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September 2016

1/9/2016

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Snippets
Aung San Suu Kyi meets with British PM in London and President Obama in USA
USA sanctions to be lifted “soon”
IFC says to increase Myanmar portfolio to US$ 600M by end 2016
Zaw Min Win elected new President of UMFCCI

​Politics

Sanctions To Be Lifted…. - The announcement that most US sanctions against Myanmar will be lifted was the hottest topic among the business community this month. The move, which includes the reinstatement of Myanmar under the US Generalized System of Preferences (GSP) tariff system, is expected to provide a boost to exporters and increase foreign direct investment. A representative from a leading foreign law firm in Yangon said that closer cooperation between Myanmar and the US has the potential to fuel a boom in infrastructure development and consumer spending in this country. To date, American investment in Myanmar has lagged behind many other countries. “As sanctions have eased over the past two years, we have seen a range of multinationals looking to set up Myanmar-specific investment vehicles, or to include Myanmar as part of their wider emerging markets investment strategy. US multinationals have not featured as prominently in these discussions as other economic powers such as China, Thailand and Japan have, in part due to the complex sanctions regime,” said Jo Daniels, Myanmar Managing Partner of Baker & McKenzie. The company was hopeful that easing sanctions would mean that more US investors would begin to see opportunities emerging in Myanmar.
….If Contact With North Korea Is Stopped - Individuals within the Myanmar military may still be cooperating with North Korea although the new civilian government and the military leadership oppose such ties, a senior US official said recently. During Myanmar’s years of international isolation, its then-ruling junta bought defence equipment from North Korea. The United States has been pressing Myanmar to cease those ties as a condition of normalized relations with Washington. Assistant Secretary of State Daniel Russel said President Barack Obama emphasized to Aung San Suu Kyi, during a visit to Washington this month, the importance of rooting out any vestiges of cooperation that may have remained. “We think there are potentially a few residual pockets within the Burmese military, people who might still have some ongoing interactions that are in effect leftovers from five-plus years ago in the era of the military dictatorship,” Russel told a Senate hearing. “But we think as far as the government is concerned and the military leadership is concerned that they are fully on board and this is something they are working to prevent and eradicate,” he said. UN Security Council resolutions forbid arms trading with North Korea—part of the international effort to restrict sources of revenue for the isolated nation’s nuclear and missile programs. During junta rule, Myanmar’s military was a key North Korean customer. Obama announced that he plans to lift the remaining US economic sanctions and restore trade benefits to the former pariah state, following its transition to democratically elected civilian government after decades of military rule. Republican Senator Cory Gardner of Colorado complained at the hearing that Congress had not been consulted adequately before the decision was announced to lift the so-called “national emergency” with regard to Myanmar—the executive order used to authorize the current sanctions. He said Aung San Suu Kyi, who met with lawmakers during her visit, said she still supports sanctions on the military-controlled companies Myanmar Corporation and Myanmar Economic Holdings Ltd., two of the largest businesses in the country. Russel responded that Aung San Suu Kyi had said that it was time to lift all the sanctions—a position she articulated in public. Some human rights activists and congressional aides argue there are alternative legislative authorities the US could use to restrict dealings with those corporations, even after Obama lifts the emergency.

Business

New Investment Law - The new Myanmar Investment Law has been submitted to Parliament and is expected to be approved by October. Ministry of National Planning and Finance Deputy Minister Maung Maung Win put forward the investment draft bill to the Lower House, following an announcement by the US government that economic sanctions against Myanmar would soon be lifted. The bill has been through various drafts, beginning under the previous government. There was a push to submit it to Parliament following Aung San Suu Kyi’s visit to the United States and a call for increased US investment in Myanmar. The new draft bill combines the Myanmar Citizens Investment law—enacted in July 2013 and governing local investment—and the Foreign Investment law—enacted in November 2012 and governing foreign investment—into one law. The draft law reduces the mandate of the Myanmar Investment Commission (MIC) and provides a more tailored approach to tax exemptions, according to the deputy minister. Than Aung Kyaw, deputy director general of the Directorate of Investment and Company Administration (DICA) said that the law had been changed significantly from former versions. “We are trying to approve it soon, as a result of Aung San Suu Kyi’s visit to the United States,” he said. Under the existing investment law, every investment must have the approval of the MIC. Under the draft law, there will be different guidelines needed for MIC approval. The government will directly handle the investment proposals that are deemed strategically important, require a substantial amount of capital, or could potentially have social and environmental impacts, according to the planning and finance ministry. The new bill includes more strategic tax incentives. If the government chooses to promote a certain business or sector, related investors will receive tax incentives, Than Aung Kyaw said. The bill also incentivizes investment in less developed areas. The draft law has been approved by the State Counselor’s Office. Drafted with the help of the International Finance Corporation, it has 23 chapters and 104 clauses, and the definition of terms in the draft law is in line with other international laws.

Thai Interests in Myanmar -
The most attractive sectors for Thai investors in Myanmar include infrastructure, information technology, agriculture and related processing, manufacturing and tourism, according to Thai business leaders. A large number of infrastructure projects including roads, ports and postal services are being planned in Myanmar with the aid of foreign assistance, according to Nattawin Pongpetrarat of the Thai Business Association of Myanmar. Due to poor road infrastructure and a shortage of skilled labour, many companies are investing hugely in information and communications technology, promising potential for e-commerce and online services, Nattawin said. Agriculture is one of the top ten contributors to Myanmar’s economy and there was demand for expertise from Thai companies in this sector, he added. With more than 20 daily flights connecting Yangon and Thailand, tourism companies in the neighboring country should consider increasing excursion services for Myanmar-bound tourists, he said. “Thai companies should capitalize on their expertise. If they combine this with local experience, they will prosper,” said Nattawin, who has operated a furniture and garment business in Myanmar for more than 10 years. “The Myanmar economy is very dynamic. Conditions change rapidly and it is necessary to have someone on the ground to point you in the right direction,” he told the Thai audience. Sanan Angubonkul, head of the Thai government’s private-sector team tasked with boosting exports and overseas investment projects, advocated setting up manufacturing operations in Myanmar to supply the local market, as well export markets. “The reinstatement of the United States’ Generalized System of Preferences (GSP) tariff system for Myanmar will benefit exports,” he said.

Banking Reform? -
A major shake-up of the banking sector is predicted in a new study. Myanmar’s banking sector will expand eightfold in almost a decade, to around US$247 billion by 2025, according to an analysis titled Myanmar Banking Sector 2025: The Way Forward. Around 120,000 jobs are also likely to be created, it says. However, important obstacles remain to achieving these numbers, and local banks and smaller banks will face many challenges in the coming period. It identifies five vital structural reforms necessary for the banking sector. First, an active interbank market that enables banks to lend to one another instead of going to the Central Bank for funds needs to be urgently developed. “A vibrant interbank market with standard instruments will provide comfort to the banks in their ability to refinance their credit and facilitate the transmission of the Central Bank monetary policy. In short, it is the bedrock of any modern banking system,” according to the report. Second, banks and the regulator must foster access to credit through a range of regulatory adjustments and a change in lending practices, it says. Third, the regulator should take many steps to improve current low trust in the overall banking system. Public disclosure obligations on banks should be strengthened, the report advocates. Fourth, reform of state-owned banks must be expedited. The largest state-owned banks currently operate as commercial banks “without the required capabilities” and do not abide by the same sets of rules and regulations, the report says. Lastly, shoring up the independence of the Central Bank and building its capacities will be critical to steer reforms, the report states. Given the “massive” changes ahead, local banks will have to work hard to seize opportunities and overcome problems. Smaller banks will struggle even more. “Size matters when it comes to banks, smaller ones may not survive what’s to come,” the report warns.

Less New Hotels Needed -
The Ministry of Hotels and Tourism will impose restrictions on new hotel projects in several major tourist spots including Yangon. The ministry has started negotiations with divisional and state governments in order to restrict new hotel projects in Yangon and Mandalay as well as Taunggyi, Inle, Kalaw and Yawnghwe in Shan State. New hotels in those areas are unnecessary as occupancy rates in existing hotels are low, Hotels and Tourism minister Ohn Maung said. “At present, there are around five hotels that have more than seven stories in Yawnghwe. Those buildings do not complement the countryside,” said Ohn Maung. Since they came into power in 2012, Myanmar’s previous government was liberal with permission for new hotel projects. As a result, the number of hotels exceeds the number of visitors coming into the country, which calls for a restriction of new hotel projects in the future. Minister Ohn Maung also warned potential investors in the hotel industry not to be deceived by official tourist figures as foreign visitor numbers include those entering the country on other visas and for other reasons. “Next year, we will release the tourist figures in different groups,” he said, promising to give more accurate tourist figures. “If people are convinced to invest in hotels based on those numbers, they are looking for trouble. Only banks will benefit from lending money to them,” he added. According to the Ministry of Hotels and Tourism, there have been 48 hotel projects with foreign investment amounting to over 9,000 rooms in Myanmar. Of the 48 projects, 34 are already in operation, 11 are under construction and three have not yet been started. Ministry statistics said there are 1,373 registered hotels with 53,783 rooms in Myanmar—346 hotels with 16,783 rooms in Yangon, 184 rooms with 7,416 rooms in Mandalay, 88 hotels with 2,729 rooms in Inle, 32 hotels with 888 rooms in Taunggyi, and 38 hotels with 814 rooms in Kalaw. The occupancy rate of these hotels from April to July is 52% in Yangon, 54% in Mandalay, 28% in Inle, 47% in Taunggyi, and 40% in Kalaw.

More Credit Companies -
Potential growth in the market for motorbike loans emerged as a factor in two foreign-led ventures announced this week. South Korea’s Shinhan Card Co. launched a microcredit service that will begin offering small-sized loans to clients in Yangon and Pegu, with a plan to later introduce installment financing and leasing. Target customers are likely to include purchasers of motorbikes, according to the report. The move is part of the company’s efforts to enter overseas markets as falling commission fees reduce profitability in the South Korean market. The firm’s sister company, Shinhan Bank, is also preparing to enter the Burmese market. Meanwhile Thai motorcycle leasing company Group Lease PCI plans to buy 71 percent of BG Microfinance Myanmar from the Commercial Credit and Finance PLC of Sri Lanka. The deal will be completed shortly, pending due diligence of BG Microfinance, Group Lease chairman and chief executive officer Mitsuji Konoshita said at a joint briefing. Group Lease aims to book earnings from the Myanmar firm in the fourth quarter, he said.  The firm will inject US$6.8 million into BG Microfinance to expand to 12 branches in Myanmar next year from three at present, he added. BG Microfinance is a subsidiary of Commercial Credit and has operated in Myanmar for more than two years with about 10,000 customers.

Junction City Phase II -
The Shwe Taung Group has entered into a conditional agreement with Singapore-listed Keppel Land to develop premium serviced residences and offices at the second phase of the Junction City development on Bogyoke Aung San Road in downtown Yangon. Under the agreement, the real estate arm of conglomerate Keppel Corp will hold 40 percent of the project, for a total investment of $48.6 million. Construction of the second phase of the project, which will include a hotel, a retail and entertainment center and a large car-park, is expected to begin in 2018. “We are confident of the long-term potential of Myanmar, and are committed to participating in and contributing to the growth of the country,” Mr. Ng Ooi Hooi, president of regional investments at Keppel Land, said. Keppel Land first entered Myanmar in 1993, when it broke ground for the Sedona Hotel in Yangon. It also owns and manages the Sedona Hotel in Mandalay. Shwe Taung and Keppel have previously collaborated to develop Junction City Tower, a 23-story office building in the first phase of the multi-purpose project.
Infrastructure
Dawei Redux? - New editions will be created soon of two committees on the proposed Dawei megaproject that have been dormant since late last year, according to a senior Thai official. Activities of the Myanmar Thailand Joint High-Level Committee (JHC) and the Joint Coordinating Committee (JCC), formed to foster development of the long-delayed multi-billion dollar industrial project, stalled before last year’s general election in Myanmar. Porametee Vimolsri, secretary-general to Thailand’s National Economic and Social Development Board (NESDB), said the joint ministerial meeting between the two countries in August had agreed to revitalize the role of the two committees to “rev up the project”. Myanmar’s government is reconsidering loan plans for the construction of a 132-kilometer road from Dawei to Ban Phu Nam Ron in Thailand’s Kanchanaburi Province. Last February the Thai government announced that road construction would be halted following a report by the Japan International Cooperation Agency (JICA) that 15-degree inclines along seven stretches of the road—which passes through mountains—would be unsafe for trucks. The agency proposed the construction of seven tunnels to solve the problem.

Culture and Tourism

What Future For The Secretariat? The Secretariat, a redbrick colonial structure, more than 120 years old, sprawls in 16 acres across an entire city block in Yangon’s Botahtaung Township, is closed for renovation, having being neglected for decades by the state—despite its historical significance as the former seat of the British colonial administration, and of successive governments in independent Myanmar. It was the site of the assassination of Myanmar’s national hero Gen Aung San—the man who negotiated independence from the British—along with eight of his colleagues by a political rival in one of the second-floor rooms on July 19, 1947, a date marked annually as Martyrs’ Day. Its grounds also hosted the ceremony ushering in Myanmar’s independence, held—in line with the dictates of astrologers—at 4:20 am on January 4, 1948. Myanmar’s first parliament was located there. Following the military coup in 1962, public access was severely restricted and the structure was re-branded the Ministers’ Office. It was used to house government offices up until the military junta announced the founding of a new capital, Naypyidaw, in 2005—after which it was abandoned. In 2010, the government undertook some limited renovation efforts and in 2011 announced plans to privatize the site along with other state-owned colonial heritage buildings in Yangon. In 2012, the Anawmar Art Group—a company owned by family members of a former junta general, Tun Kyi—was declared the winner of a government tender for the site. Now, after the installation of the country’s first democratically elected government in more than five decades, there are high hopes that the iconic building will be returned to the public in some form.
However, beyond its aesthetic qualities, architectural significance and history as a former seat of power, it figures chiefly in the minds of the Burmese public as the site of a national tragedy—the gunning down of Gen Aung San and his comrades in 1947. The building was opened to the public for the first time on Martyrs’ Day in 2014, remaining closed for the rest of the year. On Martyrs’ Day this year—for the third time in a row—the public was allowed in for the day. Queues stretched around the block. For the first time, the Yangon Division government put on a commemorative ceremony at the site.
Recently, Yangon Division Chief Minister Phyo Min Thein met with representatives of the Anawmar Art Group and the Yangon Heritage Trust, an organization that lobbies for the preservation of Yangon’s architectural heritage, to discuss the renovation work at the complex. Soe Thwin Tun, Anawmar Art Group director and grandson of former Lt-Gen Tun Kyi, said that, although Anawmar won the tender in 2012, renovation could only get underway after they had finished drawing up a Conservation Management Plan—in collabouration with the Yangon Heritage Trust—in October of last year. He said they now plan to house a historical museum in the room where Gen Aung San was assassinated and in the chamber of the first parliament, to be opened to the public in time for next year’s Martyrs’ Day. “As arts and crafts collectors, we plan to open a museum. But it is not easy to cover the costs of renovating and maintaining the building with only a museum. So, from the outset, we told the government that we needed to include some commercial ventures on the site, to preserve it for the long term,” Soe Thwin Tun said. He said US$50 million had been put toward its renovation. Alongside the museum, the company plans to open a library, to rent out parts of the structure for offices and restaurants, and to use other parts for the performance and exhibition of Myanmar’s traditional arts. “Whether it is nationalized or privatized, our intention is to open the place to the public. We are not developing a hotel or shopping mall” Soe Thwin Tun added.
Last year, the Anawmar Art Group faced a public backlash after the grounds of the Secretariat were used to host the birthday party of Tun Kyi’s daughter, Thi Thi Tun. The organizers later claimed that the private event had been staged in order to raise funds for the renovation. “I was really happy to see thousands of people enter the building on Martyrs’ Day. The place is part of our heritage. It shouldn’t be privatized, but should belong to the public,” said Aung Htoo, a National League for Democracy (NLD) lawmaker. The lawmaker said he would submit a proposal for the return of the Secretariat to the public during the upcoming parliamentary session. Nay Phone Latt, another NLD lawmaker, said that the government should review the contract made between the previous government and the Anawmar Art Group. “The more significant the building is, the more safeguards are required to preserve it,” said Moe Moe Lwin, director and vice-chairman of the Yangon Heritage Trust. “The Secretariat is of high significance not only because of its history but also its location. It sits at the heart of Yangon. Its border of trees and greenery act like a lung for the city,” she said. The Yangon Heritage Trust had lobbied for a Conservation Management Plan (CMP) before partnering with the Anawmar Art Group to develop one. “However, we don’t have a system to monitor whether the company actually follows the CMP. The government should develop one,” Moe Moe Lwin said. She said, that according to the CMP, Anawmar must consult with both the Yangon Heritage Trust and the government if they wish to make structural changes to the Secretariat. Moe Moe Lwin, who is an architect by training, said they had first encouraged the government to manage the project, with the involvement of experts, the family members of those killed on July 19, 1947, businessmen, parliamentarians and civil society. However, she said they would be satisfied so long as the private leaseholder prioritized heritage conservation and accessibility to the public—but income-generating ventures to ensure l
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