Myanmar Investment Climate: A Wave of Optimism Will it Last?

Transcription

1 Myanmar Investment Climate: A Wave of Optimism Will it Last? Nay Pyi Taw, June 6, 2017

2 The Roland Berger Myanmar business survey of end-20 revealed high expectations among investors How do you think Myanmar's economy and business landscape will fare in the next 12 months? 73% N = 8 Deteriorate slowly Remain the same Improve Improve rapidly Overall 5% 22% 65% 8% Hotels & tourism 7% 7% 73% 13% Utilities, oil & gas, chemicals 0% 20% 70% 10% Financial Services 4% 19% 62% % Telecom, media & tech 5% 21% 58% % Professional services 0% 28% 66% 6% Construction & real estate 8% 27% 54% 11% Retail & distribution 13% 25% 31% 31% Source: Roland Berger Myanmar business survey (September 20) 2

3 Being one of the last large frontier markets (80%) and government's commitment to reform (67%) are key reasons to enter Myanmar What is the most important reason for your company to have entered the Myanmar market? Myanmar being one of the last "frontier" markets Very important Important 40% 40% 80% Large market, with pop. of more than 50 m 35% 43% 78% Myanmar's commitment to liberalization (e.g. Telecom sector reform) 21% 46% 67% Strategic location 20% 41% Possibility to "leapfrog" 22% 38% 61% 60% Availability of natural resources 10% 28% Competitive labor costs 7% 28% Legal and regulatory environment 10% 24% 34% 33% 37% Others 1) 12% 9% 21% 1) Includes: Attractive call for tender to develop resources International utilities and energy firm ; Limited domestic growth in own country International mining and utilities firm Source: Roland Berger Myanmar business survey (September 20) 3

4 The government has taken steps aiming to ease investment flows into the country Selection of recent key achievements and their implications on businesses Lifting of US sanctions (Executive Order issued in Oct 20) > Foreign companies coming to Myanmar now have greater choice of partners and much fewer restrictions New Myanmar Investment Law and investment Rules (Law promulgated in Oct 20; rules came into effect in 2017) New Draft Myanmar Companies Law (Ongoing draft prepared) > Enabling a more policy-based rather than transaction-based investment regime Rationalizing the investment framework 1) as key aim > Investment activities classified as prohibited, restricted or promoted sectors > MIC permit no longer required, except for specified type of investments > Investments without the MIC permit may also enjoy benefits 2) granted under the new investment law, if they apply for Endorsement from MIC > Improved investor assistance through a One Stop Service Centre > Import of goods no longer require MIC approval although license/ approval under other applicable law still applies > Employment quota (% of Myanmar citizens) no longer applies > Stronger Corporate Governance > Removal of outdated regulations > Potential increased threshold of up to 35% foreign shareholding in a domestic company 1) By combining and replacing the Foreign Investment Law 2012 and the Myanmar Citizens Investment Law ) E.g. Land lease for longer period, Tax and duty exemptions for promoted sectors, Tax exemptions for re-invested profits, etc. Source: Press research; Roland Berger 4

5 Strong focus on addressing fundamentals that underpin longer term economic development Pay-off will take time Current policy focus Addressing the fundamentals Peace process However, these efforts tend to take time to pay off Impact on GDP growth Anti-corruption Tax collection Education and job training Environmental sustainability Healthcare Social inclusion Tax collection policies Anti-corruption policies Education policies Environmental policies 2-5 years 5-10 years 5-10 years 5-10 years Source: Press research; Roland Berger 5

6 However, these measures have not yet boosted FDI in the short term Foreign direct investment by permitted enterprises [monthly, USD million] Total : 9,483 (790 monthly average) 3,822 Total: 6,630 (737 monthly average) 2,230 2,025 2, Apr- May- Jun- Jul- Aug- Sep- Oct- Nov- Dec- Jan- Feb- Mar- Apr- May- Jun- Jul- Aug- Sep- Oct- Nov- Dec- Jan- 17 Feb- 17 Mar- 17 Apr- 17 Source: DICA; Roland Berger 6

7 Lack of clarity in overall and sector-specific economic policy still a key barrier to more investment? Business survey Areas for improvement How significant is this challenge? N = 3 Very Significant Significant Lack of staff with required skillset 41% 44% 85% No clear government economic policy 34% 42% 76% Unpredictable legislative environment 32% 43% 75% Selective, unpredictable enforcement of regulations 30% 39% 69% Rising labor costs 17% 51% 68% Too much administration / "red tape" 29% 37% 66% Market access barriers and investment restriction 13% 45% 58% Restriction on access to financing 23% 34% 57% Kyat volatility 12% 43% 55% Lack of intellectual property rights protection 17% 32% 49% Too much corruption 10% 37% 47% Administrative issues (e.g. visa, work permit, etc) 9% 37% 46% Discrimination against foreign companies 6% 26% 32% Source: Roland Berger Myanmar business survey (September 20) 7

8 Government can boost the economy through transparent policy, electricity supply, broadband, transport and financial sector reform Important Government measures to boost economic growth [%] N = 1 Very Important Important Transparent government policy 54% 43% 97% Stable electricity supply 67% 29% 96% Broadband development Transport infrastructure 45% 49% 53% 39% 94% 92% Financial sector reform 58% 34% 91% Promoting fair competition 36% 55% 91% Education reform and training 52% 33% 85% Reform of State Owned Enterprises and liberalization 26% 53% 79% Land reform 33% 44% 77% Peace agreement 27% 46% 73% Environmental policies and enforcement 20% 45% 65% Healthcare reform 26% 39% 65% Source: Roland Berger Myanmar business survey (September 20) 8

9 Good progress made in fundamental cornerstones and short-term easing of investment Gaps remain on overall/sector economic policy Long-term and short-term levers of an Economic Transformation > Investment Law > Company Law > > Anti-corruption > Education > Environmental sustainability > Peace process > General framework for doing business Industrial Sector strategies & policies Long-term fundamental cornerstones within an integrated economic transformation program Marketing & Promotion > Overall economic policy (integrated, coordinated) > Industry sector policies, eg: Energy Power Financial services Communications Transportation > One-stop service center > Myanmar Investment Promotions > Source: Roland Berger 9

10 A comprehensive and integrated economic transformation program is still needed to unleash Myanmar's potential Selected key components of an Economic Transformation Program Economic Transformation Program Sector economic policies Incl. regional & state perspectives Transversal economic policies In line with a multitude of policies on Fiscal policy Agriculture & Livestock Manufacturing Transportation Tourism Telecom Oil & Gas Financial Services Electric Power... Bago Chin Kachin Kayah Kayin Magway Mandalay Mon Rakhine Shan Sagaing Tanintharyi Yangon Naypyidaw SOE Reform FDI Attraction Trade Promotion SME Development E-Government Education Health & social welfare Anti-corruption Law & order Conservation Foreign relations Peace process Ethnic affairs 12-Point Economic Guidelines Source: Roland Berger September 20 10

11 Quick wins can help to strengthen investor confidence and provide benefit to the public The telecom sector serves as a reference Importance of short-term improvements ("Quick wins") Value of quick wins Boosting investor confidence > Overcomes skepticism > Indicates speedy changes under way > Demonstrates policy effectiveness Benefiting the Myanmar people > Tangible benefits that boost quality of life > Visible proof of reform progress Success in the telecom sector > Telecom policy (incl. structuring of sector) and legal framework (telecom law and regulations) were issued to provide certainty to investors > License tender process was praised for its transparency and efficiency by the business community > Prices of SIM cards fell from USD 1,500 to USD 1.50, putting them within reach of the general public > Mobile phone penetration reached >100% of the population this year Opportunities in other sectors Manufacturing Develop key sectors (e.g. textiles, motorbikes) Revitalize existing SEZs Electric Power Boost capacity through fast tendering of projects Extend grid reach & reliability Financial Services Development of interbank market Upgrade regulations & regulator capabilities > Source: Roland Berger 11

12 With a successful economic transformation, investors can benefit from growth across a wide range of sectors > (Contract) farming > Food processing > Meat & fish processing Agriculture & Livestock Telecom > Infrastructure (towers, fiber) > Technologies / apps > Content / media > Textile & garments > Automotive incl. supply > Consumer goods > Electrical equipment > Pharmaceuticals > Airports / airlines > Ports / shipping > Roads > Railway > Logistics Manufacturing Transportation Expected key growth sectors Oil & Gas Financial Services Electric Power > Upstream > Midstream > Downstream > Wholesale & retail banking > Insurance > Renewable energy > IPP > Transmission & distribution > Hotels > Hospitality services Tourism Other > Retail & distribution Source: Roland Berger 12

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