Myanmar Business and Investment Digest — August 2016

Myanmar Business and Investment Digest — August 2016

A domestic perspective of news from the past month with implications for business and investment in Myanmar.

Politics: 21st Century Panglong Conference; state visits to China and India; U Thein Sein steps down as leader of USDP; Kofi Annan to head new Rakhine advisory commission

Economics: Relaxation in import restrictions and the definition of “foreign companies”; government bond auctions to resume; World Bank offers $100mn in support for financial sector development; MIC approves $100mn in FDI projects; update on inflation

Business: Government to end automatic 5 year tax breaks on new foreign investment; Korea’s Panko Group in garment sector JV; Thailand’s Amata plans to enter industrial parks sector in Myanmar by 2020; inward investments by Japan’s Fuji Film and Thailand’s Kim Pai; Taiyo Nippon Sanso to set up industrial gases facility at Thilawa; plans for Daewoo bus assembly plant; UA Bank joins ADB funding programme; MCB lists on Yangon exchange

POLITICS

21st Century Panglong Conference

The much-anticipated “21st Century Panglong” peace conference ended, a day earlier than anticipated, on 3rd September. The conference brought together representatives of the government, the armed forces, the leaders of the armed ethnic groups—including some who have not yet signed up to last year’s ceasefire process—as well as third-party observers, including UN Secretary General Ban Ki-Moon. Unusually, the conference was broadcast on state TV, giving the public sight of the proceedings. Each of 73 groups was given 10 minutes to present its priorities for the future political development of Myanmar. Commonly expressed priorities were for a federalist structure, greater equality between Myanmar’s disparate ethnic groupings, and increased protection for regional rights.

The UNFC, representing those groups that have not yet signed up to the ceasefire process, proposed that the number of states in the Union be increased from the current 7 to 14, in effect upgrading the status of today’s 7 “regions.” It also argued that the military should be put under civil administration and that the ethnic groups should be represented in its leadership. The MNDAA, representing 3 groupings that are currently battling with the army, and so were barred from direct participation in this session, urged that they be included in future discussions. The United Wa Army, as a result of what the government said was an “administrative oversight”, felt it had been relegated from participants in the conference to observers and stormed out of the conference on the first day. It has since indicated it will consider returning to future sessions.

For their part, the military and the USDP party argued that the constitution drafted in 2008, which grants the military certain privileges, should continue to be the foundation of the state.

It was agreed that further conferences in the Panglong process should be convened roughly every 6 months, with dialogue between the participants to be maintained in the meantime. As an incentive to persuade non-signatories to the ceasefire agreement to join up, they are to be excluded from the dialogue process until they have done so.

For a more detailed report on the conference from the Myanmar Times, please use the following link:
http://www.mmtimes.com/index.php/national-news/22313-not-without-wrinkles-peace-conference-lauded-for-taking-landmark-first-steps.html

State visits to China and India

In the middle of August, State Counsellor Aung San Suu Kyi made a 5-day state visit to China. According to AFP reports quoted in the Myanmar Times, Myanmar and China have agreed to co-operate on international issues such as climate change and to promote economic co-operation and the rule of law over their shared border. China is said to have agreed to play a constructive role in the peace process.

Myanmar’s State Counsellor announced that a committee is to be established to review the Myitsone dam project which was backed by China, but halted in 2011 by the previous Myanmar government. She declined to be drawn on whether the project would be resumed.

For a Hong Kong perspective on the talks, please use the following link to an article in the South China Morning Post:
http://www.scmp.com/news/china/diplomacy-defence/article/2007251/suu-kyi-heads-home-solving-dam-deadlock-remains-key

Shortly after the China state visit, Myanmar’s president U Htin Kyaw made a four-day visit to Delhi. During the visit, the two countries discussed ways of combating militants who operating on their border, as well as India’s possible participation in infrastructure development. MOUs were signed on road and bridge projects, traditional medicine and renewable energy.

Please use the following link to read the statement issued by the Indian government following the visit:
goo.gl/qOCzNk

U Thein Sein steps down as leader of USDP

In a surprise move, the previous president of Myanmar, U Thein Sein, announced at a conference of the USDP that he is to step down as party leader. His place has been taken by U Than Htay, a former brigadier general who has also served as a minister of energy and a minister of railways.

It has been suggested that the change represents an attempt to ease a split within the party between supporters of U Thein Sein and U Shwe Mann, the former parliamentary speaker who was sacked shortly before the last election. According to the Myanmar Times, U Thein Sein is to retain an advisory role within the USDP, as its “patron.”
http://www.mmtimes.com/index.php/national-news/22121-u-thein-sein-steps-down-as-usdp-chair.html

Kofi Annan to head new Rakhine commission

Former UN Secretary General Kofi Annan has been asked by Aung San Suu Kyi to head an advisory commission to explore ways of halting human rights abuses in Rakhine State. The commission will include 9 independent persons, 3 of whom are foreigners (a new departure for Myanmar and unwelcome to some). The commission has been given a year to report its findings to the government.

Please use the following link to read a press release by the Kofi Annan Foundation on the establishment of the commission:
http://www.kofiannanfoundation.org/news-releases/advisory-commission-rakhine-state/

ECONOMICS

Relaxation in import restrictions and in the definition of “foreign companies”

According to the Myanmar Times, the Ministry of Commerce has published a list of 267 items that can be imported from September without a licence. The items include cotton; products made of iron and steel; copper, brass, aluminium and their products; electrical appliances, vehicle parts and trains. Another list of deregulated items is expected to follow later this year.

http://www.mmtimes.com/index.php/business/21972-ministry-relaxes-import-rules-for-over-250-items.html

Meanwhile, the Nikkei Asian Review has reported that Myanmar is to raise the ownership threshold for what comprises a “foreign company” to 36%. It has also indicated that foreigners are to be able to acquire up to 35% stakes in domestic companies and are to be given access to the Yangon stock exchange.

Finally, it has suggested that plans are afoot to grant foreigners limited exposure to certain restricted industries, such as agriculture, fishing and trade, and also to relax the permissions they are required to secure in order to obtain long term leases.

http://asia.nikkei.com/Politics-Economy/Economy/Myanmar-to-ease-restrictions-on-foreign-investors

Government bond auctions to resume

According to the Myanmar Times, the government has set itself the target of raising about $1.5bn, or 60% of this year’s borrowing requirement, from next month’s bond auction. The deputy governor of the Central Bank indicated that the government would possibly borrow the balancing 40% of its requirement from the Central Bank, although the objective is to reduce this share over time.

Unlike last year, when interest rates were fixed, pricing during the auction process is to be set by the market. The suggestion is that the auction will focus, in the main, on 2 to 3 year bonds.

http://www.mmtimes.com/index.php/business/22233-ambitious-target-set-for-upcoming-bond-auctions.html

World Bank offers $100mn in support for financial sector development

The Myanmar Times has reported that, subject to agreement on terms, the World Bank has offered to lend $100mn to the government for financial sector development. $75mn has been earmarked for the Ministry of Finance (for regular expenditures, as well as to support restructuring of the state owned banks, as well as the development of micro-finance and insurance) and $25mn for the Central Bank (for training in accounting and finance, investments in IT and infrastructure.) The support is reportedly to take the form of a 38-year, interest-free loan.

http://www.mmtimes.com/index.php/business/21936-world-bank-offers-100m-loan-for-financial-sector-development.html

MIC approves c.$100mn in FDI projects

DICA has announced that 9 projects (4 foreign) have been approved by MIC. The foreign investments include a handbag factory in the Shwe Pyi Thar industrial zone (Myanmar Gigi Leather Goods), a CMP garments factory in Hlaing Thayar (Runningtex), a logistics facility in Mingaladon (Maxxcare) and a hotel on the Pun Hlaing Golf Estate in western Yangon.

In the period since the new government took office in April, 17 foreign projects with a combined value of $222mn have received MIC approval.

http://www.mmtimes.com/index.php/business/22115-mic-approves-new-projects-worth-100-million.html

Update on inflation

According to the Central Bank, inflation in the year to the end of July was 12.1% YoY. However, the Central Statistics Organisation has also rebalanced its inflation basket and has reported that, using the new basket, inflation over the same period was 10.6%.

The previous basket of goods used to calculate the CPI had not been adjusted since 2006.

For the full year, most development institutions expect a drop in inflation as the flood-induced upward pressure on food items eases. The ADB, for example, anticipates inflation will ease to an average of c. 8.5% in 2017.

http://www.mmtimes.com/index.php/business/22170-inflation-falls-on-data-update.html

BUSINESS

Government to end automatic 5 year tax breaks on new foreign investment

According to the Myanmar Times, U Aung Naing Oo, MIC secretary, has indicated that, from the time of the introduction of the new foreign investment law, foreign companies investing through MIC will no longer receive a 5 year tax break automatically, but will be granted exemptions reflecting the nature of the project and its location. The greater the economic benefits to the country, the more generous the tax concessions will be. Tax exemptions for projects involving tobacco and alcohol will cease.

http://www.mmtimes.com/index.php/business/21736-no-automatic-tax-breaks-under-new-law.html

Korea’s Panko Group in garment sector JV

Korea’s Panko Corp., which has clothing manufacturing operations in China and Vietnam, is reported to have signed an MOU to form a 50:50 Myanmar JV with Olympus Asia Group.

According to reports, the JV company is looking for up to 500 acres of land on which to site its plant and will seek to add more value to production than the majority of Myanmar’s garment factories, which operate on the cut-make-pack (CMP) system. The plan is to include in the project a wastewater treatment plant, in-house electricity generation and dormitories for employees. According to the Myanmar Times, the JV will produce its own “cotton” and buttons, as well as producing clothes for export. It is anticipated the project will start within one year and that it will take 3 years to build the necessary facilities.

According to Panko’s website, the company established a Myanmar subsidiary in 2014 in Shwe Pyi Thar which has capacity to 6mn pieces of clothing per annum. Asia Olympus Group was formed in 2010 and, according to the Myanmar Times, is working on a wastewater management project in Mandalay.

http://www.mmtimes.com/index.php/business/22065-korea-myanmar-venture-to-build-500-acre-garment-zone.html

Thailand’s Amata plans to enter industrial parks sector in Myanmar by 2020

Reuters has reported that Thailand’s largest developer of industrial estates, Amata Group, is targeting approximately a 5% revenue share from Myanmar by 2020. It comments, however, that the group’s development plans in the country have yet to obtain board approval. Details are expected to become clearer towards the end of the year.

http://uk.reuters.com/article/amata-myanmar-idUKL3N1B32Y

Meanwhile, the Myanmar Times has reported that the Yangon regional government plans to invite tenders from the private sector to help in the upgrade of the infrastructure at the Hlaing Thayar industrial zone, seemingly as a pilot project that can then be extended elsewhere.

http://www.mmtimes.com/index.php/business/21797-hlaing-tharyar-industrial-zone-to-be-upgraded-in-pilot-project.html

Inward investments by Japan’s Fuji Film and Thailand’s Kim Pai

According to Deal Street Asia, Japan’s Fuji Film is to invest $6mn in a facility in the Thilawa SEZ to support its business expansion.

It also reports that Thailand’s Kim Pai is to invest $7mn in a printing and packaging unit, again at Thilawa.

http://www.dealstreetasia.com/stories/myanmar-dealbook-fujifilm-to-invest-6m-in-thilawa-sez-thai-packaging-manufacturer-kim-pai-invests-7m-50626/

Taiyo Nippon Sanso to set up industrial gases facility at Thilawa

The Nikkei Asian Review has reported that Japan’s Taiyo Nippon Sanso is to invest just under $10mn on a facility on the Thilawa SEZ to produce industrial gases such as oxygen, nitrogen and argon. Production is expected to start in 2018 and is output likely to be supplied to customers located in the industrial zone.

http://asia.nikkei.com/Business/Companies/Taiyo-Nippon-Sanso-to-turn-out-industrial-gases-in-Myanmar

Plans for Daewoo bus assembly plant

Myanmar Coach Centre, a distributor for Daewoo buses, hopes to start producing buses and coaches locally by 2018, according to the Myanmar Times. It has plans for a $10mn facility in Mingaladon, to the north of Yangon, and for a JV with Daewoo. Demand for buses in the local market is said to be limited, but it is hoped that critical mass for the plant can be obtained by producing some vehicles for export also. Daewoo Bus, which is now controlled by Korea’s Young-An Group has other overseas plants in Shanghai, Vietnam, Costa Rica, Taiwan, Kazakhstan and Pakistan.

http://www.mmtimes.com/index.php/business/21938-local-firm-plans-daewoo-bus-factory-in-yangon.html

UA Bank joins ADB funding programme

The ADB has announced that it is providing up to $4mn in guarantees to United Amara Bank, to support trade finance in Myanmar. UAB is the second bank to join the ADB’s programme after Cooperative Bank, which entered a similar agreement in October of last year.

A link to the ADB’s press release follows:
https://www.adb.org/news/adb-trade-finance-program-expands-presence-myanmar-united-amara-bank-agreement

MCB lists on Yangon exchange

Myanmar Citizens Bank became the third company to be listed on the Yangon Stock Exchange, when its shares started trading on 26th August. Its listing follows those of First Myanmar Investment Co. and Thilawa SEZ Holdings.

http://www.daiwa-grp.jp/data/attach/1974_63_en20160826a.pdf

Last modified: 31 July 2016