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Local retailers balk at foreign competition as economy slows


While opening up the domestic retail and wholesale sector to foreign ownership has succeeded in generating rising investor interest, local concerns over the move by the Ministry of Commerce (MOC) have also grown.

Chief among those concerns is foreign competition. In fact, local retailers say there should be restrictions placed on foreign firms that directly compete with local SMEs and mom and pop shops.

Myanmar has around 3 million small convenience stores that have run in the country for years. “The owners of these businesses may not even be aware of the new MOC directive. These shops will face no small amount of difficulties if major retail chains like 7-Eleven, for example, are allowed to enter,” said U Myo Min Aung, deputy chair of communications and member affairs at the Myanmar Retailers Association (MRA).

Foreign competition

Foreign chains have indeed been eyeing expansion opportunities in Myanmar. On September 3, the International Finance Corporation (IFC) said it would loan around US$25 million to Metro Wholesale Myanmar Limited, the 85:15 wholesale joint venture between Germany-based Metro AG and Singapore-listed Yoma Strategic Holdings.

“The company will improve the local distribution and logistics infrastructure, which is expected to result in lower prices of quality products for end consumers,” the IFC said.

Wholesalers and retailers from Japan, Thailand and South Korea are keen to expand in Myanmar too, according to U Yan Naing Tun, director general of the Department of Trade under MOC.

Among the companies that met with the MOC to discuss potential opportunities was Japanese retailer Aeon Co, which owns a stake in a local joint venture that acquired 14 supermarkets operated by Hypermart Asia Co in 2016. Aeon Orange Company opened its first store in North Okkalapa, Yangon, in September during the same year.

That level of foreign competition, if it comes, would also arrive at a time when businesses across the economy are already facing pressures from the rising dollar-to-kyat exchange rate. Since May, when the MOC the first announced the liberalisation of the sector, the kyat has lost around 10 percent of its value against the US dollar.

That has had a major impact on the prices of imported commodities and parts, which are used in local manufacturing. Meanwhile, as local inflation begins to bite, consumers are tightening their purse strings and cutting down on discretionary spending. That’s all had a negative impact on the retail sector.

“As commodity prices have risen on the back of the higher dollar exchange rate, spending has decreased and the retail market is at a standstill,” said U Myo Min Aung.

Govt support

The government should provide financial support and introduce restrictions on foreign investors to protect the more vulnerable local retailers, the MRA said.

“We want the government to provide more support to local operators in the face of foreign competition and we are hoping it will provide financial assistance when needed,” said Ma Tin Su Hlaing, deputy chair of MRA, adding that local businesses also require education and information on policies related to trade and tax.

“The local operators are not ready to withstand competition from savvier and much larger foreign competitors. They will be more prepared when they have better infrastructure, financial support and technology,” she said.

So far though, the sector has yet to see a major influx of foreign investment.” A few investors have entered the domestic retail sector but we have not seen any famous brands or major enterprises here yet,” said Ma Tin Su Hlaing.

For its part, the MOC said its aim in allowing foreigners to carry out sales and distribution services in the domestic market is to provide more competitive prices and choices in quality to consumers.

The MOC issued Notification 25/2018, which authorises 100 percent foreign-owned companies as well as joint ventures between international and domestic investors to carry out retail and wholesale businesses in the country, on May 9.

Under the new rules, 100pc foreign-owned firms must make initial investments of US$3 million and $5 million to operate a retail or wholesale business, respectively, in Myanmar. Meanwhile, for joint ventures with foreigners where the local investor has at least a 20pc equity ratio, the initial investments necessary for retail and wholesale are $700,000 and $2 million, respectively.

On July 26, the MOC also issued a list of products allowable for trade.

The MOC said the list of products will provide specific information and make clear the type of goods allowed to be traded in Myanmar. The list includes 24 products and items, such as consumer goods, which includes clothes, watches and cosmetics, foodstuff, which includes agricultural, fishery, animal and instant products, beverages and locally-produced liquor, household and kitchen items, drugs and medical equipment as well as vehicles and vehicle parts.

Standard operating procedures (SOP) for retail and wholesale business registrations were also released. The SOP to apply for retail and wholesale services registration includes specifying the type of company, procedure for retail and wholesale operations, lowest investment amount, land area, if the business involves opening shops or enterprises and the registration period.

Source: Myanmar Times

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