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Aeon’s Myanmar debut marks milestone in reform

August 14, 2016 7:00 am JST A new joint venture will take over Orange stores like this one in Yangon. YANGON — The approval of Japanese retailer Aeon to open up shop in Myanmar is a hallmark of the country’s economic reforms, a result of efforts by the new government overseen by Aung San Suu Kyi and a byproduct of its membership in the Association of Southeast Asian Nations. The company will be the first foreign entity to operate retail stores in the country. It will work with the operator of 14 Orange supermarkets in Yangon and Mandalay, in the country’s north.

That is a rather sizable network for Myanmar, where chain stores have still yet to take root. Orange is one of the country’s top three retail chains. As early as this year, the chain will be renamed Aeon Orange. Aeon announced a joint venture arrangement with Orange operator Creation (Myanmar) Group of Cos. on Aug. 1. The new company will take over existing stores, with 10 new outlets to open within five years. Aeon’s expertise could sharply modernize Myanmar’s retail industry, which offers limited fresh food and has been slow to employ merchandise management systems. The Chiba Prefecture-based company started offering retail financial services in Myanmar back in 2012, and has been waiting for an opportunity to launch retail stores.

The process dragged on for four years amid the country’s unique red tape. Myanmar has no law banning market access by foreign retailers. But since 2003, the Ministry of Commerce had put investment requests by foreign companies on hold.

Even after the country began its democratization process in 2011, which enticed many overseas businesses, no foreign retail businesses were given approval. Similar restrictions on foreigners were put up for investing in Myanmar companies and for trade, because authorities were too afraid of stepping on other departments’ toes by issuing approvals. Such practices had taken root mainly because the country had lagged behind in efforts to draw up systematic investment regulations under decades of military rule. Domestic businesses also vocally resisted.

Myanmar’s homegrown retail leader, City Mart Holdings, is one of them. Win Win Tint, who heads the company, repeatedly pressured the government, saying that market liberalization is not acceptable when domestic companies are held back by the fundraising “handicap” of the country’s weak financial markets. Still, Aeon got the green light. And the new government launched in March, under State Counselor Suu Kyi, looks to have played a major role. She pledged improved transparency in economic systems and rule of law in the run-up to the general election last fall. Arbitrary decision-making — a negative legacy of the military regime — came under the scalpel.

The Commerce Ministry was known among foreign companies for its frequent rules-tweaking notices. As a result, Myanmar’s liberalization of its retail market represents a real milestone in reform, says a law firm specializing in international regulations. The other driver of reform was other Southeast Asian countries. Aung Naing Oo, director general of the Directorate of Investment and Company Administration (DICA), explained the approval of Aeon’s operations as an “obligation” stemming from the country’s membership in the ASEAN Economic Community.

The community was formed in late 2015 to integrate the regional economy. Tariffs have been removed for the bulk of trade within the region, but efforts to eliminate nontariff trade barriers have made only halfway progress — as reforms in Myanmar and some other member states lag behind. Singapore, the biggest foreign investor in Myanmar in fiscal 2015, repeatedly exerted pressure, along with other ASEAN members. Now, Central group of Thailand and many other retailers from the region are likely to set up shop in Myanmar. The Myanmar government is expected to ease regulations this year on stock trading by foreign investors. Laws defining what constitutes a domestic company will be updated so that foreign stakes of less than 35% will not change that standing.

 

Source: Nikkei Asian Review

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