Economic reforms gain momentum

It’s been almost four years since President Thein Sein came to power and launched his reform programme. This year sees Myanmar attempt to connect to the global economy. The economic reform is a long road ahead that requires strong efforts from both the government and private sectors. There is some progress, especially in the liberalisations in various sectors, especially banking and telecom. The following are five major developments reports that illustrate significant business developments in Myanmar in 2014.

FDI on the rise
Over US$3 billion foreign investment projects were approved this year, indicating the growing attractiveness of Myanmar in the eyes of foreign investors.

This brought Myanmar’s aggregate foreign investment to $49 billion in September, according to the Directorate of Investment and Companies Administration.

This year, investors from 17 foreign countries asked permissions to invest in Myanmar including China, Thailand, Singapore, Britain, Korea, Malaysia, the Netherlands, India, Japan, the Philippines, Canada, Libya, Brunei, Luxembourg, Sweden and Samoa.

Among the countries that sought investment permissions, Singapore made the highest investment value in Myanmar, followed by China, Thailand, Britain, the Netherlands and Canada.

Since the foreign investment law was effective, foreign countries have been allowed to invest in many business sectors such as energy, petroleum and natural gas, production, mining, transportation and communication, hotels and tourism, real estate, livestock and fisheries, agriculture, industrial zone, construction and other service sectors.

A total of 30 countries are investing in the country. China stands first with $14 billion (58 businesses); followed by Singapore with $6.6 billion (106 businesses), Hong Kong with $6.5 billion (73 businesses), with South Korea fourth and Thailand fifth.

While China remains the biggest foreign investor in Myanmar, other countries are rushing to make bigger presence.

The European Chamber of Commerce was launched in early December, to promote trade between Myanmar and European countries.

Trade between the EU and Myanmar grew significantly. In 2013, bilateral trade in goods with Myanmar amounted to 570 million euros, a 44-per-cent increase compared to 2012 (404 million euros). Trade in the first seven months (January to July) reached 520 million euros. It is expected that trade will continue to grow strongly. Myanmar’s exports to the EU increased by 35 per cent in 2013 to 224 million euros compared to 165 million euros in 2012. EU exports to the country increased by 45 per cent in 2013 reaching 346 million euros compared to 239 million euros in 2012).

Foreign bank licences granted
2014 marked the first time in half a century that Myanmar has opened its doors to foreign banks. The government has awarded nine trading licences to institutions from across Asia in October. The move is seen as the government’s effort to draw foreign investment to its once-isolated economy. Japan’s “mega-banks”, including Mitsubishi UFJ Financial Group, Sumitomo Mitsui Financial Group and Mizuho Financial Group, secured a third of the preliminary permits. The other successful bidders who got the licences were Singapore’s UOB and OCBC, ICBC of China, Thailand’s Bangkok Bank, Maybank of Malaysia and Australia’s ANZ. The long-awaited announcement by Myanmar’s central bank allows overseas lenders to start doing business in the country, opening the door for businesses wanting to tap a market of more than 60 million people. The licence holders have 12 months to prepare for the opening of their branches in the country.

Telecom sector liberalised
The telecom sector, along with foreign bank licences, led the country’s economic reform efforts. Norwegian Telenor and Qatari Ooredoo beat out 89 other competitors to receive the coveted telecom licences in June last year but it was only in January this year that they were granted 15-year licences by the Myanmar government. The two companies have put efforts to tap into the hunger for Internet and mobile phone services and will need to overcome obstacles, including land disputes, electricity shortage and other hurdles. Ooredoo raced head in September in launching its mobile phone and 3G Internet service in Yangon, Mandalay and Nay Pyi Taw. The company claimed the network reached 7.8 million people, or about 15 per cent of the population. Telenor followed in a more systematic way, launching first in Mandalay in September and then in Yangon in October. The distribution system of its simcards was designed to prevent a black market from forming. Each company plans to invest US$1 billion in Myanmar where mobile and Internet use stands at only 10 per cent and 7 per cent respectively. London-based consultancy Ovum predicts that the number of new mobile subscribers in Myanmar will grow at a compounded annual rate of nearly 30 per cent to reach 32.3 million people by the end of 2019. Their ambitious plan is to reach 90 per cent of population in five years. It remains to be seen how they are going to cope with the political risks and other issues. But a properly functioning telecom network will surely help improve other sectors, including healthcare, finances, and overall socio-economic development.

Trade deficit and weak kyat
Myanmar’s trade deficit has widened, causing a plunge in the local currency against the US dollar and concerns over inflation.

During the fiscal year, trade deficit widened to more than US$3 billion, as the country relies heavily on imports to support the skyrocketing domestic demand.

The deficit was huge against international reserves, which are estimated at around $5 billion.

Due to the trade deficit as well as the spike in the value of the US dollar in line with the US economic recovery, the kyat this year hit a record low since the country adopted the managed float system in April 2012. From Ks 6 per US dollar before the system was adopted, the new official rate started at Ks 820. In November, it plunged to 1,048 per dollar.

The weak currency sparked concerns over inflation, at a time when goods and housing prices skyrocketed. The government also plans to increase civil servants’ salaries next year. According to the World Bank, the country’s inflation is projected to be more than 7 per cent this year. The majority of the population, 70 per cent, is involved in rice farming and they are not shielded against the rising cost of living.

Continued tourism boom
The boom in tourism is expected to be continued with an even more ambitious target of tourist arrivals. The Japan International Cooperation Agency (JICA) estimates that the total number of tourists visiting Myanmar between 2013 and 2030 will reach at least 20.4 million although Myanmar’s Hotel and Tourism Ministry has set a modest target of only 7 million. Authorities say it is quite possible but still believe the 7-million target is more practical.

At present, tourist arrivals are about 3 million a year and the number will certainly grow due to many favourable factors. Myanmar is among the world’s few undiscovered frontiers. Moreover, the country wants to build up a lucrative tourism market. In September, the government launched an online visa application (e-Visa) system, for tourists from 41 countries, including Singapore, China, Japan and North Korea, the United States and Britain. The e-Visa service is valid for 28 days and only available for those arriving in Yangon. In October, the government awarded a contract to a Singapore construction company to construct the new Hanthawaddy airport, located 80 kilometres from Yangon. It is scheduled to be completed by the end of 2019. The new airport will be able to handle as many as 12 million passengers a year compared to the 2.7 million of the current airport. Demand will outstrip supply until then but in terms of accommodation, the number of hotels will keep growing to cater to growing demand of tourists. By the end of this year, Myanmar will have 1,076 hotels providing 42,000 rooms.


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