>>> Back to index. Opportunities in Myanmar Axel Blom, Innovation Norway December 2014

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1 Opportunities in Myanmar Axel Blom, Innovation Norway December 2014

2 Contents Myanmar on a new path. Prerequisites. Investments in Myanmar. The McKinsey Report, June Challenges doing business in Myanmar. Opportunities in Myanmar. Relationship with Norway. Conclusion. Recommendations. Photo: Axel Blom/Innovation Norway 2

3 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

4 Burma or Myanmar? Burma Myanmar Burma was the old colonial name for the country Myanmar is the country s official name and is the name we use officially from Norway

5 The population of Myanmar 5% 7% 12% 9% 68% Bamar Shan Karen Various tribes Others Source: Wikipedia 5

6 Prerequisites The cornerstones of a Regulatory Framework needs to be in place for Norwegian business to show interest for Myanmar The Democratisation Process is a prerequisite for Norwegian companies entry into Myanmar Stable economy, Predictability needs to be in place even if companies understand that Rome was not built in one day Photo: Yang >>> Jun Back to index 6

7 How can we help Myanmar? Corporate Responsible Companies Job Opportunities for the Population Sustainable Development 7

8 Democratisation The Democratisation Process is a prerequisite for Norwegian companies entry into Myanmar Photo: Yang >>> Jun Back to index 8

9 Roadmap to Disciplined Democracy The seven-step Roadmap to Disciplined Democracy announced by General Khin Nyunt on 30 August 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 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 Authoritarian Regime Disciplined Democracy Full Democracy 9

10 Expectations? Democracy Index Thailand 2.96 Vietnam 3.92 Russia 5.89 Singapore 7.30 India 1.77 Myanmar 3.14 China 4.87 Cambodia 6.19 Malaysia 7.74 Italy Switzerland Norway 1.08 North Korea 3.52 Cuba 5.73 Turkey 6.53 Indonesia 8.11 USA Authoritarian Regime Disciplined Hybrid Democracy Flawed Regime Democracy Full Democracy Full Democracy Source: Disciplined Democracy? 10

11 Small movements Democracy Index Thailand 3.00 China 5.88 Singapore 7.52 India 2.35 Myanmar 3.74 Russia 4.96 Cambodia 6.41 Malaysia 7.74 Italy 9.09 Switzerland 9.93 Norway 1.08 North Korea 2.89 Vietnam 5.76 Turkey 6.76 Indonesia 8.11 USA Authoritarian Regime Disciplined Hybrid Democracy Flawed Regime Democracy Full Democracy Full Democracy Source: Disciplined Democracy? 11

12 Democracy in limbo Democracy Index Thailand 3.00 China 5.92 Singapore 7.69 India 2.76 Myanmar 3.59 Russia 4.60 Cambodia 6.49 Malaysia 7.85 Italy 9.09 Switzerland 9.93 Norway 1.08 North Korea 3.29 Vietnam 5.63 Turkey 6.82 Indonesia 8.11 USA Authoritarian Regime Disciplined Hybrid Democracy Flawed Regime Democracy Full Democracy Full Democracy Source: Disciplined Democracy? 12

13 The Regulatory Framework The cornerstones of a Regulatory Framework needs to be in place for Norwegian business to show interest for Myanmar Photo: Yang >>> Jun Back to index 13

14 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 Photo: Patriotic War Veterans of Burma 14

15 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 Photo: Kjersti Thorvildsen/NBAS 15

16 Myanmar s Economy 16

17 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 Source: Central Bank of Myanmar, May

18 Predictability Stable economy, Predictability needs to be in place even if companies understand that Rome was not built in one day Photo: Yang >>> Jun Back to index 18

19 Possible Reform Scenarios Likelihood 0% 10% 20% 30% 40% 50% 60% 70% 80% Scenario 1 7.7% On-going reform but limited real structural change Scenario 2 8.5% More rapid economical and political reform Scenario 3 4.4% Reform rollback, military reaffirmation Economic Growth Source: 19

20 Possible Reform Scenarios 2014 Likelihood 0% 10% 20% 30% 40% 50% 60% 70% 80% Scenario 1 7.7% On-going reform but limited real structural change Scenario 2 8.5% More rapid economical and political reform Scenario 3 4.4% Reform rollback, military reaffirmation Economic Growth Source: plus own scenarios 20

21 Myanmar s Economic Growth 16% 14% 12% Official GDP Adjusted ExRate 10% 8% 6% 4% 2% 0% Source: Asian Development Outlook

22 Abundance of Natural Resources Marine Resources Forestry Hydropower Tourism Potential Agricultural Land Oil & Gas Minerals 22

23 Investments in Myanmar % 7% Total investments in Myanmar by sector 42% Power 44% Oil and Gas Mining Others Source: Myanmar Investment Commission 2012/Q3 23

24 Investments in Myanmar % 7% 12% Total investments in Myanmar by country 34% China Thailand 16% 24% Hong Kong Korea UK Others Source: Myanmar Investment Commission 2012/Q3 24

25 Export from Myanmar 2012 Type of Goods (HS4) Countries Source: The Observatory of Economic Complexity, Alexander Simoes/MIT 25

26 Import to Myanmar 2012 Type of Goods (HS4) Countries Source: The Observatory of Economic Complexity, Alexander Simoes/MIT 26

27 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

28 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

29 Unlocking Myanmar s Potential Digital Leapfrogging Accelerating growth through technology Structural sector shift Moving into manufacturing Urbanisation Anticipating and managing the shift Globally connected economy Stimulating investment, trade and people flows 29

30 The Challenge 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 Source: McKinsey >>> Back Global to Institute, index June 2013: Myanmar s moment: Unique opportunities, major challenges. Photo: Hugo Maes 30

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

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

33 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

34 Challenges in Myanmar Legal Framework Corruption Power shortages Internet and Mobile Access Lack of Office Space and Housing Education and lack of qualified staff Banking and Exchange Rates Peace Process 34

35 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

36 Nay Pyi Taw Airport Photo: Axel Blom/Innovation Norway 36

37 Opportunities 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 million People living in countries bordering Myanmar and the closest parts of China and India, a huge potential market Source: McKinsey >>> Back Global to Institute, index June 2013: Myanmar s moment: Unique opportunities, major challenges. Photo: Hugo Maes 37

38 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 >>> Photo: Back Telenor to index 38

39 Myanmar s Consuming Class Consuming class defined as individuals with a daily net income of above USD 10 at 2005 PPP Population (mill) 80 Below consuming class 70 Consuming class at less than 4% GDP growth at 8% GDP growth Share of population in consuming class (%) Source: McKinsey Global Institute, June 2013: Myanmar s moment: Unique opportunities, major challenges 39

40 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 Manufacturing Compound annual growth rate %, Agriculture Infrastructure Energy/mining Tourism Financial services Telecom Total Source: McKinsey Global Institute, June 2013: Myanmar s moment: Unique opportunities, major challenges 40

41 Mobile Phone Penetration Approximate number of years to increase mobile penetration from 3 to 75 percent Myanmar (aspiration) Vietnam Laos Cambodia Indonesia Bangladesh Bhutan Source: McKinsey Global Institute, June 2013: Myanmar s moment: Unique opportunities, major challenges 41

42 Long Term Goals Source: McKinsey Global Institute, June 2013: Myanmar s moment: Unique opportunities, major challenges 42

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

44 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

45 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

46 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 >>> Photo: Back Wikipedia to index 46

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

48 Norway s Minister of Trade and Trade Delegation, April 2013 Photo: Trond Viken/NHD 48

49 Norway s Ambassador to Myanmar Ann Ollestad, November 2013 Photo: Geir >>> Falkenberg Back to index 49

50 Deputy Minister Ayhan and Trade Delegation, April 2014 Photo: Thai-Norwegian Chamber of Commerce 50

51 State Visit December 2014 Photo: Royal Court of Norway/Heiko Junge 51

52 Minister of Trade and Industry Mæland, December 2014 Photo: Trond Viken/NFD 52

53 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

54 Which companies?

55 Opening of Jotun's Multicolor Center Photo: Kristine Hasle/Thai-Norwegian Chamber of Commerce 55

56 Conclusion Still the beginning Have a tolerance for uncertainty Be present to understand how it works A framework that is evolving Very much a case by case situation Be patient Source: DFDL/Hibon, Business Seminar, Norwegian Business Delegation, April

57 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

58 Thank You! Photo: Axel Blom/Innovation Norway 58

59 SWOT 1/2 Strengths 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 Weaknesses 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

60 SWOT 2/2 Opportunities 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 Threats 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

61 Recommendations 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