Investors are coming to Myanmar.
After 25 years of sanctions and shunning, the country once known as Burma is quickly emerging as one of Asia’s most interesting, and potentially lucrative, destinations for foreign investment.
Myanmar has been largely cut off from Western foreign investment since the country’s military government came to power in 1988, more so since that government refused to honour the election results of the 1990 general election, won by opposition leader Aung San Suu Kyi’s National League for Democracy (NLD).
Sanctions imposed by the United States and the European Union against the military government resulted in the withdrawal from Myanmar of most US and many European countries, although many Asian companies have continued to do business in Myanmar, particularly those from Japan and South Korea.
But with promises of a general election sometime in 2015 and an aggressive modernization of laws this large country wedged between Thailand, India and China is back on the map. “The introduction of sweeping economic reforms over the past three years have liberalized Myanmar’s economy and opened the doors to foreign investment and trade,” the Directorate of Investment and Company Administration (DICA) trumpets in its Myanmar Investment Guide 2014.
Currency reforms – the kyat was floated in 2012, the use of foreign exchange certificates eliminated only in 2013 – and a new foreign investment law were followed by a 2014 law creating special economic zones and tax reforms aimed at reducing profit taxes, all of which led to GDP growth of 7.8% in 2014, according to Asian Development Bank figures. The ADB expects GDP growth of 7.8% in 2015, as well.
Foreign direct investment (FDI) in Myanmar totalled K3.8 trillion (US$3.8 billion) in the first eight months of the 2014-15 fiscal year, according to DICA, from 108 companies in 19 countries, an amount which is on track to be up from US$4.11 in 2013-14, and up sharply from 2012-13 when FDI totalled US$1.42 billion. In 2009-10, the year before President U Thein Sein took office, FDI was only US$329.6 million.
One-third of FDI in Myanmar comes from Singapore, in part because many companies from the US (and some parts of Europe) use their Singapore affiliates as an intermediary for investment. While many of the economic sanctions have been rolled back in recent years, President Barack Obama told lawmakers in the United States that he had renewed the National Emergencies Act for another year. The law prohibits US businesses and individuals from doing business with those involved in repression of Myanmar’s democracy movement.
“Most of the US investments have indirectly entered into Myanmar through Singapore,” U Aung Naing Oo, director general of DICA, told local media in December 2014. “The investments of some other countries entered into Myanmar indirectly through Singapore, too. That’s why the amount of Singapore’s investments in Myanmar is huge. It is partly because there are still some US economic sanctions.”
Hong Kong-based companies are the second-largest group of investors in Myanmar, followed by China, South Korea, Thailand, the United Kingdom, Malaysia, the Netherlands, India, Japan, Canada, Malaysia and the Philippines.
While much of the present foreign investment in Myanmar is in infrastructure – foreign firms invested US$354 million in the hotel sector in the first eight months of 2014-15 and US$623 million in real estate – lawyers in Yangon expect more Western brands to turn up shortly. US-based General Electric, Ford, Coca-Cola, PepsiCo and Colgate have all launched operations in Myanmar in the past two years, with Coca-Cola pledging more than US$200 million in investment over the next five years.
Research firm Euromonitor International forecast in 2014 that overall packaged food sales in Myanmar are anticipated to register a compound annual growth rate (CAGR) of 15% between 2014 and 2018, while soft drinks (including juices and carbonated beverages) are expected to grow at a CAGR of 23% over the same period.
Euromonitor says the growth will be fuelled by a growing middle class and increasing consumer sophistication, which also bolstered sales of non-essential products, such as beauty and personal care, tissue and hygiene and home care products.
“Myanmar is one of the largest countries in Southeast Asia, with a population of more than 55 million people. Investors are very excited about the commercial opportunities in Myanmar,” says Dan Greif, a senior counsel at Bangkok-based Siam Premier International who heads the intellectual property teams at that firm and at its Yangon-based affiliate, Myanmar Premier International.
Increasing Port Operations
The Port of Yangon, Myanmar’s main port, handles some 90% of the country’s imports and exports. In early February, the Asiatic Wave, a China Shipping vessel, arrived in Yangon, having sailed from the Chinese port cities of Ningbo and Shanghai with stops in Ho Chi Minh City and Singapore. The ship was the first in the modern era to have sailed directly from China to Myanmar without transshipment.
The Xinhua News Agency quoted U Aung Kyaw Htoo, an official of the Myanmar Port Authority, as welcoming the Chinese container ship, and “expressing wishes that increased capacity of freight handling would benefit Myanmar.”
Also in February, Myanmar’s port authority signed a memorandum of understanding with South Korea’s Busan Port Authority for mutual growth and understanding. Busan Port Authority president Lim Ki-tack spoke to reporters in Yangon on a visit in February, saying that through the MOU, the Busan port would “share know-how on port development, management, and operation with developing countries. Furthermore, BPA plans to enter the East Asian market to establish a network to expand Busan Port's capacity as a transhipment hub.”
Myanmar is in the process of establishing a deepwater port in the southern city of Dawei. Two Thai construction companies are expected to sign an agreement with the government this month to start developing the first phase of the project.
The initial phase of the project, covering 27 square kilometres, is expected to cost some US$615 million. A signing ceremony is expected this month. Somjet Tinnapong, managing director of Dawei Development Co, a subsidiary of Italian-Thai Development, told the Bangkok Post that the investment budget will be for infrastructure systems such as a small deep-sea port, an electricity power plant, LNG terminal, reservoirs and a road that will lead to the first phase.
Investors are Coming
Minn Naing Oo, managing director at Allen & Gledhill (Yangon) and a partner at Allen & Gledhill in Singapore who is a corporate and commercial lawyer, says that Asian investors have been quick to come to Myanmar, while investors from the US and the European Union have been a bit slower. “Investors from the US and the EU are waiting to see if the changes to the government and the legal system stick, and for the results of the 2015 election. If things go smoothly, there will be more investors from Europe and the US.”
The two-year-old law governing foreign investment has been very good at providing incentives and creating a favourable environment for investment, he says. The law provides better opportunities for securing land for investment use, with leases of up to 50 years possible, with up to two 10-year extensions. “The law now gives you the possibility of a long lease,” he says. Under the prior law, foreigners were permitted to lease land for only one year.
Investors can count themselves fortunate that many aspects of doing business in Myanmar have improved dramatically from the recent past, says Myint Lwin, advocate at U Myint Lwin Law Office. “In the past, conducting simple business matters was difficult,” he says. “In 1989, for example, you had to make a reservation to make an international phone call. Say you had an 8 am reservation to call Thailand. Maybe you finally got to make the call at 2 pm. It’s totally different today.”
Internet connections, however, remain woefully slow. (Hackers replaced two government emblems on the website of Myanmar’s Ministry of Communications with turtles in July.) WiFi is the norm in hotels and international businesses are wired as well, but capacity in the fibre optic cables connecting Myanmar with the rest of the world is inadequate.
A lack of mature government ministries also hinders foreign investment, Myint Lwin says. “Government ministries need training and information. It can be a challenge to simply navigate the government ministries,” he says. “When you come to Myanmar as a foreign investor, you can’t expect the country to be like a supermarket. You have to approach it like a hunter. You have to hunt and fish for yourself.”
Even with continuing challenges for investors, both foreign and domestic, the outlook is rosy for Myanmar. “We are very busy,” says Minn Naing Oo. “Foreign investment is coming in in much larger numbers than just a year ago. Myanmar is a country with great potential. It just makes sense for us to be here.”
By Gregory Glass
Managing Editor | Hong Kong