DBS Asian Insights Myanmar

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COUNTRY BRIEFINGnumber01DBS Asian InsightsDBS Group Research June 2013MyanmarAsia’s Last Frontier Market

DBS Asian InsightsCOUNTRY BRIEFING 010204OverviewTowards Sustainable Economic Growth FDI growthStrategies For Continued Growth12 Political reformsEconomic reformsGrowth from withinAdvancing reformsInfrastructure developmentsEarly Bird OpportunitiesProperty Boom to Continue on Acute SupplyShortage HotelsResidentialOfficeIndustrialOpening Up Untapped Oil & Gas ResourcesTapping Myanmar’s Infrastructure DeficitTelecom Services, Fast Moving ConsumerGoods in DemandStocks Awarded Myanmar Premium18Singapore Companies Are BetterGatewaysYoma Strategic Holdings Interra ResourcesSuper Group Fraser and NeaveEzion Holdings Parkson Retail AsiaYongnam Holdings SingTel Tiong Seng HoldingsAmara Holdings Sin Heng Heavy MachineryWE Holdings ISDN Holdings

DBS Asian InsightsCOUNTRY BRIEFING 0103MyanmarAsia’s Last Frontier MarketExecutive SummaryAnalystsTAN Ai TengAiTeng@dbsvickers.comLING Lee Kengleekeng@dbsvickers.comAndy SIM CFAandysim@dbsvickers.comAlfie YEOAlfieYeo@dbsvickers.comSachin MITTALsachin@dbsvickers.comDerek TANderektan@dbsvickers.comCOUNTRY BRIEFINGnumber01DBS Asian Insights-Ê À Õ«Ê,iÃi ÀV ÊUÊ Õ iÊÓä ÎMyanmarAsia’s Last Frontier MarketCover image: Traditional Burmeseumbrellas from central Myanmar.Source: AFPMyanmar’s growth is fast and sustainable, thanks to the influx of foreignfinancial and human capital. Reforms have also been progressive. Despitescepticisms and multiple challenges, Myanmar’s sweeping reforms haveresulted in further easing of sanctions on the country, which in turn is drawingmore aid from international financial institutions, visitors from across the world as wellas interest to trade and invest in the country. Foreign direct investments have reportedlyjumped by more than 40% to US 1.4 billion and tourist arrivals have surged 54% to 1million in 2013. Meanwhile, the Asian Development Bank projected that Myanmar’s GDPwill expand by more than 6% in 2013 and could grow by 7-8% per year over the decade.There are abundant opportunities in the consumer, tourism, infrastructure, and the oil &gas sectors, but realising them will take time. Infrastructure development and planningis underway for roads, railway, airports and power plants. To fast-track development,foreigners have been invited to bid for mobile networks, airports, and oil & gas exploration.At the same time, demand for fast moving consumer goods (including mobile phoneservices) is poised to grow as the nation marches towards prosperity.Currently, direct access is limited with scarce pure plays. Singapore companies expandinginto Myanmar are good gateways. Yoma Strategic Holdings is well-positioned to ride onMyanmar’s boom. Foreign companies already in or are entering Myanmar also deserveattention as they offer investors certainty of existing proven business and the opportunityto profit indirectly from the new Myanmar venture.

DBS Asian InsightsCOUNTRY BRIEFING 0104OverviewTowards Sustainable Economic GrowthIt may be early days in Myanmar’s transformation, but sustained changes in the countryhas strengthened international support and attracted greater foreign direct investmentsto kick-start development and generate growth for the country.Although Myanmar continues to face “significant challenges”, the World Bank acknowledgedthat the country is “rich in natural resources, including large natural gas reserves, and extensiveagricultural potential, particularly in rice production. After decades of international isolation,Myanmar is already seeing increased trade and investment from the wider internationalcommunity after unprecedented reforms”.Myanmar’s GDP to growabove 6% over the nexttwo yearsThe World Bank has forecasted Myanmar’s GDP to grow by 6.4% during the 2012-13financial year, compared with 5.5% in the previous year. Separately, the Asian DevelopmentBank projects Myanmar’s GDP growth at 6.5% in 2013, rising to 6.7% in 2014. Growth isexpected to be bolstered by the European Union’s reinstatement of preferential access forMyanmar’s exports and the United States’ suspension of its ban on imports from Myanmar.Two large gas fields, Shwe and Zawtika, are expected to come onstream in 2013, whichwill more than double gas production and boost exports to China and Thailand. Highergas exports, greater access to international markets, and faster economic growth in keymarkets such as China will support overall growth in exports. Visitor arrivals are also likelyto post further large gains.1GDP growth6000050000US F2014FSource: Source: IMF, ADB estimates

DBS Asian InsightsCOUNTRY BRIEFING 0105FDI growthForeign direct investments into Myanmar reached US 794 million over the first ninemonths of the 2012-13 fiscal year, according to the Myanmar Investment Commission ina February announcement. Investments were channelled into a variety of industries fromclothing and seed production to IT and electronics engineering. China was reportedly thelargest investor, accounting for nearly half of the current investment commitments.2Foreign direct investments1200US m1000800600Myanmar drew close toUS 800 million in foreigndirect investments for thefirst nine months of the2012-13 financial year40020002007200820092010Financial Yr end March20119M12Source: Myanmar Investment CommissionThe easing of economic sanctions is expected to lead to higher level of trade. In 2012,Myanmar’s total foreign trade reached US 8.5-13.3 billion, accounting for 27% of thecountry’s GDP for the entire year. Key exports are natural gas, agricultural products, gems andjewellery as well as timber and garments.Rice exports to rise followingthe resumption to Japanafter a 45-year breakRice export is an area that holds great potential for Myanmar, which was once the world’slargest exporter under the British colonial rule. With its rich fertile land, all that Myanmarneeds to ramp up production is modern agricultural machinery and better technology. To thisend, the Myanmar Agribusiness Public Corporation (MAPCO) is collaborating with Japaneseconglomerate Mitsui to form a joint venture to set up four rice-milling and processing plants.According to the US Department of Agriculture, Myanmar’s total rice exports last year stoodat 600,000 tons, making it the world’s tenth largest supplier. The government hopes to raiserice exports to 5 million tons within five years, which would put Myanmar in the league of itsneighbours Vietnam (7.4 million tons) and Thailand (8 million tons).

DBS Asian InsightsCOUNTRY BRIEFING 01063Top rice exportersThousands of 04000200019619 0619 2619 46619619 8719 0719 2719 4719 6719 88019819 2819 48619819 8919 0919 2919 4919 6920 8020 00220020 4020 60820120 0120Source: USDA, internetStrategies For Continued GrowthPolitical reformsThe new government haskicked off speedy andextensive changesSince taking office in March 2011, President Thein Sein and key ministers in Myanmarhave reformed laws, taken steps to liberalise the tightly controlled state economy, signedceasefire agreements with the majority of the ethnic groups, enhanced freedom of expressionby scrapping press censorship and allowed the circulation of privately-owned newspapersin Burma for the first time in nearly half a decade. Politically, the military-turned-civiliangovernment has continued to release more political prisoners. Notably, the military-dominatedpower has also allowed opposition parties to hold seats in parliament.To implement a clean government and flush out corruption, the president has also formeda nine-member anti-graft team and overhauled his administration early this year where sixhigh ranking officials were forced to retire on mismanagement or corruption while 40 otherswere transferred to other ministries. The authority further probed and placed the formerminister of Posts and Telecommunications under house arrest while more than 50 officialswere investigated over possible links to high level corruption in a proposed nationwidetelecommunications network that is currently in a bidding process.Externally, Myanmar has hosted many delegations and secured more human and/or financialaid to help rebuild the country. As part of its efforts to support Myanmar’s development,Singapore recently sent a team over, and President Tony Tan went on a state visit to Myanmarin April, a first by Singapore since both countries established diplomatic ties in 1966.

DBS Asian InsightsCOUNTRY BRIEFING 0107The sweeping reforms in Myanmar have prompted more countries to ease or remove sanctions.The EU ended political and economic sanctions against the country in April. Meanwhile, theUS lifted the bulk of its sanctions in stages over the past year, permitting companies to investand allowing imports from Myanmar. A key step to facilitate business flows eventually is theclearance of four Myanmar banks to handle transactions for US companies.In Asia, Japan stands out as the most eager party that is buying into Myanmar’s growthprospects. Not only did the Japanese government waive US 3.36 billion in bilateral debt, itsoverseas development bank – Japan Bank of International Cooperation (JBIC) – also providednearly US 1 billion in bridging loan to cover an outstanding debt to the World Bank andthe Asian Development Bank so that the latter could resume lending. In addition, Japanpledged an additional US 220 million in soft loans for infrastructure and human resourcesdevelopment – the first such lending in 26 years.China is Myanmar’s largest investor and its second largest foreign creditor, followed byThailand, according to International Enterprise Singapore. Together, these two countrieshave invested US 25 billion out of Myanmar’s official total cumulative foreign investmentof US 42 billion in 2012. The Chinese have mainly invested in energy/natural resources andinfrastructure development projects such as the Nay Pyi Daw International Airport. They arealso currently targeting Myanmar’s underdeveloped infrastructure and construction sectorsas well as manufacturing due to the availability of cheap labour. Thailand’s investments, onthe other hand, are mostly in oil and gas, through PTT Exploration and Production (PTTEP),the overseas arm of state-owned PTT. PTTEP operates the Zawtika gas project in the gulf ofMottama, and is also a partner in the Yetagun and Yadana offshore gas projects. Accordingto the Thailand embassy in Myanmar, new Thai investors are showing an interest in consumergoods manufacturing and agriculture ventures.4Major foreign investors in MyanmarFranceMalaysiaSingapore 4%China35%UK 7%Korea 7%Hong Kong15%Thailand24%Source: Myanmar Investment Commission

DBS Asian InsightsCOUNTRY BRIEFING 0108On the back of the debt restructuring, the World Bank, in cooperation with other foreignlenders, has pledged a US 2 million donation to set up a new microfinance institution inMyanmar to help address the significant financing demand from small and medium enterprises.Meanwhile, the Asian Development Bank has resumed lending to Myanmar for the first timein 30 years in an attempt to boost its social and economic development.Revised Foreign Investment Law (FIL) to entice foreignersEconomic reformsAfter months of wrangling between the cabinet and the new parliament, President TheinSein passed a new Foreign Investment Law on Nov 2, 2012. In essence, this new lawsends the important message that the government is committed to welcoming foreigninvestors to fast-track the country’s development and growth.Under the new law, any investment can be up to 100% foreign-owned. Foreigners havethe choice to either set up shop on their own or establish joint ventures with local firms orgovernment agencies where they are free to agree on the ratio of foreign to local capital.To promote foreign investment, the new law has extended the tax grace period fromthree to five years and permits repatriation of funds/profits after tax at market exchangerates. Although Myanmar still prohibits foreign ownership of land, foreigners can nowlease land for as long as 70 years, from 40 previously, giving them a degree of long-termsecurity. The new Foreign Investment Law also provides guarantees to foreign investorsagainst expropriation and nationalisation during the permitted term of investment.Growth from withinThere is evidence that the Myanmar government understands the importance of upgradingits workforce and promoting home-grown industries to maintain growth. As a testament ofthe government’s commitment to support local workers and develop domestic industries,employment provisions within the Foreign Investment Law ensure that Myanmar workers arenot left behind.The new laws designate that only local citizens shall be employed for all unskilled work andthat 25% of employees must be local citizens for the first two years, rising to 75% for thefifth and sixth year. In addition, foreign employers are required to train local employees toupgrade their skills. These provisions are crucial in ensuring that low-skilled Myanmar workersare not left behind in the wake of the country’s economic progress. Furthermore, upgradingits workforce allows Myanmar to realise its real growth potential and to sustain that growthin the future.Myanmar has announced a draft forestry law to completely ban the export of the country’s

DBS Asian InsightsCOUNTRY BRIEFING 01095Evolution of Foreign Investment Law – 1988 & 2012ItemsBasic principles1988Promote & expand exports2012Produce goods to substitute imports Extract natural resources requiringheavy investment Acquisition of high technology Focus on businesses beyondfinancial or technical ability of thestate and people Supports exchange of informationand technology Exploration of new energy for thedevelopment of renewable energysources Environmental protection andconservation Development of banks and financialinstitutions, modernised servicecompaniesForeignerownershipsMinimum of 35%, maximum of 50% in13 restricted sectorsForeign investment ratio is negotiablebetween the investor and the localpartnerLocal partnerForeigner cannot own full stake inbusinesses without any local partnerNot compulsory for all businesses.However, there remains a ban on100% foreign ownership of venturesin certain sectors. Permitted foreignownership percentage likely to bepublished in the FIL rulesEmploymentrequirementsBuild self-sustainabilityBroader knowledge and know-howLocal hiring requirements: To provide training No wage discrimination betweenlocal and foreign staff of similarpositions Unskilled positions - only citizens Skilled positions - 25% within thefirst two years, 50% within thenext two years, 75% within thethird two years (local staff in skilledand unskilled positions)Longer term securityLand use rights30 15 15 years50 10 10 yearsTax incentives3 years corporate income tax exemption5 years corporate income taxexemption tax relief of up to 50%on profits of exports tax exemptionson imported machineries, materialsfor construction and expansion ofbusiness tax exemption on importedraw materials for first 3 years ofcommercial productionRestricted sectorsNot permitted but no clear definitionRestricted sectors include agriculture/cultivating enterprise which localscan do, livestock breeding, fishing inMyanmar’s sea. MIC may neverthelessapprove if proposition is in theinterests of the countryDisputeresolutionsRemarks Disputes may be settled inaccordance to the provisions of therelevant contract In a conflict between the FIL andan international treaty ratified byMyanmar, the international treatyshall prevailSource: Myanmar Investment Commission

DBS Asian InsightsCOUNTRY BRIEFING 0110Banning the export ofraw teakwood helps tokeep value-add within thecountryAdvancing reformsraw, unprocessed logs from April 2014. The law, drafted by the Ministry of EnvironmentalConservation and Forestry, aims to tackle deforestation and encourage foreign investment inwood processing mills in Myanmar.Although Myanmar has as much as 48% forest coverage, it is only earning US 500 per ton ofteak and hardwood compared to competitors like Malaysia that benefit by US 20,000 per tonthanks to its wood-processing sector. Only finished or semi-finished wooden products will beallowed for export, thereby contributing to inflow of foreign investment in finished woodenproduct manufacturing sectors as well as production technology, generating more economicinflows and bringing business opportunities to its people.While the first two rounds of domestic economic and political reforms have gained Myanmarsome rewards from the international community in the form of lifting sanctions andrestructuring debts, more has to be done to restructure the country’s antiquated economy.The government has vowed to continue reforms, particularly administrative, in 2013. Morespecifically, the government announced it is drafting the National Comprehensive DevelopmentPlan which covers the next 20 years and the Comprehensive Development Vision for the next25 years with the help of Japanese and ASEAN economists. Key goals of Myanmar’s FifthFive-Year Plan (FY2011-2015) include 1) 7.7% average GDP growth, 2) raising industrial andservices share of GDP to 32% and 38% respectively, and reducing agriculture share of GDP to29%, and 3) grow GDP per capita by 30-40% from 2010.So far this year, the government has expanded foreign exchange to include the Chinese yuanand Thai baht instead of just crisp and new US dollars to make it more convenient for Chineseand Thai travellers and encourage them to spend more while visiting the country.This year, a number of economic reforms seem imminent:Condominium Law – Anticipated to be issued in three months’ time. It is expected to includeprovisions on foreign ownership rights, and it should be positive for both developers andforeigners who are currently renting apartments for their stay in Myanmar. Ownership of landwould also facilitate the eventual implementation of housing loans.Banking sector reforms – To improve banking systems and functionality to 1) provide credit,raise capital for local companies, 2) handle the wave of foreign investment, and 3) to re-alignand re-engage with the global financial system. Already, Myanmar’s central bank is consideringlocal joint ventures with foreign lenders to help overhaul the country’s financial system. It isexpected that joint ventures for foreign banks will eventually be followed by wholly-ownedsubsidiaries and subsequently, full branches.InfrastructuredevelopmentsThe huge influx of visitors and the reduction of car import taxes have led to congestedroads and an overburdened infrastructure. In order to tackle a rising population and further

DBS Asian InsightsCOUNTRY BRIEFING 0111economic development and growth, the Myanmar government has called for an ambitiousinfrastructure development and introduced a new masterplan for Yangon, the economicheart of the country.Drawing expertise from urban planners in Singapore, the Yangon City Development Committee(YCDC), in coordination with the government’s Division of Urban Planning, announced plansto decentralise Yangon’s central business district (CBD) to avoid over-concentration in thefuture by shifting it outwards. The urban planning authority announced that construction willsoon begin on an outer green belt with four new towns surrounding Yangon’s CBD within a10- to 15-kilometre radius.6Yangon’s new masterplanOUTERRINGHLAWGAGROWTHLTBEHLAING THARYAMINDAMADAGON MYOTHITTWAN TAYCBDROWTH BELTRE GENTBCSUINYATHANLYINDALACITY CENTRETHILAWAGREEN SPOTGROWTH BELTTRANSPORT ENHANCEMENTSource: Yangon City Development Committee

DBS Asian InsightsCOUNTRY BRIEFING 0112Other initiatives include upgrading the existing airport and building a new one. The YangonCity Government anticipates significant growth in visitor arrivals, which will easily sur

Separately, the Asian Development Bank projects Myanmar’s GDP growth at 6.5% in 2013, rising to 6.7% in 2014. Growth is expected to be bolstered by the European Union’s reinstatement of preferential access for Myanmar’s exports and the United States’ suspension of its ban on imports from Myanmar.

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