As Myanmar opens its gates to the world, after decades of solitary existence, EOS Intelligence takes a look at the opportunities and challenges of this new emerging market story.
2. Myanmar Is the Second Largest Country in the South-east Asian Region
Myanmar is one of South-east Asia's largest nations
Myanmar is a geographically diverse country, boasting fertile tropical deltas in the
south and a rugged landscape in the Himalayan foothills of the north
The country is situated along the Bay of Bengal, and shares borders with Bangladesh,
China, India, the Lao PDR and Thailand
Myanmar’s population has grown at a CAGR of 1.7% through 2001-2011, to 60.62
million in 2011
About 70% of Myanmar's population live in rural areas, and are engaged in agricultural
activities
Population
(millions, 2001-2011)
CAGR (2001-2011) – 1.72% 60.62
59.13 59.78
57.5 58.38
56.52
55.4
54.3
53.22
52.17
51.14
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
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3. Myanmar’s Location Along Shipping Routes in the Indian Ocean Is of Strategic Importance…
Myanmar’s Importance
Located near major Indian Ocean shipping routes, Myanmar
provides naval access to the Strait of Malacca, one of the most
strategic naval passages of the world
Myanmar’s Sittwe port, which is also a part of China’s String
of Pearls, enables South-east Asian economies to access
strategic trade routes in the Indian Ocean, while bypassing
the Strait of Malacca chokepoint, which is under US control
The Strait of Malacca
It is a key chokepoint in Asia, strategically important for
South and East Asian countries for trade and resources;
however, the strait is piracy-prone
About 80% of China’s oil imports are shipped by tankers
Source: Nikkei Business Publications passing the Strait
Myanmar, is particularly important for Chinese trade, providing road access for Chinese goods to naval routes on the Indian Ocean
Transportation through Myanmar enables China to counter the US control of the Strait of Malacca, which is the most important
naval route for trade and transportation to South and East Asia
China has funded construction of roads linking Sittwe (formerly known as Akyab) and Rangoon (Yangon), providing the shortest
access route to the Indian Ocean from Southern China
The proposed Dawei port in south Myanmar should provide an overland route from Bangkok to facilitate the movement of cargo
that has traditionally been using the Strait of Malacca; this overland route is expected to cut shipping timelines and control logistics
costs
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4. … to China and South-east Asian Countries As a Gateway for Trade and Transportation
New Gateway for Trade in South-east Asia
In November 2010, Italian-Thai Development (ITD) signed a 60-year
framework agreement with the Myanmar Port Authority to build a port and
industrial estate in Dawei, in south Myanmar
The proposed Dawei port is likely to act as a gateway for South-east Asian
countries to reach markets in South Asia, the Middle East, Africa and
Europe; the bypassing of the Strait of Malacca, which the Dawei port is intended
to bring forth, should reduce both shipping time and costs significantly
ITD will develop this mega-project with $100 million in registered capital; this
US$8.6 billion project is the first Special Economic Zone in Myanmar
Alternative Transportation Route for China
Myanmar’s location is strategic to China as an alternative shipping and
trading route for the country, that bypasses the Strait of Malacca
Currently there are four oil and gas pipelines under construction, connecting
Western Myanmar with the Chinese provinces of Kunming and Nanning;
diversification of oil import route is likely to enhance energy security in the
country
In addition, China is also constructing a 810 km long railway line along the
pipeline connecting Ruili (Yunnan) and Kyaukpyu Port, which is expected to be
completed by 2013
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5. Political Mismanagement and Corruption Outweigh Economic Growth in the Country
Myanmar remains one of the poorest countries in the world with annual per capita GDP at $832 (2011)
In 2011, Myanmar’s GDP growth rate reached 5.5%, driven by increased agricultural production, booming construction and recovering
tourism sectors, and revival of exports
The economy is centred around agriculture, while the industrial sector remains under-developed, accounting for only 10% of the GDP
Economic growth continues to be hampered by mismanagement by the military regime (junta) and high prevalence of corruption
which has crippled the society
About 80% of the country’s GDP is spent on the military and state-owned enterprises, and only 0.5% on health, and 0.9% on education
According to statistics published by Transparency International, Myanmar is ranked as the second most corrupt country globally
Macroeconomic Indicators Current Account Balance
(%, 2008-2017P) (%, 2008-2017P)
22.5
2008 2009 2010 2011 2012 E 2013 E 2017 E
-0.9
8.2 8.2
5.8 6.3 5.3
4.2 -2.7 -2.8 -2.6
-3.4
3.6 5.5 6.0 5.9 6.5 -4.3
5.1 5.3
-5.1
2008 2009 2010 2011 2012 E 2013 E 2017 E
Negative current account balance implies that Myanmar is
Real GDP Growth CPI dependent on foreign debt to finance its investment needs
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6. The Government Has Initiated Several Reforms to Achieve Political and Economic Stability
Democratic Reforms
Political Corruption Censorship Human Rights Economic
Release of pro- Rise in wages of all Relaxation of press and Release of over tens Floating of kyat,
democracy leader Aung public sector internet censorship of thousands of Myanmar’s currency in
San Suu Kyi from house employees, including laws prisoners, of which the free market,
arrest soldiers, to tackle 300 were political stabilizing the
Unblocking of several
corruption in the prisoners exchange rate
Subsequent dialogues banned websites
government
with NLD leaders and including YouTube, Release of prominent Reduction of lending
conducting by- An additional cost- Democratic Voice of prisoners of interest rates from
elections in the country of-living allowance Burma and Voice of conscience 12% to 10%
Establishment of the
of 30,000 kyat America Relaxation in import
(US$35) along with a
National Human Rights Proposed restrictions and
daily wage increase
Commission and establishment of a new abolishing of export
of 1,100 to 2,100
providing general media legislation that taxes
kyat (~ US$2) for
amnesty for more than will abolish press
full-time employees Plans for an eight-
200 political prisoners censorship year tax break for
Institution of new labor foreign investors
laws that allow labor
unions and strikes
In March 2012, a draft foreign investment law was issued which will oversee liberalization of Myanmar’s economy
International companies will be able to start a business in the country, without the need for a local partner
The draft law also creates job opportunities for locals, as it requires foreign companies to employ locals as at least 25% of a company’s
skilled workforce
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7. Victory of NLD in the 2012 By-elections Is Seen As a Step Towards Political Transformation
Myanmar has taken significant steps to develop democracy in the country
In 2010, elections were held in the country for the first time since 1962, when the military took charge of the country
The elections were boycotted by the largest opposition party, the National League for Democracy (NLD), and this resulted in
formation of a military-led civilian government under President Thein Sein
Following the outburst against the 2010 elections, which were deemed unfair by most factions of the society,
the government under President Thein Sein undertook political reforms to accommodate the participation of
Political
National League for Democracy (NLD) in the April 2012 by-elections
Reforms
These reforms included release of NLD leader, Aung San Suu Kyi, and other political leaders from house arrest,
involvement of international organizations in the elections, and relaxation of press censorship
The NLD under Aung San Suu Kyi won 43 of 45 seats contested in the 2012 by-elections
April 2012
By-elections While the win provides NLD with only 7% seats in the parliament, the result has been seen as a precursor to
2015 general elections, and a positive step towards political transformation in the country
These political reforms have received positive reception, and Myanmar has witnessed a greater involvement of
international visitors to assess steps towards democracy
Positive
International Members of ASEAN have encouraged political growth in Myanmar by offering the chairmanship of ASEAN in
Reception 2014, provided satisfactory progress towards democracy is achieved
International business leaders, such as the USA and EU, have proposed relaxation of economic sanctions to
reward Myanmar’s political reforms
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8. Developed Economies Are Likely to Remain Cautious While Removing Sanctions Against Myanmar
The military regime’s disregard of human rights and civil liberties prompted various countries and groups to impose economic
sanctions on the country
USA EU Canada
Bans on issuing visas to certain Ban on the sale or transfer of weapons Freezing of Canadian assets of selected
government officials, particularly Burmese individuals
Bans on issuing visas to certain Burmese
belonging to the State Peace and government officials Prohibitions on exporting and importing
Development Council, and the Union
Freezing of overseas assets of selected
arms and related material to and from
Solidarity Development Association Burma
Burmese individuals under EU control
Restrictions on provision of financial
services to certain government officials Suspension of bilateral aid and
humanitarian assistance
Freezing the assets of selected Burmese
individuals held by USA Ban on imports of gems, timbers and
metals from Myanmar
Ban on new US investments in Myanmar,
including investments in third country Following a series of political and economic reforms implemented by the Myanmar
companies; prohibition on the import of government, EU and Canada have suspended most sanctions imposed on Myanmar
goods of Burmese origins
Other countries are also likely to follow suit; Japan recently wrote-off the country's
Restrictions on the provision of bilateral outstanding debt
and multilateral assistance to Myanmar
Suspension of sanctions is expected to spur further reforms,
The USA has partially suspended certain sanctions on boost humanitarian conditions, revive foreign investments in
Myanmar to permit financial transactions to support the resource-rich country, and accelerate economic growth
humanitarian and development projects in the country However, most countries are likely to remain cautious as the
The country also plans to gradually ease other sanctions on recent democratic reforms are reversible
Myanmar, which include lifting of bans on provision of financial Investors, too, are likely to follow a cautious approach while
services and US investments in Myanmar investing in the country, and may re-impose sanctions in case of
unsatisfactory progress
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9. Reforms and Removal of Sanctions Is Likely to Drive Growth Across Various Industry Sectors
Infrastructure Banking and Finance
Civil infrastructure in Myanmar is still under-developed, and Myanmar’s banking sector has traditionally suffered due to
provides significant scope for investment with a number of variable exchange rates and mismanagement
international companies looking to set up base in the country The floating of Kyat, coupled with foreseeable foreign
Major opportunities exist in development of electricity, investments in the country are expected to further the
transportation (both road and rail), and communication development of banking systems in Myanmar
networks Suspension of US and EU sanctions on provision of financial
services is also likely to drive growth in the financial
services sector
Aviation and Tourism Information and Communication Technology
Landslide victory of NLD in April 2012 by-elections has Myanmar has one of the least developed telecom networks,
developed a positive outlook among tourists; several Asian with only a tele-density of only 5.4%, as of 2011
carriers and operators have identified near-term opportunities
Removal of censorship on various forms of media coupled with
in Myanmar
ICT initiatives taken by the government are likely to boost
The country is privatizing its existing international airports, development of the sector
and developing a new international terminal at Nay Pyi Taw; the
The government is implementing a five-year ICT master
country also plans to upgrade several domestic airports which
plan, jointly drawn with experts from South Korea, for the
lack basic infrastructure
development of five main areas – ICT infrastructure, ICT
Development of aviation infrastructure, and removal of travel industry, ICT human resources development, e-education and
sanctions is likely to boost the tourism sector ICT legal frame work
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10. Myanmar Has an Abundance of Skilled Labor, With the Lowest Wages in South-East Asia
Similar to its South Asian counterparts, Myanmar has a vast pool Myanmar – Labor Force
of low-cost, mostly unskilled labor
(millions, 2011 estimates)
While the minimum monthly wage for salaried public employees
ranges from 30,000 to 45,000 kyat (US$35 to US$53), the daily Laos 3.7
wage for laborers is estimated at 1,000 kyat (US$1.2) per day
Cambodia 8.8
In the private sector, urban laborers performing unskilled work
earned 1,000 to 3,000 kyat (US$1.2 to US$3.6) per day Myanmar 32.5
Skilled workers earn marginally higher wages than rural agricultural
workers and urban laborers Thailand 39.6
The monthly wage for an average skilled industrial worker Philippines 39.8
ranges between 30,000 to 55,000 kyat (US$35 to US$66),
which is one-fifth the level in China, and half that in Vietnam Vietnam 46.5
New Labor Union Law
As part of the reforms undertaken by the military-led civilian government, President Thein Sein approved a new Labor Organization
Law in October 2011
The law protects employees' rights, allows the formation of labor associations, and establishes procedures for holding a workers’ strike,
which had been prohibited since 1962
While existing labor laws prohibit forced labor, its prevalence is high; the military junta and local government officials tend to use
forced labor substantially
The new labor law has also given laborers access to a complaint system, which is facilitated by International Labor Organizations’
liaison officer in Rangoon
While the new law is expected to provide relief to labors and labor unions in the country, its effectiveness is questionable as
most labor activists remain imprisoned
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11. Abundance of Labor Makes Myanmar Suitable for Investments, As a Low-cost Production Base
Conclusion – So Is Myanmar the Next Big Emerging Market Story?
Detail Impact Outlook
Myanmar is a resource-rich nation, which Companies are likely to try to gain first POSITIVE
Abundant possesses significant natural gas and oil mover advantage to tap vast resources
reserves, 80% of the world's teak supply, available in the country
Natural precious gemstones and metallic minerals,
Resources and substantial fertile land for agriculture Likely to Boost
Investment
Myanmar has a substantial labor force, Rising labor costs and labor shortages in POSITIVE
High equivalent to its South-east Asian China and South-east Asia are driving
Availability of neighbors companies to look for alternative bases
Low-cost Labor wages in the country are Myanmar has great potential to expand
Labor considerably lower than those in China or labor-intensive, export-oriented Likely to Boost
other South-east Asian countries manufacturing units Investment
Myanmar is located on the strategic route Companies from China and South-east
to the Strait of Malacca; the country acts Asia are likely to invest in developing
as a naval base to access the Strait Myanmar’s infrastructure and develop POSITIVE
The development of SEZ in Dawei acts as trade relations with the country
Geographic
a gateway for trade for South-east Asia Recently, India and Myanmar set a
Location
deadline for 2016 to develop trilateral
road connectivity up to Thailand from Likely to Boost
India via Myanmar; this will boost India’s Investment
trade with South-east Asia
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12. However, Lack of Infrastructure and Corruption May Act As a Deterrent for Companies to Invest
Conclusion – So Is Myanmar the Next Big Emerging Market Story?
Detail Impact Outlook
As a result of the reforms undertaken by Removal of sanctions is likely to boost
the Myanmar government, countries such investments and economic growth in NEUTRAL
as the USA, EU and Canada have the country
Suspension of suspended several sanctions against the However, investors are likely to remain
Economic country cautious as these sanctions may be re- Cautious
Sanctions If the current government continues on imposed if the impact of reforms is Approach to
the reform path, financial sanctions would unsatisfactory Investment
also be lifted
The country has insufficient basic While the lack of infrastructure acts as a
infrastructure, such as road, telecom, and deterrent to investments, it provides an POSITIVE
Lack of
electricity to support economic growth opportunity for international
Infrastructure construction companies to invest in the
development of infrastructure
Myanmar is ranked among the most While the government has taken steps
corrupt countries in the world to reduce corruption, the slow processes NEGATIVE
Corruption and concerns with doing business may
Public offices are often chaired by military
and Military deter companies to invest in Myanmar
personnel, and processing is generally
Dominance in slow
the Public Can Act as a
The government has taken steps to
Offices reduce corruption by increasing minimum Deterrent
wages of officials
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13. Myanmar Could Emerge As a Leading Trade Destination if Reforms Are Implemented Successfully
Conclusion
Myanmar, with its untapped natural resources, large population and strategic location in South-east Asia, has the
potential to emerge as a new investment destination, both for the manufacturing and services sector
With the promise of pursuing economic, political and legal reforms, Myanmar’s new government, led by Thein Sein
has indicated its desire to strengthen foreign relations, attract investment and provide a platform for sustainable
business development
Asian giants China and India are expected to invest significantly in developing infrastructure and transport hubs in
Myanmar to facilitate trade with rest of South-east Asia and to restrict USA’s dominance of the Strait of Malacca;
China has invested over US$25 billion in the past 15 years on sectors such as oil, natural gas and minerals, and aims
to widen its investment net to include power and transport
While several developed economies, including the USA, EU and Japan, tread cautiously, and have adopted a wait-
and-watch policy on Myanmar government’s reforms promise, the removal of most sanctions and debt write-off
indicate strong interest in the emerging economy
Myanmar presents an unique opportunity for the developed world to counter China’s dominance in Asia, as it
provides a new low-cost manufacturing platform for business expansion; at the same time, the significant scope of
investment in sectors such as telecom, banking, information technology, consumer goods and retail, is an attractive
opportunity
Thein Sein has sown the seed by undertaking reforms that the world has been seeking for the past several years; the
arising opportunities across various sectors, the scope for infrastructure development and its strategic location are
critical advantages that Myanmar must exploit in order to emerge as one of the leading manufacturing and trade
destinations in South-east Asia
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14. Perspective
What is your perspective on Myanmar’s emergence as an attractive business destination?
Do you believe that Myanmar is ready for international investors?
Have you already established business in Myanmar? What has been your experience?
We would like to hear from you. Write to us with your perspective at rediscover.research@eos-intelligence.com.
Notes
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