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Myanmar: Southeast Asia’s last frontier for investment

By David DuByne - posted Monday, 19 November 2012


Following the recent reforms in Myanmar that have caused the United States and other countries to ease sanctions against its military regime, businesses around the world are taking a new look at opportunities in that market. Taiwan is no exception. Recently a private Myanmar trade delegation visited Taiwan courting investors, and in May this year the Taiwan’s Ministry of Economic Affairs (MOEA) issued a 36-page, Chinese-language Investment Guide to Myanmar.

In July 2012 I attended, at the invitation of two Taiwanese business owners, a Myanmar Investment Conference sponsored by the MOEA's Department of Investment Services in conjunction with the Taiwan External Trade Development Council (TAITRA) and the Myanmar Investment Commission (MIC). The purpose of the conference was to showcase investment opportunities in what was termed the "Last Frontier Market in Southeast Asia."

A quick glance at a map of Asia shows the central location of Myanmar (also known as Burma) as a crossroad between China, India, Bangladesh, and Thailand, giving it a strategic potential for shipping. As a member of the Association of Southeast Asian Nations (ASEAN), it should also benefit from the increasing regional economic integration that ASEAN is fostering. Another attraction of Myanmar's infant market is the huge investment the country will need to build its economy.

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Both U.S. and Taiwanese companies should be able to find space in certain sectors of what is already becoming a crowded foreign investment destination. Of the 31 countries with investments in Myanmar, China leads with US$14 billion or 34.5 per cent of the total, followed by Thailand with $9.6 billion, Hong Kong with $6.3 billion, South Korea with $2.9 billion, Britain with $2.7 billion, and Singapore with $1.8 billion. The few small Taiwanese firms there are manufacturing consumer products such as diapers, mobile phones, and foodstuffs. Among U.S. firms, Chevron has a stake in oil exploration, and Coca-Cola and Pepsi are on sale again after a period of 59 years in which U.S. trade sanctions kept them out of the market.

"Myanmar is ready for any foreign partnership, joint venture, or investment," says U Tin Ko Win, deputy director general of the Directorate of Investment and Company Administration (DICA). To entice Foreign Direct Investment (FDI), the MIC has been offering incentives such as a five-year corporate tax holiday and an increase in the length of the normal land lease from 35 years to 50 years with two additional 15-year extensions. Myanmar's parliament passed a new FDI law on September 7, the last day of the lower house's session, and in the final version of the bill dropped a controversial clause of requiring a US$5 million minimum investment. The parliament also increased the maximum shareholding of foreign parties to 50 per cent, up from the previous 49 per cent, in sectors including manufacturing, farming, hotels, and fisheries. Many would-be investors worry, however, that a 50/50 shareholding means potential deadlock.

Under the new law, 13 vaguely defined additional sectors are also open to foreign investment, but only if the foreign partner's holding is less than 50 per cent. As of early October, the specific sectors had not yet been announced. There were also unconfirmed reports that Myanmar was considering allowing foreign investment of up 100 per cent in some high-tech sectors.

Some local business interests in Myanmar "worry that opening the country too aggressively would let foreign firms dominate the economy," says Kristy Hsu, program coordinator at the Chung-Hua Institution for Economic Research who attended a Myanmar Global Investment Forum in Yangon in September. "The fear is that 90 per cent of Myanmar's business sector is comprised of SMEs and they feel the new bill puts them at a competitive disadvantage from the start. Most SMEs in the country want fresh capital through a JV partnership, not direct competition from 100 per cent foreign-owned entities. They also want the same tax incentives that are offered to foreign firms."

Hsu also noted that "local unions are beginning co-ops in order to garner heavier bargaining power, and to include themselves in pivotal roles in price, wage, and investment issues. Strikes and land disputes are heating up as land prices increase throughout the country, but the government arbitration committee has continued a hands-off approach unless a dispute involves thousands of workers."

Another FDI inducement was removal of a "Hostile Buy-Out" clause that allowed a Myanmar joint-venture partner to forcefully buy out the other side if they had enough capital, whether agreed to or not by the counterpart. In addition, rules and regulations have been relaxed, and it is now supposed to be possible to complete the entire incorporation process in a day, though that does not seem to be realised in practice. A new session of parliament begins this month, and more changes in the law may be forthcoming.

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Numerous challenges

Despite the new opportunities, there is agreement that foreign companies will find Myanmar a difficult place to do well in. "The market is small and the pool is full - everyone is already in," said Taiwanese businessman Roger Yin, general manager of Good-Men Associates, interviewed while attending the investment conference in Myanmar in July. "The only way to compete is to have a high-tech advantage in materials or techniques that will take a few years to copy. When I started in China 20-plus years ago, there weren't too many foreign businesses there, so you could experiment and start slowly. But precisely the opposite is true in Myanmar. Everyone is here and they only want big investments. The climate is not right for what I'm doing at this time. It's cheaper to manufacture in China, and the infrastructure is in place there, unlike Myanmar."

On the other hand, explains Albert Fan of TAITRA's Market Research Department, a keynote speaker at the July conference, Taiwan may enjoy some special advantages in dealing with Myanmar. One is the fact that many people in Myanmar are able to communicate in Chinese due to the country's longstanding trade ties with China. Another is the legacy of the presence of former Kuomintang troops in the mountain regions of Myanmar, where they fled across the border at the end of the civil war with the Chinese Communists. For years, the Taiwan government subsidised the education in Taiwan universities of the offspring of these soldiers - known as Myanmar-born Kuomintang (MBK). After graduation, many of them returned to Myanmar. "If you must have a Myanmar JV partner," says Fan, "the safest approach is to partner with a Taiwan-educated MBK business family."

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This article first appeared at the American Chamber of Commerce in Taipei website.

 



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About the Author

David DuByne is Chief Editor of Oilseedcrops.org and a consultant for companies distributing products into Myanmar as well as a sourcing agent for Myanmar agri exports. He can be reached through ddubyne (at) oilseedcrops.org.

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Creative Commons LicenseThis work is licensed under a Creative Commons License.

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