March 20, 2017 | bloombergbriefs.com

MyanmarEmerging from the frontier

Contents01 Economy

03 Foreign Investment

04 Banking

06 Event Highlights

08 Fact Sheet

Bloomberg Reports Managing EditorPaul Smith

EditorsNathaniel BakerMalcolm Scott

Reporters:Chanyaporn ChanjaroenEnda CurranSunil JagtianiDavid RomanYudith Ho

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Art DirectorPekka Aalto

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The first U.S. fast food restaurant, KFC, opened in 2015 and other assorted Western and Asian brands have popped up across the nation’s biggest city, Yangon. With the World Bank forecast-ing growth of about 7 percent per year through 2019, there’s reason for guarded optimism in the next several years.

Yet some of the initial euphoria over the long-term outlook for one of the world’s last frontier markets is waning. Foreign investment and exports have cooled and the currency has slumped, straining the government’s finances. A growing chorus of investors, policy makers and executives worry that the coalition government led by Aung San Suu Kyi — a former political prisoner and Nobel laureate — lacks the kind of coherent economic strategy and regula-tory framework to move the country up the development ladder.

While the government has won praise for passing a revamped com-panies law that takes effect in April, more work needs to be done, accord-ing to an appraisal in October by the International Monetary Fund. To

Myanmar’s New Struggle: Keeping the Faith of Foreign InvestorsBy ENDA CURRAN

ECONOMY

really safeguard growth in the coming decades, the country needs to modern-ize its tax and public school systems, liberalize the financial sector and streamline business regulation.

Glacial PaceThiri Thant Mon, 40, returned to her native country in mid-2013 after 17 years living and working overseas, including a stint at Morgan Stanley. She sees a glacial pace of economic change in Myanmar.

“The government is slightly lost as to how they can tackle the bigger picture,” said Thiri, managing director and co-founder of Yangon-based investment firm Sandanila Partners. “There is no articulation of policy.”

The World Bank in January also called for greater clarity and communication of the government’s economic policies.

“One of the things that people do say, which I think is a fair criticism of the government, is that it has not set out its economic policies clearly enough,” Andrew Patrick, Britain’s Ambassador to Myanmar said at an investment conference in Yangon hosted by

A pariah state for decades, Myanmar’s recent emergence from economic isolation has attracted foreign companies and investors intrigued by the Southeast Asian nation’s untapped potential, abundant natural resources and low wage workforce.

Bloomberg. “If people understood exactly what the playing field looked like it would be much easier for busi-ness to operate here.”

Ethnic TensionEthnic tensions and violence persist across this multi-cultural nation, where minorities make up one-third of the pop-ulation. External observers accuse the military of waging a campaign of vio-lence in western Rakhine state, targeted at the Rohingya minority. A prominent government legal adviser who called for religious harmony in Myanmar was shot and killed outside Yangon International Airport in January.

Ethnic strife aside, Myanmar remains one of the world’s poorest countries. Its 54 million citizens have a per-capita GDP of $1,161.50 compared to $43,876 of its former colonial master, Britain.

Overhauling the civil service and government’s traditional way of doing things is going to require deep cultural change, said Sean Turnell, Naypyitaw based Economic Adviser to the govern-ment and an academic at Macquarie University, Sydney.

“I find sometimes people hanker for quick authoritarian solutions to things,” Turnell said. “In the old corrupt author-itarian order it was easy to get quick decisions — but they weren’t necessarily good ones.”

Aung San Suu KyiWhile the military continues to hold powerful sway and corruption and poverty is rampant, there’s no appe-tite for a return to the old regime. Suu Kyi’s National League for Democracy won a sweeping victory in November 2015 elections and formed a new gov-ernment last year. A relatively free

More Kyat For Your DollarMyanmar’s currency is in a slump

Source: Bloomberg

2016 3/15/2017

1,400

1,350

1,300

1,250

1,200

1,150

USD/MMK Spot Exchange Rate

1

media and high mobile phone pen-etration have encouraged a thriving forum for debate and opened up the world to citizens.

Investment is also pouring into the nation’s telecom sector. Viettel, the mil-itary backed Vietnamese telecoms pro-vider that operates across Asia, Latin America and Africa is embarking on a $2 billion investment in Myanmar — it’s largest outside its home market — after winning a license last year.

Sharper VisionA new stock market has been launched, albeit with only four companies listed. Banks are being combed over to gauge their true financial health ahead of a planned restructuring designed to get credit flowing to those who need it most, according to Turnell.

“The government has actually been doing quite a lot on the economic reform front, but sometimes it has not been so good at communicating this,” he said.

It’s also the case that the slowdown in foreign investment in part reflects a mixed global economy, previous one off transactions and a spat with China over the $3.6 billion Myitsone Dam and hydroelectric project in north-ern Myanmar that was put on hold in 2011. Inbound investment hit a record $9.4 billion in the year through March 2016 compared with less than $2 billion five years earlier. Those inflows have cooled to about $5.8 billion for the current fiscal year, in line with the government’s target.

Another worry is that 80 percent

ECONOMY

of Myanmar’s foreign investment is concentrated in the oil, gas, power, and telecom sectors, according to an analysis by the World Bank, with man-ufacturing accounting for only about 7 percent. That could leave the economy vulnerable to an economic shock if, say, the energy sector were hit hard.

Logistical ChallengeThere have been some landmark deals in the consumer goods sector. Colgate-Palmolive Co., the New York-based maker of toiletries, bought a Myanmar toothpaste company for about $60 million in 2014, while Kirin Holdings Co. of Japan acquired 55 percent of the coun-try’s largest beer producer, Myanmar

Brewery Ltd., for $560 million in the fol-lowing year.

Observers point to massive opportu-nities in education, retail, tourism, man-ufacturing and above all, infrastructure in a country where a quarter of the pop-ulation live below the poverty line.

Only 40 percent of the road network is paved and 20 million people, half of the rural population, don’t have access to all-weather roads. Some $120 billion will be needed by 2030 to build road, rail, bridges, airports and more, accord-ing to the Asian Development Bank.

“Logistics within Myanmar cur-rently is a nightmare and it’s affecting all types of different businesses,” said Peter Beynon, Chairman, Myanmar & Cambodia, Jardine Matheson.

About 77 percent of the popula-tion has no access to financial services, according to consultancy Roland Berger.

“We are heading towards the right direction,” said Htoo Htet Tay Za, Managing Director of Asia Green Development Bank Ltd. “We have to be patient.”

Still, hammering out the kind of com-prehensive regulatory and policy frame-work that foreign investors need to invest longer term is a looming challenge.

Some suggest Myanmar needs a streamlined powerhouse economic agency led by a key talisman that the world can point to when looking to do business.

“One economic tsar supported by around 12 capable people, that’s what we need,” said Thiri.

A KFC restaurant in Yangon.

Inside the Yangon Stock Exchange.

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“In any emerging market, capital is important,” said Nang Kham Noung, an executive director of KBZ Bank. “For us, we are open to foreign partnership. However that’s subject to the central bank and the regulation,” she said in an interview last week in Yangon.

Myanmar is considering changes to the companies law that would allow foreign investors to acquire stakes of up to 35 percent in local firms, a govern-ment official said last month. Existing laws don’t allow foreign investors to hold stakes in local banks, according to KBZ Bank. Like many companies in Myanmar, the bank needs foreign capital to keep pace with rising demand in Myanmar’s rapidly expanding economy, which grew by 8.1 percent last year.

KBZ Bank, founded in 1994, aims to more than double the number of its branches to 1,000 by 2020, as well as grow mobile financial services to reach people in rural areas, Nang Kham Noung said. It may consider an initial public offering, she said.

Myanmar’s banking system is “immature” and regulation remains rudimentary, said Nam Soon Liew, managing partner for ASEAN finan-cial services at the consultancy EY in Singapore. “Myanmar banks need to make sure that their businesses, oper-ations and risk management are more robust, that they have stronger balance sheets, stronger management control, product platforms and accounting systems,” he added.

KBZ Bank May Sell Stake to Foreign Firm, If Law AllowsBy CHANYAPORN CHANJAROEN

FOREIGN INVESTMENT

About 77 percent of the population has no access to banking, according to consultancy Roland Berger.

Group InterestsKBZ Bank is part of the KBZ Group, which was founded by Nang Kham Noung’s father Aung Ko Win. The busi-ness empire includes gems and jade mining and trading, aviation, insur-ance and construction, according to the group’s website. Aung Ko Win, his wife and three daughters sit on the group’s board, the website shows. Unlike several other local companies, KBZ wasn’t subject to international sanctions under the former military government, the bank said.

“We are working towards international standards in corporate governance” and plan to include more independent direc-tors on KBZ Bank’s board, Nang Kham Noung said. She declined to give details of the current composition of the board.

KBZ Bank’s assets grew at a com-pound annual rate of 44 percent

Myanmar’s largest privately-owned bank by assets says it’s willing to sell a stake to a foreign lender, pending a change in the country’s law, as it gears up to expand its operations in one of Asia’s most under-banked nations.

between 2012 and 2016, and now stand at $8 billion, according to the bank. It has 17,889 employees. The bank is recruiting more staff, targeting Myanmar nationals who have lived abroad as well as foreign-ers, Nang Kham Noung said.

“Myanmar banks need to make sure that their businesses, operations and risk management are more robust, that they have stronger

balance sheets, stronger management control, product platforms and accounting systems”

— Nam Soon Liew

About 77 percent of the population has no access to banking, according to consultancy Roland Berger.

Nang Lang Kham, left, and her sister Nang Kham Noung.

3

Max Myanmar Looking for Financial Services, Banking PartnersBy YUDITH HO, HASLINDA AMIN and SIDDHARTH PHILIP

FOREIGN INVESTMENT

The Yangon, Myanmar-based group expects legal changes in the country to encourage more investment, U Zaw Zaw, Max Myanmar chairman, said March 9 at the Bloomberg Invest Myanmar conference. U Zaw Zaw also said he “has a dream” to list the company in Hong Kong, Bangkok or Singapore, along with Yangon.

Myanmar is enacting laws to encourage foreign investment in one of Southeast Asia’s fastest growing economies. A revamped compa-nies law to take effect by April will allow overseas investors to acquire as much as 35 percent of the equity in local firms before they are considered for-eign-owned. Foreigners will also be able to buy shares on the Yangon stock exchange. A separate proposed law would also make foreign companies eli-gible for tax incentives without first seeking approval from the Myanmar Investment Commission.

“The government needs to frame investor friendly policies to attract foreign investment,” U Zaw Zaw said in a panel discussion at the conference in Yangon. “We need to invest in infrastruc-ture like roads and power. Power genera-tion is very low.”

Max, founded in 1993, owns three hotels in the country including two that

are managed by Accor SA, as well as cement factories, highway projects and gasoline pumps. U Zaw Zaw was previ-ously on the U.S. government’s list of “specially designated nationals.”

The U.S. government began a program of sanctions against Myanmar in May 1997 when the country was run by a military junta. Following a tran-sition toward democracy, President Barack Obama rolled the sanctions back in October last year. 

The now defunct U.S. program had tar-geted individuals and entities including Tay Za, father of AGD Bank’s Managing Director Htoo Htet Tay Za, as well as U Zaw Zaw and his Max Myanmar Group.

The European Union lifted all its sanc-tions against Myanmar in 2013, with the exception of an arms embargo.

Max Myanmar Holding Co., a hotels-to-engineering conglomerate, said it is looking for partnerships in financial services and is in talks with France-based Accor SA to expand cooperation in hotel management.

World Bank to Help Vet State Banks to Protect EconomyBy SUNIL JAGTIANI

BANKING

The World Bank is working with Aung San Suu Kyi’s government on the project and the results will help to clarify options for restructuring the sector, according to Nagavalli Annamalai, a lead counsel at the multilateral lender who’s specialized in banking sector develop-ment for almost two decades.

“These banks are under-capi-talized,” Washington, D.C.-based Annamalai said in an interview on March 1. “So we need to come up with a realistic plan for restructuring, which may include recapitalization that doesn’t put too much strain on the fiscal side of the government.”

Overhauling Myanmar’s four state banks, which have assets equivalent to about a fifth of the country’s $63 billion gross domestic product, is a key task for Suu Kyi as she seeks to expand the finan-cial sector. Without reforms, the govern-ment lenders could spiral into a “dire” state as rapidly growing private-sec-tor banks snare a bigger share of depos-its and lending, the World Bank said in a recent report.

“What we don’t want is one day we wake up and they say, amongst other things, there’s a large shortfall in capital,” Annamalai said. “We don’t want to face a situation where the stability of

Myanmar is embarking on the first comprehensive audit of state-owned banks in decades, part of a push to modernize the financial system and tackle risks to the nation’s rapid economic growth.

“The government needs to frame investor friendly policies to attract foreign investment”

— U Zaw Zaw

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U Zaw Zaw

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the entire financial system is affected by these state-owned banks.”

Opening UpState lenders dominated the banking system for half a century until Myanmar began democratic reforms in 2011 and started opening up the economy. Australia & New Zealand Banking Group Ltd. and Industrial & Commercial Bank of China Ltd. are among 13 foreign banks to have won licenses since 2014. There are some two dozen domestic pri-vate-sector banks.

The largest government-run lender is the Myanma Agriculture and Development Bank, which traces its roots back to the 1950s and provides credit to more than 2 million farmers in the largely agrarian Southeast Asian nation. The other three are the Myanma Economic Bank, the Myanma Foreign Trade Bank and the Myanma Investment and Commercial Bank.

Assets at private-sector banks climbed 27 percent to 23.3 trillion kyat ($17.2 billion) at the end of June 2016 from the same month a year earlier, according to data collated by the World Bank. In contrast, they slid 14 percent to 16.5 trillion kyat at state-owned lenders in the same period.

One caveat for analyzing the nation’s banking sector is the quality of gov-ernment figures, including a nonper-forming loan ratio of about 3.6 percent and a claimed capital adequacy ratio

of 19 percent in June 2016. Indicators of the industry’s soundness as currently reported don’t accurately reflect systemic risks, the World Bank said in its Myanmar Economic Monitor in December.

OutdatedThe Ministry of Planning and Finance didn’t immediately respond with comment following emails inquiring about the quality of banking data and plans for state-run lenders.

Challenges at state-owned banks include poor information-technology infrastructure and outdated accounting practices, as well as a lack of clarity in such things as classification of assets and provisioning for bad loans, according to

Annamalai. Non-existent risk-manage-ment systems and weak boards are other difficulties, she said.

Suu Kyi’s National League for Democracy party in November 2015 won the country’s first open elections since 1990. She’s trying to widen financial inclusion and spur investment in the still cash-based emerging economy.

That entails boosting trust in the financial sector, in a nation where memories of a damaging crisis in 2003 linger. A repeat meltdown would imperil Myanmar’s fast GDP expan-sion, which at 8.1 percent last year was Asia’s quickest, based on International Monetary Fund estimates.

The restructuring of state banks, possibly by eventually offering stakes in them to international investors, is one of the biggest immediate issues for Myanmar’s economic-reform agenda, said Sean Turnell, an associate pro-fessor in the economics department at Macquarie University and a special adviser to State Counsellor Suu Kyi’s government.

“We’re not quite sure what state they’re in at the moment,” said Turnell. “So the first task is to do a good, proper audit of them, which basically hasn’t been done for decades. Up until now there’s been a complete lack of transparency.”

The assessment of the state lenders may be completed by mid-year, Annamalai said. The entire restructuring process could take at least three to five years to complete but is a crucial task that has to be undertaken, she added.

“The banking system is the key driver for development,” Annamalai said.

Under PressureAssets at state-owned banks are declining as private lenders expand

Private-sector banks State-owned banks

Source: World Bank

24T Kyat

22

20

18

16

06/30/2015 06/30/2016

Rapid ExpansionMyanmar’s economy is almost the fastest in the world

Source: International Monetary Fund estimates in October 2016 database

Iraq Myanmar Côte d’Ivoire India Lao P.D.R.

10.3%

8.1% 8.0% 7.6% 7.5%

5

EVENT HIGHLIGHTS

Bloomberg Invest Myanmar SummitBy DAVID ROMAN, YUDITH HO, CHANYAPORN CHANJAROEN, SUPUNNABUL SUWANNAKIJ, HASLINDA AMIN, CHOONG EN HAN, LIVIA YAP, ANDY CLARKE

Local entrepreneurs joined international policy makers, investors and corporate executives at the Bloomberg Invest Myanmar conference in Yangon on March 9 to discuss the next stage of the country’s economic transformation. Panels focused on the biggest opportunities, chief development hurdles and concepts for how Myanmar will be transformed by fresh thinking and investment.

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Myanmar could be the next Vietnam or Thailand, with the economy having the potential of growing as much as 10 percent, Andrew Patrick, the U.K.’s Ambassador to Myanmar, said.

Sai Sam Htun, Asahi Loi Hein chairman, said the company is working with foreign banks to raise capital. Its financing options include an intial public offering on the Bangkok or Yangon stock exchanges, Htun said on this panel with KBZ Group Senior Managing Director Nyo Myint and Bangkok Bank President Chartsiri Sophonpanich.

Myanmar has to open its markets to foreigners for growth and the nation’s laws need to change to liberalize its market, Stock Exchange of Thailand President Kesara Manchusree said in a Bloomberg TV interview from the event.

Access to financing is a challenge for farmers and Myanmar needs to invest in farming infrastructure to lower the cost of cultivation and improve productivity, Myanma Awba Group CEO Thadoe Hein said in the panel discussion with Dagon Group Chief Executive Officer Christopher Thurane Aung, International Finance Corporation Myanmar Country Manager Vikram Kumar and Myan Shwe Pyi Tractors Chairman and CEO Khin Maung Win.

6

Nguyen The Nghia, vice general director of Viettel, said the Vietnamese mobile phone company expects to win 25 percent market share in Myanmar. Viettel plans to launch a mobile money service in Myanmar next year, he said.

Arturo Planell, Visa country manager, Myanmar, said the company is looking to enter the country’s mobile payment market. Planell was joined by ASA Myanmar Chief Executive Officer Lars Erik Tellmann, AGD Bank Managing Director Htoo Htet Tay Za and MPT/KSGM Joint Operations Chief Operating Officer Yoshiaki Benino.

Coca-Cola is focusing on growing organically in Myanmar rather than through acquisition, the company’s Myanmar General Manager Rehan Khan said. Khan is shown with Roland Berger Southeast Asia Managing Partner Thomas Klotz and Microsoft Myanmar Country Manager Sy Wann.

Asia Green Development Bank is “definitely open” to foreign companies as it seeks partners for non-financial industries including ride-sharing, managing director Htoo Htet Tay Za said in a TV interview. AGD Bank has already met with Uber’s chief in Myanmar, he said.

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FACT SHEET

44% 13% 12% 11% 9.2% 3.8% 3.5%3%

Myanmar

Population

56M

2015 GDP (USD)

65B

Exports by Type as of July 2016

Naypyidaw

CHINA

VIETNAM

MYANMARLAOS

THAILAND

CAMBODIA

Mineral ProductsTextiles

Vegetable Products

Precious MetalsWood Products

MetalsAnimal Products

Other

3,024 1,149 1,075 968884

Top Export Partners as of 2015*

ChinaThailand

IndiaJapan

South Korea

Fast Food Presence

KFC

×7Burger King

×1

Urban Population

34%

Median Age

29 Population

Growth Rate

1.0%

Access toElectricity

52%

Smartphone Ownership

77per 100 inhabitants

Internet Users

22%

Literacy Rate

95% 91%

2013 '17 '18

8%

4

GDP GrowthMyanmar Developing Asean

GDP Per Capita

$1,204

567

Budget Deficit

2.8%

Gross National Savings

33%

Government Debt

11%

Finances (% GDP)

Current Account: −8.3 (% GDP)

TradeDemographics

Infrastructure

Paved (km)

31,000% Paved

20%Total (km)

148,700

Roads

PavedRunways

36

Airports

FDI

Economic SnapshotCPI

2,049 1,621 956 594 226

FDI by Sector* (2015)Oil & Gas

Transport & Communication

ManufacturingReal Estate

DevelopmentOther

3,493 438 700 222 222 208

FDI by country* (2015)

SingaporeChina

NetherlandsIndia

Hong KongJapan

2015 '16

O�cial Rate

11.4%As of May 2016

Currency: Kyat1 USD = 1,365

*USD Millions

ForecastForecast

Pizza Hut

×1

2016 2017IMF

ADB9.8% 9.0%9.5% 8.5%

CPI Forecast

Sources: Myanmar Central Statistical Organization, Central Bank of Myanmar, World Bank, International Monetary Fund, Asia Development Bank, United Nations Commodity Trade Statistics Database, UN International Telecommunication Union, CIA World Factbook, ThuraSwiss.

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