April insights from Myanmar Capital Partners

INSIGHTS from Myanmar
Worldwide interest in Myanmar continued unabated throughout March with visits to Myanmar by a number of world figures including Tony Blair, former Prime Minister of the UK, and Eric Schmidt, CEO of Google. Myanmar’s leaders also continued their programme of international engagement with President Thein Sein visiting several EU countries and Australia. Early April Myanmar is gearing up for the Thingyan Festival on 15 April, the 3 day water festival (in reality a free for all water fight) that welcomes in the New Year. In effect Myanmar closes down for a full week over this period.

Amongst the highlights this month:

• On February 22nd the United States authorized US entities, allowing them to do business with four major Myanmar banks extending the easing of economic sanctions. The Treasury Department said it had issued a general license to allow individuals, companies, and financial institutions to conduct most financial transactions—such as opening and maintaining an account and a range of other financial services—with the banks. The banks named were Myanma Economic Bank, Myanma Investment and Commercial Bank, Asia Green Development Bank and Ayeyarwady Bank.
• A major United States business delegation including 50 representatives of US companies visited Myanmar from February 24th to 28th. The US Chamber of Commerce announced that the delegation included representatives from a wide range of industries, including agribusiness, automotive, electronics, energy, retailing and telecommunications. It is the first major US business delegation since President Obama’s historic visit to the country last November.
• Meanwhile on February 25th Myanmar President, Thein Sein, left on a visit to five European countries at the
  invitations of the Italian President, the Norwegian Prime Minister, the President of Austria, the President of Finland and the Chairman of the European Commission. Further sanctions were lifted during this tour.
• A tender for two telecom licenses announced in mid January has drawn expressions of interest from 91 companies according to officials at the Ministry of Posts, Telecommunications and Telegraphs. Asia Green Development Bank, one of Myanmar's largest privately owned banks has received approval from the Directorate of Investment and Companies Administration to become a public company and expects to go public within 6 months.
• Rice exports in 2013 are expected to reach 1.5 million tonnes having hovered around 800,000 tonnes in the preceding years 2012, 2011 and 2010 according to the Myanmar Rice Industry Federation. This will make
  Myanmar the world’s fifth largest rice exporter.
• According to the Ministry of Commerce, agricultural exports of beans and pulses are set to generate US$ 1.0bn for the economy in FY2013. By far the largest purchaser is India with 76%, followed by Singapore with 14% and then Malaysia and Vietnam each with 2%.
• Singapore based Jardine Cycle & Carriage Ltd has entered into a joint venture with Automobile Century Company Ltd to open a vehicle maintenance service centre in Myanmar. The Myanmar government liberalized the importing of cars in October 2011 resulting in an inflow of 130,000 cars between October 2011 and January 2013. Currently approximately 90% of all cars in Myanmar are imported from Japan.
• Nissan Motors, the second largest car maker in Japan, will establish an assembly plant in Myanmar with local partners E. Garage Auto Service and Spare Parts Ltd which is 90% owned by Malaysia’s Tan Chong Group, which is also Nissan’s partner for car assembly in Cambodia, Laos, Malaysia, Thailand and Vietnam. Japan's Suzuki Motor Corp has also announced plans for re-opening its existing assembly plant in the country by May 2013.
• The hotel industry sees the Max Myanmar Group, one of the largest conglomerates in Myanmar, convert the Pyay Towers, currently under construction, into a five-star Novotel Hotel by the end of 2013, it will be operated by French-owned ACCOR Hospitality. When completed the hotel will add some 366 rooms to the room starved Myanmar hotel sector. Myanmar currently has 30 foreign-owned hotels in operation providing some 5,000 rooms.
• Growing consumer demand has attracted Dentsu, the Japanese advertising and public relations agency, to open a branch office in Yangon. The office will mainly cater to Dentsu’s Japanese clients. Last year, WPP’s Ogilvy & Mather became the first international agency to set up in Myanmar by acquiring a stake in Today Advertising in May 2012.
• Seafood exports to the U.S grow following the easing and lifting of international sanctions according to the Myanmar Fishery Federation (MFF). Myanmar companies need to register with the U.S Food and Drug Administration (FDA) for exporting and meet FDA standards.

Politics

• More sanctions eased. Australia has announced the lifting of more restrictions on Myanmar. Australia also pledged US$20 million in aid for “strengthening democratic institutions, promoting human rights, improving economic governance and advancing the rule of law”. President Thein Sein is the first Myanmar leader to visit Australia since 1974.
• UK intensifies its re-engagement. Britain’s former Prime Minister Tony Blair was in Burma on March 16th meeting with top government officials. He led a “delegation”, including Britain’s ambassador to Myanmar, Andrew Heyn, which met with Vice President Nyan Tun at the Presidential Palace in Naypyidaw. They discussed the “implementation of a long-term plan for economic development that is crucial for the framework of economic and social reforms”. Mr Blair made a previous trip to the country in October last year. He also met Aung San Suu Kyi during his visit to continue discussions that began in October.
• Constitutional developments. Politicians and analysts in Myanmar have welcomed the decision to establish a committee to review the 2008 Constitution. There has been speculation that the review will focus on allowing Aung San Suu Kyi to stand for president—or at least vice-president—following the 2015 elections. Under the prevailing Constitution, she is currently barred on the grounds that she has foreign children. Some observers believe it could be part of a deal to further the ambitions of Shwe Mann, speaker of the Lower House of Parliament, who is tipped to take over as chairman of the ruling, military-backed Union Solidarity and Development Party (USDP). 
  

Commerce 

• Greater freedom of trade. The Ministry of Commerce has announced that as of March some 152 export and 166 import commodities are license-free. Major export goods, such as beans and marine products, are included. Export products are grouped into five categories:  agricultural, industrial, forestry, CMP (cutting, making and packing) and animal products. Major imports, such as electronic goods, foods and furniture, are also on the list of those not requiring licenses. However, staple food products like rice and oil are not. 
• The tourist industry sees its potential. Some 300 business executives from 13 countries attended the Myanmar Hospitality and Tourism Conference 2013. Union Minister Htay Aung of the Hotel and Tourism Ministry told the conference "Myanmar has a total of 787 hotels across the country. Among them, over twenty are 4 or 5-star hotels," adding "new projects have been awarded to develop infrastructure and hotels so that over 1,000 more rooms will be available by the end of this year." Foreign companies have already invested over $1.4 billion in Myanmar hotels and Tourism businesses. Not only Japan, Malaysia, Singapore, Hong Kong from the East but also UK, France, Switzerland as well as the US and other countries are preparing to enter Myanmar hotel and tourism sector.
• Construction sector has full order book. The Yangon City Development Committee has given two private companies permission to construct two 22-floor buildings in Yangon. Shwe Taung Company has received approval to construct a 22-floor building near Junction Square Centre and Mandalay Golden Wing Company has received approval to build another at the junction of West Horse Race Road and Sayasan Road. The buildings’ height will not exceed that of Shwedagon Pagoda. The committee has also approved plans for the 27-floor Kabar Aye Executive Residence and is examining another 15 plans to build high-rise buildings, including a 44-floor tower, a 38-floor tower and a 27-floor tower.
• Company Law is being modernised. The 100 year old Burma Companies Act will be rewritten and an online system for registering companies will be installed with assistance from the Asian Development Bank. Aung Naing Oo, director-general of the Investment and Companies Registration Department, described the Burma Companies Act, passed in 1914, as being inappropriate for modern business. The ADB will help draft amendments.
• Port operations expanding. The National Privatisation Commission has announced that one of the main terminals at Yangon Port has been sold to Myanmar Economic Holdings Limited, Myanmar’s largest military-owned conglomerate, for 37.9 billion kyats (about US$42 million). The terminal is one of five at the port. Situated on an 11-acre site it was previously owned by Myanma Port Authority, which operates under the Ministry of Transport.
• Consumer goods market growing fast. Myanmar is about to become a battleground for two old brewing rivals. Carlsberg of Denmark and Thai Beverage of Bangkok, who used to brew Carlsberg for the Thai market, are both planning to brew and sell their brands in Myanmar. Myanmar is a promising new market for beer with per capita consumption very low, about 10 percent of the volume drunk in Thailand and Vietnam. Carlsberg has formed a partnership with Myanmar Golden Star Breweries, which has links with the Burmese military. The new partnership will initially involve distributing its brands in Burma, but there are also plans to build a new brewery.
• Infrastructure investment increases. Italian-Thai Development (ItalThai) will hold at least 25% in each of the eight Myanmar joint ventures to develop infrastructure at the massive Dawei Special Economic Zone and deep-sea port. Special Purpose Vehicle (SPV) will be set up with the Thai and Myanmar sides holding a combined 60%, the balance by Japan and South Korea. The projects include a deep-sea port, road and rail links, power plants, water facilities, industrial estates, a telecom network and the township. The Japan International Cooperation Agency (JICA) has agreed to finance up to 80% of the $2.5 billion required for the road link and port, while the Japan Bank for International Cooperation will support power plants that require $10 billion for coal-fired generators.
• Agricultural industry adds more value. Myanmar will construct rice factories with the help of Mitsui & Co. Ltd. from Japan to produce value added products from rice, according to Myanmar Agribusiness Public Corporation Limited (MAPCO). The joint venture - Integrated Rice Complex Project (IRCP) - includes milling and processing plants to produce value added rice and rice products. The factories will be constructed across the country costing around US$200 million in total. Myanmar rice and rice products export in this fiscal year is the biggest in 46 years.
• Telecomms sector booming. Elite Tech, one of the country’s largest private technology companies anda member of th Htoo Group, will spin off its telecom and information technology divisions as a single public company. The new company will combine Elite Tech’s lucrative telecom and IT business units. Elite Tech works with state-run Myanmar Post and Telecommunication to distribute SIM cards for mobile phones. It also sells broadband connections to homes and other Internet-related and IT services.
• Fibre optic backbone expands. A government telecom project to lay fibre optic cable connecting Yangon and capital Nay Pyi Taw is planned. The infrastructure project is a joint venture between Myanmar Post & Telecommunication (MPT) and Singapore’s International Telecommunication Holding Ltd (ITHL) for 30 million GSM phone lines to be set up in major cities of Myanmar. The project is being carried out by Myanmar Fibre Optic Cable Network Co Ltd (MFOCN), an affiliate of ITHL.
• Singapore builds on close relations. A business delegation from Singapore visited Myanmar and met 
  ministerial staff to discuss a range of investment opportunities covering construction, energy, electrical appliance, food and beverage, technology and services companies. Cumulative investment from Singapore in Myanmar is reported to have reached US$2.166 billion at the end of January, making it the sixth largest investor in Myanmar.
• Internet facilities expanding. Eric Schmidt, Google’s executive president, made a speech and took part in a discussion on Internet development at the Myanmar Information and Communication Technology Park in Yangon on 22nd March. The main topic was developing and preparing a plan for the future of the Internet in Myanmar. Schmidt and five local entrepreneurs, that included our Adviser, Nay Aung who was a former Google executive, debated with around 400 people. 
  

Enquiries should be addressed to the Country Head, Gregory Miller, at ceo@myanmar-capital-partners.com.