Myanmar Outlook Report - VPBANK Securities - Trang chủ · ranked the fifth in the previous financial year. ... is the biggest Vietnamese project in Myanmar with capital of USD440

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Some fast facts:

General information 2013

Capital Nay Pyi Taw

Population 51 mn

GDP growth rate 7.5%

CPI (Jun 2014) 5.69%

Import USD13.76 bn

Export USD11.20 bn

Key exports Key imports

Gas Vehicles

Garment Refined mineral oil

Teak log Base metals

Matpe Electrical machinery

Resources

Natural gas 7.8 trillion cubic feet

Oil 3.2 billion barrels

Forest 50% of land

Rubies 90% of world’s reserves

GDP Growth (%)

Highlights

The ‚golden land‛ is blessed with abundant natural

resources, such as gas, oil, copper, jades, and wood.

Dramatic changes in Myanmar’s political system since early

2010, including shifting from military government to civil

rule, brought about the lifting of embargos by several of the

world’s major economies including the United States,

European Union, Australia, and Canada; and created a huge

inflow of FDI.

Myanmar’s GDP growth rate is estimated increase to 7.8

percent during the period of 2014 to 2016, from 5.9 percent

in 2012, driven mainly by rising investment. Myanmar kyats

and inflation have been fairly stable over the past 12 months.

Total trade has doubled in the past five years, reaching

USD24.96 billion last year, from USD11.76 billion in 2009,

with ASEAN countries being the biggest trading partners.

Bilateral trade between Vietnam and Myanmar rose from

USD9.31 million in 2000 to USD364.12 million in the first

nine months of 2014. Vietnam was the second largest

investor in Myanmar (after China) from 2012 to 2013, and

ranked the fifth in the previous financial year.

There are numerous investment opportunities for foreign

investors. The most attractive sectors include energy, hydro-

power, oil and gas, mining, agriculture-fishery, real estate

and telecom.

Myanmar authorities have put intensive effort into the

establishment of the Yangon Stock Exchange (YSE), which is

scheduled to open in October 2015. However, foreign

investors will not be allowed to invest in the YSE at least for

the time being.

* Please see the important disclosure at the end of this report

4.5

5.5

6.5

7.5

8.5

9.5

10.5

2010 2011 2012 2013 2014f 2015f 2016f

East Asia & Pacific (Developing only)

Myanmar

Vietnam

Myanmar Outlook Report November 2014


Contents

INTRODUCTION ........................................................................................................................................................................ 3

MYANMAR OVERVIEW ............................................................................................................................................................. 3

The golden land’s overview .................................................................................................................................................. 3

Turning over a new leaf ........................................................................................................................................................ 3

Vietnam – Myanmar bilateral relations ................................................................................................................................... 3

Vietnam – Myanmar bilateral trade ..................................................................................................................................... 4

Investments from Vietnam ................................................................................................................................................... 5

ECONOMIC GROWTH ............................................................................................................................................................... 6

GDP ....................................................................................................................................................................................... 6

Trade ..................................................................................................................................................................................... 7

Myanmar citizens’ investment ............................................................................................................................................. 8

Foreign Direct Investment .................................................................................................................................................... 9

Government expenditure ................................................................................................................................................... 10

MACRO ECONOMIC INDICATORS ........................................................................................................................................... 11

Stable currency ................................................................................................................................................................... 11

Inflation .............................................................................................................................................................................. 11

Interest rates ...................................................................................................................................................................... 12

SOME POTENTIAL SECTORS .................................................................................................................................................... 12

Hydro-power ...................................................................................................................................................................... 12

Oil and gas .......................................................................................................................................................................... 14

Mining ................................................................................................................................................................................. 15

Agriculture - Fishery ........................................................................................................................................................... 15

Real estate .......................................................................................................................................................................... 16

Telecom ............................................................................................................................................................................. 18

INVESTMENT PROCEDURES .................................................................................................................................................... 19

General investment incentives ........................................................................................................................................... 19

Capital requirement and investment procedure ............................................................................................................... 19

RISKS AND CHALLENGES ......................................................................................................................................................... 20

STOCK MARKET – TARGET FOR OCTOBER 2015 ..................................................................................................................... 22

CONTACT INFORMATION ................................................................................................................................................... 24


INTRODUCTION

Given its abundant and untapped natural resources, Myanmar is considered to be

‚the last golden land of Asia‛. After many years of isolation, it has now opened to the

world. The country has been the object of unprecedented interest in various sectors

from foreign investors. And we expect it will shine again soon as it did in 1950s –

1960s.

MYANMAR OVERVIEW

The golden land’s overview

Myanmar covers an area of 676.000 square kilometers – the second largest country in

ASEAN. The country shares long borders with China, Thailand, India, Bangladesh and

Laos. It has a population of 51.4 million people, just ahead of South Korea’s 50.4

million.

The ‚golden land‛ is blessed with abundant natural resources, such as gas, oil,

coppers, jade, several wood species and many other resources. According to the

newest report released by BP, there is 10 trillion cubic feet (283 million cubic meters)

of proven natural gas reserves as of the end of 2013. ADB’s report also shows that the

country’s oil reserve is estimated at 3.2 billion barrels. Forests cover almost 50

percent of Myanmar’s total land. Additionally, the country is very rich in precious

stones such as, jade, rubies, sapphires, and limestone and other minerals.

Turning over a new leaf

In 2010 and 2011, the world witnessed many astonishing political changes in the

country. Following Myanmar’s broad array of political reforms, the United States

started to ease trade sanctions on Myanmar in July 2012; Japan wrote-off of USD3.7

billion of debt for Myanmar the same year; and the European Union, Australia, and

Canada lifted most sanctions on Myanmar, except for the arms embargo.

Vietnam – Myanmar bilateral relations

Vietnam developed strong bilateral relations with Myanmar very early. After its

independence, Myanmar was an avid supporter of Vietnam during the wars against

the French and the American invasions. In 1975, the two countries established

bilateral relations at the ambassadorial level.

As an ASEAN member, Vietnam played an active role in encouraging and assisting

Myanmar to join ASEAN. In 1997, Myanmar officially became the eighth member of

ASEAN. In 2010, Vietnam, while in the rotating presidency position in ASEAN, agreed

with the results of the Myanmar election, as well as helping Myanmar gain support of

the international community.


Vietnam – Myanmar bilateral trade

Bilateral trade between Vietnam and Myanmar started to increase in 2000, with total

trade recorded at USD9.31 million. Ten years later, the trade value between the two

countries soared 10 fold to USD98.91 million and rocketed to USD351.36 million in

2013. This year it is even better and the two countries’ bilateral trade posted at

USD364.12 million in the first nine months, in which Vietnam’s import value from

Myanmar was USD114 million and Vietnam’s export value to Myanmar surpassed

FY2013, reaching USD250 million.

Vietnam – Myanmar bilateral Trade (USD mn)

Source: General Custom Office, VPBS collected

Vietnam’s major export products to Myanmar have been steel and steel products

(recorded at USD56.2 million in 2013, up 134 percent from 2012), machinery and

spare parts (+ 86 percent), plastic products (+ 98.3 percent), textiles (+133 percent) and

vehicles and spare parts (+63.1 percent). Meanwhile, Vietnam’s major imported

products from Myanmar were wood and wood products (posted at USD65.9 million,

up 30.7 percent), agricultural products (+ 89.7 percent) such as mung beans, black

beans, and soybeans.

Vietnam’s exported products to Myanmar 2013

(USD Mn)

Vietnam’s imported products from Myanmar 2013

(USD Mn)

Source: General Custom Office of Vietnam Source: General Custom Office of Vietnam

0

50

100

150

200

250

300

350

400Vietnam exports to Myanmar Vietnam imports from Myanmar

24.66%

8.20%

5.99%

5.78%

5.57%

49.80%

Steel and steel products

Machinery and spare

parts

Plastic and plastic

products

Textile

Vehicle and spare parts

Others

USD227.8

million 53.41%

13.84%

3.96%

28.79%

Wood and Wood

products

Vegetable

Seafood

Others

USD123.5

million


Since 2001, Vietnam’s Ministry of Trade has cooperated with the Embassy of Vietnam

in Myanmar and the Myanmar Ministry of Commerce to hold several international

trade fairs at Yangon and Hanoi. The trade fairs aim to create opportunities for

enterprises from the two countries to learn, communicate and strengthen business

relationships. Vietnam and Myanmar have successfully organized annual trade fairs

since 2009. In addition, Ho Chi Minh City has annually launched a fair for trade and

tourism at Yangon in every May after the two cities established sister-city ties in

March 2012.

Investments from Vietnam

Total investment capital from Vietnam to Myanmar has increased significantly since

2012. Vietnam was the second biggest investor in Myanmar (after China) in 2012-

2013, and ranked fifth in the previous financial year.

Seven Vietnamese investment projects were approved in Myanmar with total register

capital of nearly USD600 million. Notably, HAGL’s multi-purpose complex, which is

located in a superior location in Yangon, is the biggest Vietnamese project in

Myanmar with capital of USD440 million. The two office buildings (twenty-two floors)

and a shopping mall (five floors), which belong to phase one of this project, are

expected to be completed in the first quarter 2015. SIMCO Song Da Corporation’s

marble mining project at Nay Pu Taung in Mandalay has achieved good results.

PetroVietnam Exploration Production Corporation (PVEP)’s oil and gas exploration

joint venture project also had a successful reservoir test with gas discovery.

Besides approval investment projects, there are about 60 Vietnamese businesses that

have been licensed to operate in Myanmar, including many of Vietnam’s giants such

as Vietnam Airlines, Viettel and Viglacera.

HAGL Myanmar centre HAGL Myanmar centre

Source: VPBS collected Source: VPBS


Vietnam’s notable investment projects in Myanmar

Name of project Total capital

(USD mn) Project description

HAG Myanmar Centre Project 440 Trade centre, hotel and service office complex

in Yangon

SIMCO Marble Mining Project 18 Marble mining plant at Nay Pu Taung in

Mandalay

PVEP Gas Exploration 136 A gas exploration project at offshore block M2

Moattham

Source: VPBS collected

ECONOMIC GROWTH

GDP

After World War II, Myanmar was one of the wealthiest countries in Asia and the

world’s largest rice exporter before sinking to among the region’s poorest countries

with GDP per capital of around USD869 as of 2013. Myanmar’s rice export volume

currently accounts for a marginal share of the world market.

However, the lackluster economy has seen positive changes following a series of

reforms in the country since 2010. According to the World Bank, Myanmar’s economy

grew 7.5 percent in 2013, a great improvement from the growth rate level of 5.9

percent in 2011, surpassing the average growth rate of East Asia and Pacific (limited

to developing countries). The country’s economy is estimated to growth at 7.8 percent

during the period of 2014 to 2016, driven mainly by rising investment.

GDP Growth (% y-o-y) Trade (USD mn)

Source: World Bank Source: VPBS collected

4.5

5.5

6.5

7.5

8.5

9.5

10.5

2010 2011 2012 2013 2014f 2015f 2016f

East Asia & Pacific (Developing only)MyanmarVietnam

-15000

-10000

-5000

0

5000

10000

15000

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Import Export


Trade

Total trade turnover has doubled in the past five years, reaching USD24.96 billion last

year, from USD11.76 billion in 2009. Myanmar had recorded a trade surplus during

the period of 2002 to 2011. The rising demand for input materials and equipment for

production caused a sharp increase in import value since 2010, resulting in a trade

deficit in the past two years and it is expected to continue to widen in the coming

years.

Because of the sanctions imposed by the United States, the European Union,

Australia and Canada, Myanmar has not enjoyed good trade relations with western

nations. Myanmar’s major trading partners are ASEAN members and its neighboring

countries such as, China, India, Thailand and Singapore.

Import turnover soared sharply to USD13.76 billion last year, up 51.7 percent from

USD9.07 billion in 2012. The country’s major imported products include machinery,

non-electric and transport equipment, refined mineral oil and base metals and

manufactures.

The imported value of these products surged considerably from 45 percent to 57

percent last year from a year earlier and accounted for almost 60 percent of total

import turnover in 2013. Many other products did not comprise a large proportion of

the pie, but the imported value of these products spiked last year, including electrical

machinery and apparatus, chemical elements and compounds, garment and fabrics,

edible vegetable oil, plastic and cement.

China is Myanmar’s largest import market in 2012 and 2013, with total value of

USD2.7 billion and USD 4.1 billion, respectively. China was followed by Singapore,

Japan, Thailand and South Korea.

Key import items - 2013 - 2014 (%) Major markets (USD mn)

Source: DICA Source: DICA

Myanmar’s total export turnover reached USD11.2 billion in 2013, up almost 25

percent from 2012. Gas has been the top export product of Myanmar, accounting for

40.8 percent and 29.4 percent of total export turnover in 2012 and 2013, respectively.

Jade and garment exports contributed nine and eight percent of total export value

last year. Other Myanmar top export products are teak logs and agricultural products

such as rice and matpe beans.

16.72%

11.21%

30.13%

41.94%

Refined Mineral Oil

Base metals and

manufactures

Machinery non-electric

and transport equipment

Others

USD13.8

billion

0

500

1000

1500

2000

2500

3000

3500

4000

4500

China Singapore Japan Thailand Korea others

2012-2013 2013-2014 2014-2015(Apr - Jun)


Key exported items - 2013 -2014 (%) Major markets (USD mn)


Thailand and China are the largest export markets of Myanmar with total export value

reaching USD4.3 billion and USD2.9 billion last year, accounting for 38.4 percent and

26 percent of Myanmar’s total export value in 2013. India, Singapore and Japan are

also major consumers of Myanmar’s products.

Myanmar citizens’ investment

According to Myanmar’s Ministry of National Planning and Economic Development,

984 citizen enterprises were sanctioned with total investment of MMK4,566 billion

(USD4.7 billion) since the release of the Myanmar Citizens Investment Law 1994

through June 2014. Manufacturing, construction, hotel and tourism are the leading

sectors among 11 sectors of the economy, accounting for 27.55 percent, 16.57 percent

and 14.61 percent of the total permitted amount of Myanmar citizens’ investment.

Last year, domestic investment in manufacturing and hotel and tourism continued to

soar sharply, reaching USD333.7 million and USD296.7 million, respectively. Notably,

Myanmar citizens’ poured USD184.51 million into the power sector, much higher

compared to the negligible amount of USD6.38 million invested in 2012.

Myanmar citizens investments since 1994 Major investment sectors (USD mn)


4.1% 3.4%

5.7%

7.9%

9.0%

29.4%

40.5%

Rice

Matpe

Teak log

Garment

Jade

Gas

Others

USD11.2

billion

0

500

1000

1500

2000

2500

3000

3500

4000

4500

5000

Thailand China India Singapore Japan Others

2012-2013 2013-2014 2014 (Apr - Jun)

27.55%

16.57%

14.61%

41.27%

Manufacturing

Construction

Hotel & Tourism

Others

USD4.7 bn

0.00

50.00

100.00

150.00

200.00

250.00

300.00

350.00

400.00

2012-2013 2013-2014


Foreign Direct Investment

Since the foreign investment law which was released in 1988, through the end of

June 2014, 36 countries have invested in Myanmar with a total cumulative capital

inflow of USD46.718 billion, mainly in power (41.28 percent) and oil and gas (30.76

percent). Manufacturing, mining, hotel and tourism, transport and communication

and real estate attracted about three percent to almost nine percent of the FDI.

Foreign direct investment rocketed to USD20 billion in 2010, from more than USD300

million in 2009. The total pledges, which were received in 2010, are even higher than

the cumulative FDI inflow into Myanmar before 2010. The inflows mainly came from

China (USD8.27 billion), Hong Kong (USD5.8 billion) Thailand (USD2.95 billion) and

South Korea (USD2.68 billion).

Cumulative Foreign Direct Investment by Sector (As at the end of June 2014)

Sector Permitted

Enterprises/projects

Total investment

(USD mn)

%

Power 7 19,284.432 41.28

Oil and Gas 115 14,372.272 30.76

Manufacturing 362 4,129.442 8.84

Mining 69 2,863.18 6.13

Hotel and Tourism 55 1,854.9 3.97

Transport & Communication 24 1,782.748 3.82

Real Estate 23 1,497.026 3.20

Livestock & Fisheries 30 437.674 0.94

Agriculture 14 208.645 0.45

Industrial Estate 3 193.113 0.41

Construction 2 37.767 0.08

Other Services 16 56.986 0.12

Total 720 46,718.185 100

Source: DICA, VPBS collected

Even though the FDI pledges declined considerably after 2010, Myanmar still

remained an attractive investment destination thanks to the economic reforms and

the removal of western sanctions.

Last year, FDI was recorded at USD4.1 billion in 2013, with the capital flowing strongly

into manufacturing, transportation, communication, real estate and hotel and tourism.

The inflows were led by Singapore, which contributed 57 percent of the total capital

inflows last year. It was followed by South Korea, Thailand, the UK and Vietnam.

The Myanmar Investment Commission had previously estimated that FDI would reach

USD4 billion to USD5 billion in the 2014 – 2015 fiscal year. However, the country’s

capital inflows have surpassed USD4 billion in the first half of the financial year

thanks to the telecom sector, which contributed around 20 percent of the total inflow.

The surge in the telecom sector was mainly thanks to the two telecom companies:

Qatar’s Ooredoo and Norway’s Telenor, which were awarded licenses to operate in

Myanmar last year.


FDI by sector 2013 -2014 (USD mn) FDI by country 2013 - 2014 (%)


FDI inflows are expected to speed up further as foreign investors are now permitted in

some other major sectors such as, telecom and banking and full foreign ownership is

allowed in mining, construction, jewelry, and utilities. However, the country’s ability

to absorb these capital inflows is still dubious as challenges such as unskilled

workforce and infrastructure require a certain period of time to improve.

Government expenditure

Myanmar’s government has increased its spending for growth and development

recently. The government’s total expenditure soared up significantly to 29.2 percent

of the GDP in 2013, which is even higher than that of other countries in the region,

from the level of 18.8 percent in 2010.

In 2011, Myanmar’s government allocated 31 percent of the nation’s budget to

infrastructure, while it spent only 1.1 percent and 3.7 percent of its budget on

healthcare and education, respectively. Even so, these figures were lifted

considerably to 6.5 percent and 11.8 percent last year and these are still the lowest

ratios in the education sector and the third lowest ratio in the healthcare sector

among ASEAN nations.

Government expenditure to GDP (%) Myanmar’s Government expenditure by sector

2011 (%)

Country FY2010 FY2011 FY2012 FY2013

Myanmar 18.9 18.5 27.4 29.2

Cambodia 21.3 20.7 21.6 19.9

Thailand 19.2 19.7 19.7 20.1

Malaysia 25.5 25.8 26.5 25.6

Vietnam 27.2 25.4 26.2 26

Source: ADB, VPBS collected Source: ADB

1837

1190

441 434

89 47 33 20

205

0

300

600

900

1200

1500

1800

2100

56.98%

15.61%

11.91%

15.51%

Singapore

South Korea

Thailand

Others

USD 4.1

billion

1.1 3.7 4.6

16.6

31.0

43.1

Health

Education

Agriculture

Defense

Infrastructure

Others


MACRO ECONOMIC INDICATORS

Stable currency

Before April 2012, Myanmar’s currency – the kyat (MMK) fluctuated at around 6.4

kyats per USD. However, the exchange rate in the black market varied from 800 kyats

to above 1,300 kyats per USD. On April 2, 2012, the Central Bank of Myanmar

announced it would implement a managed float for the kyat, setting an initial rate at

818 MMK/USD. The kyat then continued to depreciate to 970 MMK/USD at the end of

July 2013 due to extensive import expansion and slower export growth. The MMK

has remained fairly stable around 970 – 985 MMK/USD since then.

As the demand for imported machinery and input materials for manufacturing and

infrastructure projects have been increasing, the depreciation of the kyat ushered in

strong negative effects. However, the float of the currency made the country more

attractive for international investors and was supportive of exporters.

MMK/USD exchange rate Foreign exchange reserve (USD mn)

Source: Bloomberg Source: ADB

Inflation

Inflation was one of the serious problems in Myanmar in the past. The country had

experienced running and hyper-inflation in the 1990s and 2000s. This was mainly

caused by the printing of money by the Central Bank of Myanmar to finance budget

shortfalls and sharp rises in public sector wages and fuel prices. Since 2009, inflation

has been controlled below nine percent and it has been fairly stable at around six

percent in the last twelve months. Even though the fast acceleration of the economy

had caused inflation under high pressure, international organizations such as IMF and

ADB still projected this year’s inflation to continue remaining under control at around

6 percent.

750

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3000

4000

5000

6000

7000

8000

2007 2008 2009 2010 2011 2012


Inflation 2002 - 2013 (%) Lending interest rate (%)

Source: ADB Source: ADB

Interest rates

Interest rates declined sharply to 13 percent in 2013 from 17 percent posted in 2011.

The Central Bank of Myanmar put a limit on commercial bank loans in the range of 10

percent and 13 percent for floor and ceiling rates, respectively.

SOME POTENTIAL SECTORS

As Myanmar opens up to the world and sanctions are lifted, there are massive

investment opportunities for foreign investors in almost all sectors (except for those

on the prohibited list). We believe the following sectors in particular are likely to be

more attractive to investors compared with the others:

Energy

Myanmar’s energy sector has been the most attractive sector for international

investors, accounting for 72.04 percent of the total cumulative FDI inflows through the

end of June 2014, in which hydropower attracted USD19.3 billion and oil and gas

received USD14.4 billion.

Hydro-power

Currently, around 70 percent of Myanmar’s population has no access to electricity, the

highest rate among ASEAN countries. In rural areas the rate soars to more than 90

percent. Yangon and other major cities also experience rolling power cuts. Many

enterprises have to use expensive onsite electric power generators and

manufacturers cannot attain their maximum capacity.

Power shortage is one of the main concerns in Myanmar as it can limit the expansion

of the economy. Therefore, the power sector will remain the top priority investment

for the government (the government plans to increase power generation capacity to

20,000 MW by 2030). We believe the power sector, especially hydropower, will

continue attracting investors thanks to the following reasons:

- Myanmar has huge hydropower potential of more than 100,000 MW, which

mostly come from the country’s four main rivers - Ayeyarwaddy, Chindwin,

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2007 2008 2009 2010 2011 2012 2013


Thanlwin and Sittaung, according to the Asia Development Bank.

- The current installed power capacity of the country is only around 3,800 MW

(versus 26,500 MW in Vietnam), the available capacity is much lower than the

installed capacity due to inadequate transmission and distribution

infrastructure, and part of that is exported. The current capacity is struggling

to meet the rising demand.

- Demand is expected to grow significantly as the economic structure is moving

from agriculture to industry and services.

- 75 percent of Myanmar‘s electricity mainly come from hydropower (versus 10

percent in South East Asia) and the remaining comes from gas-fired power

and coal-fired power. Along with expanding fossil-fuel power, the government

will continue to focus on hydropower (small size facilities that have less

impact on the environment).

- Hydropower has no fuel cost, resulting in low operating costs.

Entry conditions:

Foreign investment in hydropower and coal power plants is possible only as a joint

venture with the Government or on a BOT basis.

Challenges:

Besides some regular challenges for investing in hydropower plants such as high

capital requirement and subject to seasonal change factors, Myanmar’s low electricity

price is one of the obstacles preventing investors from investing in the country’s

power sector.

Night-time satellite image Power capacity – 2013 (MW)

Source: McKinsey Global Institute Source: MEPE

Despite many foreign companies already investing in this sector and many other are

on the waiting list, the increasing domestic demand and strong demand for power

from neighboring countries such as Thailand and China will continue to attract

foreign investors investing in Myanmar’s power sector.

0

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Demand Available in

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Availabe in

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Installed

capacity


Oil and gas

Beside hydropower, Myanmar’s rich natural gas and oil reserves also attract the

attention of international investors. This sector is also Myanmar’s leading exporter,

accounting for around 30 to 40 percent of total export revenue in the previous two

years.

According to the ADB, Myanmar’s oil reserve is estimated at 3.2 billion barrels, which

is of a relevant size among ASEAN countries. BP Statistical Review 2014 estimates

that Myanmar’s proven natural gas reserves as of the end of 2013 are at 10 trillion

cubic feet (approximately 0.3 trillion cubic meters), accounting for around 2 percent

and 0.15 percent of total proven natural gas reserve in Asia Pacific and the World,

respectively. Currently, the country ranks 46 in the world in terms of proven gas

reserves.

The country’s proven oil and gas reserves are not significant on a global scale.

However, the country’s natural gas oil reserve could be much higher as there are

many areas have not been explored. Thus investors are interested in not only the

proven reserves but also its huge unknown potential, which could be unearthed by

advanced exploration.

Oil and Gas reserves by selected countries

Country

Gas reserve Oil reserve

Trillion cubic

meters R/P ratio Billion barrels R/P ratio

Brunei 0.3 85.8 1.1 22.3

Myanmar 0.3 21.6 3.2 -

Thailand 0.3 6.8 0.4 2.5

Vietnam 0.6 63.3 4.4 34.5

Malaysia 1.1 15.8 3.7 15.3

Indonesia 2.9 41.6 3.7 11.6

Total World 185.7 55.1 1687.9 53.3

Source: ADB, BP, VPBS collected

Since October, 2013 there have been 16 onshore and 20 offshore (10 deep water and

10 shallow water) oil and gas blocks awarded to 46 international and local investors.

The country plans to award another 15 blocks by the end of next year for foreign

investors.

Vietnamese company - PetroVietnam Exploration & Production (PVEP) entered

Myanmar quite early, with a Production Sharing Contract for offshore block M2

Montana awarded on October 2008. After more than four and a half years, in June

2013, the company declared gas discovery from the first exploration well on this

block.

Entry conditions:

In order to carry out exploration and production activities in Myanmar, companies

need to sign a production sharing contract with Myanmar Oil and Gas Enterprise


(MOGE). Previously, foreign investors, who were interested in investing in the oil and

gas sector could apply and negotiate directly with MOGE and MOE. However,

onshore blocks and offshore blocks have been awarded through bidding systems

since 2011 and 2013, respectively, for more transparency. Foreign investors are

required to cooporate with local companies for all onshore and offshore shallow

water blocks, but not for the deep water block.

A royalty rate of 12.5 percent of available petroleum is applied for both onshore and

offshore. After contractor’s allowable cost recovery (50 to 60 percent), the MOGE’s

share of production will range from 60 to 90 percent depending on production rates

and the well’s depth.

Mining

Mining plays an important role in Myanmar’s economy. Myanmar is the world’s top

producer of ruby, accounting for 90 percent of global production. Last year, jade

export also ranked second in terms of value, accounting for nine percent of total

export turnover.

Besides a large endowment of precious and semi-precious stones (jade and

gemstone), which are on the list of prohibited economic activities for foreign

investors, Myanmar also has plentiful amounts of other mineral resources (copper,

lead, ore, zinc and gold), presenting great opportunities for international investors.

Entry conditions:

Investors should take note, however, that mid-scale and small-scale production of

minerals is still prohibited for foreign investors, while large scale production needs

the approval from the Ministry of Mines.

Size of Mineral reserves (million tons)

Mineral

Occurrences Proven Probable Potential Total

Gemstones 1.07 0.11 0.07 1.25

Limestone 3,095.10 5,982.40 49,740.50 58,818

Copper 1,308.6 688.52 0.19 1,997.31

Lead 13.28 12.67 18.14 44.09

Zinc 5.21 14.41 0.33 19.95

Tin (ore) 0.36 38.74 0.29 39.39

Gold 15.29 47.66 3.16 66.11

Coal 229.58 140.73 121.53 491.84

Source: ADB

Agriculture - Fishery

Myanmar’s economy depends heavily on its agricultural sector, which accounted for

30 percent of GDP. Despite its poor equipment and low farming technology, the

agricultural sector still achieved notable results. Rice exports were recorded at around

1.2 to 1.4 billion tons in the past two years. Other major crops such as beans, pulses,

and maize contribute a large amount in total export value. Marine and inland fishery


production reached 4.72 million metric tons in 2012, which is equivalent to 82 percent

of Vietnam’s total fishery production during the same year.

Agriculture has great potential for growth thanks to a favorable climate, abundant

land and water resources. Cultivated land accounts for 12.8 million hectares, which

has potential to grow by around 50 percent because another six million hectares of

cultivable land is currently unused. Meanwhile, Myanmar’s water supply per capital is

nine times and five times higher than those of China and Vietnam, respectively. There

are enormous opportunities in rubber, palm oil, baby corn, sugarcane and many

others.

Fishery is also seen as a potential segment given its coastline of almost 3,000 km,

continental shelf of 230,000 square-meters and impressive inland waterways with a

variety of nutrient and marine species, with many areas still not having been

exploited.

Given the favorable conditions and abundant resources, agriculture and fishery are

increasingly attractive sectors for foreign investors.

Entry conditions:

Foreign investors can invest in international agricultural companies or Myanmar’s

domestic companies which are looking to expand or set up a new business. However,

production and distribution of hybrid seeds are allowed only in the form of joint

ventures with Myanmar’s citizens.

Risks and Challenges:

- Land use is one of the issues that investors should take in to account when

investing in the agricultural sector. There were numerous protests carried out

by farmers who claimed their land was confiscated without compensation.

- Another issue is its poor road system, resulting in expensive shipping costs

(from rural areas to Yangon).

Real estate

Another promising sector that we would like to mention is real estate – one of the top

sectors drawing investor’s attention.

Myanmar’s real estate prices have increased significantly since 2007 due to the

reduction in property taxes, which were reduced to 15 percent, from 50 percent. Real

estate prices have then skyrocketed since the reform in 2011 as it brought in massive

FDI, which resulted in a strong demand for property.

Land prices in Kyauktade township, the central downtown area of Yangon, were

recorded to increase up to 1.5 million kyats per square foot (USD16,800/sqm).

Meanwhile, those in Bahan township and Pyay Road were posted at around

USD5,500/sqm to USD9,000/sqm before the Government put caps on property prices

last month.

Commercial leases in Yangon are now even comparable with other well-known

expensive cities such as Singapore and are much more expensive compared to Ho

Chi Minh city, even though Yangon’s grade A offices quality are probably not

commensurate with grade A international standards. According to Colliers

International, office prices in Yangon are expected to increase by 25 percent in the


next two years.

Hotel rates also soared in recent years. Sedona hotel increased its room rates to

USD200/night in 2014, from USD50/night two years ago, thanks to rising demand

from overseas visitors. According to the Ministry of Hotels and Tourism statistics, the

total number of visitors reached two million in 2013, from one million in 2012 and is

estimated to reach three million this year. The total number of hotel rooms is

estimated to increase to 47,000 rooms this year, double from 24,000 rooms in 2012,

but the current number of rooms does not seem sufficient to accommodate the

rapidly growing number of visitors.

Office lease (USD/month/sqm)

Source: Collier International

Entry conditions:

- Foreign investors are prohibited from owning land. However, they can get

approval to lease land for up to 50 years and can extend the lease for 2

additional terms of 10 years each.

- Investors can incorporate joint ventures with local shareholders, who

contribute land rights and receives shares as a remuneration (at least 20

percent), to invest in condos and apartments, housing near industrial areas;

commercial, low-cost housing and new townships.

- The investment can be 100 percent foreign owned only if it is a three star

rated (or above) hospitality project.

- Foreign investors can invest in a construction project on a BOT basis and

transfer it to the land owner (the Government) after 30 to 50 years.

Demand for residential properties, offices, retail outlets and hotels is expected to

spike upwards as FDIs will continue flooding in. Thus, the real estate sector will

remain an attractive sector for investment. However, investors should be cautious as

a real estate bubble may soon form and ultimately burst as we saw in Vietnam.

20

22

26

30

32

37

73

88

0 10 20 30 40 50 60 70 80 90 100

Manila

Kuala Lumpur

Bangkok

Jakarta

Hanoi

Ho Chi Minh City

Singapore

Yangon


Telecom

The telecom sector has changed rapidly since 2012, with SIM card prices dropping to

around USD250, from around USD1,500 to USD3,000 in 2008. After the two

telecommunication providers - Norway’s Telenor and Qatar’s Ooredoo - trumped nine

other finalists (including Viettel) and scored exclusive licenses to operate in Myanmar

last year, 1,500 kyat (USD1.5) SIM cards are now available in the country.

According to data from ITU, as of the end of December 2013, Myanmar’s internet

penetration rate and mobile phone/telephone subscription rate are among the lowest

in the world, posting at one percent penetration rate and around 13 percent for

mobile phone subscription rate. These figures reveal substantial room for growth in

the long term.

Even though Telenor and Ooredoo were the winners in the bidding last year, there is

a huge amount of other works that require the support from other telecom-related

companies. These, in conjunction with the Government’s will of increasing the mobile

subscription rate, and internet perpetration rates to the level of neighboring countries,

demonstrate there are numerous opportunities in Myanmar’s telecom sector.

Internet penetration rate (Dec 2013) Mobile phone and fixed telephone subscription

(per 100 inhabitants - Dec 2013)

Source: ITU Source: ITU

Entry conditions:

There are no restrictions on foreign investment in the Foreign Investment Law for the

telecommunications sector. However, the Government can impose additional

restrictions and requirements.

Challenges:

Power shortages are one of the main barriers for telecom operators in Myanmar. In

order to expand the network, there are a large amount of mobile towers that need to

be built. Many of these might be built off electricity, requiring power generators.

Other potential sectors

The above sectors have received the most interest from international investors. But

we evaluate the current landscape and note there are uncountable opportunities in

many other sectors as well. The construction sector should be on the rise due to the

1%

6%

13%

22%

30%

41%

44%

46%

67%

73%

75%

85%

86%

0% 20% 40% 60% 80%

Myanmar

Cambodia

Laos

Indonesia

Thailand

Philippines

Vietnam

China

Malaysia

Singapore

Brunei

South Korea

Japan

0 20 40 60 80 100 120 140 160

Myanmar

Laos

China

Philippines

South Korea

Brunei

Japan

Indonesia

Vietnam

Cambodia

Thailand

Malaysia

SingaporeFixed telephone Mobile phone


eager need for improving the country’s poor infrastructure system. The

manufacturing sector also has great prospects, given the country’s substantial

population with strong demand for a variety of products. The banking sector should

soon spark as it is essential for the development of the country. Other sectors such as

tourism and services are also absolutely on the potential investment list.

Opportunities are countless; open for different types of investors. Investor’s choice of

investment will depend on their background and investment strategy.

INVESTMENT PROCEDURES

General investment incentives

In order to attract foreign investors, Myanmar’s Foreign Investment Law (MFIL) 2012

includes many incentives for foreign investors. The following are some general

incentives for companies, which are registered under the MFIL and receive a MIC

permit:

- Tax holiday for the first five years.

- Exemption or relief from custom duty or other internal taxes on machinery

equipment, instruments, machinery components, spare parts and material

used in the business, and items which are imported and required to be used

during the construction period of the business.

- Exemption or relief from custom duty or other internal taxes on imported

materials for the first three years of commercial production after the

construction is completed.

- Exemption from commercial tax on goods which are manufactured for export.

Other specific intensives will be granted for various sectors

Capital requirement and investment procedure

Foreign investors can register their companies under:

- The Myanmar Companies Act, which does not require applying for a MIC

permit. However, companies registered under the Myanmar Companies Act

are not eligible for tax incentives. The minimum capital requirement is

USD50,000 for service companies and USD150,000 for manufacturing

companies.

- The Myanmar Foreign Investment Law, in which registered companies can

benefit from tax incentives. The minimum capital requirement is determined

by the MIC.

Foreign investors are recommended to consult with a local legal advisor to assist

them with investment procedures. That said, we briefly outline the procedures that a

typical Vietnamese company need to go through in order to open a service company

in Myanmar:

- Step 1: Apply for Certificate of Incorporation (temporary) in Myanmar, with the

assistance of a local legal advisor (recommended).

- Step 2: Obtain permission to invest oversea from the Vietnam Ministry of

Planning and Development, register for an oversea investment account at the

State Bank of Vietnam, and open an oversea investment account at a


Vietnamese commercial bank.

- Step 3: Remit 50 percent of the capital requirement in foreign currency

acceptable to Myanmar’s banks, which have obtained Authorized Dealer

License (Authorized Dealer License has been awarded to three State Owned

Banks and 15 Private Banks – see appendix).

- Certificate of Incorporation will be granted after the investor has fulfilled step

three.

Economic Activities under Prohibition

Almost all sectors are now opened to foreign investors in the form of a joint venture

or 100 percent foreign owned. However, foreign investors should be aware of the

prohibited economic activities (to foreign investors) before investing in Myanmar:

List of Prohibited Economic Activities

Sr. No Type of Economic Activities

1 Manufacturing and related services of arms and ammunition for the national defense

2 Managing and conserving natural forests

3 Prospecting, exploration and production of jade/gem stones

4 Production of minerals on a small or medium scale

5 Administration of electric power system

6 Inspection of electrical works

7 Air navigation services

8 Exploitation of minerals including gold in the rivers and water way

9 Pilotage services

10 Operating printing and broadcasting services jointly without approval of the Union Government

11 Periodicals in national ethnic languages including Burmese

Source: MIC

RISKS AND CHALLENGES

Beside numerous opportunities for investment in Myanmar, foreign investors should

also take into account the risks and challenges that they might face when investing in

this country, such as:

Policy instability

Unsettled legal framework is one of the main issues for foreign investors. As part of

the reform, the government is in a hurry to revise laws and regulations. Thus, foreign

companies need to adapt quickly to the policy changes and be cautious of the

ambiguous rules and regulations.

Political Risk:


Myanmar’s political and religious risks are notable issues as they could affect the

business operating environment. According to the latest quarterly updates to dynamic

political risk indices (Maplecroft), Myanmar has moved out of the ‚extreme risk‛

category thanks to the reforms since 2012. However, the country is still categorized as

‚high risk‛.

The clash between the majority Buddhists and minority Muslims over political

reforms has led to the death of at least 250 people since 2012. The ongoing religious

conflicts have required further effort from the Government. Unless the Government

can ensure a secure environment, many international investors will be hesitant to join

the market.

Investors should also keep an active watch on the next general election, which will be

held in October/November 2015. We would not make any predictions about a

possibility for a twist. However, some political instability is expected to occur

before/during and potentially after the general election.

Inconsistent data

International investors and researchers have probably been confused over the

inconsistent database about this country. Myanmar’s population data, for example,

had been reported at around 60 million people for a long period of time, but it has

recently been reported at only 51.4 million people. Oil reserve estimation also posted

at a wide range between 50 million barrels to 3.2 billion barrels.

Lack of skilled workforce

More than 50 percent of the country’s workforce are currently working in the

agricultural sector. Due to the poor education system, international companies face a

shortage of skilled workers. The weak education system needs a long time for

improvement. Thus, the unskilled workforce will remain a problem for investors.

Poor infrastructure

There are many other obstacles that foreign investors need to overcome such as,

poor rail connections, degraded road system and ports facilities, power shortages and

unstable telecom services, which can result in lengthy delays, expensive shipping

costs and inefficient production.

Companies under sanction

Since 2012, the United States, The European Union, Australia and Canada have lifted

and eased most trade sanctions which they imposed on Myanmar. However, there are

some companies and individuals that are still on the blacklist. Therefore, foreign

investors should make sure they know their local partners well enough to avoid

further troubles caused by doing business with firms out of favor with global

economic giants.


STOCK MARKET – TARGET FOR OCTOBER 2015

To be launched before the next election?

Myanmar authorities and Japanese Daiwa Securities Group are putting intensive

efforts into the establishment process of Yangon Stock Exchange (YSE). They plan to

launch the YSE with three to five listed companies before the next election, which is

scheduled on October/November 2015. The authorities and the Japanese are both

confident that they will meet the deadline.

Not for international investors

Foreign investors will not be allowed to invest in the YSE at least for the time being.

Requirements for being listed on the YSE

In order to be listed on the YSE, companies need to satisfy the following

requirements:

- Minimum capital amount of MMK500 million (USD510,000)

- Having minimum of 100 shareholders, in which the minority contributes at

least 10 percent of the total capital.

- The companies need to demonstrate profit in the previous two years or

market capitalization of MMK10 billion (USD10.2 million)

Companies to be listed

According to Myanmar’s Deputy Minister of Union Finance and Revenue, three public

companies will be listed including, Asian Green Development Bank (AGD) Bank, First

Myanmar Investment Co Ltd (FMI), and Myanmar Agro-business Public Co (MAPCO).

Not ready yet?

The development of the YSE’s infrastructure still has a long way to go. Additionally,

despite more than one year passing since the Securities Law release, the regulations

and rules have not yet been finalized. The strict requirements and expensive fees are

also the main hurdles for any companies that desire to be listed.

Asian Green Development Bank – the most potential to-be-listed company is facing a

problem regarding charges to its major ownership structure. Thus it is uncertain

whether AGD bank will be able to get on board.

With the above mentioned, we doubt the prospect that the YSE will meet its target.

Even if the Burmese authorities and the Japanese get infrastructure and rules &

regulations completed on time, market participants and market liquidity would remain

a high concern.


CONCLUSION

Given the geostrategic location, untapped and abundant natural resources, significant

population and a market-based economy, Myanmar is currently one of the most

attractive investment destinations in Asia. Massive FDI inflows have been recorded

over the previous few years and are estimated to continue to surge considerably in

the future.

We expect to see a magnificent picture of the country emerge over the next decade,

but it is uncertain if Myanmar will become the next tiger of Asia. The growth rate of

the country depends mainly on the ongoing reforms, many of which are determined

by a stable political system in addition to the foresight and good governance of its

policy-makers.


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