myanmar outlook report - vps · hag myanmar centre project 440 trade centre, hotel and service...
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Some fast facts:
General information 2013
Capital Nay Pyi Taw
Population 51 mn
GDP growth rate 7.5%
CPI (Jun 2014) 5.69%
Import USD13.76 bn
Export USD11.20 bn
Key exports Key imports
Gas Vehicles
Garment Refined mineral oil
Teak log Base metals
Matpe Electrical machinery
Resources
Natural gas 7.8 trillion cubic feet
Oil 3.2 billion barrels
Forest 50% of land
Rubies 90% of world’s reserves
GDP Growth (%)
Highlights
The ‚golden land‛ is blessed with abundant natural
resources, such as gas, oil, copper, jades, and wood.
Dramatic changes in Myanmar’s political system since early
2010, including shifting from military government to civil
rule, brought about the lifting of embargos by several of the
world’s major economies including the United States,
European Union, Australia, and Canada; and created a huge
inflow of FDI.
Myanmar’s GDP growth rate is estimated increase to 7.8
percent during the period of 2014 to 2016, from 5.9 percent
in 2012, driven mainly by rising investment. Myanmar kyats
and inflation have been fairly stable over the past 12 months.
Total trade has doubled in the past five years, reaching
USD24.96 billion last year, from USD11.76 billion in 2009,
with ASEAN countries being the biggest trading partners.
Bilateral trade between Vietnam and Myanmar rose from
USD9.31 million in 2000 to USD364.12 million in the first
nine months of 2014. Vietnam was the second largest
investor in Myanmar (after China) from 2012 to 2013, and
ranked the fifth in the previous financial year.
There are numerous investment opportunities for foreign
investors. The most attractive sectors include energy, hydro-
power, oil and gas, mining, agriculture-fishery, real estate
and telecom.
Myanmar authorities have put intensive effort into the
establishment of the Yangon Stock Exchange (YSE), which is
scheduled to open in October 2015. However, foreign
investors will not be allowed to invest in the YSE at least for
the time being.
* Please see the important disclosure at the end of this report
4.5
5.5
6.5
7.5
8.5
9.5
10.5
2010 2011 2012 2013 2014f 2015f 2016f
East Asia & Pacific (Developing only)
Myanmar
Vietnam
Myanmar Outlook Report November 2014
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Contents
INTRODUCTION ........................................................................................................................................................................ 3
MYANMAR OVERVIEW ............................................................................................................................................................. 3
The golden land’s overview .................................................................................................................................................. 3
Turning over a new leaf ........................................................................................................................................................ 3
Vietnam – Myanmar bilateral relations ................................................................................................................................... 3
Vietnam – Myanmar bilateral trade ..................................................................................................................................... 4
Investments from Vietnam ................................................................................................................................................... 5
ECONOMIC GROWTH ............................................................................................................................................................... 6
GDP ....................................................................................................................................................................................... 6
Trade ..................................................................................................................................................................................... 7
Myanmar citizens’ investment ............................................................................................................................................. 8
Foreign Direct Investment .................................................................................................................................................... 9
Government expenditure ................................................................................................................................................... 10
MACRO ECONOMIC INDICATORS ........................................................................................................................................... 11
Stable currency ................................................................................................................................................................... 11
Inflation .............................................................................................................................................................................. 11
Interest rates ...................................................................................................................................................................... 12
SOME POTENTIAL SECTORS .................................................................................................................................................... 12
Hydro-power ...................................................................................................................................................................... 12
Oil and gas .......................................................................................................................................................................... 14
Mining ................................................................................................................................................................................. 15
Agriculture - Fishery ........................................................................................................................................................... 15
Real estate .......................................................................................................................................................................... 16
Telecom ............................................................................................................................................................................. 18
INVESTMENT PROCEDURES .................................................................................................................................................... 19
General investment incentives ........................................................................................................................................... 19
Capital requirement and investment procedure ............................................................................................................... 19
RISKS AND CHALLENGES ......................................................................................................................................................... 20
STOCK MARKET – TARGET FOR OCTOBER 2015 ..................................................................................................................... 22
CONTACT INFORMATION ................................................................................................................................................... 24
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INTRODUCTION
Given its abundant and untapped natural resources, Myanmar is considered to be
‚the last golden land of Asia‛. After many years of isolation, it has now opened to the
world. The country has been the object of unprecedented interest in various sectors
from foreign investors. And we expect it will shine again soon as it did in 1950s –
1960s.
MYANMAR OVERVIEW
The golden land’s overview
Myanmar covers an area of 676.000 square kilometers – the second largest country in
ASEAN. The country shares long borders with China, Thailand, India, Bangladesh and
Laos. It has a population of 51.4 million people, just ahead of South Korea’s 50.4
million.
The ‚golden land‛ is blessed with abundant natural resources, such as gas, oil,
coppers, jade, several wood species and many other resources. According to the
newest report released by BP, there is 10 trillion cubic feet (283 million cubic meters)
of proven natural gas reserves as of the end of 2013. ADB’s report also shows that the
country’s oil reserve is estimated at 3.2 billion barrels. Forests cover almost 50
percent of Myanmar’s total land. Additionally, the country is very rich in precious
stones such as, jade, rubies, sapphires, and limestone and other minerals.
Turning over a new leaf
In 2010 and 2011, the world witnessed many astonishing political changes in the
country. Following Myanmar’s broad array of political reforms, the United States
started to ease trade sanctions on Myanmar in July 2012; Japan wrote-off of USD3.7
billion of debt for Myanmar the same year; and the European Union, Australia, and
Canada lifted most sanctions on Myanmar, except for the arms embargo.
Vietnam – Myanmar bilateral relations
Vietnam developed strong bilateral relations with Myanmar very early. After its
independence, Myanmar was an avid supporter of Vietnam during the wars against
the French and the American invasions. In 1975, the two countries established
bilateral relations at the ambassadorial level.
As an ASEAN member, Vietnam played an active role in encouraging and assisting
Myanmar to join ASEAN. In 1997, Myanmar officially became the eighth member of
ASEAN. In 2010, Vietnam, while in the rotating presidency position in ASEAN, agreed
with the results of the Myanmar election, as well as helping Myanmar gain support of
the international community.
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Vietnam – Myanmar bilateral trade
Bilateral trade between Vietnam and Myanmar started to increase in 2000, with total
trade recorded at USD9.31 million. Ten years later, the trade value between the two
countries soared 10 fold to USD98.91 million and rocketed to USD351.36 million in
2013. This year it is even better and the two countries’ bilateral trade posted at
USD364.12 million in the first nine months, in which Vietnam’s import value from
Myanmar was USD114 million and Vietnam’s export value to Myanmar surpassed
FY2013, reaching USD250 million.
Vietnam – Myanmar bilateral Trade (USD mn)
Source: General Custom Office, VPBS collected
Vietnam’s major export products to Myanmar have been steel and steel products
(recorded at USD56.2 million in 2013, up 134 percent from 2012), machinery and
spare parts (+ 86 percent), plastic products (+ 98.3 percent), textiles (+133 percent) and
vehicles and spare parts (+63.1 percent). Meanwhile, Vietnam’s major imported
products from Myanmar were wood and wood products (posted at USD65.9 million,
up 30.7 percent), agricultural products (+ 89.7 percent) such as mung beans, black
beans, and soybeans.
Vietnam’s exported products to Myanmar 2013
(USD Mn)
Vietnam’s imported products from Myanmar 2013
(USD Mn)
Source: General Custom Office of Vietnam Source: General Custom Office of Vietnam
0
50
100
150
200
250
300
350
400Vietnam exports to Myanmar Vietnam imports from Myanmar
24.66%
8.20%
5.99%
5.78%
5.57%
49.80%
Steel and steel products
Machinery and spare
parts
Plastic and plastic
products
Textile
Vehicle and spare parts
Others
USD227.8
million 53.41%
13.84%
3.96%
28.79%
Wood and Wood
products
Vegetable
Seafood
Others
USD123.5
million
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Since 2001, Vietnam’s Ministry of Trade has cooperated with the Embassy of Vietnam
in Myanmar and the Myanmar Ministry of Commerce to hold several international
trade fairs at Yangon and Hanoi. The trade fairs aim to create opportunities for
enterprises from the two countries to learn, communicate and strengthen business
relationships. Vietnam and Myanmar have successfully organized annual trade fairs
since 2009. In addition, Ho Chi Minh City has annually launched a fair for trade and
tourism at Yangon in every May after the two cities established sister-city ties in
March 2012.
Investments from Vietnam
Total investment capital from Vietnam to Myanmar has increased significantly since
2012. Vietnam was the second biggest investor in Myanmar (after China) in 2012-
2013, and ranked fifth in the previous financial year.
Seven Vietnamese investment projects were approved in Myanmar with total register
capital of nearly USD600 million. Notably, HAGL’s multi-purpose complex, which is
located in a superior location in Yangon, is the biggest Vietnamese project in
Myanmar with capital of USD440 million. The two office buildings (twenty-two floors)
and a shopping mall (five floors), which belong to phase one of this project, are
expected to be completed in the first quarter 2015. SIMCO Song Da Corporation’s
marble mining project at Nay Pu Taung in Mandalay has achieved good results.
PetroVietnam Exploration Production Corporation (PVEP)’s oil and gas exploration
joint venture project also had a successful reservoir test with gas discovery.
Besides approval investment projects, there are about 60 Vietnamese businesses that
have been licensed to operate in Myanmar, including many of Vietnam’s giants such
as Vietnam Airlines, Viettel and Viglacera.
HAGL Myanmar centre HAGL Myanmar centre
Source: VPBS collected Source: VPBS
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Vietnam’s notable investment projects in Myanmar
Name of project Total capital
(USD mn) Project description
HAG Myanmar Centre Project 440 Trade centre, hotel and service office complex
in Yangon
SIMCO Marble Mining Project 18 Marble mining plant at Nay Pu Taung in
Mandalay
PVEP Gas Exploration 136 A gas exploration project at offshore block M2
Moattham
Source: VPBS collected
ECONOMIC GROWTH
GDP
After World War II, Myanmar was one of the wealthiest countries in Asia and the
world’s largest rice exporter before sinking to among the region’s poorest countries
with GDP per capital of around USD869 as of 2013. Myanmar’s rice export volume
currently accounts for a marginal share of the world market.
However, the lackluster economy has seen positive changes following a series of
reforms in the country since 2010. According to the World Bank, Myanmar’s economy
grew 7.5 percent in 2013, a great improvement from the growth rate level of 5.9
percent in 2011, surpassing the average growth rate of East Asia and Pacific (limited
to developing countries). The country’s economy is estimated to growth at 7.8 percent
during the period of 2014 to 2016, driven mainly by rising investment.
GDP Growth (% y-o-y) Trade (USD mn)
Source: World Bank Source: VPBS collected
4.5
5.5
6.5
7.5
8.5
9.5
10.5
2010 2011 2012 2013 2014f 2015f 2016f
East Asia & Pacific (Developing only)MyanmarVietnam
-15000
-10000
-5000
0
5000
10000
15000
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Import Export
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Trade
Total trade turnover has doubled in the past five years, reaching USD24.96 billion last
year, from USD11.76 billion in 2009. Myanmar had recorded a trade surplus during
the period of 2002 to 2011. The rising demand for input materials and equipment for
production caused a sharp increase in import value since 2010, resulting in a trade
deficit in the past two years and it is expected to continue to widen in the coming
years.
Because of the sanctions imposed by the United States, the European Union,
Australia and Canada, Myanmar has not enjoyed good trade relations with western
nations. Myanmar’s major trading partners are ASEAN members and its neighboring
countries such as, China, India, Thailand and Singapore.
Import turnover soared sharply to USD13.76 billion last year, up 51.7 percent from
USD9.07 billion in 2012. The country’s major imported products include machinery,
non-electric and transport equipment, refined mineral oil and base metals and
manufactures.
The imported value of these products surged considerably from 45 percent to 57
percent last year from a year earlier and accounted for almost 60 percent of total
import turnover in 2013. Many other products did not comprise a large proportion of
the pie, but the imported value of these products spiked last year, including electrical
machinery and apparatus, chemical elements and compounds, garment and fabrics,
edible vegetable oil, plastic and cement.
China is Myanmar’s largest import market in 2012 and 2013, with total value of
USD2.7 billion and USD 4.1 billion, respectively. China was followed by Singapore,
Japan, Thailand and South Korea.
Key import items - 2013 - 2014 (%) Major markets (USD mn)
Source: DICA Source: DICA
Myanmar’s total export turnover reached USD11.2 billion in 2013, up almost 25
percent from 2012. Gas has been the top export product of Myanmar, accounting for
40.8 percent and 29.4 percent of total export turnover in 2012 and 2013, respectively.
Jade and garment exports contributed nine and eight percent of total export value
last year. Other Myanmar top export products are teak logs and agricultural products
such as rice and matpe beans.
16.72%
11.21%
30.13%
41.94%
Refined Mineral Oil
Base metals and
manufactures
Machinery non-electric
and transport equipment
Others
USD13.8
billion
0
500
1000
1500
2000
2500
3000
3500
4000
4500
China Singapore Japan Thailand Korea others
2012-2013 2013-2014 2014-2015(Apr - Jun)
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Key exported items - 2013 -2014 (%) Major markets (USD mn)
Source: DICA Source: DICA
Thailand and China are the largest export markets of Myanmar with total export value
reaching USD4.3 billion and USD2.9 billion last year, accounting for 38.4 percent and
26 percent of Myanmar’s total export value in 2013. India, Singapore and Japan are
also major consumers of Myanmar’s products.
Myanmar citizens’ investment
According to Myanmar’s Ministry of National Planning and Economic Development,
984 citizen enterprises were sanctioned with total investment of MMK4,566 billion
(USD4.7 billion) since the release of the Myanmar Citizens Investment Law 1994
through June 2014. Manufacturing, construction, hotel and tourism are the leading
sectors among 11 sectors of the economy, accounting for 27.55 percent, 16.57 percent
and 14.61 percent of the total permitted amount of Myanmar citizens’ investment.
Last year, domestic investment in manufacturing and hotel and tourism continued to
soar sharply, reaching USD333.7 million and USD296.7 million, respectively. Notably,
Myanmar citizens’ poured USD184.51 million into the power sector, much higher
compared to the negligible amount of USD6.38 million invested in 2012.
Myanmar citizens investments since 1994 Major investment sectors (USD mn)
Source: DICA Source: DICA
4.1% 3.4%
5.7%
7.9%
9.0%
29.4%
40.5%
Rice
Matpe
Teak log
Garment
Jade
Gas
Others
USD11.2
billion
0
500
1000
1500
2000
2500
3000
3500
4000
4500
5000
Thailand China India Singapore Japan Others
2012-2013 2013-2014 2014 (Apr - Jun)
27.55%
16.57%
14.61%
41.27%
Manufacturing
Construction
Hotel & Tourism
Others
USD4.7 bn
0.00
50.00
100.00
150.00
200.00
250.00
300.00
350.00
400.00
2012-2013 2013-2014
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Foreign Direct Investment
Since the foreign investment law which was released in 1988, through the end of
June 2014, 36 countries have invested in Myanmar with a total cumulative capital
inflow of USD46.718 billion, mainly in power (41.28 percent) and oil and gas (30.76
percent). Manufacturing, mining, hotel and tourism, transport and communication
and real estate attracted about three percent to almost nine percent of the FDI.
Foreign direct investment rocketed to USD20 billion in 2010, from more than USD300
million in 2009. The total pledges, which were received in 2010, are even higher than
the cumulative FDI inflow into Myanmar before 2010. The inflows mainly came from
China (USD8.27 billion), Hong Kong (USD5.8 billion) Thailand (USD2.95 billion) and
South Korea (USD2.68 billion).
Cumulative Foreign Direct Investment by Sector (As at the end of June 2014)
Sector Permitted
Enterprises/projects
Total investment
(USD mn)
%
Power 7 19,284.432 41.28
Oil and Gas 115 14,372.272 30.76
Manufacturing 362 4,129.442 8.84
Mining 69 2,863.18 6.13
Hotel and Tourism 55 1,854.9 3.97
Transport & Communication 24 1,782.748 3.82
Real Estate 23 1,497.026 3.20
Livestock & Fisheries 30 437.674 0.94
Agriculture 14 208.645 0.45
Industrial Estate 3 193.113 0.41
Construction 2 37.767 0.08
Other Services 16 56.986 0.12
Total 720 46,718.185 100
Source: DICA, VPBS collected
Even though the FDI pledges declined considerably after 2010, Myanmar still
remained an attractive investment destination thanks to the economic reforms and
the removal of western sanctions.
Last year, FDI was recorded at USD4.1 billion in 2013, with the capital flowing strongly
into manufacturing, transportation, communication, real estate and hotel and tourism.
The inflows were led by Singapore, which contributed 57 percent of the total capital
inflows last year. It was followed by South Korea, Thailand, the UK and Vietnam.
The Myanmar Investment Commission had previously estimated that FDI would reach
USD4 billion to USD5 billion in the 2014 – 2015 fiscal year. However, the country’s
capital inflows have surpassed USD4 billion in the first half of the financial year
thanks to the telecom sector, which contributed around 20 percent of the total inflow.
The surge in the telecom sector was mainly thanks to the two telecom companies:
Qatar’s Ooredoo and Norway’s Telenor, which were awarded licenses to operate in
Myanmar last year.
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FDI by sector 2013 -2014 (USD mn) FDI by country 2013 - 2014 (%)
Source: DICA Source: DICA
FDI inflows are expected to speed up further as foreign investors are now permitted in
some other major sectors such as, telecom and banking and full foreign ownership is
allowed in mining, construction, jewelry, and utilities. However, the country’s ability
to absorb these capital inflows is still dubious as challenges such as unskilled
workforce and infrastructure require a certain period of time to improve.
Government expenditure
Myanmar’s government has increased its spending for growth and development
recently. The government’s total expenditure soared up significantly to 29.2 percent
of the GDP in 2013, which is even higher than that of other countries in the region,
from the level of 18.8 percent in 2010.
In 2011, Myanmar’s government allocated 31 percent of the nation’s budget to
infrastructure, while it spent only 1.1 percent and 3.7 percent of its budget on
healthcare and education, respectively. Even so, these figures were lifted
considerably to 6.5 percent and 11.8 percent last year and these are still the lowest
ratios in the education sector and the third lowest ratio in the healthcare sector
among ASEAN nations.
Government expenditure to GDP (%) Myanmar’s Government expenditure by sector
2011 (%)
Country FY2010 FY2011 FY2012 FY2013
Myanmar 18.9 18.5 27.4 29.2
Cambodia 21.3 20.7 21.6 19.9
Thailand 19.2 19.7 19.7 20.1
Malaysia 25.5 25.8 26.5 25.6
Vietnam 27.2 25.4 26.2 26
Source: ADB, VPBS collected Source: ADB
1837
1190
441 434
89 47 33 20
205
0
300
600
900
1200
1500
1800
2100
56.98%
15.61%
11.91%
15.51%
Singapore
South Korea
Thailand
Others
USD 4.1
billion
1.1 3.7 4.6
16.6
31.0
43.1
Health
Education
Agriculture
Defense
Infrastructure
Others
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MACRO ECONOMIC INDICATORS
Stable currency
Before April 2012, Myanmar’s currency – the kyat (MMK) fluctuated at around 6.4
kyats per USD. However, the exchange rate in the black market varied from 800 kyats
to above 1,300 kyats per USD. On April 2, 2012, the Central Bank of Myanmar
announced it would implement a managed float for the kyat, setting an initial rate at
818 MMK/USD. The kyat then continued to depreciate to 970 MMK/USD at the end of
July 2013 due to extensive import expansion and slower export growth. The MMK
has remained fairly stable around 970 – 985 MMK/USD since then.
As the demand for imported machinery and input materials for manufacturing and
infrastructure projects have been increasing, the depreciation of the kyat ushered in
strong negative effects. However, the float of the currency made the country more
attractive for international investors and was supportive of exporters.
MMK/USD exchange rate Foreign exchange reserve (USD mn)
Source: Bloomberg Source: ADB
Inflation
Inflation was one of the serious problems in Myanmar in the past. The country had
experienced running and hyper-inflation in the 1990s and 2000s. This was mainly
caused by the printing of money by the Central Bank of Myanmar to finance budget
shortfalls and sharp rises in public sector wages and fuel prices. Since 2009, inflation
has been controlled below nine percent and it has been fairly stable at around six
percent in the last twelve months. Even though the fast acceleration of the economy
had caused inflation under high pressure, international organizations such as IMF and
ADB still projected this year’s inflation to continue remaining under control at around
6 percent.
750
800
850
900
950
1000
1050
04/1
2
06/1
2
08/1
2
10/1
2
12/1
2
02/1
3
04/1
3
06/1
3
08/1
3
10/1
3
12/1
3
02/1
4
04/1
4
06/1
4
08/1
4 2000
3000
4000
5000
6000
7000
8000
2007 2008 2009 2010 2011 2012
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Inflation 2002 - 2013 (%) Lending interest rate (%)
Source: ADB Source: ADB
Interest rates
Interest rates declined sharply to 13 percent in 2013 from 17 percent posted in 2011.
The Central Bank of Myanmar put a limit on commercial bank loans in the range of 10
percent and 13 percent for floor and ceiling rates, respectively.
SOME POTENTIAL SECTORS
As Myanmar opens up to the world and sanctions are lifted, there are massive
investment opportunities for foreign investors in almost all sectors (except for those
on the prohibited list). We believe the following sectors in particular are likely to be
more attractive to investors compared with the others:
Energy
Myanmar’s energy sector has been the most attractive sector for international
investors, accounting for 72.04 percent of the total cumulative FDI inflows through the
end of June 2014, in which hydropower attracted USD19.3 billion and oil and gas
received USD14.4 billion.
Hydro-power
Currently, around 70 percent of Myanmar’s population has no access to electricity, the
highest rate among ASEAN countries. In rural areas the rate soars to more than 90
percent. Yangon and other major cities also experience rolling power cuts. Many
enterprises have to use expensive onsite electric power generators and
manufacturers cannot attain their maximum capacity.
Power shortage is one of the main concerns in Myanmar as it can limit the expansion
of the economy. Therefore, the power sector will remain the top priority investment
for the government (the government plans to increase power generation capacity to
20,000 MW by 2030). We believe the power sector, especially hydropower, will
continue attracting investors thanks to the following reasons:
- Myanmar has huge hydropower potential of more than 100,000 MW, which
mostly come from the country’s four main rivers - Ayeyarwaddy, Chindwin,
0
10
20
30
40
50
602
00
2
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
12
13
14
15
16
17
18
2007 2008 2009 2010 2011 2012 2013
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Thanlwin and Sittaung, according to the Asia Development Bank.
- The current installed power capacity of the country is only around 3,800 MW
(versus 26,500 MW in Vietnam), the available capacity is much lower than the
installed capacity due to inadequate transmission and distribution
infrastructure, and part of that is exported. The current capacity is struggling
to meet the rising demand.
- Demand is expected to grow significantly as the economic structure is moving
from agriculture to industry and services.
- 75 percent of Myanmar‘s electricity mainly come from hydropower (versus 10
percent in South East Asia) and the remaining comes from gas-fired power
and coal-fired power. Along with expanding fossil-fuel power, the government
will continue to focus on hydropower (small size facilities that have less
impact on the environment).
- Hydropower has no fuel cost, resulting in low operating costs.
Entry conditions:
Foreign investment in hydropower and coal power plants is possible only as a joint
venture with the Government or on a BOT basis.
Challenges:
Besides some regular challenges for investing in hydropower plants such as high
capital requirement and subject to seasonal change factors, Myanmar’s low electricity
price is one of the obstacles preventing investors from investing in the country’s
power sector.
Night-time satellite image Power capacity – 2013 (MW)
Source: McKinsey Global Institute Source: MEPE
Despite many foreign companies already investing in this sector and many other are
on the waiting list, the increasing domestic demand and strong demand for power
from neighboring countries such as Thailand and China will continue to attract
foreign investors investing in Myanmar’s power sector.
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
Demand Available in
Dry
Availabe in
wet
Installed
capacity
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Oil and gas
Beside hydropower, Myanmar’s rich natural gas and oil reserves also attract the
attention of international investors. This sector is also Myanmar’s leading exporter,
accounting for around 30 to 40 percent of total export revenue in the previous two
years.
According to the ADB, Myanmar’s oil reserve is estimated at 3.2 billion barrels, which
is of a relevant size among ASEAN countries. BP Statistical Review 2014 estimates
that Myanmar’s proven natural gas reserves as of the end of 2013 are at 10 trillion
cubic feet (approximately 0.3 trillion cubic meters), accounting for around 2 percent
and 0.15 percent of total proven natural gas reserve in Asia Pacific and the World,
respectively. Currently, the country ranks 46 in the world in terms of proven gas
reserves.
The country’s proven oil and gas reserves are not significant on a global scale.
However, the country’s natural gas oil reserve could be much higher as there are
many areas have not been explored. Thus investors are interested in not only the
proven reserves but also its huge unknown potential, which could be unearthed by
advanced exploration.
Oil and Gas reserves by selected countries
Country
Gas reserve Oil reserve
Trillion cubic
meters R/P ratio Billion barrels R/P ratio
Brunei 0.3 85.8 1.1 22.3
Myanmar 0.3 21.6 3.2 -
Thailand 0.3 6.8 0.4 2.5
Vietnam 0.6 63.3 4.4 34.5
Malaysia 1.1 15.8 3.7 15.3
Indonesia 2.9 41.6 3.7 11.6
Total World 185.7 55.1 1687.9 53.3
Source: ADB, BP, VPBS collected
Since October, 2013 there have been 16 onshore and 20 offshore (10 deep water and
10 shallow water) oil and gas blocks awarded to 46 international and local investors.
The country plans to award another 15 blocks by the end of next year for foreign
investors.
Vietnamese company - PetroVietnam Exploration & Production (PVEP) entered
Myanmar quite early, with a Production Sharing Contract for offshore block M2
Montana awarded on October 2008. After more than four and a half years, in June
2013, the company declared gas discovery from the first exploration well on this
block.
Entry conditions:
In order to carry out exploration and production activities in Myanmar, companies
need to sign a production sharing contract with Myanmar Oil and Gas Enterprise
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(MOGE). Previously, foreign investors, who were interested in investing in the oil and
gas sector could apply and negotiate directly with MOGE and MOE. However,
onshore blocks and offshore blocks have been awarded through bidding systems
since 2011 and 2013, respectively, for more transparency. Foreign investors are
required to cooporate with local companies for all onshore and offshore shallow
water blocks, but not for the deep water block.
A royalty rate of 12.5 percent of available petroleum is applied for both onshore and
offshore. After contractor’s allowable cost recovery (50 to 60 percent), the MOGE’s
share of production will range from 60 to 90 percent depending on production rates
and the well’s depth.
Mining
Mining plays an important role in Myanmar’s economy. Myanmar is the world’s top
producer of ruby, accounting for 90 percent of global production. Last year, jade
export also ranked second in terms of value, accounting for nine percent of total
export turnover.
Besides a large endowment of precious and semi-precious stones (jade and
gemstone), which are on the list of prohibited economic activities for foreign
investors, Myanmar also has plentiful amounts of other mineral resources (copper,
lead, ore, zinc and gold), presenting great opportunities for international investors.
Entry conditions:
Investors should take note, however, that mid-scale and small-scale production of
minerals is still prohibited for foreign investors, while large scale production needs
the approval from the Ministry of Mines.
Size of Mineral reserves (million tons)
Mineral
Occurrences Proven Probable Potential Total
Gemstones 1.07 0.11 0.07 1.25
Limestone 3,095.10 5,982.40 49,740.50 58,818
Copper 1,308.6 688.52 0.19 1,997.31
Lead 13.28 12.67 18.14 44.09
Zinc 5.21 14.41 0.33 19.95
Tin (ore) 0.36 38.74 0.29 39.39
Gold 15.29 47.66 3.16 66.11
Coal 229.58 140.73 121.53 491.84
Source: ADB
Agriculture - Fishery
Myanmar’s economy depends heavily on its agricultural sector, which accounted for
30 percent of GDP. Despite its poor equipment and low farming technology, the
agricultural sector still achieved notable results. Rice exports were recorded at around
1.2 to 1.4 billion tons in the past two years. Other major crops such as beans, pulses,
and maize contribute a large amount in total export value. Marine and inland fishery
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production reached 4.72 million metric tons in 2012, which is equivalent to 82 percent
of Vietnam’s total fishery production during the same year.
Agriculture has great potential for growth thanks to a favorable climate, abundant
land and water resources. Cultivated land accounts for 12.8 million hectares, which
has potential to grow by around 50 percent because another six million hectares of
cultivable land is currently unused. Meanwhile, Myanmar’s water supply per capital is
nine times and five times higher than those of China and Vietnam, respectively. There
are enormous opportunities in rubber, palm oil, baby corn, sugarcane and many
others.
Fishery is also seen as a potential segment given its coastline of almost 3,000 km,
continental shelf of 230,000 square-meters and impressive inland waterways with a
variety of nutrient and marine species, with many areas still not having been
exploited.
Given the favorable conditions and abundant resources, agriculture and fishery are
increasingly attractive sectors for foreign investors.
Entry conditions:
Foreign investors can invest in international agricultural companies or Myanmar’s
domestic companies which are looking to expand or set up a new business. However,
production and distribution of hybrid seeds are allowed only in the form of joint
ventures with Myanmar’s citizens.
Risks and Challenges:
- Land use is one of the issues that investors should take in to account when
investing in the agricultural sector. There were numerous protests carried out
by farmers who claimed their land was confiscated without compensation.
- Another issue is its poor road system, resulting in expensive shipping costs
(from rural areas to Yangon).
Real estate
Another promising sector that we would like to mention is real estate – one of the top
sectors drawing investor’s attention.
Myanmar’s real estate prices have increased significantly since 2007 due to the
reduction in property taxes, which were reduced to 15 percent, from 50 percent. Real
estate prices have then skyrocketed since the reform in 2011 as it brought in massive
FDI, which resulted in a strong demand for property.
Land prices in Kyauktade township, the central downtown area of Yangon, were
recorded to increase up to 1.5 million kyats per square foot (USD16,800/sqm).
Meanwhile, those in Bahan township and Pyay Road were posted at around
USD5,500/sqm to USD9,000/sqm before the Government put caps on property prices
last month.
Commercial leases in Yangon are now even comparable with other well-known
expensive cities such as Singapore and are much more expensive compared to Ho
Chi Minh city, even though Yangon’s grade A offices quality are probably not
commensurate with grade A international standards. According to Colliers
International, office prices in Yangon are expected to increase by 25 percent in the
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next two years.
Hotel rates also soared in recent years. Sedona hotel increased its room rates to
USD200/night in 2014, from USD50/night two years ago, thanks to rising demand
from overseas visitors. According to the Ministry of Hotels and Tourism statistics, the
total number of visitors reached two million in 2013, from one million in 2012 and is
estimated to reach three million this year. The total number of hotel rooms is
estimated to increase to 47,000 rooms this year, double from 24,000 rooms in 2012,
but the current number of rooms does not seem sufficient to accommodate the
rapidly growing number of visitors.
Office lease (USD/month/sqm)
Source: Collier International
Entry conditions:
- Foreign investors are prohibited from owning land. However, they can get
approval to lease land for up to 50 years and can extend the lease for 2
additional terms of 10 years each.
- Investors can incorporate joint ventures with local shareholders, who
contribute land rights and receives shares as a remuneration (at least 20
percent), to invest in condos and apartments, housing near industrial areas;
commercial, low-cost housing and new townships.
- The investment can be 100 percent foreign owned only if it is a three star
rated (or above) hospitality project.
- Foreign investors can invest in a construction project on a BOT basis and
transfer it to the land owner (the Government) after 30 to 50 years.
Demand for residential properties, offices, retail outlets and hotels is expected to
spike upwards as FDIs will continue flooding in. Thus, the real estate sector will
remain an attractive sector for investment. However, investors should be cautious as
a real estate bubble may soon form and ultimately burst as we saw in Vietnam.
20
22
26
30
32
37
73
88
0 10 20 30 40 50 60 70 80 90 100
Manila
Kuala Lumpur
Bangkok
Jakarta
Hanoi
Ho Chi Minh City
Singapore
Yangon
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Telecom
The telecom sector has changed rapidly since 2012, with SIM card prices dropping to
around USD250, from around USD1,500 to USD3,000 in 2008. After the two
telecommunication providers - Norway’s Telenor and Qatar’s Ooredoo - trumped nine
other finalists (including Viettel) and scored exclusive licenses to operate in Myanmar
last year, 1,500 kyat (USD1.5) SIM cards are now available in the country.
According to data from ITU, as of the end of December 2013, Myanmar’s internet
penetration rate and mobile phone/telephone subscription rate are among the lowest
in the world, posting at one percent penetration rate and around 13 percent for
mobile phone subscription rate. These figures reveal substantial room for growth in
the long term.
Even though Telenor and Ooredoo were the winners in the bidding last year, there is
a huge amount of other works that require the support from other telecom-related
companies. These, in conjunction with the Government’s will of increasing the mobile
subscription rate, and internet perpetration rates to the level of neighboring countries,
demonstrate there are numerous opportunities in Myanmar’s telecom sector.
Internet penetration rate (Dec 2013) Mobile phone and fixed telephone subscription
(per 100 inhabitants - Dec 2013)
Source: ITU Source: ITU
Entry conditions:
There are no restrictions on foreign investment in the Foreign Investment Law for the
telecommunications sector. However, the Government can impose additional
restrictions and requirements.
Challenges:
Power shortages are one of the main barriers for telecom operators in Myanmar. In
order to expand the network, there are a large amount of mobile towers that need to
be built. Many of these might be built off electricity, requiring power generators.
Other potential sectors
The above sectors have received the most interest from international investors. But
we evaluate the current landscape and note there are uncountable opportunities in
many other sectors as well. The construction sector should be on the rise due to the
1%
6%
13%
22%
30%
41%
44%
46%
67%
73%
75%
85%
86%
0% 20% 40% 60% 80%
Myanmar
Cambodia
Laos
Indonesia
Thailand
Philippines
Vietnam
China
Malaysia
Singapore
Brunei
South Korea
Japan
0 20 40 60 80 100 120 140 160
Myanmar
Laos
China
Philippines
South Korea
Brunei
Japan
Indonesia
Vietnam
Cambodia
Thailand
Malaysia
SingaporeFixed telephone Mobile phone
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eager need for improving the country’s poor infrastructure system. The
manufacturing sector also has great prospects, given the country’s substantial
population with strong demand for a variety of products. The banking sector should
soon spark as it is essential for the development of the country. Other sectors such as
tourism and services are also absolutely on the potential investment list.
Opportunities are countless; open for different types of investors. Investor’s choice of
investment will depend on their background and investment strategy.
INVESTMENT PROCEDURES
General investment incentives
In order to attract foreign investors, Myanmar’s Foreign Investment Law (MFIL) 2012
includes many incentives for foreign investors. The following are some general
incentives for companies, which are registered under the MFIL and receive a MIC
permit:
- Tax holiday for the first five years.
- Exemption or relief from custom duty or other internal taxes on machinery
equipment, instruments, machinery components, spare parts and material
used in the business, and items which are imported and required to be used
during the construction period of the business.
- Exemption or relief from custom duty or other internal taxes on imported
materials for the first three years of commercial production after the
construction is completed.
- Exemption from commercial tax on goods which are manufactured for export.
Other specific intensives will be granted for various sectors
Capital requirement and investment procedure
Foreign investors can register their companies under:
- The Myanmar Companies Act, which does not require applying for a MIC
permit. However, companies registered under the Myanmar Companies Act
are not eligible for tax incentives. The minimum capital requirement is
USD50,000 for service companies and USD150,000 for manufacturing
companies.
- The Myanmar Foreign Investment Law, in which registered companies can
benefit from tax incentives. The minimum capital requirement is determined
by the MIC.
Foreign investors are recommended to consult with a local legal advisor to assist
them with investment procedures. That said, we briefly outline the procedures that a
typical Vietnamese company need to go through in order to open a service company
in Myanmar:
- Step 1: Apply for Certificate of Incorporation (temporary) in Myanmar, with the
assistance of a local legal advisor (recommended).
- Step 2: Obtain permission to invest oversea from the Vietnam Ministry of
Planning and Development, register for an oversea investment account at the
State Bank of Vietnam, and open an oversea investment account at a
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Vietnamese commercial bank.
- Step 3: Remit 50 percent of the capital requirement in foreign currency
acceptable to Myanmar’s banks, which have obtained Authorized Dealer
License (Authorized Dealer License has been awarded to three State Owned
Banks and 15 Private Banks – see appendix).
- Certificate of Incorporation will be granted after the investor has fulfilled step
three.
Economic Activities under Prohibition
Almost all sectors are now opened to foreign investors in the form of a joint venture
or 100 percent foreign owned. However, foreign investors should be aware of the
prohibited economic activities (to foreign investors) before investing in Myanmar:
List of Prohibited Economic Activities
Sr. No Type of Economic Activities
1 Manufacturing and related services of arms and ammunition for the national defense
2 Managing and conserving natural forests
3 Prospecting, exploration and production of jade/gem stones
4 Production of minerals on a small or medium scale
5 Administration of electric power system
6 Inspection of electrical works
7 Air navigation services
8 Exploitation of minerals including gold in the rivers and water way
9 Pilotage services
10 Operating printing and broadcasting services jointly without approval of the Union Government
11 Periodicals in national ethnic languages including Burmese
Source: MIC
RISKS AND CHALLENGES
Beside numerous opportunities for investment in Myanmar, foreign investors should
also take into account the risks and challenges that they might face when investing in
this country, such as:
Policy instability
Unsettled legal framework is one of the main issues for foreign investors. As part of
the reform, the government is in a hurry to revise laws and regulations. Thus, foreign
companies need to adapt quickly to the policy changes and be cautious of the
ambiguous rules and regulations.
Political Risk:
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Myanmar’s political and religious risks are notable issues as they could affect the
business operating environment. According to the latest quarterly updates to dynamic
political risk indices (Maplecroft), Myanmar has moved out of the ‚extreme risk‛
category thanks to the reforms since 2012. However, the country is still categorized as
‚high risk‛.
The clash between the majority Buddhists and minority Muslims over political
reforms has led to the death of at least 250 people since 2012. The ongoing religious
conflicts have required further effort from the Government. Unless the Government
can ensure a secure environment, many international investors will be hesitant to join
the market.
Investors should also keep an active watch on the next general election, which will be
held in October/November 2015. We would not make any predictions about a
possibility for a twist. However, some political instability is expected to occur
before/during and potentially after the general election.
Inconsistent data
International investors and researchers have probably been confused over the
inconsistent database about this country. Myanmar’s population data, for example,
had been reported at around 60 million people for a long period of time, but it has
recently been reported at only 51.4 million people. Oil reserve estimation also posted
at a wide range between 50 million barrels to 3.2 billion barrels.
Lack of skilled workforce
More than 50 percent of the country’s workforce are currently working in the
agricultural sector. Due to the poor education system, international companies face a
shortage of skilled workers. The weak education system needs a long time for
improvement. Thus, the unskilled workforce will remain a problem for investors.
Poor infrastructure
There are many other obstacles that foreign investors need to overcome such as,
poor rail connections, degraded road system and ports facilities, power shortages and
unstable telecom services, which can result in lengthy delays, expensive shipping
costs and inefficient production.
Companies under sanction
Since 2012, the United States, The European Union, Australia and Canada have lifted
and eased most trade sanctions which they imposed on Myanmar. However, there are
some companies and individuals that are still on the blacklist. Therefore, foreign
investors should make sure they know their local partners well enough to avoid
further troubles caused by doing business with firms out of favor with global
economic giants.
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STOCK MARKET – TARGET FOR OCTOBER 2015
To be launched before the next election?
Myanmar authorities and Japanese Daiwa Securities Group are putting intensive
efforts into the establishment process of Yangon Stock Exchange (YSE). They plan to
launch the YSE with three to five listed companies before the next election, which is
scheduled on October/November 2015. The authorities and the Japanese are both
confident that they will meet the deadline.
Not for international investors
Foreign investors will not be allowed to invest in the YSE at least for the time being.
Requirements for being listed on the YSE
In order to be listed on the YSE, companies need to satisfy the following
requirements:
- Minimum capital amount of MMK500 million (USD510,000)
- Having minimum of 100 shareholders, in which the minority contributes at
least 10 percent of the total capital.
- The companies need to demonstrate profit in the previous two years or
market capitalization of MMK10 billion (USD10.2 million)
Companies to be listed
According to Myanmar’s Deputy Minister of Union Finance and Revenue, three public
companies will be listed including, Asian Green Development Bank (AGD) Bank, First
Myanmar Investment Co Ltd (FMI), and Myanmar Agro-business Public Co (MAPCO).
Not ready yet?
The development of the YSE’s infrastructure still has a long way to go. Additionally,
despite more than one year passing since the Securities Law release, the regulations
and rules have not yet been finalized. The strict requirements and expensive fees are
also the main hurdles for any companies that desire to be listed.
Asian Green Development Bank – the most potential to-be-listed company is facing a
problem regarding charges to its major ownership structure. Thus it is uncertain
whether AGD bank will be able to get on board.
With the above mentioned, we doubt the prospect that the YSE will meet its target.
Even if the Burmese authorities and the Japanese get infrastructure and rules &
regulations completed on time, market participants and market liquidity would remain
a high concern.
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CONCLUSION
Given the geostrategic location, untapped and abundant natural resources, significant
population and a market-based economy, Myanmar is currently one of the most
attractive investment destinations in Asia. Massive FDI inflows have been recorded
over the previous few years and are estimated to continue to surge considerably in
the future.
We expect to see a magnificent picture of the country emerge over the next decade,
but it is uncertain if Myanmar will become the next tiger of Asia. The growth rate of
the country depends mainly on the ongoing reforms, many of which are determined
by a stable political system in addition to the foresight and good governance of its
policy-makers.
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