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PwC
Belt and Road country –MyanmarSeptember 2017
Jovi Seet
Senior Executive Director, PwC Myanmar
PwC
Agenda
Introduction to Myanmar1
Nascent Myanmar e-commerce2
Emerging players3
Key challenges4
Conclusion5
2
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Key messages
Source: IMF
3
Myanmar is one of Southeast Asia’s largest
nations, with an estimated population of
53mn (in 2016); its a young country with c.70% of its population
below the age of 40
Despite some remaining challenges (e.g. cost of
high speed internet, power shortage), Myanmar is one the last frontier
markets in the world
The country began its telecom journey only 3 years back but is leapfrogging in
its on-line journey, including becoming one of world’s first smart phone only
countries
With economic liberalisation, Myanmar has also emerged as Southeast
Asia’s fastest growing nation, and witnessing one
of the fastest growth in GDP per capita
PwC
Section 1Introduction to Myanmar
4
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Myanmar is one of the recent frontier markets and has the potential to become Asia’s next rising star
Source: IMF, World Bank
5
GDP growth forecast of 7.5%
in 2020
Rich in natural resources including oil, natural gas, industrial minerals and gems
Population of 53 million
Major cities include Yangon, Mandalay
and Nay Pyi Taw
Special Economic Zones in Thilawa, Dawei, Kyaukpyu
Strategically located between Bangladesh, India, China and Thailand
PwC
Despite the late start, Myanmar’s integration with the global economy is already visible on the ground
Yangon today....
6
PwC
3.6
5.1 5.3 5.6
7.3
8.4 8.0
7.3
6.3
7.5 7.6 7.5 7.5
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017F 2018F 2019F 2020F
Myanmar — Annual Real GDP Growth Rate (%)
Myanmar's growth trajectory has been relatively steady over the years under the Thein Sein Govt. or under the newly elected NLD Govt.
Source: IMF
Uncertainties
surrounding
the electionImpact of initial set of reforms brought about by Thein Sein
Potential for greater upside with
the NLD in charge?
7
PwC
In the ASEAN region, Myanmar is expected to be the fastest growing economy in terms of real GDP growth outlook
Source: IMF WEO, PwC Analysis
5.3%4.6% 4.4% 4.2% 3.9%
3.4%
2.2% 1.8%
Myanmar Cambodia Vietnam China Indonesia Malaysia Thailand Singapore
Real GDP growth, 2017-22
4.8%
3.8% 3.7% 3.5%2.9%
2.2% 2.2%1.2%
Myanmar China Vietnam Cambodia Indonesia Malaysia Thailand Singapore
Real GDP per capita growth, 2017-22
8
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Source: BBC World News, World Bank, IE Singapore
Mar: Signed
ceasefire
agreements with 16
rebel groups.
Nov: Parliamentary
elections held. Won
by the
opposing NLD
Apr/May: Thein Sein visited
the White House.
EU lifted sanctions.
US and Canada suspended
sanctions.
Mar: Thein Sein sworn in
as President.
Oct: New union labour
laws passed.
Late 2011: Signed
ceasefire deals with Karen
ethnic group rebels.
Early: Signed ceasefire deal
with Shan ethnic
group rebels.
Apr: EU suspended all non-
military sanctions for 1 year.
Apr: NLD swept 2012
by-elections.
Aug: US allowed
sanctions to lapse,
but maintains ban on
gems and
weapons trade.
Mar: Htin Kyaw
becomes President
of Myanmar
Oct: US economic
sanctions lifted
Military Junta Rule
Political Reforms
Economic Reforms
The road to liberalisation Change of government
Jan: New Special
Economic Zone
(SEZ) Law.
Apr: Unified currency
exchange.
Established Myanmar
tax system.
Jan: Passing of New
Foreign Investment Law.
Jan: Grant of 2 telecom
licenses to private
operators (Telenor and
Ooredoo)
Jul: Central Bank revised
as independent entity,
with a target to reduce
inflationary
Apr: Myanmar
Special Economic
Zone (SEZ) Law
introduced
Oct: Licences
granted to 9
overseas banks to
facilitate FDI
inflow.
Oct: Opening of
Yangon Stock
Exchange.
Mar: Granted another
4 foreign bank licenses
Apr: FDI crosses US
$8 bn for FY 16
Jul: long-awaited 12
point economic policy
revealed
Jan: Draft
Companies Act
submitted to
Parliament for
approval
Jan: New
Investment Law
has been passed
by Parliament
1962 2011 2012 201520142013 2016 2017
Myanmar’s growth is attributable to its efforts in boosting political stability and in establishing supportive domestic economic policy
9
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Foreign Investments have also trended upward since liberalisation; Chinese companies have been the most active investors in Myanmar
No. Country/
Territory
No. of enterprises Approved amount
(USD mil)
% of total
amount
1Mainland
China191 19,092 26.0%
2 Singapore 253 17,937 24.5%
3 Thailand 110 11,003 15.0%
4 Hong Kong 156 7,754 10.6%
5 UK 88 4,218 5.8%
6 South Korea 143 3,775 5.1%
7 Vietnam 15 2,093 2.9%
8 Malaysia 61 1,952 2.7%
9 Netherlands 19 1,513 2.1%
10 India 25 741 1.0%
11 Japan 93 694 0.9%
12 Others 185 2,569 3.5%
Total 1,339 73,341 100.0%
Foreign Investment of Permitted Enterprises as of 31 July 2017, by
Country/Territory(1)
6,066
281 1915 48
8,285
4,377
1,065
3,940
4,3604,373
6,322
2,202
2005-0
6
2006-0
7
2007-0
8
2008-0
9
2009-1
0
2010-1
1
2011-1
2
2012-1
3
2013-1
4
2014-1
5
2015-1
6
2016-1
7
2017-1
8*
Transport & Communication ManufacturingPower Real EstateHotel and Tourism Oil and GasOthers
*July 2017 (1) Based on domicile of investing entity
Source: DICA Myanmar
Foreign Investment by Sector as of 31 July 2017 (USD mn.)
The New Investment Law, to
be passed in 2017 is expected
to drive foreign investment and
open more economic sectors to
private investment
Power, Oil & Gas have
been the most attractive
sectors for foreign
investors; Oil & Gas
investments have been
subdued since FY11,
recovering temporarily in
FY15/FY16; Telecom has
been a popular sector
over last 2-3 years
10
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Forecast
Myanmar is one of the few countries with a double digit growth in middle income population
Myanmar's middle class population(1), mn
+10%
p.a.
As a result of the economic growth, Myanmar’s middle class population is growing in double digits
and there is strong optimism around this growth outlook
“In July 2015 the World Bank reclassified Myanmar as a lower-middle income country, whereas previously it was a low-income nation. This upgrade is linked to Myanmar’s steadily improving economic performance over the past two years, and specifically to growing income levels across the population”
Oxford Business Group
“The size of the urban middle class is expected to double over the next decade, with annual double-digit growth in middle class incomes over the next five years”
Asia-Pacific chief economist at IHS
“Euromonitor International identifies Myanmar as one of the 20 Markets of the Future that will offer the most opportunities for consumer goods companies globally. The country is one of the fastest growing and most promising economies in Asia Pacific”
Euromonitor(1): Population with monthly income of more than $120
Source: BCG, Oxford economics, IMF
11
5.3
7.3
10.3
2012 2016 2020F
PwC
1.0
1.7
2.7
3.6
4.2
4.5
5.1
4.8
0.7
1.4
2.4
3.3
4.1
4.4
5.2
4.88.2%2.2%
2016
Myanmar population by cities
Others
Myeik
Meiktila
Sittwe
Monywa
Pathein
Bago
Mawlamyine
Nay Pyi Taw
Mandalay
Yangon
Myanmar population age pyramid, 2015
c.70% of
Myanmar’s
population are
below 40 years
of age
28%
72%
2016
Rural vs. urban, %
Urban Rural
One of the key drivers for Myanmar’s strong e-commerce outlook is its young population and increasing urbanisation
Myanmar is a ‘young country’
Source: Oxford economics, IMF, world population review
60-69
>70
20-29
30-39
40-49
50-59
0-9
10-19
Male Female
Its urbanization has a long runway for growth
He
ad
roo
m f
or
gro
wth
53 mn 53 mn
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Beauty products
The young Burmese population is fundamentally traditional but becoming increasingly modernised and more demanding
• Women used traditional skin care product Thanaka
• Now are more fashion conscious and switching to imported beauty products and cosmetic enhancements
• Used to maintain a preference for local cuisine
• Now are changing food preferences to include coffee shops and fast food chains
• Retail dominated by mom and pop stores
• New shopping malls, supermarkets, hypermarkets and department stores are opening in large urban centres
• Used to have very traditional fashion tastes
• Now opt for modern and more westernised clothing
Food choices
Subscribe to latest trends
Modern vs.
traditional outlets
The young Burmese are increasingly aware of global brands but continues to be rooted in traditional aspects
Typical Burmese Consumer Profile
• Buddhist (89%)
• Aged 28 (median age)
• Life expectancy of 66 years
• Male/female ratio among
youths 1:1
• Lives in top 4 cities Yangon,
• Spent at least 9 years in school
• Median HH income US$225 -
325
Source: World Health Organisation, Research study by Khon Kaen University, Thailand, CIA Factbook, Nielsen Research
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Section 2Nascent Myanmar e-commerce
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Despite making a (relatively) late start, Myanmar is leapfrogging in its online journey
Digital Myanmar in numbers
(1) Feb-Jul, 2017
Source: BMI, Wearesocial, similarweb.com
48.6 mn mobile phone users+100% growth over last 5 years
17-19 mn Internet users in 2016
+100% growth over FY16
65% smartphone penetration; driving 70% of web traffic
3 years old online retail website shop.com.mm reports c.260-300K monthly(1) visits
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Myanmar is one of the only countries in the world that went straight to smartphone, without going through the features phone stage
Smartphone penetration has been enabled by low-cost handsets and decreasing cost of
3G/4G connections
making Myanmar’s smartphone penetration comparable to the developed world
Source: GSMA Global, 2016
Forecast
2%
65%
73%
2013 2015 2020
65%60%
68%
Myanmar Europe China
Smartphone penetration in Myanmar, % Smartphone penetration 2015, %
16
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The overall e-commerce market is nascent, but has significant headroom for growth, in line with trends observed across Southeast Asia
E-commerce as percent of total retail sales in Myanmar
Source: PwC Analysis, UBS, The Wall Street Journal
0% <1%
Forecast
In 2013, SE Asia’s overall
online retail penetration was
<1%: Indonesia (0.1%),
Philippines (1%),
Thailand (0.2%)
In 2016, SE Asia’s overall
online retail penetration
was c.1.6% 2-4%??
By 2020 SE Asia’s overall online
retail expected to reach 2%:
Vietnam (3.8%), Thailand (3.2%)
High penetration of Facebook
account for retailers; entry of
some international players; ride-
hailing apps dominate investment
Potentially a competitive
market with local players,
leading international players
and some consolidation/JV
between local and
international players
High cost of internet and
phone connection, almost
negligible penetration
E-commerce players landscape
2013 2016 2020
17
2013 2016 2020
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Section 3Emerging players
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The prevailing model of e-commerce players is a hybrid of ‘brick and mortar’ and digital models
Key trends
• Myanmar online shoppers continue to hold dear to their cultural attachment by preferring to pay on delivery through cash
• The entry of international payment companies and reforms in Myanmar’s financial sector will help change this trend
• High level of Facebook penetration (nearly 100% of internet users in Myanmar have Facebook account)
• E-commerce companies set up a Facebook page as their first online channel and majority of their transactions are through Facebook channel
• Majority of Burmese consumers prefer a personal touch while shopping online
• E-commerce companies typically employ telesales personnel — to communicate with customers through phones and chat applications including Facebook Messenger and Viber
Cash on delivery
1
Facebook as a platform
2
Personal touch
3
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Section 4Key challenges
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Issues such as instability of power supply and high costs of high-speed internet remain key challenges in Myanmar
Frequent blackouts make operating a e-commerce business in Myanmar more
challenging and costly
• High cots of power: typical rate at a commercial property is $ 0.06 – 0.08 per kWh
• Power outages are frequent and back-up generators are mandatory for regular operations
• Commercial establishments provide generators to ensure power supply with an additional charge of $0.21 - 0.33 per kWh
Access to high-speed Internet is expensive
• Enterprise internet costs on average $450 for installation with a monthly charge of approximately $224
• Last-mile fibre connectivity, specially for smaller enterprises, start-ups is challenging and expensive
• Less automation and manual intervention increase operating costs
Source: PwC research
21
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Rising inflation and currency depreciation is another risk to monitor, especially for international investors
Inflation rate, average consumer prices (Annual percent change)
Source: IMF, XE
11%
26%
31%
12%
2%
8%
3% 3%
6% 5%
10%
7% 7% 7% 7% 6% 6% 6%
0%
5%
10%
15%
20%
25%
30%
35%
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Forecast
Several factors have led to high inflation
including natural-disaster-related
shocks, election related spending, trade
deficits, and Myanmar’s inability to access
external financing
Government talking several
steps to curb inflation,
including issuing Treasury
bills to finance the deficit;
sound public finance will
be key
1.15 1.03 0.97 0.78 0.80 0.741000 MMK in $USD
22
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Section 5Conclusion
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Despite challenges, Myanmar is one of the last remaining frontier markets with a high potential e-commerce sector
Although there are difficulties with investing in Myanmar, it is one of the last frontier markets in the world. A rapidly growing economy, a new government and young demographics make Myanmar an attractive playing ground for e-commerce players
Growing ease of internet access — penetration of smart phone, affordable of 3G/4G access
Growth in income levels expected to drive propensity to shop online
Increasing urbanization and growing middle class, spending more time online
Evolving industry landscape, early mover advantage for new entrants
Improving ecommerce ecosystem — online payment, online marketplaces@
24
Thank you!