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Buying into Myanmar’s growth story

Date: 18/09/2013
Source: the Sun daily
Buying into Myanmar’s growth story

FOLLOWING the wave of foreign investments into emerging markets, Myanmar presents long-term opportunities for investors, particularly from neighbouring countries such as Malaysia.

More and more multinational corporations (MNCs) are buying into the potential growth story of Myanmar, given its rich resources in gas, land and minerals, its strong agriculture sector and low-cost labour force. As foreign economic sanctions are slowly being undone, MNCs are keen to explore investment opportunities within this golden land and big names such as Pepsi, Coca-Cola, Kraft Foods and Mitsubishi want to secure their positions in this new market.

In a McKinsey Global Institute (MGI) report on Myanmar published in June 2013, the consultancy firm estimates that a total investment of US$650 billion (RM2.14 trillion) is needed by 2030 to support the country's growth potential of 8% per year. Half of the investments will be channelled into infrastructure projects.

With the newly revised Myanmar Foreign Investment Law becoming more investor-centric, Myanmar is teeming with foreign direct investment opportunities in sectors such as energy/mining, manufacturing, infrastructure, agriculture, tourism, telecommunications and financial services. The recent World Economic Forum held in Myanmar saw officials making the overhaul of the energy sector a key priority, given that only 25% of the country's population has access to electricity.

At an 8% annual growth rate, MGI anticipates that Myanmar can increase its economy size from US$45 billion in 2010 to over US$200 billion in 2030, with heavy investments needed for residential and commercial real estate, power plants, water-treatment plants and transport.

Malaysian infrastructure companies with the technical expertise, financial muscle and foreign exposure ought to consider capitalising on the burgeoning demand for infrastructure services within Myanmar. While MNCs across the global are thoughtfully making investment inroads into Myanmar, Malaysian companies may have the advantage of understanding the people and their cultures, thus fostering better working ties.

Firstly, both nations share a geographical closeness, and are made up of various ethnic groups. Secondly, Malaysia has successfully transformed from a resource-based economy to a modern economy, something Myanmar is striving to achieve by introducing economic reforms to create jobs and raise incomes. And, finally, there is existing goodwill between Malaysia and Myanmar as the former advocated Myanmar's inclusion into the Southeast-Asia trading bloc back in 1997.

Over 40 Malaysian companies, including Petronas, presently operate in Myanmar covering the oil and gas, automotive, palm oil, household products, processed food and building materials sectors, with bilateral trade between both countries expected to surpass RM3 billion in 2013, said Malaysia External Trade Development Corp.

Myanmar's reintegration into the global economy through economic reforms over the last two years has produced visible changes.

This historically all-cash economy has also taken steps to address its shortage in financial services. Automated teller machines are mushrooming in major cities following agreements with electronic payment companies Visa Inc and MasterCard Inc. Both electronic payment companies believe the next wave of opportunity is in mobile phone payments as the government moves to grant two new telecommunications licences.

These changes are reflective of Myanmar's readiness to collaborate with and invite foreign partners in its bid to open up the country's economy. For instance, Myanmar is consulting institutions such as the World Bank, the International Monetary Fund and Standard Chartered Bank in the development of a modern financial system. With over 150 years of history in Yangon, Standard Chartered has reopened its representative office there, thus making it the only international bank to operate in all 10 Asean markets.

Although Myanmar stands to be the new darling of investors, there are political and economic challenges that will continue to plague the meteoric growth of this nation. Myanmar's weak macroeconomic management, outdated financial system, inadequate infrastructure, unskilled labour force, opaque regulations, recent bout of ethnic violence and remaining US sanctions are very real concerns for investors.

International firms looking to venture into Myanmar must be prepared to make a long-term commitment to the country and help in the reconstruction of its business environment as well as in training the workforce. Partnering with local companies might solidify a firm's presence, expedite its growth and provide better access to the local talent pool.

At the end of the day, there is a huge upside from having first-mover advantage in Myanmar and building strong working relationships, especially since the country seems primed to take advantage of the advent of the Asean Economic Community free trade zone by the end of 2015.

Saif Malik is MD of origination and client coverage and co-head of wholesale banking at Standard Chartered Bank Malaysia Bhd.

Topic: Investments
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