The Long Road To Investing in Myanmar

A seminar in Bangkok has been told that while there are opportunities in Myanmar for foreign investors the country lacks the human resources to enable rapid growth, while many of the opportunities that exist are in industries which have profound levels of corruption.

The packed to capacity presentation, Myanmar at the Crossroads, part of the Wharton Global Forum organised by the Wharton School, University of Pennsylvania, heard that while foreign investment in Myanmar was increasing – foreign direct investment (FDI) for 2014-15 which ended March 31 increased 97.56 per cent YoY to US$ 81 billion – there is an expectation for things to move faster than they are.

Gary Biesty, a partner with South Asia Law who have offices in Myanmar and Thailand, said “there is an over exaggeration of how much development is happening”.

Reeling off a list of challenges to the kind of growth rumoured to be taking place, Mr Biesty said: “Every sector is lacking human experience. There is a dramatic skills shortage. There is no private equity funding and traditional lending can’t take place and tittles can’t be secured for land.

“We need laws and regulations. The company laws in Myanmar are 101 years old”. However, “we need to get this election out of the way. There will will be no meaningful legislation introduced this year.

Supporting this general view was Aye Lwin, secretary general Myanmar Geosciences Society and joint secretary of the Union of Myanmar Federation of Chamber of Commerce and Industry (UMFCCI) and Peter Tropper, senior advisor, Emerging Markets Private Equity Association (EMPEA).

Mr Tropper said that some small investments were working fine while there was also a small amount of government-to-government (G2G), but apart from the telecommunications and extractive industries little else of significance was happening.

Uniquely Myanmar Banking System

“All the pieces aren’t in place. There is no tourism industry in Myanmar now. There are [still] too many barriers preventing people from entering. The Myanmar finance sector is so far behind… the Myanmar banking sector doesn’t operate the way it does in any other finance sector in any other country.

“There are reforms happening in the Myanmar banking and finance sector, just not fast enough. Again, it comes back to a skills and knowledge shortage. If the Myanmar banks don’t want to improve and adapt, then foreign banks will”, Mr Tropper said.

A significant problem though Mr Tropper said was that “people don’t know that they don’t have the skills needed”.

Acknowledging the points raised by the other two speakers, Mr Lwin said “We need to reduce complicated government processes. We need human infrastructure”.

According to the state-run Myanmar Investment Commission “35 per cent of total Myanmar FDI in 2014-15 went into the energy sector (US$ 3.22 billion), while manufacturing (US $1.5 billion) and transport and telecommunications (US$ 1.68 billion) attracted 25 per cent each”.

In addition to the above, foreign business investing in Myanmar in 2014-15 committed US$ 780.75 million in the real-estate sector, US$ 357.95 million in the hotels and tourism sector, US$ 40.11 million in the power sector, US$ 39.67 million in agriculture, US$ 26.86 million in livestock and fisheries, and US$ 6.26 million in mining.

Acknowledging the impact of Norway’s Telenor and Qatar’s Ooredoo entry into the Myanmar mobile communications market as an example of improvements taking place, Mr Tropper said “until recently we had the lowest cell phone penetration in the word. Lower than North Korea. By next year it is expected to reach 80 per cent”.

“We have four of the biggest rivers in Asia, but we can’t finance power. Myanmar has one of the lowest electrification rates in the world, so the Myanmar energy industry and Myanmar tourism industry both hold great potential, once the barriers to entry are removed”, Mr Biesty said.

Extractive Industries Profoundly Corrupt

With Transparency International ranking Myanmar for the second year in a row at 156 out of 175 countries in its 2014 Corruption Perception Index, equal with Cambodia and Zimbabwe, its intrusiveness into doing business for those investing in Myanmar is a question raised in almost any discussion on Myanmar.
The bad news for investors according to Mr Biesty is that although “the extractive industries offer great potential, they are also the most profoundly corrupt and foreigners are best to not get involved in”.

Pointing out that “corruption is not just the paying of money, but also the corruption of being to well connected”, Mr Tropper said potential investors needed to make very careful inquiries about who they were doing business with and who they were connected to. “Thorough due diligence is essential and well worth the cost”, he added.

On the bright side Mr Tropper said that increasing urbanisation will see about US$ 60 billion per year being spent on infrastructure development and improvements between now and 2030
With a current per capita income of about US$ 900 per year Myanmar remains one of the poorest in Asia.

While individuals and institutions such as the Asian Development (ADB) or McKinsey Global Institute (MGI) say the potential exists for per capita Myanmar GDP to reach as much as US$ 5,100 by 2030, it also says that more than US$ 170 billion in FDI, along with the transfer of accompanying knowledge and capabilities, will be needed to achieve this.

Given the right circumstances MGI says the Myanmar “consumer class”, currently estimated at about 2.5 million people, could rise to 19 million by 2030 with consumer spending almost tripling to US$ 100 billion..

However to achieve this there needs to rapid and sizeable investment in human capital development and institutional capacity building the Wharton Global Forum delegates were told.

Leading the charge with infrastructure development is the government of Japan who through the Japan International Cooperation Agency (Jica) provided Myanmar with more than US$ 2.7 billion in Official Development Assistance (ODA) grants up until 2012, more than any other country in the Greater Mekong Subregion (GMS) including long-time recipient Thailand, in addition to more than US$ 7.600 billion in ODA loans.

Although Japan ODA has helped spur Japanese investments in neighbouring Thailand, Cambodia, Laos PDR, and Vietnam, Japanese FDI in Myanmar remains subdued to date with only about 35 Japanese FDI projects representing about 1 per cent of all FDI currently operational. Though this is starting to change with 16 new Japanese FDI projects gaining approval last year with a combined total investment of US$ 85.740 million. (See: Japan-GMS Infrastructure Improvements Pave Way for Thailand Exodus) While there is no shortage of hype and seminars extolling the opportunities and number of foreign companies investing in Myanmar, the reality is, in the words of Mr Lwin, that Myanmar “still has a long way to go” before the hype matches reality.

Source: The Establishment Post

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