
port
is
located
in
downtown
area
right
off
Strand
road,
a
main
street
in
the
center
of
Yangon.
Unfortunately,
the
port
cannot
be
extended
to
cope
with
increasing
traffic
as
the
city
is
quite
literally
behind
it.
For
that
reason,
the
government
is
developing
the
Thilawa
port
30km
south
of
the
city
and
creating
a
2’400
hectare
free
economic
zone
around
it
for
a
total
of
12.6
billion
USD.
The
project
was
started
the
late
1990s,
but
was
the
victim
of
poor
timing
and
changes
in
government
policy.
The
terminal
opened
in
1998
just
at
the
start
of
the
Asian
financial
crisis,
and
the
combination
of
the
crisis
and
sanctions
reduced
both
freight
traffic
and
any
interest
by
foreign
investors
in
building
facilities
in
the
Thilawa
free
trade
zone.
2) The
Dawei
deep-‐sea
port
project
is
probably
the
biggest
project
in
Myanmar.
Estimated
at
$80
billion
dollars,
which
also
happens
to
be
the
figure
of
Myanmar’s
entire
GDP,
this
port
–
if
and
when
completed
–
is
expected
to
compete
with
Singapore’s.
The
small
town
of
Dawei
is
located
southeast
of
Yangon
and
is
only
about
280km
away
from
Bangkok,
which
is
the
main
driver
for
this
project.
The
plan
is
to
create
a
shorter
route
for
the
ships
going
to
Thailand
and
avoid
transiting
through
Singapore,
which
would
save
time
and
money.
On
top
of
serving
Myanmar’s
population
it
would
open
the
door
to
a
70
million
people
market
in
Thailand
as
well
as
in
the
surrounding
countries
such
as
Laos
and
Cambodia.
The
port
will
be
developed
along
with
the
Thai
government
but
the
details
for
the
partnership
and
the
financing
remain
unclear
at
the
moment.
Additionally,
the
government
has
decided
to
create
a
Free
Economic
Zone
around
the
Dawei
port
–
similar
to
the
one
in
Aqaba,
Jordan
–
and
encourage
the
development
of
a
big
industrial
city.
3) The
new
Yangon
International
Airport
will
be
built
in
the
region
of
Bago,
about
80Km
north
of
Yangon.
The
government
is
still
looking
for
a
private-‐public
partnership
and
big
bidders
such
as
the
Zurich
Airport
are
trying
to
be
part
of
the
project.
This
new
airport
will
have
a
capacity
of
7
million
passengers
(compared
to
2.7
million
for
the
current
airport)
and
should
be
completed
in
December
2016.
However,
the
cement
industry
in
Myanmar
is
very
rudimentary
and
cannot
cope
with
all
these
projects.
Ten
of
the
14
existing
cement
plants
are
still
owned
by
the
government
producing
roughly
2.7
million
tons
a
year.
These
factories
are
old,
inefficient
and
still
using
old
methods
to
produce
low
quality
cement.
6.
The
current
market
demand
being
estimated
at
about
6
million
tons
a
year
forces
the
country
to
import
from
Thailand,
Indonesia
and
India
to
fill
the
gap.
For
that
reason,
and
according
to
the
website
of
the
Department
of
Investment
and
Company
Administration
(DICA),
the
construction
industry
falls
under
the
“hot
investments”
category.
That
means
that
the
government
wants
to
significantly
reduce
the
portion
of
imports
and
promote
local
production
as
well
as
exports
of
Myanmar
cement.
The
government
said
that
it
would
hand
out
10
permits
to
allow
cement
plants,
four
of
which
have
already
been
approved
in
the
past
year
for
an
additional
quantity
of
1.9
million
tons
a
year.
The
cement
consumption
is
expected
to
grow
10
to
20%
per
annum
for
the
next
5
to
10
years
and
is
estimated
to
peak
at
20
million
tons.
Many
analysts
compare
the
Myanmar
market
to
Thailand’s
20
years
ago
and
expect
a
similar
growth
rate
considering
that
both
countries
roughly
have
the
same
population
and
land
size.
7. Foreign
Direct
Investment
law:
Myanmar
just
emerged
from
50
years
of
isolation
where
foreign
investment
was
not
considered
in
any
way.
The
government
is
doing
its
best
to
adapt
to
the
surge
of
foreign
investors
but
the
corruption
and
the
lack
of
talent
in
the
public
sector
make
it
a
rather
difficult
task.
Today
Myanmar
has
an
FDI
Law,
FDI
Rule
and
an
FDI
Notification
all
of
which
cover
similar
ground
and
yet
are
somewhat
different.
There
are
no
specific
processes
to
follow
in
the
creation
of
a
company
and
most
things
seem
to
happen
on
a
case-‐by-‐case
basis.
What
is
certain
is
the
following:
-‐ In
order
to
set
up
an
industrial
company/factory,
one
needs
to
have
a
local
partner
for
a
joint
venture.
Terms
of
the
JV
will
be
set
on
a
case-‐by-‐
case
basis
but
it
is
legal
for
the
foreigner
to
own
the
majority
of
the
shares.
-‐ For
a
services
company,
a
foreigner
does
not
need
any
local
partner.
-‐ One
needs
to
apply
for
a
permit
at
the
DICA
and
at
the
relevant
ministry.
-‐ The
working
capital
for
a
factory
is
of
500’000
USD,
50%
of
which
should
be
deposited
on
the
DICA
account
before
the
project’s
approval
to
show
the
authorities
the
investor’s
seriousness.
-‐ For
a
services
company,
the
working
capital
is
of
50’000
USD.
-‐ There
is
a
2’500
USD
registration
fee
–
non-‐refundable
in
case
the
government
rejects
the
project.
-‐ There
is
a
5
year
tax
break
on
any
factory
in
Myanmar.
-‐ There
is
a
one
year
duty
free
on
raw
material
imports.
-‐ Corporate
/
income
tax
is
of
25%.
It
is
important
to
note
that
not
only
are
the
Burmese
culturally
a
very
laid
back
society,
but
50
years
of
autocratic
rule
has
shaped
the
current
generation
into
“taking
things
slowly”.
Most
people
seem
content
with
the
current
situation,
which
is
relatively
much
better
than
just
two
years
ago,
and
many
don’t
seem
in
a
hurry
to
do
business,
which
complicates
things
since
a
local
partner
is
sometimes
mandatory
to
set
up
a
business.
Myanmar
and
especially
Yangon
area
have
several
Special
Economic
Zones
as
an
incentive
to
investors.
The
SEZ
law
is
still
under
revision
but
what
is
certain
is
that
the
tax
breaks
in
these
areas
is
of
8
years
under
the
new
drafted
law.
The
new
law
should
be
published
next
year.
Another
important
point
to
consider
when
investing
in
Myanmar
is
taking
the
money
out
of
the
country.
Getting
money
into
the
country
is
easy
and
in
the
case
of
Myanmar
one
does
it
through
one
of
the
government
banks:
Myanmar
Investment
and
Commercial
Bank
(MICB)
or
the
Myanmar
Foreign
Trade
Bank
(MFTB).
When
it
comes
to
taking
the
gains
out
of
the
country,
one
has
to
get
approval
from
the
Central
Bank
first
and
then
the
transfer
will
be
done
through
8. one
of
these
banks
to
the
foreign
entity.
However,
so
far,
there
have
been
no
major
cases
where
the
Central
Bank
refused
a
transfer.
9. The
challenges:
Many
significant
challenges
surround
the
investment
environment
in
Myanmar
today,
especially
when
setting
up
a
factory
or
any
other
big
investment.
First
of
all,
the
poor
infrastructure
is
the
main
obstacle
to
setting
up
a
business.
Electricity
is
scarce
and
roads
are
bad,
which
means
that
there
will
be
extra
costs
in
investing
in
generators
and
in
proper
transportation.
Apart
from
government
bureaucracy
and
corruption,
perhaps
the
biggest
challenge
is
land
prices.
The
surge
of
foreign
investors,
not
only
looking
at
the
untapped
potential
of
a
68
million
people
market
but
at
the
very
cheap
labor
cost,
are
all
surprised
when
they
see
the
land
prices.
Cost
of
land
in
industrial
zones
as
well
as
the
special
economic
zones
are
reaching
absurd
levels.
There
is
no
official
pricing
but
a
figure
seems
to
be
repeatedly
used:
200’000
USD
per
acre
for
a
land
with
no
access
to
electricity
and
most
likely
no
or
bad
road
access.
The
real
estate
prices
in
Yangon
are
also
extremely
high.
Small
shops
in
the
city
are
about
2’000
or
3’000
USD
a
month
and
decent
apartment
rentals
are
quite
often
above
2’000
USD
a
month
for
very
low
quality
housing.
The
final
and
most
unstable
challenge
is
the
political
situation.
Two
years
ago,
after
the
massacre
of
several
hundreds
of
monks
by
the
army
in
central
Yangon
(official
figure
states
less
than
10
deaths),
the
military
government
had
to
gradually
step
down
in
a
very
Buddhist
Myanmar,
leading
to
the
situation
we
are
at
today.
Many
of
the
current
government
ministers
are
ex-‐military
officials
but
the
president
seems
to
be
reliable,
and
his
popularity
is
constantly
increasing,
competing
with
the
famous
Aung
San
Suu
Kyi.
The
ongoing
conflict
between
the
Burmese
army
and
the
Kachin
Independence
Army
in
the
north
of
the
country
by
the
Chinese
border
threatens
the
country’s
stability.
There
are
also
occasional
clashes
with
the
Muslims
at
the
Bangladeshi
border,
on
the
southern
Thai
border
and
in
the
center
of
the
country
just
recently
in
March
2013.
Investors
should
closely
monitor
the
lead
up
to
the
next
general
election
in
2015.
Aung
San
Suu
Kyi
wants
to
run
against
the
current
president
and
both
parties
have
a
significant
pool
of
supporters
susceptible
to
create
chaos.
10. Why
should
you
invest:
Despite
the
poor
infrastructure,
the
corruption,
the
incomplete
FDI
law
and
the
political
situation,
investing
in
Myanmar
is
still
a
wise
decision.
Investors
shouldn’t
expect
Myanmar
to
operate
like
western
economies,
or
even
the
rapidly
developing
economies
of
Asia
and
should
take
these
challenges
into
account
when
making
decisions.
The
country
is
still
at
the
very
early
stages
of
opening
up
and
the
investors
should
not
underestimate
the
cultural
shock
and
the
slow
responsiveness
of
a
population
that
has
been
isolated
and
controlled
for
the
past
50
years.
Investing
in
Myanmar
today
is
quite
an
aggressive
move
and
should
not
exceed
10
to
15%
of
the
overall
portfolio
exposure
to
emerging
markets.
Getting
involved
in
this
thriving
frontier
market
from
early
on
could
give
the
investor
exponential
growth
over
the
next
10
years.
Unlike
poor
Cambodia
and
Laos,
Myanmar
is
rich
in
natural
resources
and
will
most
likely
follow
the
steps
of
Thailand
and
Malaysia
instead.
Asset
management
is
impossible
in
Myanmar,
as
the
stock
market
is
still
under
construction,
hence
the
only
way
to
gain
exposure
is
through
private
equity
deals
across
all
industries.
The
country
is
still
very
poor
and
basic
services,
such
as
electricity,
are
still
a
luxury.
Yangon,
the
most
populous
and
developed
part
of
the
country,
still
lacks
proper
infrastructure
and
essential
amenities,
a
favourable
situation
paving
the
way
to
countless
investment
opportunities
and
new
ventures.
Being
part
of
the
big
investments
in
Myanmar,
such
as
the
Dawei
port
project
or
the
new
airport,
is
challenging
as
one
needs
to
be
very
well
connected
or
at
least
benefit
from
a
sovereign
support
to
gain
credibility.
Setting
up
a
plant
or
a
factory
is
possible,
as
long
as
the
investor
finds
a
reliable
and
honest
local
partner.
The
most
viable
strategy
is
to
start
investing
in
SMEs,
which
have
promising
growth
potential
with
less
hassle
and
bureaucracy.
This
will
allow
the
investors
to
get
a
feel
of
the
market,
learn
how
to
navigate
the
system
and
gain
experience
and
reputation
in
Myanmar.
Once
these
SMEs
grow
and
become
reputable,
the
doors
will
automatically
open
to
new
larger
and
more
sophisticated
ventures.
Things
are
moving
fast
in
Myanmar.
My
first
trip
was
in
September
2012
where
traffic
jams
were
acceptable,
big
tourist
sights
were
free
of
charge
and
I
couldn’t
bargain
for
anything,
as
the
price
they
offered
was
the
actual
selling
price.
On
my
second
trip,
just
3
months
later,
the
traffic
situation
had
worsened,
the
main
pagoda
had
a
5
USD
entrance
fee
and
shop
owners
understood
how
the
tourism
industry
works.
Now
there
are
two
big
malls,
a
Cineplex,
burger
chains
from
Korea
and
Malaysia
and
a
thriving
nightlife.
Things
are
moving
fast.
One
shouldn’t
miss
the
opportunity
that
exists
in
what
will
be
a
major
Southeast
Asian
economy
in
years
to
come.