Investing in Myanmar – not when but how
DECADES of stunted development under military rule gave way to Asia’s newest democracy after victory by Aung San Suu Kyi’s National League for Democracy (NLD) in 2015. This, along with the lifting of country-based sanctions by the US government, was supposed to be the turning point for Myanmar, thought to be the “last economic frontier” in Asean.
Four years later, however, the economy has been underperforming and confidence in the government is low. Sluggish growth can be seen in various sectors. Construction and real estate have been adversely affected by office rental declines and low take-up rates for newly constructed condominiums in Yangon. Hotel occupancies are also trending downwards, and premium hotels have had to drop their room rates as business travellers declined.
Despite this, we see a silver lining and maintain that investing in Myanmar is not a matter of when, but how.
First, the Myanmar government has continued with legal and regulatory reforms. The overhaul of Myanmar’s tax system such as reduction or elimination of selected withholding taxes, implementation of the new Myanmar Companies Law, liberalisation of foreign participation in sectors such as education, wholesale and retail are all positive developments. Myanmar is also looking to introduce a new set of intellectual property laws, and liberalisation of insurance sector can be expected in the coming months.
To ensure that the country is not left its neighbours' wake, the government established a new Competition Commission and plans are going ahead with the reform of insolvency laws as well as the drafting of new laws covering cyber security, e-commerce and e-government.
Regulatory processes have also been streamlined. It no longer takes months to incorporate a company, and investors can now utilise the online registration system MyCo to register their companies and undertake searches. A self-assessment system has also made tax administration easier. Myanmar has even done away with arrival and departure cards at its airports. The systems are admittedly still in need of fine-turning but it is a clear and vast improvement over the paper-based processes that were commonplace up till last year.
Second, the Myanmar government is conscious that it needs to address and improve the economy on an urgent basis. While the NLD’s prior focus was on security issues and the peace process, it realises that it cannot take its eyes off the economy and job creation. In that regard, the NLD published the Myanmar Sustainable Development Plan in August 2018, which sets the policy priorities for developing the economy.
With the 2020 elections in mind, there is a growing awareness among the NLD leadership that it can no longer campaign on being an alternative to the junta or military- linked government. Myanmar’s corruption rankings have also improved, following a number of high profile cases against government officials. The government has also formed a new ministry dedicated to overseeing investments in the country called the Ministry of Investment and Foreign Economic Relations. To improve liquidity, the Central Bank of Myanmar is also undertaking a number of regulatory initiatives including permitting foreign banks to lend to local businesses.
Critics point to the NLD’s poor implementation of the economic policy, underdeveloped infrastructure, financial mismanagement leading to widespread kyat depreciation, as well as rising labour costs spurred by inflation and premature increase of minimum wage as reasons behind the decline in foreign domestic investment (FDI) numbers.
The negativity is not just limited to the economy. In August 2017, the military led a security crackdown after attacks by Rohingya Muslim insurgents on security forces in Rakhine State. Cries of genocide and ethnic cleansing were heard as stateless Rohingya Muslims fled into Bangladesh. The UN’s findings on the humanitarian crisis, imposition of Western sanctions on military personnel involved, threat of withdrawal of Myanmar’s Generalized System of Preferences (GSP) benefits by the EU and outcry in international media over the imprisonment of two Reuters journalists investigating the human rights violations in Rakhine State, together with the recent failed repatriation efforts for the first batch of Rohingya refugees back to Myanmar all point to a gloomy picture for Myanmar.
Third, any talk of additional sanctions has so far been limited to targeting those responsible for the Rakhine State crisis, recognising that any widespread sanctions can severely impact Myanmar’s economy. While there may be reputational issues for investors who could be seen as endorsing the government’s handling of the crisis, Myanmar as a whole is best seen as an undeserved punching bag, given the lack of control that the NLD government has over the military whose oversight is carved out from the civilian government under Myanmar’s constitution.
Fourth, from a macroeconomic perspective, Myanmar still remains one of the fastest growing economies in the world. In a space of a few years, it has developed from one of the most isolated countries to one where mobile phone penetration rate is close to 90 per cent. With 40 per cent of the world’s population in its immediate neighbouring countries, Myanmar has the potential to be a low-cost manufacturing hub for the region. More importantly, Myanmar has a sizeable and young population and raft of natural resources.
For Singapore companies, Myanmar is also a member of Asean and part of the Asean Economic Community (AEC). It has a double tax treaty with Singapore, and the two countries are also looking to finalise the bilateral investment treaty shortly. With the Asian Development Bank (ADB) and World Bank forecasting growth in the region of 7 per cent for the next few years, Myanmar remains a compelling investment destination.
How then should an investor look at Myanmar? As a start, it may be good to focus on priority sectors such as health care, education, manufacturing and infrastructure. With the recent liberalisation, Singapore companies are also well-positioned to participate in the wholesale and retail sectors given Singapore’s role in regional and international trade.
It goes without saying of course that doing one’s homework by way of a market study, having a good local partner and working with experienced professional advisers are key to increasing the prospects of success as with any investment. A dose of expectation management would be useful. Legacy issues due to 50 years of economic mismanagement and isolation cannot be solved over a few years. While it may be tempting to chiong, perhaps a better suited approach would be seit shay shay htar par ie be patient and suss out the right opportunity.
Chester Toh co-heads the Myanmar practice of Rajah & Tann and is a director with Rajah & Tann’s Yangon office. Alroy Chan is a partner with the Myanmar practice of Rajah & Tann and was based in Myanmar from 2012 to 2013.
State Counsellor Daw Aung San Suu Kyi on Monday urged an audience of business bosses to invest in Myanmar in the wake of falling foreign direct investment and slowing growth, pledging to “build an investment-friendly environment”.
She was speaking at the first official investment conference organised by her National League for Democracy-led government intended to win support for her handling of the economy.
However, businesses were lukewarm about the speech, which did not touch upon the impact of political crises and offered few details on new reforms.
Over the last year, Myanmar’s government has been under increasing pressure to bolster the economy and support the private sector.
Approved FDI fell short of the official estimates by around 50 percent between April and October 2018, while a survey for European companies last month revealed that business confidence has fallen to a three-year low.
This month, research firm Fitch Solutions downgraded its 2019 growth forecast for Myanmar to 6.3 percent from 6.6 pc previously.
In her speech, Daw Aung San Suu Kyi touted Myanmar’s investment opportunities, its low labour costs, strategic location and potential in human capital. She also doubled down on the importance of Asia, in line with her administration’s pivot towards Asian investments and tourism.
“Throughout the past 40 years, our region has experienced the greatest surge in economic growth the world has ever seen.
“This rapid growth within ASEAN and the rest of Asia has spearheaded the creation of new trade relations, spurred the invention of new technologies, and facilitated the movement of people, ideas, goods, services, and capital,” the State Counsellor told a crowd of investors and diplomats.
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State Counsellor Daw Aung San Suu Kyi at the Invest Myanmar Summit in Nay Pyi Taw. Photo - EPA
“Indeed, we live in an era in which Asia is rising… the global economic pendulum swings from west to east,” she went on.
The leader highlighted her government’s major reforms since coming to office in 2016.
These include the new investment and companies laws, liberalisation in retail and wholesaling and education sectors, restructuring of the Myanmar Investment Commission, the new electronic registry, creation of the Investment and Foreign Economic Relations Ministry, and the Myanmar Sustainable Development Plan (MSDP).
Apart from the launch of a national “project bank”, Daw Suu’s speech was the same in substance as what she said at Singapore’s ASEAN Business and Investment Summit last November.
The project bank will serve as an online one-stop shop where all information on project design to implement the MSDP can be “easily accessed with a single click.”
She repeated her praise for Thilawa Special Economic Zone (SEZ), a project initiated by U Thein Sein, as “a crowning success”.
Myanmar has been a major beneficiary of intra-regional FDI, experiencing a 45pc increase in FDI inflows from Asia, she added.
“An example is the new manufacturing plant set up by Malaysia-based Kianjoo Group in Thilawa SEZ,” she said, referring to the can manufacturer which set up Kianjoo Can Myanmar (KJMM) and Boxpak Myanmar (BPMM) with investments of US$16 million and US$7.5 million respectively.
The total investment is expected to amount to US$75 million for KJMM and US$38 million for BPMM.
“We also hope that recent discussion between Thailand and Myanmar with the support of China and Japan will see similar [progress] in the Dawei SEZ,” she continued.
The China-backed Kyaukphyu SEZ and port project, which her government recently signed a preliminary deal on, was not mentioned.
“The greatest investment is in our people. They are the future of investment in this country,” Daw Suu concluded.
‘We live in an era in which Asia is rising, the global economic pendulum swings from west to east.’ - Daw Aung San Suu Kyi, State Counselor
Two business groups – the India Myanmar Chamber of Commerce and European Chamber of Commerce in Myanmar – called for better implementation and enforcement.
Sunil Seth, president of the India Myanmar Chamber of Commerce, said it was “very encouraging” to have the country’s top leadership highlighting the investment potential.
“Daw Suu’s advice to investors to manage the risks in this frontier market by being innovative while being conscious of environmental and social concerns is a very good point made.”
But he called on “all levels of government” to go beyond making pledges and put the message into practise.
EuroCham Deputy Director Marc de la Fouchardiere praised the state counsellor’s emphasis on responsible investment and on the importance of education, construction and energy sectors, areas where European investments could play a significant role.
But while European investors recognise the new laws and liberalisation measures she mentioned as “good reforms going in the right way”, there is little new in the speech.
Daw Aung San Suu Kyi’s omission of the ongoing Rakhine crisis and the EU’s corresponding measure also did not go unnoticed.
The humanitarian crisis has dampened market sentiment, and, with the EU considering withdrawing Myanmar’s tariff-free access to the EU market, may threaten the country’s nascent but growing exports.
“Nothing new has been announced, and nothing was said on the conflicts in Rakhine State, among other matters, that do have a strong impact on FDIs,” de la Fouchardiere said.
Others echoed a similar view.
An American executive called the speech “old wine in new bottles”.
“In spite of numerous pressing concerns, such as delayed legislative and regulatory reform, impending international economic penalties, and the general ineptitude of domestic players, the speech offered little of substance, and little more in terms of what is actually going to be done,” he said, on the condition of anonymity because he was not authorised to speak to the press.
The executive stressed that “investment is not guaranteed, especially without specific reform that the state counsellor seems unaware of,” referring to implementation of new laws such as the 35pc foreign ownership allowed by the new Companies Law.
The government’s ability to put the MSDP into practise is also in doubt. “Given how well this government handles multiple tracks of thought, I would worry about the ability of the government to develop, say Magwe, while the focus is on peace, or to even effectively triaging conflict regions.”
Despite the criticisms, there are signs that Nay Pyi Taw is speeding up important reforms on multiple fronts, notably the anti-corruption drive, transfer of the General Administration Department to civilian control, changing the electricity tariffs and further liberalisation.
Ref:https://www.mmtimes.com/news/state-counsellor-attempts-woo-foreign-investors.html
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