Myanmar Is the Second Largest Country in the South-east Asian RegionMyanmar is one of South-east Asias largest nations My...
Myanmar’s Location Along Shipping Routes in the Indian Ocean Is of Strategic Importance…                                  ...
… to China and South-east Asian Countries As a Gateway for Trade and TransportationNew Gateway for Trade in South-east Asi...
Political Mismanagement and Corruption Outweigh Economic Growth in the CountryMyanmar remains one of the poorest countries...
The Government Has Initiated Several Reforms to Achieve Political and Economic Stability                                  ...
Victory of NLD in the 2012 By-elections Is Seen As a Step Towards Political TransformationMyanmar has taken significant st...
Developed Economies Are Likely to Remain Cautious While Removing Sanctions Against Myanmar   The military regime’s disrega...
Reforms and Removal of Sanctions Is Likely to Drive Growth Across Various Industry Sectors                        Infrastr...
Myanmar Has an Abundance of Skilled Labor, With the Lowest Wages in South-East Asia Similar to its South Asian counterpar...
Abundance of Labor Makes Myanmar Suitable for Investments, As a Low-cost Production BaseConclusion – So Is Myanmar the Nex...
However, Lack of Infrastructure and Corruption May Act As a Deterrent for Companies to InvestConclusion – So Is Myanmar th...
Myanmar Could Emerge As a Leading Trade Destination if Reforms Are Implemented SuccessfullyConclusion Myanmar, with its u...
Perspective What is your perspective on Myanmar’s emergence as an attractive business destination? Do you believe that M...
About EOS IntelligenceEOS Intelligence is a professional services firm that delivers bespoke research solutions targeted a...
Myanmar – The Next Big Emerging Market Story?
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Myanmar – The Next Big Emerging Market Story?

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As Myanmar opens its gates to the world, after decades of solitary existence, EOS Intelligence takes a look at the opportunities and challenges of this new emerging market story.

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Myanmar – The Next Big Emerging Market Story?

  1. 1. Myanmar Is the Second Largest Country in the South-east Asian RegionMyanmar is one of South-east Asias largest nations Myanmar is a geographically diverse country, boasting fertile tropical deltas in the south and a rugged landscape in the Himalayan foothills of the north The country is situated along the Bay of Bengal, and shares borders with Bangladesh, China, India, the Lao PDR and Thailand Myanmar’s population has grown at a CAGR of 1.7% through 2001-2011, to 60.62 million in 2011 About 70% of Myanmars population live in rural areas, and are engaged in agricultural activities Population (millions, 2001-2011) CAGR (2001-2011) – 1.72% 60.62 59.13 59.78 57.5 58.38 56.52 55.4 54.3 53.22 52.17 51.14 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2
  2. 2. Myanmar’s Location Along Shipping Routes in the Indian Ocean Is of Strategic Importance… Myanmar’s Importance Located near major Indian Ocean shipping routes, Myanmar provides naval access to the Strait of Malacca, one of the most strategic naval passages of the world Myanmar’s Sittwe port, which is also a part of China’s String of Pearls, enables South-east Asian economies to access strategic trade routes in the Indian Ocean, while bypassing the Strait of Malacca chokepoint, which is under US control The Strait of Malacca It is a key chokepoint in Asia, strategically important for South and East Asian countries for trade and resources; however, the strait is piracy-prone About 80% of China’s oil imports are shipped by tankersSource: Nikkei Business Publications passing the Strait Myanmar, is particularly important for Chinese trade, providing road access for Chinese goods to naval routes on the Indian Ocean Transportation through Myanmar enables China to counter the US control of the Strait of Malacca, which is the most important naval route for trade and transportation to South and East Asia China has funded construction of roads linking Sittwe (formerly known as Akyab) and Rangoon (Yangon), providing the shortest access route to the Indian Ocean from Southern China The proposed Dawei port in south Myanmar should provide an overland route from Bangkok to facilitate the movement of cargo that has traditionally been using the Strait of Malacca; this overland route is expected to cut shipping timelines and control logistics costs 3
  3. 3. … to China and South-east Asian Countries As a Gateway for Trade and TransportationNew Gateway for Trade in South-east Asia In November 2010, Italian-Thai Development (ITD) signed a 60-year framework agreement with the Myanmar Port Authority to build a port and industrial estate in Dawei, in south Myanmar The proposed Dawei port is likely to act as a gateway for South-east Asian countries to reach markets in South Asia, the Middle East, Africa and Europe; the bypassing of the Strait of Malacca, which the Dawei port is intended to bring forth, should reduce both shipping time and costs significantly ITD will develop this mega-project with $100 million in registered capital; this US$8.6 billion project is the first Special Economic Zone in Myanmar Alternative Transportation Route for China  Myanmar’s location is strategic to China as an alternative shipping and trading route for the country, that bypasses the Strait of Malacca  Currently there are four oil and gas pipelines under construction, connecting Western Myanmar with the Chinese provinces of Kunming and Nanning; diversification of oil import route is likely to enhance energy security in the country  In addition, China is also constructing a 810 km long railway line along the pipeline connecting Ruili (Yunnan) and Kyaukpyu Port, which is expected to be completed by 2013 4
  4. 4. Political Mismanagement and Corruption Outweigh Economic Growth in the CountryMyanmar remains one of the poorest countries in the world with annual per capita GDP at $832 (2011) In 2011, Myanmar’s GDP growth rate reached 5.5%, driven by increased agricultural production, booming construction and recovering tourism sectors, and revival of exports The economy is centred around agriculture, while the industrial sector remains under-developed, accounting for only 10% of the GDP Economic growth continues to be hampered by mismanagement by the military regime (junta) and high prevalence of corruption which has crippled the society  About 80% of the country’s GDP is spent on the military and state-owned enterprises, and only 0.5% on health, and 0.9% on education  According to statistics published by Transparency International, Myanmar is ranked as the second most corrupt country globally Macroeconomic Indicators Current Account Balance (%, 2008-2017P) (%, 2008-2017P) 22.5 2008 2009 2010 2011 2012 E 2013 E 2017 E -0.9 8.2 8.2 5.8 6.3 5.3 4.2 -2.7 -2.8 -2.6 -3.4 3.6 5.5 6.0 5.9 6.5 -4.3 5.1 5.3 -5.1 2008 2009 2010 2011 2012 E 2013 E 2017 E Negative current account balance implies that Myanmar is Real GDP Growth CPI dependent on foreign debt to finance its investment needs 5
  5. 5. The Government Has Initiated Several Reforms to Achieve Political and Economic Stability Democratic Reforms Political Corruption Censorship Human Rights Economic Release of pro-  Rise in wages of all  Relaxation of press and  Release of over tens  Floating of kyat, democracy leader Aung public sector internet censorship of thousands of Myanmar’s currency in San Suu Kyi from house employees, including laws prisoners, of which the free market, arrest soldiers, to tackle 300 were political stabilizing the  Unblocking of several corruption in the prisoners exchange rate Subsequent dialogues banned websites government with NLD leaders and including YouTube,  Release of prominent  Reduction of lending conducting by-  An additional cost- Democratic Voice of prisoners of interest rates from elections in the country of-living allowance Burma and Voice of conscience 12% to 10% Establishment of the of 30,000 kyat America  Relaxation in import (US$35) along with a National Human Rights  Proposed restrictions and daily wage increase Commission and establishment of a new abolishing of export of 1,100 to 2,100 providing general media legislation that taxes kyat (~ US$2) for amnesty for more than will abolish press full-time employees  Plans for an eight- 200 political prisoners censorship year tax break for Institution of new labor foreign investors laws that allow labor unions and strikes In March 2012, a draft foreign investment law was issued which will oversee liberalization of Myanmar’s economy International companies will be able to start a business in the country, without the need for a local partner The draft law also creates job opportunities for locals, as it requires foreign companies to employ locals as at least 25% of a company’s skilled workforce 6
  6. 6. Victory of NLD in the 2012 By-elections Is Seen As a Step Towards Political TransformationMyanmar has taken significant steps to develop democracy in the country In 2010, elections were held in the country for the first time since 1962, when the military took charge of the country The elections were boycotted by the largest opposition party, the National League for Democracy (NLD), and this resulted in formation of a military-led civilian government under President Thein Sein  Following the outburst against the 2010 elections, which were deemed unfair by most factions of the society, the government under President Thein Sein undertook political reforms to accommodate the participation of Political National League for Democracy (NLD) in the April 2012 by-elections Reforms  These reforms included release of NLD leader, Aung San Suu Kyi, and other political leaders from house arrest, involvement of international organizations in the elections, and relaxation of press censorship  The NLD under Aung San Suu Kyi won 43 of 45 seats contested in the 2012 by-elections April 2012 By-elections  While the win provides NLD with only 7% seats in the parliament, the result has been seen as a precursor to 2015 general elections, and a positive step towards political transformation in the country  These political reforms have received positive reception, and Myanmar has witnessed a greater involvement of international visitors to assess steps towards democracy Positive International  Members of ASEAN have encouraged political growth in Myanmar by offering the chairmanship of ASEAN in Reception 2014, provided satisfactory progress towards democracy is achieved  International business leaders, such as the USA and EU, have proposed relaxation of economic sanctions to reward Myanmar’s political reforms 7
  7. 7. Developed Economies Are Likely to Remain Cautious While Removing Sanctions Against Myanmar The military regime’s disregard of human rights and civil liberties prompted various countries and groups to impose economic sanctions on the country USA EU Canada Bans on issuing visas to certain  Ban on the sale or transfer of weapons  Freezing of Canadian assets of selected government officials, particularly Burmese individuals  Bans on issuing visas to certain Burmese belonging to the State Peace and government officials  Prohibitions on exporting and importing Development Council, and the Union  Freezing of overseas assets of selected arms and related material to and from Solidarity Development Association Burma Burmese individuals under EU control Restrictions on provision of financial services to certain government officials  Suspension of bilateral aid and humanitarian assistance Freezing the assets of selected Burmese individuals held by USA  Ban on imports of gems, timbers and metals from Myanmar Ban on new US investments in Myanmar, including investments in third country Following a series of political and economic reforms implemented by the Myanmar companies; prohibition on the import of government, EU and Canada have suspended most sanctions imposed on Myanmar goods of Burmese origins Other countries are also likely to follow suit; Japan recently wrote-off the countrys Restrictions on the provision of bilateral outstanding debt and multilateral assistance to Myanmar Suspension of sanctions is expected to spur further reforms, The USA has partially suspended certain sanctions on boost humanitarian conditions, revive foreign investments in Myanmar to permit financial transactions to support the resource-rich country, and accelerate economic growth humanitarian and development projects in the country However, most countries are likely to remain cautious as the The country also plans to gradually ease other sanctions on recent democratic reforms are reversible Myanmar, which include lifting of bans on provision of financial Investors, too, are likely to follow a cautious approach while services and US investments in Myanmar investing in the country, and may re-impose sanctions in case of unsatisfactory progress 8
  8. 8. Reforms and Removal of Sanctions Is Likely to Drive Growth Across Various Industry Sectors Infrastructure Banking and Finance Civil infrastructure in Myanmar is still under-developed, and  Myanmar’s banking sector has traditionally suffered due to provides significant scope for investment with a number of variable exchange rates and mismanagement international companies looking to set up base in the country  The floating of Kyat, coupled with foreseeable foreign Major opportunities exist in development of electricity, investments in the country are expected to further the transportation (both road and rail), and communication development of banking systems in Myanmar networks  Suspension of US and EU sanctions on provision of financial services is also likely to drive growth in the financial services sector Aviation and Tourism Information and Communication Technology Landslide victory of NLD in April 2012 by-elections has  Myanmar has one of the least developed telecom networks, developed a positive outlook among tourists; several Asian with only a tele-density of only 5.4%, as of 2011 carriers and operators have identified near-term opportunities  Removal of censorship on various forms of media coupled with in Myanmar ICT initiatives taken by the government are likely to boost The country is privatizing its existing international airports, development of the sector and developing a new international terminal at Nay Pyi Taw; the  The government is implementing a five-year ICT master country also plans to upgrade several domestic airports which plan, jointly drawn with experts from South Korea, for the lack basic infrastructure development of five main areas – ICT infrastructure, ICT Development of aviation infrastructure, and removal of travel industry, ICT human resources development, e-education and sanctions is likely to boost the tourism sector ICT legal frame work 9
  9. 9. Myanmar Has an Abundance of Skilled Labor, With the Lowest Wages in South-East Asia Similar to its South Asian counterparts, Myanmar has a vast pool Myanmar – Labor Force of low-cost, mostly unskilled labor (millions, 2011 estimates) While the minimum monthly wage for salaried public employees ranges from 30,000 to 45,000 kyat (US$35 to US$53), the daily Laos 3.7 wage for laborers is estimated at 1,000 kyat (US$1.2) per day Cambodia 8.8  In the private sector, urban laborers performing unskilled work earned 1,000 to 3,000 kyat (US$1.2 to US$3.6) per day Myanmar 32.5  Skilled workers earn marginally higher wages than rural agricultural workers and urban laborers Thailand 39.6 The monthly wage for an average skilled industrial worker Philippines 39.8 ranges between 30,000 to 55,000 kyat (US$35 to US$66), which is one-fifth the level in China, and half that in Vietnam Vietnam 46.5New Labor Union Law As part of the reforms undertaken by the military-led civilian government, President Thein Sein approved a new Labor Organization Law in October 2011 The law protects employees rights, allows the formation of labor associations, and establishes procedures for holding a workers’ strike, which had been prohibited since 1962 While existing labor laws prohibit forced labor, its prevalence is high; the military junta and local government officials tend to use forced labor substantially The new labor law has also given laborers access to a complaint system, which is facilitated by International Labor Organizations’ liaison officer in Rangoon While the new law is expected to provide relief to labors and labor unions in the country, its effectiveness is questionable as most labor activists remain imprisoned 10
  10. 10. Abundance of Labor Makes Myanmar Suitable for Investments, As a Low-cost Production BaseConclusion – So Is Myanmar the Next Big Emerging Market Story? Detail Impact Outlook  Myanmar is a resource-rich nation, which  Companies are likely to try to gain first POSITIVE Abundant possesses significant natural gas and oil mover advantage to tap vast resources reserves, 80% of the worlds teak supply, available in the country Natural precious gemstones and metallic minerals, Resources and substantial fertile land for agriculture Likely to Boost Investment  Myanmar has a substantial labor force,  Rising labor costs and labor shortages in POSITIVE High equivalent to its South-east Asian China and South-east Asia are drivingAvailability of neighbors companies to look for alternative bases Low-cost  Labor wages in the country are  Myanmar has great potential to expand Labor considerably lower than those in China or labor-intensive, export-oriented Likely to Boost other South-east Asian countries manufacturing units Investment  Myanmar is located on the strategic route  Companies from China and South-east to the Strait of Malacca; the country acts Asia are likely to invest in developing as a naval base to access the Strait Myanmar’s infrastructure and develop POSITIVE  The development of SEZ in Dawei acts as trade relations with the country Geographic a gateway for trade for South-east Asia  Recently, India and Myanmar set a Location deadline for 2016 to develop trilateral road connectivity up to Thailand from Likely to Boost India via Myanmar; this will boost India’s Investment trade with South-east Asia 11
  11. 11. However, Lack of Infrastructure and Corruption May Act As a Deterrent for Companies to InvestConclusion – So Is Myanmar the Next Big Emerging Market Story? Detail Impact Outlook  As a result of the reforms undertaken by  Removal of sanctions is likely to boost the Myanmar government, countries such investments and economic growth in NEUTRAL as the USA, EU and Canada have the countrySuspension of suspended several sanctions against the  However, investors are likely to remain Economic country cautious as these sanctions may be re- Cautious Sanctions  If the current government continues on imposed if the impact of reforms is Approach to the reform path, financial sanctions would unsatisfactory Investment also be lifted  The country has insufficient basic  While the lack of infrastructure acts as a infrastructure, such as road, telecom, and deterrent to investments, it provides an POSITIVE Lack of electricity to support economic growth opportunity for internationalInfrastructure construction companies to invest in the development of infrastructure  Myanmar is ranked among the most  While the government has taken steps corrupt countries in the world to reduce corruption, the slow processes NEGATIVE Corruption and concerns with doing business may  Public offices are often chaired by militaryand Military deter companies to invest in Myanmar personnel, and processing is generallyDominance in slow the Public Can Act as a  The government has taken steps to Offices reduce corruption by increasing minimum Deterrent wages of officials 12
  12. 12. Myanmar Could Emerge As a Leading Trade Destination if Reforms Are Implemented SuccessfullyConclusion Myanmar, with its untapped natural resources, large population and strategic location in South-east Asia, has the potential to emerge as a new investment destination, both for the manufacturing and services sector With the promise of pursuing economic, political and legal reforms, Myanmar’s new government, led by Thein Sein has indicated its desire to strengthen foreign relations, attract investment and provide a platform for sustainable business development Asian giants China and India are expected to invest significantly in developing infrastructure and transport hubs in Myanmar to facilitate trade with rest of South-east Asia and to restrict USA’s dominance of the Strait of Malacca; China has invested over US$25 billion in the past 15 years on sectors such as oil, natural gas and minerals, and aims to widen its investment net to include power and transport While several developed economies, including the USA, EU and Japan, tread cautiously, and have adopted a wait- and-watch policy on Myanmar government’s reforms promise, the removal of most sanctions and debt write-off indicate strong interest in the emerging economy Myanmar presents an unique opportunity for the developed world to counter China’s dominance in Asia, as it provides a new low-cost manufacturing platform for business expansion; at the same time, the significant scope of investment in sectors such as telecom, banking, information technology, consumer goods and retail, is an attractive opportunity Thein Sein has sown the seed by undertaking reforms that the world has been seeking for the past several years; the arising opportunities across various sectors, the scope for infrastructure development and its strategic location are critical advantages that Myanmar must exploit in order to emerge as one of the leading manufacturing and trade destinations in South-east Asia 13
  13. 13. Perspective What is your perspective on Myanmar’s emergence as an attractive business destination? Do you believe that Myanmar is ready for international investors? Have you already established business in Myanmar? What has been your experience? We would like to hear from you. Write to us with your perspective at rediscover.research@eos-intelligence.com.Notes 14
  14. 14. About EOS IntelligenceEOS Intelligence is a professional services firm that delivers bespoke research solutions targeted at corporateplanners and decision makers, and institutional investors.Our knowledge resources, spread across sectors such as automotive, consumer goods, energy and healthcareenable us to support a wide range of research and intelligence needs, spanning strategy assessments, supply chainrationalization and investment analyses.We work closely with corporate and consulting firms, and provide them with customised business research andintelligence solutions that significantly contribute to their strategic and functional decision making.If you would like to know more about our research solutions, please visit our website www.eos-intelligence.com. 2012 © EOS Intelligence. All Rights Reserved.

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