Myanmar - Business and Investment Digest, Q1 2018

Politics

U Win Myint elected new Myanmar president

At the end of March, Myanmar’s parliament elected the speaker of the lower house, and a close associate of Daw Aung San Suu Kyi as its new president, replacing U Htin Kyaw, who announced in mid-month that he was stepping down to “take a rest.” There had been reports U Htun Kyaw had not been well.

https://www.mmtimes.com/news/tough-challenges-lie-ahead-president-u-win-myint.html

Update on the Rohingya crisis

Myanmar remains under pressure in the court of international opinion over the Rohingya crisis in Rakhine state and Bangladesh. The government continues to dispute charges at the UN that it is guilty of ethnic cleansing / genocide, and has agreed with Bangladesh to a process whereby the Rohingya refugees may be repatriated to Myanmar over a two year period—the key question being whether conditions in the Rakhine state will be such as to make them want to return.

https://uk.reuters.com/article/uk-myanmar-rohingya-bangladesh/bangladesh-agrees-with-myanmar-to-complete-rohingya-return-in-two-years-idUKKBN1F50IC

At the end of January, US senator Bill Richardson’s announcement that he was resigning from the international panel advising the government on the crisis caused something of a stir. He claimed the commission was a “whitewash”—a charge that Surikiart Sathirathai, its leader, promptly denied.

https://www.mmtimes.com/news/rakhine-advisory-board-unbiased-surakiart.html

Two Reuters reporters charged in court

Meanwhile, the two Reuters reporters who were arrested in December for “illegally possessing confidential government documents” have been the subject of preliminary court hearings, as calls for their release have been made in the international community. At the end of the quarter, it was announced that the international human rights lawyer Amal Clooney is joining their defence team.

At the time of their arrest, the reporters were investigating the murder of 10 muslims at Inn Din village which, they say, was committed by non-Muslims at the urging of the Tatmadaw. In mid-February, a government spokesman said that “action according to the law” would be taken against seven soldiers, three policemen and others as a result of the incident.

http://www.abc.net.au/news/2018-02-11/myanmar-says-soldiers-police-facing-action-over-village-kill/9420812

Two more ethnic groups sign up to Nationwide Ceasefire Agreement

On 13th February, two more armed ethnic groups, the New Mon State Party and the Lahu Democratic Union, signed the Nationwide Ceasefire Agreement (NCA) with the government, raising the number groups that have done so to ten. The government says signing the NCA remains a necessary condition for participating in the 21st Century Panglong Peace Conference—the next round of which has been scheduled for May.

https://www.mmtimes.com/news/government-reaffirms-stand-groups-signing-nca-peace-talks.html

ECONOMICS

IMF issues Article IV Consultation Report on the Myanmar Economy

In its report, the IMF concludes the outlook “remains favourable”, with growth expected to rebound to 6.7% in 2017/18, supported by agriculture and exports. Higher fiscal spending on the back of “buoyant” tax revenues should also support growth. The medium term potential growth rate is estimated at 7% to 7.5%, “reflecting continued large FDI inflows and an improvement in public investment spending and efficiency.”

The risks however are “tilted to the downside.” The humanitarian crisis in Rakhine could affect development finance and investor sentiment and, although the direct economic impacts of it have so far been largely localized, “the social costs and full impacts of the crisis are still unfolding.” Additional risks stem from commodity prices, potentially volatile global financial markets, exposure to spillovers from China, and the risk of natural disasters.

On the upside, the implementation of a more detailed strategic reform plan and higher infrastructure investment would raise potential growth.

The IMF Executive Directors have highlighted the need for early and tangible progress towards peace and regional inclusion and a second wave of reforms to sustain Myanmar’s economic transition.

Specifically, the directors underlined the need for the allocation of sufficient resources to achieve sustainable development goals, whilst maintaining fiscal sustainability and lowering central bank financing of the deficit. They welcomed progress on revenue mobilization, but see scope for further expenditure rebalancing and improvements in public financial management. They remain cautious on the level of tax incentives and amnesties and suggest SOEs and infrastructure projects should be watched closely for signs of debt distress.

In addition, the IMF has noted the emergence of banking sector risks. It supports steps for improved financial regulation and for financial sector and interest rate deregulation “at a pace commensurate with the central bank’s capacity to regulate and supervise.”

They consider the current monetary policy stance “appropriate”, but have encouraged the authorities to adopt a transactions-based exchange rate mechanism, and are in favour of a further deepening of debt and interbank markets.

They conclude by saying the role of capacity development remains central to Myanmar’s transition and growth.

http://www.imf.org/en/Publications/CR/Issues/2018/03/28/Myanmar-2017-Article-IV-Consultation-Press-Release-Staff-Report-and-Statement-by-the-45763

A fuller note on the IMF’s report is being posted separately to this website and, on the “Presentations” page, a detailed presentation summarizing the IMF’s principal conclusions on the state of the economy, and its policy recommendations.

Central Bank’s Vice Chair indicates policy priorities

In an interview with the Myanmar Times, the CBM’s Vice Chair has indicated he is reluctant to lower interest rates until he is confident that inflation will remain stable at a level below 5%: “In Myanmar, inflation has a history of being high. So, deposit rates must be higher than inflation to attract savings.”

Recognizing the difficulty SMEs are experiencing securing credit, he indicated the Bank is looking at ways in which it can help—though “before all this can take place, inflation has to be stable.”

One of the chief causes for Myanmar’s high inflation is the monetization of the fiscal deficit. The CBM’s is meant to be monetizing no more than about 40% of the government’s borrowings, but the CBM has reiterated its plan to reduce its support progressively, and to eliminate monetization by FY 2020/21. To this end, further steps will be taken to deepen the bond market which, it is hoped, will be opened to pension funds and insurance funds.

Referring to the recent strength in the Kyat/Dollar rate, the U Soe Thein indicated the main reason has been the Dollar’s weakness, and that this is not a sufficient reason to be reducing interest rates just yet.

https://www.mmtimes.com/news/cbm-monitor-inflation-kyat-strength-looks-chance-adjust-interest-rates.html

MOEE pledges to supply 3,600MW of additional power by 2022 -use of LNG to increase

Projects underway are expected to provide just under 500MW of additional power in 2018-19. Thereafter, MOEE hopes an additional 3,100MW of capacity will be commissioned in a variety of gas and hydro projects, whilst older, existing plants are to be upgraded so that they can continue to be productive.

https://www.mmtimes.com/news/government-considering-use-lng-meet-electricity-target.html

In December, MoEE issued “Notice to Proceed” to investors in four gas projects, three involving imports of LNG and a fourth natural gas. These are designed to provide an additional 3,000MW of power.

To facilitate the first of these, Total, together with Siemens, is to build an LNG facility together with 1,230MW of power capacity in Kan Pauk. It plans to sign a PPA for the latter in the course of 2018, with half the scheduled power coming on stream within the first three years.

https://www.mmtimes.com/news/government-looks-lng-imports-produce-more-electricity.html

Government considering removal of withholding taxes from 1st April in a bid to revive the economy

If it eventuates, the move would follow March’s cancellation of 2% WHT on exports.

Currently, non-residents pay 2.5% WHT on goods and services procured and 15% WHT on interest and royalties paid.

https://www.mmtimes.com/news/govt-remove-withholding-taxes-april-1-support-businesses.html

Central Bank announces foreign banks are to be permitted to provide trade finance in Myanmar

Seven of the thirteen banks have so far received approval for their application to provide this service, and the Central Bank expects approval for the remainder to be granted within the year. Their offering in trade finance instruments such as letters of credit is not to be restricted just to the export sector.

https://www.mmtimes.com/news/traders-expect-better-business-wider-trade-financing-options.html

SoEs to draw on positive Other Account (OA) balances in H1 FY2019, to protect budget deficit

SOEs with positive OA balances are being called upon to draw on these between April and September, and not on government funds.

OAs were introduced under the Thein Sein government in a plan which permitted SOEs to retain 55% of earnings for future business purposes. There are reportedly eight SOEs that have positive OA balances. These include Myanma Oil and Gas Enterprise, Myanmar Post and Telecommunications, Myanmar Timber Enterprise, and Myanmar Gems Enterprise.

https://www.mmtimes.com/news/soes-should-use-oa-funds-help-reduce-budget-deficit.html

IFC to advise on PPP project to connect Yangon Port, Thilawa SEZ with Airport, and Mandalay expressway.

Under the advisory agreement signed in January, the IFC will undertake due diligence and structure an internationally competitive tender for the 20.5km elevated expressway project.

To the south, the project would connect Yangon Port and the Thilawa SEZ. To the north, it would connect these to Yangon International Airport, Tangon Industrial Park and the expressway to Mandalay.

It is planned that the tender award would be granted by early 2019 and the road constructed over two to three years.

https://bit.ly/2EzLO95

Yongnam Holdings-led consortium fails to agree terms on Hantharwaddy airport construction project

Following the collapse of negotiations with a Singapore-led consortium for the construction of the new international airport to the north-east of Yangon, the Myanmar Times reported at the end of March that the government has entered into discussions with the Japanese on the project.

A consortium led by Yongnam Holdings won $1.5bn contract to build the airport in 2014, but was unable to reach final agreement with the government on financial terms.

https://www.mmtimes.com/news/japan-eyes-hantharwaddy-airport-construction-project.html

Business

New minimum wage set at MMK4,800 per 8-hour day.

The new wage rate is a third higher than the rate of MMK3,600 that was set in September 2015.

At an exchange rate of MMK1,340/USD, the minimum wag equates to USD 3.58/day, an increase of 27% on the previous minimum wage (applying a MMK/USD exchange rate of 1,275.)

Based on a 30 day working month, the USD monthly rate would be USD107.5. According to the January 2018 table published by the National Wages and Productivity Commission in Manila (see links below), this compares to other emerging countries in Asia as follows: Bangladesh $64; Cambodia $140; Indonesia $100-$250; Laos $109; Pakistan $118; Philippines $171-$298; Vietnam $147-$165. (The second link provides outline comparisons of national productivity in ASEAN.)

http://www.nwpc.dole.gov.ph/pages/statistics/stat_comparative.html

http://www.nwpc.dole.gov.ph/pages/statistics/stat_comparison.html

Yangon Central Railway Station development project awarded to consortium headed by Min Dharma.

The mixed-use development is expected to cost $2.5bn and to take eight years to complete. Min Dharma Co. has a 40% interest in the consortium and Oxley Holdings (of Singapore) and Sino Great Wall Co. 30% each. The development, which is to be built around a new transport hub for Yangon, has a gross development area of 1.09sqm.

A link to Oxley Holding’s press release on the project follows:
https://www.oxley.com.sg/download/annc-yangon-railway-station/?wpdmdl=2585&refresh=5a8ffef0c6c151519386352

Thilawa SEZ offers comfort on meeting power and water supply requirements

The Thilawa SEZ Management Committee has indicated to the Myanmar Times that it expects infrastructure for roads, power, water and a jetty will be completed to meet the SEZ’s increased requirements for 2021.

90% of the land in Zone A and 50% of the land in Zone B has been sold, but just over 40 units are currently operational, “due to a lack of electricity.”

A 230KV power transmission facility was built in November 2017 and will soon become operational. Myanmar Int’l Terminals Myanmar and another container jetty should be constructed by the end of 2018. The La Gwan Byin water supply project should increase water availability in 2019.

https://www.mmtimes.com/news/thilawa-step-power-and-water-supply-2021.html

Separately, the listed company running the Thilawa SEZ has announced it plans to invest in other similar zones in Myanmar, including Kyaukphyu and Dawei, as well as in other infrastructure projects.

https://www.mmtimes.com/news/mtsh-back-other-myanmar-sezs-yangon-development-projects.html

IFC to provide $15mn in LT funding to International Bulk Terminal (Thilawa)

The IFC’s funding will go towards the development of a greenfield bulk terminal with an effective capacity of more than one million metric tons. The total cost of the project is estimated at $65mn, to which Lluvia, a Myanmar agri-processing company, and Japan’s Kamigumi will be contributing.

https://bit.ly/2JuLHiR

MIC seeking to attract increased investment into logistics and priority manufacturing

In logistics, MIC has highlighted projects in dry ports (similar to those being developed by the Kerry Group in Mandalay, Ywathagyi (Yangon) and Myitnge), warehouses (including bonded warehouses) and highway bus and freight terminals.

Priority sectors in manufacturing include vehicles, tractors and trailers, machinery; telecom equipment; electricity distribution and control equipment; iron and steel; plastic raw materials; fertilizers; paper; synthetic fibres; edible oils; cosmetics.

According to law firm DFDL, for these products MIC has given assurances on assistance in securing land rights and electricity supply, as well as the prompt review of submissions made to it. Most of the investments in these areas would also qualify for tax exemptions under Myanmar Investment Law.

https://www.mmtimes.com/news/mic-seeks-investments-logistics-manufacturing.html

Strong growth in garments industry continues

Exports in the first seven months of FY 2017-18 were $1.5bn, compared with $2.2bn in the whole of FY 2016-17, according to the Ministry of Commerce, and garments now represent Myanmar’s second largest export sector.

About a third of exports go to Japan and a quarter to each of Europe and South Korea. The balance mostly goes to China and the USA. Most production today is of the C-M-P (Cut-Make-Pack) variety, and the industry has hopes of adding more value to the garment chain over time, with the garment manufacturers association targeting exports of $8bn to $10bn a year in 10 years’ time.

https://www.mmtimes.com/news/garment-industry-must-raise-value-proposition-stay-sustainable.html

Samsung Electronics decides against building production plant in Myanmar

Citing unidentified sources, the Korea Times has reported that the decision not to proceed with a plant has been because of the lack of supporting infrastructure, “an unfavourable administrative environment” and “lingering political uncertainties.”

Commenting on the report, Samsung has written to the Korean Times to say it considered building production lines for TVs in 2013 but decided against doing so in that year because of the lack of infrastructure, but has not revisited the question since.

http://www.koreatimes.co.kr/www/common/vpage-pt.asp?categorycode=693&newsidx=244826

Department of Fisheries launches Sustainable Aquaculture Programme

The fisheries department has received €22.5mn in initial funding for the programme from the EU and German governments. The plan is to support projects inland as well at sea, benefiting 250,000 fish farmers, as well as providing supplementary income to 25,000 rice farmers.

Currently, about 65% of Myanmar’s fishery production is represented by wild catch, the stocks of which are being rapidly depleted.

Access to capital is currently a major challenge for project promoters, whilst approximately half of fish farms today are thought to be operating on unlicenced land. There is also a shortage of cold storage facilities.

https://www.mmtimes.com/news/government-commits-long-term-aquaculture-development-starts-dialogue-issues.html

CITIC to partner with Myanmar Rice Federation and MAPCO to develop $300mn Agribusiness Service Centres

The consortium is to partner with the private sector to support farmers in 33 townships by 2020. The aim is that $300mn will go towards establishing one-stop centres where farmers can receive community-based support for obtaining raw materials, technical support to raise yields and cut post-harvest waste, improvements in quality control, and better market access.

https://www.mmtimes.com/news/companies-establish-300-million-agribusiness-services-center-help-farmers.html

Israeli company Oz Agribusiness Projects and Investments to support post-harvest warehouses near Mandalay

The company has indicated it plans to invest between $10mn and $20mn in warehouses which farmers can use to store crops, such as sesame, in the immediate post harvest period. This will enable them better to time the sale of the harvest when prices in the market are higher.

Projects such as this are being supported by the Israeli embassy, which, following the enactment of an investment promotion and protection agreement, is seeking to promote its expertise in agriculture in Myanmar.

https://www.mmtimes.com/news/israel-plans-post-harvest-warehouses-mandalay.html

A link to OAPI’s website follows:
http://www.oz-api.com/

Campana to raise funds for Singapore Myanmar Cable Network (SIGMA)

SIGMA will operate alongside a terrestrial fibre cable connecting Yangon to Thailand. Campana targets completion of the network by mid-2019.

Campana currently operates international gateway services and a data centre in Yangon, and plans to become a leading provider of wholesale IP services between Myanmar and the rest of the world.

https://www.dealstreetasia.com/stories/campana-group-raising-60m-sub-sea-fibre-singapore-90772/

South Korean company signs MOU for $98mn logistics hub with Myanmar Trade Promotion Org.

The hub is to be built on a 59 acre plot in Hlaing Thayar township, contributed by the trade promotion body, and is designed to support the export of agricultural, livestock and fishery products, amongst others. The Korean company behind the project is HUBS MK Company. MIC approval for the project has not yet been obtained, but HUBS MK has hopes that construction can begin in the course of this year.

https://www.mmtimes.com/news/south-korea-build-98-million-logistics-hub-yangon.html

Daizen Myanmar opens bonded warehouse at Thilawa that is accessible by foreign as well as local firms.

Daizen received the first SEZ warehouse licence in 2017 and conducted trial operations in December.

“SEZ warehouse provides, on top of the bonded warehouse function, the non-resident inventory program—the storage of foreign cargo owned by non-Myanmar businesses before paying duties—and is therefore a great opportunity for Myanmar and foreign businesses alike,” Daizen’s managing director in Myanmar has explained to The Myanmar Times. Thus, the non-resident inventory program opens up the SEZ warehouses for companies, regardless of where they are based, to store, manage, manufacture and assemble dutiable goods without payment of duty.

A link to a profile of Daizen’s operations in Mynmar, from Freightfolio.com follows:
http://freightfolio.com/places/myanmar/myanmar/yangon-rangoon/freight-forwarder/daizen-myanmar-co-ltd/#post_profile

Japan’s Yamato Holdings forms JV in logistics with AYE Group

Yamato is taking an 80% stake in the JV, through a Singapore-based subsidiary. Planned services include trade shipments from Japan and elsewhere, cross-border trucking, as well as home relocation. Yamato says it has been attracted to Myanmar, in part through its geographical proximity to Thailand, “an industrial hub in ASEAN”, as well as by investments by Japanese firms at Thilawa.

http://www.yamato-hd.co.jp/english/news/h29/h29_09_01news.html

POSCO Daewoo Steel and Millcon Steel said to be in discussions over operation of state-owned steel assets

According to The Myanmar Times, the discussions are being held separately, and concern a plant in Myingyan, near Mandalay, which suspended operations in April 2017. Only the first of three planned phases in the plant’s development have been completed.

https://www.mmtimes.com/news/myanmar-seeks-foreign-investments-develop-steel-sector.html

Singapore Myanmar Investco (SMI) to operate the Coffee Bean & Tea Leaf brand across Myanmar

SMI currently operates 2 branches at Yangon International Airport. It has now signed an exclusive agreement to develop that CB&TL brand across Myanmar. It plans to open its next outlet in the first quarter of 2018.

http://sin-mi.listedcompany.com/newsroom/20180226_174509_Y45_73XJHM0TTCZPYVUH.1.pdf

Thailand’s Kasokorn Bank ties up with KBZ Bank to boost trade flow at Mae Sot

Kasikorn Bank has established a border trade business centre at Mae Sot to supply credits for inward investment into Myanmar, as well as to support business matching between Thailand and Myanmar.

It is now introducing a staff exchange programme with KBZ Bank, which it expects will help to smooth connectivity between Thai and Myanmar customers engaged trade across the border. The two banks have already been co-operating together on cross-border payment services and remittances.

https://www.kasikornbank.com/en/News/Pages/KBank-KBZ.aspx

Yoma Strategic Holdings (YSH) acquires stake in Wave Money from FMI

Singapore-listed YSH is acquiring a 34% interest in Wave Money for USD19.4mn. YSH and FMI are both controlled by Serge Pun.

Wave Money is a mobile payments provider in Myanmar. 51% is owned by Telenor, the mobile phone operator. FMI is retaining a 10% stake and Yoma Bank a 5% stake.

http://www.yomastrategic.com/attachment/201803061139121703206614_en.pdf

Philippines-based Revolution Pre-Crafted to partner with KT Group on prefabricated homes.

According to the following article from the Myanmar Times, which has been posted to the company’s website, the company will be manufacturing, shipping and installing homes targeted at middle-class families. There are also plans to work with the government on development projects. Operations are slated to start in October.

https://www.mmtimes.com/news/philippines-home-manufacturer-expands-myanmar.html

Vietnam’s Eurowindow plans factories in Myanmar

According to a report in DealStreet Asia, Eurowindow, a supplier of doors and facades, plans to invest up to $120mn in two factories, the first of which is expected to break ground in 2019. This will produce doors and windows. A second plant will manufacture other construction materials such as interior equipment.

In the long term, the report says that the company plans to expand into real estate development. It has been selling its products in Myanmar since 2014.

https://www.dealstreetasia.com/stories/vietnam-eurowindow-myanmar-factories-94465/