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Saturday, February 23, 2019

Myanmar's Waiting for the Western Investment That Never Came

Myanmar's Waiting for the Western Investment That Never Came


How Suu Kyi Went From Political Prisoner to Leader

Among business leaders in Myanmar, would-be investment from the U.S. and Europe is known by the wry acronym NATO.

“No Action, Talk Only,” Sean Turnell, special economic consultant to Myanmar’s leader Aung San Suu Kyi, said in an interview, underscoring the country’s history of missed opportunities and unfulfilled potential.

As Southeast Asia’s fastest-growing economy began the transition from five decades of military rule to democracy with the swearing in of the first popularly-elected government in March 2016, western investors adopted a wait-and-see approach. That extended into 2018 as reports of violence against the country’s Rohingya Muslims -- that forced nearly a million refugees into neighboring Bangladesh -- dominated international media since last August.

“The thing about western investment is not that it has stopped flowing, the truth is that it never came,” Turnell said.

Myanmar has attracted just over $30 billion in foreign direct investment since the 2014-15 financial year, with Singapore topping the list of foreign investors in the country with $14.5 billion, followed by China and Hong Kong with $7.1 billion, and $2.6 billion from countries inside the European Union, according to data supplied by Myanmar’s Directorate of Investment and Company Administration.

The situation may not improve before parliamentary elections in 2020. Suu Kyi’s government is facing daunting domestic challenges, such as building an infrastructure base that can facilitate sustainable economic growth, and bringing the banking system into the 21st century. There’s also the task of trying to untangle the many tribal conflicts that have made some parts of the country almost ungovernable for decades.

“Her biggest problem today is that most people see no concrete change or improvement in their daily lives,” Khin Maung Nyo, a former deputy director of the Myanmar Prime Minister’s Office under the previous government and now a political analyst, said in an interview. “Ordinary people have high expectations.”

Second Wave

The International Monetary Fund noted that while Myanmar’s economy was rebounding from weak agriculture production and exports, the medium-term outlook remains favorable.

“Myanmar’s initial phase of economic liberalization led to an impressive growth takeoff and poverty reduction; now a second wave of reforms is needed to sustain the momentum,” the IMF said in a November report.

Despite the investment shortfall from the U.S. and Europe, strong capital inflows from Japan, China, South Korea and Singapore helped make Myanmar one of the strongest performing economies in Southeast Asia, notching up gross domestic product of 6.4 percent last year and an expected 6.8 percent in the current financial year. The World Bank has forecast 7.2 percent growth over the medium term.

Money Flows to Myanmar

Appoved amount of foreign direct investment from 2014-15 to May 2018.

Although firms from Western countries have yet to fully embrace the country, business leaders such as Hal Bosher, special adviser to the chief executive of Yoma Bank, remain optimistic.

“Everybody is always surprised when they come to Myanmar,” Bosher said in an interview. “I think the economy is far bigger than the official figures of $60 billion to $70 billion. All in, I think true GDP is probably double the official estimate,” he said.

Rohingya Crisis

Still, the government’s treatment of the Rohingya remains a problem.

The current crisis was sparked in August last year when militants from the Arakan Rohingya Salvation Army attacked police and army posts, killing a dozen security officials in Rakhine state. The military responded with what it calls “clearance operations,” but both the U.S. and UN Secretary-General Antonio Guterres have condemned Myanmar’s treatment of the Rohingya as “ethnic cleansing.”

Read more: Myanmar’s Rohingya Refugee Crisis, Explained

“The Myanmar narrative is so bad right now,” said Ken Tun, chief executive of the Parami Energy Group of Companies. “Even we in the private sector, the first thing to come up is ‘Rohingya’. We need to get the Myanmar narrative right.”

But in a country where the commander-in-chief of the armed forces still has the constitutional power to appoint one quarter of Myanmar’s parliament, as well as full control over the key ministries of Defense, Border Affairs and Home Affairs, it’s a delicate balance.

The civilian government has "no control" over the army, border affairs, or security services, said Turnell. “But that’s a hard message to sell, because the military would find that message distasteful.”

The broader impact is that Myanmar has failed to reap the “democracy dividend” that many were hoping would flow from the arrival of large multinational corporations.

“Companies that we really wanted to see, the companies that bring methodologies, technologies, ways of doing things for a country isolated for such a long time, that was the democracy dividend,” Turnell said.

Grab Invests

Not everyone is staying away.

After Grab, Southeast Asia’s leading ride-hailing service, launched the trial of its GrabTaxi service in Yangon in March last year, the company continued to build its operations, including testing a three-wheel vehicle service in Mandalay. It now has more than 6.6 million micro-entrepreneurs including drivers, merchants and agents, on its platform.

“We’ve had a really fantastic series of engagements with the government,” Russell Cohen, Grab’s head of regional operations, said in an interview. “We’ve grown phenomenally fast,” he said.

After Myanmar confirmed in June that new laws allowing foreigners to invest up to 35 percent in local companies would come into effect on August 1, there is an expectation that more foreign investment will follow.

Soe Win, a member of the ruling National League for Democracy’s central economic committee and now the country’s Finance Minister, acknowledged in an interview that Myanmar “cannot stick to 35 percent,” if big regional players such as Standard Chartered Plc and HSBC Holdings Plc are to enter the country.

“Whether and under what restrictions the insurance and banking sectors as well as YSX-listed companies open up to foreign investors, is being watched,” said Romain Caillaud, director with consultancy Asia Group Advisors, said in an email. “This is not a silver bullet but the new company law contributes to further improving Myanmar’s business environment.”


Friday, February 22, 2019

Blacklisted Chinese bridge building company has history of backhander deals

Monday, 21 July 2014, 

The blacklisted state-owned China Communications Construction Company (CCCC) that gifted Malta a ‘free’ €4 million feasibility study on building a bridge between Malta and Gozo has a history of greasing the palms of officials in third world countries.

Government-to-government deals are not subject to EU rules on public procurement which means they escape scrutiny. CCCC has a habit of throwing in deal sweeteners, promising finance and then strong-arming governments to win more contracts.

Just last week, two Tanzanian officials were charged with fraudulently awarding a bloated contract worth more than $523 million to CCCC to expand the capital city Dar es Salaam’s main port. The project was abandoned when officials queried the inflated costs of the project, which were double those of similar projects.

Earlier this year, a Kenyan MP said “shadowy forces” were behind the awarding of a contract to CCCC for the building of a railroad. CCCC carried out a ‘free’ feasibility study on the project, whose cost have been steadily inflating.

Western companies often find it difficult to compete for contracts with their Chinese counterparts due to their penchant for bribing foreign officials.

During his recent visit to China, Prime Minister Joseph Muscat met the president of the blacklisted company in order to discuss progress on the bridge feasibility study.  The project has been criticised all round for its environmental impact and the fact that the government is dealing with a blacklisted company.

Dr Muscat instructed the company to give more attention to the environmental impact of the project rather than merely assessing its technical feasibility. A subsidiary of the same company will likely also be responsible for the building of a breakwater between Valletta and Sliema.

Dr Muscat has said that CCCC will be involved in “other projects,” which could very well include dredging Marsaxlokk harbour and supplying an LNG tanker. Such projects are in CCCC’s line of business through its subsidiary, China Harbour Engineering. In 2010, the youngest son of a former Bangladesh prime minister was jailed for accepting bribes from the company for the Bangladesh Chittagong Port project.


CCCC is blacklisted by the World Bank, the African Development Bank, the Asian Development Bank, the Inter-American Development Bank, the European Bank for Reconstruction and Development, and it's on at least two blacklists in the US because of its Iran-Armenia railway project. The company is set to remain on the World Bank’s blacklist until 12 January, 2017: in the meantime, it is ineligible to engage in any road or bridge projects financed by the World Bank Group


China’s humpty-dumpty bridges 

In a five year period between 2007 and 2012, China experienced at least 18 bridge collapses resulting in 135 deaths according to the news agency Bloomberg. China has rapidly expanded its road and rail infrastructure to keep up with its booming economy, but critics say that safety has sometimes been overlooked in the rush to develop.

In 2012, one of the longest bridges in Northern China collapsed nine months after it was built. The New York Times reports that many in China have attributed the recent spate of bridge collapses to corruption, and online reaction to the latest collapse was scathing.

“Corrupt officials who do not die just continue to cause disaster after disaster,” said one post on Sina Weibo, a Chinese microblogging service similar to Twitter.

Another Internet user expressed hope “that the government will put heavy emphasis on this and investigate to find out the real truth, and give both the dead and the living some justice!” A third user was more laconic, remarking, “Tofu engineering work leads to a tofu bridge.”


Thursday, February 21, 2019

High expectations, low confidence at Invest Myanmar Summit

The government evinced high hopes for a rebound in foreign investment at a recent event in Nay Pyi Taw but its expectations are not shared by many in the private sector.


THE GOVERNMENT tried hard to woo big spenders at the recent Invest Myanmar Summit, which focused on attracting foreign investment in about 200 projects altogether worth US$20 billion over the next 20 years, mainly in infrastructure development.

State Counsellor Daw Aung San Suu Kyi delivered the opening speech at the event in Nay Pyi Taw on January 28 and 29, which saw an unprecedented turnout of 12 Union ministers, 10 regional ministers, and more than 150 regional and state representatives, and attracted nearly 1,600 participants.

“I stand here to reaffirm our commitment to continue our reforms and build an investment-friendly environment,” she said.

An investment in Myanmar would be an investment in its people and their future, the state counsellor said.

“The greatest investment is in our people,” she said. “Everywhere I go, I see our children, bright and innovative, and they are the insurance of our future, and they are also the insurance of the future of investment in this country. So please invest in our people.”

Aung San Suu Kyi proudly recalled one of the few honours bestowed on her National League for Democracy government for economic management, when Myanmar received a World Bank Star Reformers Award, for its success in creating a more investment friendly environment, at an investment conference in Vienna in 2017.

“I hope that’s now obvious that Myanmar is committed to creating not only a favourable but also a predictable, facilitative and friendly investment environment,” she said.

Aung San Suu Kyi also highlighted reforms aimed at developing a market-based economy that target inclusive economic growth as well as the launch last year of the comprehensive Myanmar Sustainable Development Plan. A highlight of the conference was the launch of a centralised database of projects known as the Project Bank that will support the implementation of the MSDP.

Directorate of Investment and Company Administration director general U Aung Naing Oo. (Thuya Zaw | Frontier)

Directorate of Investment and Company Administration director general U Aung Naing Oo. (Thuya Zaw | Frontier)

Rakhine fallout

The government’s efforts to attract investment and develop the economy have been stymied over the past 18 months by the fallout from the Rakhine crisis, which has scared off many potential investors.

The aim of last month’s summit, which was organised by the government and the Union of Myanmar Federation of Chambers of Commerce and Industry (UMFCCI), was to rebuild the image of Myanmar as an investment destination.

The summit differed from previous investment conferences in several ways. Unlike investment conferences that had attracted a high turnout of potential investors from Western countries before the Rakhine crisis escalated in August 2017, most of the participants at the Invest Myanmar Summit were from China, Japan, South Korea and Taiwan.

One unique feature was the promotion of investment-ready projects across the country – something that required a significant degree of preparation on the part of the organisers, and was indicative of the seriousness with which government officials viewed the summit. Previously, governments have typically urged foreign companies to invest, but left it to them to identify particular projects.

Mr Mike DeNoma, chief executive officer at KBZ Bank, said the summit had come at the right time, with Myanmar at an inflection point. As one of the world’s few “mobile-first” markets, the country had the rare opportunity of reaching people on a 100 percent digital platform to bring them into the formal economy.

“Myanmar offers an opportunity for investors with a mobile-first vision to make next-generation business models probably better than extraordinary,” he said.

While there is general acknowledgement in the business community that the government and the UMFCCI are striving to attract investment, especially for infrastructure projects, businesspeople are not optimistic that foreign investment will return any time soon to the levels seen before August 2017.

U Hla Maung, the chairman of Tokio Investment Co Ltd, said 2019 had been expected to be a banner year for the NLD in implementing its economic agenda because of the legal reforms it had undertaken, such as the Companies Law and the Investment Law.

“However, the Rakhine crisis has destroyed all of the potential. This is the result we can see today,” he told Frontier.

UMFCCI chairman U Zaw Min Win speaks to the media at the Invest Myanmar Summit in Nay Pyi Taw on January 28. (Thuya Zaw | Frontier)

UMFCCI chairman U Zaw Min Win speaks to the media at the Invest Myanmar Summit in Nay Pyi Taw on January 28. (Thuya Zaw | Frontier)

Regulatory challenges

The impact of the Rakhine crisis is just one of several factors that has affected investor confidence, with economic management also a key concern, research shows. The annual business confidence survey released in December 2018 by the European Chamber of Commerce in Myanmar found that 81 percent of European companies were not satisfied with the business environment, up from 76 percent in 2017 and 67 percent in 2016.

Nearly half, 45 percent, said the business climate had worsened over the previous 12 months, up from 30 percent in 2017 and 18 percent in 2016.

Regulatory issues, a shortage of skilled labour and legal uncertainty remained the biggest challenges for European companies, the survey found.

U Nyi Htut, general manager of KM Terminal and Logistics Ltd, which has partnered with Singapore’s Kerry Logistics Network to establish dry ports at Yangon and Mandalay, said companies investing in infrastructure projects faced numerous bureaucratic hurdles.

KM Terminal and Logistics is 70-percent owned by Kerry Logistics and the total investment in the dry ports stands at US$55 million.

“Whatever they do at the upper level, and whatever laws they make, will have little impact if the lower levels of the bureaucracy do not or cannot follow them. In that case, we investors will still face with many obstacles on the ground,” Nyi Htut told Frontier.

He said that the government’s efforts to attract FDI for infrastructure development would be more effective if it there was greater clarity to the system of procedures (SOPs) for implementing newly enacted or amended laws.

It would also help if key government agencies, such as the Customs Department, had more personnel and if all public servants had the capacity to function more efficiently.

It would be difficult to attract FDI in the absence of such changes, said Nyi Htut.

“I don’t think the investments could properly come into these infrastructure-related sectors which take much time for return on investment, and also still have many other technical, financial challenges,” he said.

In her address, Aung San Suu Kyi acknowledged that Myanmar needed to do more to realise its potential for FDI.

Those who knew Myanmar well understood that it offered the possibility of big returns to investors who were patient and innovative, she said, adding that her government would continue to strive to improve the investment climate.

She said the challenges included an infrastructure gap that continued to constrain Myanmar’s development potential, including being one of the least electrified countries.

Despite the challenges, she insisted there were abundant business opportunities. Challenges, she said, can be transformed into opportunities.

U Aung Naing Oo, director general of the Directorate of Investment and Company Administration, told Frontier he expected FDI to rebound this year because of the reform of business-related laws and promotional activities, such as the conference.

“The government has already eased a lot of difficulties for doing business in Myanmar, and we’ve received more interest. That's why I think this year could be high,” he said.

From a peak of $9.4 billion in 2015-16, contracted foreign investment has fallen to $6.6 billion in 2016-17 and $5.7 billion in 2017-18. A further $1.7 billion was recorded from April 1 to September 30, 2018, while in the 2018-19 fiscal year to December 12 contracted foreign investment stood at $860 million.

TOP PHOTO: Daw Aung San Suu Kyi speaks during the opening ceremony of the Invest Myanmar Summit in Nay Pyi Taw on January 28. (AFP)

Correction, February 20: This article has been amended to remove comments attributed to Mr Richard Horsey. 

Myanmar loses out on forex losses as domestic debt rises

External debt over the last year has risen as a result of the higher dollar exchange rate, according to the Public Accounts Joint Committee report which was submitted to Pyidaungsu Hluttaw by secretary U Khin Maung Than last month.

Myanmar’s total outstanding external debt as at March 31 had soared to US$10.2 billion, which is $819 million more than if the exchange rate had remained unchanged, U Khin Maung Than said. 

“This is because the loans were given to Myanmar when the exchange rate was K900 per dollar. However, the exchange rate has since risen by 66 percent to K1500 per dollar,” said U Than Soe who is a Pyithu Hluttaw representative and member of the Joint Public Accounts Committee.

Myanmar currently owes money to 21 countries. The funds are deployed within 16 ministries, of which the Ministry of Electricity and Energy accounts for more than 30pc followed by the Ministry of Planning and Finance at around 24pc.

Along with the Ministry of Transport and Communication and Ministry of Industry the four ministries are the largest borrowers of external debt, said U Khin Maung Than.

As the government has not undertaken proper investments that make good returns, the respective ministries need to consider a policy on sustainably repaying the country’s external debt as the burden of higher dollar exchange rates gets larger, said U Maung Maung Lay, vice chair of the Union of Myanmar Federation Chambers of Commerce and Industry.

Domestic debt

Myanmar’s external debt is rising at a time when the government has been making efforts to better manage domestic debt. 

As at March 31, domestic debt amounted to K20.7 trillion, resulting in a budget deficit that is approaching 5 percent of GDP, a benchmark the government is trying not to breach. 

Interest accumulated on that level of debt also passed K1 billion last year, which is more than double the interest payments made in 2011, according to the Public Accounts Joint Committee report. 

 To fix the budget deficit and repay local debt, the government borrows funds from the Central Bank of Myamar (CBM). For example, the government will borrow around K640 billion from the CBM to finance the fiscal deficit for the six-month interim period between April 1 and September 30, the Ministry of Planning and Finance said in May. 

The loan represents around 20 percent of the government’s total permitted local borrowings from the CBM.

In two years’ time though, the government has committed to eliminating its reliance on CBM borrowing to finance the fiscal deficit and is now gradually borrowing less from the Central Bank, said U Khin Maung Than.

“Last year, we implemented a debt strategy to gradually reduce the volume of funds provided by the CBM and so far it has been successful,” he said.

To reduce finance the rise in public spending, the government is now working on deepening the domestic bond market. Currently, the CBM issues Treasury bonds at interest rates of 9.18pc for 2-year bonds and 9.69pc for 3-year bonds. It also issues short term Treasury bills at interest rates of 8.16pc for 3-month bills, 8.53pc for 6-month bills and 8.63pc for 12-month bills.

“The Treasury Bills sold to CBM in 2015-2016 only had 4pc interest rate but since 2016-2017, the interest rate was raised to align with the minimum bank deposit rate of 8pc. Also, as the old loans taken from CBM and the ones in the previous years were not repaid, the interest is becoming higher with each year,” said U Khin Maung Than.

For now, local banks buy up more than 99pc of the bonds issued by the Myanmar government, while foreign banks take up less than 1pc. To further expand, Myanmar bonds must be made available to foreign institutional investors like pension funds and insurance companies. 

Currently, debts from government treasury bonds are around K4 billion, accounting for 20pc of total domestic debt. Debts from government treasury bills are K2.4billion, accounting for 11pc, according to U Maung Maung Win, deputy minister for Ministry of Planning and Finance.

“According to the 2016 Medium Term Debt Management Strategy, the government has been gradually limiting loans so as not to exceed 30pc of GDP in foreign debt and 40pc in local debt. As of March 31, foreign debt stood at 15pc of GDP while local debt stood at 38pc of GDP, which is under control,” said U Khin Maung Than.


U.S. National Debt Hits Record $22 Trillion

Myanmar facing 'public health disaster' as children as young as 9 get hooked on meth

Good service at 24/7 can buy YaBa in Muse,Myanmar
Low-grade crystal meth tablets, known in Southeast Asia as "yaba", in Muse, Shan State, along Myanmar's border with China.
Low-grade crystal meth tablets, known in Southeast Asia as "yaba", in Muse, Shan State, along Myanmar's border with China.PHOTO: AFP

Myanmar is the second-biggest producer of opium in the world after Afghanistan and is now believed to be the largest source of methamphetamine.

The multi-billion dollar industry outstrips rivals in South America to feed lucrative markets as far away as Sydney, Tokyo and Seoul.

Shan is the epicentre of production in Myanmar, with a network of local armed groups linking up with transnational trafficking gangs.

Kutkai sits between Mandalay and the militia-riddled town of Muse on the China border, a key entry point for precursor chemicals heading to Myanmar's illegal meth labs.

Trucks carrying illicit goods roar through the town in both directions, past a Chinese temple and streetside restaurants with signs in Mandarin.

Heroin and meth use here are rampant. Zau Man says nearly every household has at least one drug user, dealers work out in the open and often violent meth addicts have turned parts of Kutkai into no-go zones.

"In some areas, you can only get food until 10pm, but you can get drugs 24/7," he says.


Myanmar is facing a "public health disaster" because of meth and few villages in the country are left unscathed, Jeremy Douglas, regional representative of the UN Office on Drugs and Crime (UNODC), tells AFP.

But the crisis is at its most acute in the poppy-covered hills of Shan State, where a landscape overrun with armed rebel groups, militias and security forces is an ideal breeding ground for meth labs.

Accurate figures of production of high quality crystal meth, or "ice", and low-grade meth, known in South-east Asia as "yaba", are unavailable.

In January 2018, Kutkai police seized 30 million yaba pills, 1,750kg of crystal meth and 500kg of heroin with a domestic value of some US$54 million in the country's largest-ever drug bust.

But huge raids leave street prices unaltered, suggesting they are only a small slice of production, according to the International Crisis Group, which says the business now "dwarfs" Shan's formal economy.

Crystal meth is smuggled via sophisticated trafficking networks to more developed markets like Australia, where it can fetch a wholesale value of more than US$180 million per tonne.

Yaba is distributed to Myanmar's neighbours, particularly Thailand and Bangladesh.

But the pink pills are increasingly being dumped at rock-bottom prices on a domestic market in what Douglas called a "smart and ruthless" strategy to build demand.

"It's a nasty business and they're really pushing it out into the population," he says.

Users and health workers in three different towns in Shan state - Lashio, Kutkai and Muse - told AFP pills go for just 500 kyat (S$0.45) for three.

As the price falls, so does the user age, with reports of children as young as nine taking yaba.

Many miners, long-distance drivers and shift workers mix narcotics - smoking meth to keep them awake, and injecting heroin to bring them down.


Arr San, a gaunt 27-year-old with matted hair, rummages round his roadside shack in Muse and pulls out a bong crafted from a plastic bottle he uses to smoke yaba.

He has been hooked since he was 18 and now consumes around five pills a day.

For Arr San, like many others in the region, there are few opportunities to avoid the cycle of poverty and violence - two years ago he fled his home in a nearby town for fear of being forced into an ethnic armed group.

Narcotics can provide an escape from the often grim reality of life in Shan.

"I take drugs because I get depressed and they help stabilise my mind," he says.

Arr San is one of 300 heading daily to the local hospital for methadone, a powerful opioid used to wean people off heroin.

But the problem is not limited to the poor.

Among Myanmar's urban elite, addiction to high grade crystal meth is already taking root.

Usually in powder or crystal form, "ice" is commonly snorted or smoked. It can also be injected, which increases the threat of disease transmission through needle-sharing.

A UNODC-backed policy launched in February 2018 champions depenalising users and treating drugs as a health issue while tackling the trade's kingpins.

But the law has yet to catch up - anyone caught with even one yaba pill still faces a minimum of five years behind bars.

It is estimated that around half of Myanmar's prison inmates are jailed for minor drug offences and arrests of drug users are rising.

A lack of funding for prevention work and treatment means Myanmar's meth problem may only get worse.

Arr says: "I want to go back home and see my mother's face, but I just can't."

He added: "I don't want to trouble her as I'm so sick."


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