Opportunities in Myanmar Axel Blom, Innovation Norway …1412+EN+(NXPowerLite).pdf · Financial. services. Tourism. Energy/mining. Infrastructure. Manufacturing. Seven Sectors Driving

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Opportunities in Myanmar Axel Blom, Innovation Norway December 2014

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• Myanmar on a new path. • Prerequisites. • Investments in Myanmar. • The McKinsey Report, June 2013. • Challenges doing business in Myanmar. • Opportunities in Myanmar. • Relationship with Norway. • Conclusion. • Recommendations.

2

Contents

Photo: Axel Blom/Innovation Norway

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Myanmar on a new path • Myanmar is moving towards

democracy • Elections held in 2012 • Daw Aung San Suu Kyi member of

Parliament • Peace process with ethnic minorities • No longer a pariah • Active in integration into

international and regional communities

• Election in 2015

Photos: Kristine Hasle/TNCC and Kjersti Thorvildsen/NBAS

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Burma or Myanmar?

Myanmar

Myanmar is the country’s official name and is the name we use

officially from Norway

Burma

Burma was the old colonial name for the country

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68% 9%

7% 5%

12%

Bamar Shan Karen Various tribes Others

The population of Myanmar

Source: Wikipedia

5

>>> Back to index >>> Back to index Photo: Yang Jun

Prerequisites

6

The Democratisation Process is a prerequisite for Norwegian companies entry into Myanmar

The cornerstones of a

Regulatory Framework needs to be in place for Norwegian business to show interest for Myanmar

Stable economy,

Predictability needs to be in place even if companies understand that Rome was not built in one day

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Corporate Responsible Companies Job

Opportunities for the

Population

Sustainable Development

How can we help Myanmar?

7


Democratisation

8

The Democratisation Process is a prerequisite for Norwegian companies entry into Myanmar

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Roadmap to Disciplined Democracy

9

The seven-step Roadmap to Disciplined Democracy announced by General Khin Nyunt on 30 August 2003 5. Hold free and fair elections for the

legislative bodies 6. Convene the National Assembly attended

by Assembly members in accordance with the new constitution

7. Build a modern, developed and democratic nation by the state leaders elected by the National Assembly; and the government and other central organs formed by the National Assembly

1. Reconvene the National Convention (last assembled in 1996)

2. Step by step implementation of the process necessary for the emergence of a genuine and disciplined democratic system

3. Draft a new constitution in accordance with basic principles laid down by the National Convention

4. Adoption of the constitution through national referendum

Disciplined Democracy

Authoritarian Regime

Full Democracy

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3.92 Russia


Disciplined Democracy Full Democracy

1.77 Myanmar

2.96 Vietnam

3.14 China

5.89 Singapore

6.19 Malaysia

6.55 Thailand

7.30 India


Hybrid Regime

Full Democracy

Flawed Democracy

1.08 North Korea

6.53 Indonesia

7.74 Italy

3.52 Cuba

9.09 Switzerland

9.80 Norway

Expectations?

10

Democracy Index 2011


?

4.87 Cambodia

Source:

5.73 Turkey

8.11 USA

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Small movements

11


Source:

3.74 Russia



2.35 Myanmar

2.89 Vietnam

3.00 China

5.88 Singapore

6.41 Malaysia

6.55 Thailand

7.52 India

9.93 Norway

1.08 North Korea

6.76 Indonesia

7.74 Italy


?

4.96 Cambodia


Hybrid Regime

Full Democracy

Flawed Democracy

9.09 Switzerland

8.11 USA

5.76 Turkey

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9.93 Norway

3.00 China

3.59 Russia

2.76 Myanmar

3.29 Vietnam

5.92 Singapore

6.49 Malaysia

6.25 Thailand

7.69 India

7.85 Italy

6.82 Indonesia

8.11 USA

4.60 Cambodia

9.09 Switzerland

1.08 North Korea

5.63 Turkey

Democracy in limbo

12


Source:




?


Hybrid Regime

Full Democracy

Flawed Democracy


The Regulatory Framework

13

The cornerstones of a

Regulatory Framework needs to be in place for Norwegian business to show interest for Myanmar

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Statement

“It is going to be the same people with a different mindset. If they don’t change their mindset they will not survive.” Senior Bank Executive, Yangon, September 2010

14 Photo: Patriotic War Veterans of Burma

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Desire of the Government

“We will open doors, make reforms and invite investments as necessary for development of the nation and the people” President U Thein Sein of Myanmar, May 2012

15 Photo: Kjersti Thorvildsen/NBAS

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Myanmar’s Economy


Multiple Exchange Rate Regime • The Myanmar Kyat (MMK) has operated with several

exchange rate levels to the USD: • Official Rate MMK 6 • Customs Clearing Rate MMK 450 • Foreign Exchange Certificate Rate MMK 800 • Money Changer/Black Market Rate MMK 810 • Export Earning Rate MMK 850

• Government is narrowing gap towards one unified rate • National Statistics in the past have been recorded at

official exchange rate levels which leaves statistical figures as pure fiction

17

Source: Central Bank of Myanmar, May 2012


Predictability

18

Stable economy,

Predictability needs to be in place even if companies understand that Rome was not built in one day


Possible Reform Scenarios 0% 10% 20% 30% 40% 50% 60% 70% 80%

Scenario 1

Scenario 2

Scenario 3

Likelihood

Economic Growth 2016-2020

19

Source:

4.4%

8.5%

7.7%

Reform rollback, military reaffirmation

More rapid economical and political reform

On-going reform but limited real structural change


Possible Reform Scenarios 2014 0% 10% 20% 30% 40% 50% 60% 70% 80%

Scenario 1

Scenario 2

Scenario 3

Likelihood

Economic Growth 2016-2020

20

Source:

4.4%

8.5%

7.7%

Reform rollback, military reaffirmation

More rapid economical and political reform

On-going reform but limited real structural change

plus own scenarios


Myanmar’s Economic Growth

0%

2%

4%

6%

8%

10%

12%

14%

16%

2005 2006 2007 2008 2009 2010 2011 2012-2030

Official GDP

Adjusted ExRate

21

Source: Asian Development Outlook 2011

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Marine Resources Forestry Hydropower

Abundance of Natural Resources

22

Tourism Potential

Minerals Oil & Gas Agricultural Land


Investments in Myanmar 1989-2012

42%

44%

7% 7% Total investments in

Myanmar by sector

Power

Oil and Gas

Mining

Others

23

Source: Myanmar Investment Commission 2012/Q3


Investments in Myanmar 1989-2012

34%

24%

16%

7%

7% 12% Total investments in

Myanmar by country

China

Thailand

Hong Kong

Korea

UK

Others

24

Source: Myanmar Investment Commission 2012/Q3

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Export from Myanmar 2012 Type of Goods (HS4) Countries

Source: The Observatory of Economic Complexity, Alexander Simoes/MIT

25

http://atlas.media.mit.edu/

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Import to Myanmar 2012 Type of Goods (HS4) Countries

Source: The Observatory of Economic Complexity, Alexander Simoes/MIT

26

http://atlas.media.mit.edu/

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Business in Myanmar

“It s a bit like the Wild West here at the moment. We are going to see a lot of cowboys riding in, but will they stay for the long run?” BurmaNet News, May 2012

27

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The McKinsey Report, June 2013

Four keys to unlocking Myanmar’s potential 1. Digital leapfrogging 2. Structural sector shift 3. Urbanisation 4. Globally connected

economy

28

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Digital Leapfrogging

Accelerating growth through

technology

Structural sector shift

Moving into manufacturing

Urbanisation Anticipating and

managing the shift

Unlocking Myanmar’s Potential

29

Globally connected economy

Stimulating investment, trade and people flows

>>> Back to index >>> Back to index Source: McKinsey Global Institute, June 2013: Myanmar’s moment: Unique opportunities, major challenges. Photo: Hugo Maes

The Challenge

30

USD 1.500/year average productivity of a worker in Myanmar today, about 70% below that of benchmark Asian countries

4 years of average schooling in Myanmar (UN Development Programme, Human development report, 2030)

10 million additional people to absorb in Myanmar’s large cities by 2030

USD 650 billion total investment needed by 2030 to support growth potential, USD 320 billion in infrastructure alone


Myanmar 1992 Source: McKinsey Global Institute, June 2013: Myanmar’s moment: Unique opportunities, major challenges. Photo: NASA 31


Myanmar 2010 Source: McKinsey Global Institute, June 2013: Myanmar’s moment: Unique opportunities, major challenges. Photo: NASA 32


The amount of light from Asian cities has grown as they developed between 1992 and 2010, while Myanmar has remained dark

Source: McKinsey Global Institute, June 2013: Myanmar’s moment: Unique opportunities, major challenges. Photo: NASA 33

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Legal Framework Corruption Power

shortages

Challenges in Myanmar

34

Internet and Mobile

Access

Peace Process

Banking and Exchange

Rates

Education and lack of qualified

staff

Lack of Office Space and Housing


But, things are moving forward • New Laws and Liberalised Regulations are introduced • Banking regulations have been eased • Currency rates are being aligned • Power Grid stabilisation efforts • Establishment of Special Economic Zones • New ports, roads and rail infrastructure is being built • Airports are upgraded

35


Nay Pyi Taw Airport

36 Photo: Axel Blom/Innovation Norway

>>> Back to index >>> Back to index Source: McKinsey Global Institute, June 2013: Myanmar’s moment: Unique opportunities, major challenges. Photo: Hugo Maes

Opportunities

37

USD 200 billion GDP in 2030, over four times as high as today

19 million Members of the consuming class in 2030 from 2.5 million in 2010

Potential to create more than

10 million Additional non-agricultural jobs by 2030

500 million People living in countries bordering Myanmar and the closest parts of China and India, a huge potential market

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Myanmar’s Consuming Class

Only 4% of Myanmar’s citizens are members of the consuming class, compared with 35% worldwide Consuming class defined as individuals with a daily net income of above USD 10 at 2005 PPP

38 Photo: Telenor


Myanmar’s Consuming Class

2.5 8.8 19.0

57.3

62.9 52.7

0

10

20

30

40

50

60

70

80

2010 2030 at less than4% GDP growth

2030 at 8%GDP growth

Population (mill)

Below consuming class

Consuming class

Source: McKinsey Global Institute, June 2013: Myanmar’s moment: Unique opportunities, major challenges

39

Consuming class defined as individuals with a daily net income of above USD 10 at 2005 PPP

Share of population in consuming class (%) 27 12 4

59.8

71.8 71.8


50.4

0.1

0.2

0.6

8.0

10.5

21.2

9.8

220.6

6.4

11.1

14.1

21.7

48.8

49.1

69.4

Total

Telecom

Financialservices

Tourism

Energy/mining

Infrastructure

Agriculture

Manufacturing

Seven Sectors Driving the Economy


Seven sectors could generate more than USD 200 billion of economic output by 2030 Real GDP sector sizing and potential in USD billion, 2010 prices Compound annual

growth rate %, 2010-30

10

4

8

5

17

23

8

23

40

2030 2010


2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

Bhutan

Bangladesh

Indonesia

Cambodia

Laos

Vietnam

Myanmar(aspiration)

Mobile Phone Penetration


Approximate number of years to increase mobile penetration from 3 to 75 percent

3

3

2

3

3

3

3 75

81

73

78

85

81

80

2016 2011

2003

2003

2001

2001

2004

2004

2008

2011

2010

2010

2013

2013

5

5

8

9

9

9

9

41


Long Term Goals


42

>>> Back to index >>> Back to index 43 Photo: Kristine Hasle/Thai-Norwegian Chamber of Commerce

Relationship with Norway


Relationship with Norway • Political dialog following Cyclone Nargis in May 2008 • Since then, government to government dialogue in

connection with democratisation process • Regulatory Framework: Myanmar Government actively

improving but needs assistance in several areas • Myanmar President and the Government appreciates

Norway's active role • Norway was one of the first countries to lift sanctions • Norway is currently in a unique position, but other

countries will catch up. Norway’s position will weaken as other countries open up dialogue and trade

44


Norway’s Business Engagement • Trade delegation from Singapore and Thailand to

Myanmar in May 2012 • Myanmar’s Minister of Industry attended business

seminar in Oslo, June 2012 • Norway’s Prime Minister visited Myanmar in November

2012 and opened the Diplomatic Mission • Norway’s state debt in the Paris Club written off in

February 2012 and thus opening for financing through GIEK and Export Credit Norway

• Norway’s Minister of Trade and Industry visited Myanmar in April 2013 accompanied by a business delegation

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Catalyst: Cyclone Nargis

The effects of Cyclone Nargis in May 2008 forced the Myanmar authorities to open the country to international assistance. A closer dialogue with Norway followed as a consequence

46 Photo: Wikipedia


Opening of Nordic Embassy Office Photo: Kristine Hasle/Thai-Norwegian Chamber of Commerce 47


Norway’s Minister of Trade and Trade Delegation, April 2013

Photo: Trond Viken/NHD

48

>>> Back to index >>> Back to index 49 Photo: Geir Falkenberg

Norway’s Ambassador to Myanmar Ann Ollestad, November 2013


Deputy Minister Ayhan and Trade Delegation, April 2014

50 Photo: Thai-Norwegian Chamber of Commerce


State Visit December 2014

51 Photo: Royal Court of Norway/Heiko Junge


Minister of Trade and Industry Mæland, December 2014

52 Photo: Trond Viken/NFD


Status • Large companies to a large degree manage on their own • They can act as locomotives for the mid-sized

companies with some international experience • For such companies we can build on the fact-finding

mission held in May 2012 • Companies entering Myanmar must be given a realistic

picture of the basic conditions and that almost nothing is available

• The basic legal framework has not yet been finalised but if we wait too long in entering, we will no longer be considered


Which companies?


Opening of Jotun's Multicolor Center

Photo: Kristine Hasle/Thai-Norwegian Chamber of Commerce

55

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Still the beginning

A framework that is

evolving

Have a tolerance for uncertainty

Conclusion

56

Very much a case by case

situation

Be present to understand

how it works

Be patient

Source: DFDL/Hibon, Business Seminar, Norwegian Business Delegation, April 2012


Recommendations • Finding the right partner is essential • Deeper due diligence investigations are recommended,

especially when land-ownership issues are concerned • Capacity building at all levels is necessary to get

stakeholders to understand how things actually work • Education is very low and companies will need to build

capacity in their own organisations • Things we in the western world take for granted do not

necessarily work • As employers in Myanmar you have a unique possibility

to set standards and build the desired environment

57


Thank You!

58 Photo: Axel Blom/Innovation Norway


SWOT 1/2

59

Strengths Weaknesses • Abundant natural resources (agriculture,

gas, oil, minerals, precious stones) • Less population pressure on land

(Land population ratio is relatively high) • Half of arable land area fallow • Abundant trainable labour force with basic

education • Well connected to major Asian markets:

ASEAN, China and India • Strategic location: Geopolitical importance

for regional connectivity as the tri-junction of East Asia, Southeast Asia and South Asia

• Benefit of late comer in development: can leapfrog

• Significant foreign exchange reserves

• Macroeconomic instability associated with a number of policy inconsistencies and weak institutions

• Low saving and investment rates • Lack of implementing capacity and

governance issue • Underdeveloped banking/financial system • High dependence on natural resource

extraction and agriculture sector • Poor infrastructure, institutional and

business environment • High poverty, low HDI, low income and high

outmigration rate • Lack of comprehensive approaches and

funding to human capital formation • Absence of accurate and reliable economic

data to provide diagnostics of the economy

Source: Asian Development Bank 2011


SWOT 2/2

60

Opportunities Threats • Regional hub for multimodal transportation

and a potential supply route bypassing the Malacca Strait

• Sole land-bridge between two giant economies; China and India

• High potential to be a ‘food basket’ and ‘energy source’ for Asia

• Huge industrial potential for FDI from ASEAN and global supply chains

• Fear of loss of control by past leadership; could lead to backlash

• Resource Curse: lack of balancing economic growth and environmental sustainability

• Danger of Dutch disease • Social and Spatial inequality • Increase in corruption • Political instability and ethnic insurgency • International pressure and economic

sanctions • Strong influence of China

Source: Asian Development Bank 2011


Recommendations

61

1. Recognise the varying paces of reform, and don't expect a new economy overnight.

2. Get on the ground fast. Whatever decision you make cannot be properly made from Bangkok, Singapore or New York. It must be made from Yangon. Establish a presence on the ground and study the terrain. Then make the decision.

3. Find the right partners. Don't expect to do this on your own. You must seek advice from people who know the territory.

4. Bring international standards with you. People, quality control, laws, all may not be up to your desired levels. You can help effect change.

5. Be ready to take risks. A former ambassador from Myanmar recently told me there are risks in entering the country today, and there are risks in staying away. Each company has to analyse those risks and make the decision that is right for them.

Enter now, and risk running afoul of laws and entrenched customs. Stay away, and risk giving away first-mover advantage to your competition. The choice is yours.

Quoted from an article by Eric Rosenkranz, The Nation, 11 August 2012

Documents

Opportunities in Myanmar Axel Blom, Innovation Norway …1412+EN+(NXPowerLite).pdf · Financial. services. Tourism. Energy/mining. Infrastructure. Manufacturing. Seven Sectors Driving