Apr 19, 2011

Business boom beckons in Myanmar

Even in the existing business environment, Myanmar’s international reintegration through growing foreign direct investment (FDI) has begun. Though challenging, it is not impossible to develop accountable businesses in Myanmar and opportunities are seen to be growing.

The majority of reactions from senior executives (mostly western) who have visited Myanmar for the first time is: “This is much better than what I was expecting.” Rarely is it heard for an executive, or any visitor to state: “This is exactly what I was expecting.”

The first word that comes to mind when talking about doing business in Myanmar is sanctions. Since 1988, many countries have issued a number of sanctions against Myanmar. From my experience on the ground, the sanctions are – in their vast majority – at best ineffective and in most cases counterproductive. They have, however, helped deteriorate perceptions of Myanmar to the point of keeping most large companies away and even keeping development and humanitarian aid away.

With 55 million people, Myanmar ranks 24 in the world in terms of population. For many multinational corporations (MNC), Myanmar is the largest market – in terms of number of consumers – where they don’t have an active presence. The country provides access to the two most populated and fastest growing economies in the world, China and India. The population of neighbouring countries totals 2.8 billion, or 40 percent of the world’s population.

The integration process of the Myanmar economy has started.

In the four months between March and July 2010, about $16 billion of FDI were committed to Myanmar. This is as much as the total FDI committed during the previous 22 years. This figure does not include the recently confirmed Dawei deep-sea port project, which is estimated at $13 billion. Recent investments are mainly in oil and gas, electricity production and the mining sectors. China accounts for more than 65pc of recent investments. Thailand ranks a distant second at 18pc.

It becomes increasingly clear that while some countries hang on to their sanctions, others have opted for an accelerated economic engagement. This has the potential of being good news for the people of Myanmar, not only because prosperity is an important factor for social stability, but also because people’s main aspiration remains an improvement of their everyday material life.

There is however room for a better balance in the source of FDIs that would deliver stronger overall development perspectives. Western countries in particular have a role to play by allowing – if not encouraging – their first-class accountable multinational companies to invest in Myanmar. Earlier this year, Unilever, a large European consumer goods company decided to go back to Myanmar, after having pulled out eight years ago. This is not only creating hundreds of quality jobs and changing the life of thousands of ordinary Myanmar people, but is also raising the standards of the industry for the benefit of all consumers.

In 1993 a large UK-listed consumer goods company, British American Tobacco (BAT), commenced operations in Myanmar. BAT’s investment was a demonstration of the role large MNCs can play in the development process: Fair and competitive salary structures; health insurance; in some cases pension funds; opportunities for further training and development; exposure to the rest of the world (through training and temporary postings); equal opportunity practices; and so forth.

Listed MNCs must comply with increasingly strict disclosure regulations and greater transparency. They have only one set of standards that are applicable worldwide: These deal with the respect of the local laws, employment terms, corruption, treatment of the environment, CSR programs and more. In setting these new standards MNCs are leading by example: People would much prefer to work for companies that offer better employment terms and better development prospects and consumers prefer to buy products that are safe and guaranteed by accountable manufacturers. Other companies will have to adapt in order to stay in business.

The country’s legal system – inherited from the British – is working reasonably well. The British brought their basics of the English Common Law to India and codified it. The Laws in Myanmar were the same laws that the British passed in India with a few minor exceptions, but basically laws dealing with business and commerce are still intact. The Code of Civil Procedure originated as the India Act 1908, the Workmen’s Compensation Act as the India Act 1923. When Myanmar became independent in 1948, the names changed to Myanmar act. The Indian Company Law became the Myanmar Companies Law. Myanmar has been a member of the World Intellectual Property Organization (WIPO) since 2001. As such the country has committed to provide effective means of enforcing intellectual property rights.

In a recent case, where a local party registered a well known foreign brand and logo as its own in a local Registrar of Deeds in Myanmar, the Supreme Court in the appeal observed inter alia that the party that had registered the trade mark had no right to it as he had copied the trade mark of a foreign company and was not the party’s invention and therefore had no right to the brand and logo.

Qualified auditors practicing at international standards levels are available.

As for market research, MMRD (Myanmar Marketing Research and Development), the leading agency, is equipped to provide all market research services available in more developed economies.

But the brightest side of doing business in Myanmar is definitely the people. There is an abundance of committed men and women eager to learn, develop new skills and try their very best to contribute to the success of new ventures.

Things are changing in Myanmar on many fronts. Obviously a new form of government will take charge after the November 7 elections, but this is not the only change coming to Myanmar.

Myanmar’s isolation has undoubtedly led to deterioration in infrastructure and industries, but this has also provided opportunities for investment today. Thailand’s proximity has already enabled companies like ItalThai, PTTEP and CP to establish a growing presence.

Oil, gas and mining industries, alongside associated service industries, are set to expand in the coming years, buoyed in no small part by Thailand’s own domestic demands. Similarly, as Thai companies have expanded into neighbouring countries to the east, the agricultural sector, including manual and mechanical tools, pumps, fertilisers and crop protection, will provide lucrative returns in this largely agrarian society.

Fast moving consumer goods, the “affordable luxuries” also offer strong market potential with an existing consumer base and low entry cost. For Thai-based manufacturers there is the possibility of existing brand awareness created by intensive border trade, a scenario that is shared by other consumer goods including pharmaceuticals, white goods and electronics.

Given Myanmar’s professed moves toward democracy, leading to greater engagement by governments, businesses and aid agencies, the prospect of sanctions being eased or removed looms. If so, textile industries, and in general all labour-intensive, export-orientated industries will bloom, as will the tourism sector.

There are currently 90 flights weekly between Bangkok and Yangon. A successful completion of the first elections in 20 years would only build confidence and lead to further investigation of investment opportunities. As with business opportunities in Thailand, a sound corporate legal structure, trusted local partner and advisor combined with good diligence could yield lucrative returns for investors.

Luc de Waegh is the managing partner of West Indochina, an advisory firm that has specialised in developing businesses in Myanmar. He has 17 years experience of doing business in Southeast Asia, mainly in Myanmar and advises local and foreign companies on setting up, growing and selling their businesses.

Source: Myanmar Times