Myanmar: Ten developments that shaped the economy in 2017
2017 was an eventful year for Myanmar, with the economy charting major developments that brought in approved foreign direct investments (FDI) of around $4.5 billion between April and November, created thousands of jobs for locals and propelled larger segments of the population into the middle-class.
These included opening up the taxi industry to foreign ride-hailing service providers, approving a slew of new hotels and mixed development projects and taking steps to ease a debilitating liquidity crunch that has stifled growth and innovation among the local small and medium enterprises.
For the 2016-17 fiscal year, Myanmar’s Directorate of Investment and Company Administration (DICA) expects total approved FDI to exceed last year’s $6.7 billion total.
On the downside, investor confidence in the government’s ability to execute important laws and economic reforms has slipped. According to the second Myanmar business confidence survey conducted by Roland Berger in partnership with Union of Myanmar Federation of Chambers of Commerce and Industry (UMFCCI) in the latter half of 2017, short-term business sentiment plummeted to just 49 percent between June and August compared to 73pc a year ago.
Meanwhile, some investors may also be holding back funds as the crisis in northern Rakhine State unfolds, said the World Bank.
On the whole, despite inching up a notch on the World Bank’s Ease of Doing Business index, the country still remains one of the least attractive countries regionally in which to do business. The World Bank has lowered its growth projections for 2016-17 to 5.9pc, below expectations and slower than growth of 7pc in 2015-16.
To sum things up, here are ten economic milestones and setbacks that shaped the Myanmar economy this year:
Daw Aung San Suu Kyi meets Chinese President Xi Jinping in Beijing in May. Photo – EPA
International ride-hailing apps make debut
Malaysia’s Grab and US-headquartered Uber made their debut in Yangon in the first half of the year, joining local taxi operators Oway Ride and Hello Cabs.
The companies aim to make it easier for commuters to book taxis and for taxi drivers to find passengers by providing a more efficient taxi booking platform.
The companies were encouraged by Yangon Region Chief Minister U Phyo Min Thein to launch in the city and raise competition in the local taxi industry through better service quality and by creating a system of fairer taxi fares.
In Yangon, most of the estimated 60,000 taxis plying the streets are operated by individual owners and fares are negotiated between the driver and prospective passenger. There are no metered fares.
To add to the problem, many drivers are not trained to read maps or treat customers professionally. There is no system to track a taxi – such as via GPS – if problems arise. At night, taxi drivers will usually opt out of accepting trips to inconvenient destinations. They refuse passengers if there is a traffic jam during rush hour as well. Road and personal safety are also issues.
In that light, the Yangon government’s aim is for taxi service operators to train drivers, foster healthy competition within the sector and provide traffic data for the regional government to ease traffic congestion and the city’s transport system.
Malaysia’s Grab and US-headquartered Uber made their debut in Yangon in the first half of the year. Aungmyin Yezaw/The Myanmar Times
Vehicle import policy changes market dynamics
In October, the government announced a new vehicle import policy under which only imports of new left-hand-drive cars will be permitted from next year on. The move aims to align vehicles with existing road rules, which are drawn up for left-hand-drive vehicles.
By doing so, the government intends to gradually phase out older right-hand-drive vehicles to improve safety and traffic congestion on the roads.
Currently, imported used right-hand-drive cars are most widely driven in the country even though these cars do not comply with road regulations. Most of the vehicles are made by Toyota.
While prices of existing right-hand-drive cars have risen in anticipation of a shortage in the future, demand for new left-hand-drive cars is expected to rise over the longer term as car makers from the US, China and South Korea enter the market.
TMH Telecom Public Company received approval in December to become the fifth company to list on the Yangon Stock Exchange. The Myanmar Times
Backlash on draft bills concerning foreigners
Two draft bills -the Law Concerning Foreigners and Foreign Worker Law- pegged as official priorities for the government, drew criticism from lawyers and analysts for encouraging red tape and creating an environment hostile to foreign investments.
The Law Concerning Foreigners requires non-Myanmar citizens who are above the age of 10 and who are planning on residing in the country for more than 90 days to obtain a Foreigner Registration Certificate (FRC) and carry it at all times.
The clause which gained the most criticism concerns internal travel. In order for the FRC holder to make a trip within Myanmar of more than 24 hours, the prior approval of a “registrar” – defined as someone who heads a township immigration, manpower office or higher – is necessary. Failure to comply could result in a maximum one-year prison sentence.
In a joint statement, nine foreign business chambers have also expressed concern over the draft laws, saying the requirements were excessive and would be an impediment for companies to establish businesses or post foreign workers in Myanmar.
Vicky Bowman, director of the Myanmar Centre for Responsible Business, said the draft laws open up a host of potential problems, ranging from additional administrative delays to increasing the opportunities to impose “tea money” bribes.
“Any interaction with government authorities which involves obtaining permission is a corruption risk, and that really worries foreign investors,” she said.
The laws are still being redrafted.
The official opening of international luxury hotel Pan Pacific Yangon on December 8, marked the completion of Phase 1 of Junction City. Aung Khant/The Myanmar Times
Negotiations with Chinese stall
Myanmar officially got onboard China’s ambitious Belt and Road Initiative (BRI). The initiative involves China underwriting billion-dollar investments in physical infrastructure across the region, creating an extensive trade network by linking the continents of Asia, Europe and Africa.
The scheme drew much interest in Myanmar when State Counsellor Daw Aung San Suu Kyi paid a visit to the Belt and Road Forum for International Cooperation in Beijing in May. Yet, Nay Pyi Taw has made little progress in pushing related infrastructure projects ahead.
That’s because businesses are wary of taking on expensive debt and transparency issues when dealing with China.
This has continued to stall negotiations between China and Myanmar over the Kyaukphyu Special Economic Zone (SEZ), which consists of an industrial park and a $7.2 billion deep-sea port in Rakhine State. The port is a strategic asset for the Chinese under BRI.
Under the initial shareholder structure permitted by the government under U Thein Sein in 2015, it was agreed that China would hold an 85pc stake in the deep-sea port, with Myanmar holding the remaining 15pc.
Yuan Shaobin, executive president of CITIC Myanmar, told The Myanmar Times in an exclusive interview in October that the company had agreed to Myanmar taking a higher 30pc stake though. He also said more negotiations were needed to iron out the financing details. CITIC heads the Chinese consortium in negotiations with Myanmar over Kyaukphyu.
He emphasised the ball is now in Nay Pyi Taw‘s court and it is up to the government to move negotiations forward.
Business confidence plummets
At least three reports and surveys showed a plunge in business and investor confidence in the government.
More than three quarters of the 600 companies in the Roland Berger/UMFCCI survey cited poor implementation or the lack of a clear economic policy as the main reason for their waning confidence in the economy. That is likely to be the root cause of Myanmar’s failure to attract higher FDI volumes this year.
Findings from EuroCham Myanmar’s second Business Confidence Survey showed more than three quarters of the 70 European companies active in Myanmar rated the business environment as poor or needing improvement compared to 67pc in 2016.
In fact, about a third believed the business environment had changed for the worse during the past 12 months compared to just 18pc in 2016. The companies cited regulatory issues, lack of a qualified labour force and legal uncertainty as the biggest challenges in Myanmar.
The World Bank noted that investment demand had also decelerated during the year as private investors held back their plans pending greater clarity in the government’s economic agenda and as the Rakhine humanitarian crisis continues to unfold, it said.
Government flip-flops on important legislation
Just a week after it was approved, top officials from DICA said implementation of the long-awaited Myanmar Companies Law could only take place from August 2018 onwards, after bylaws were prepared and a company registry vital to enforcing the law was completed.
The Myanmar Companies Law, which replaces rules made over a century ago, was approved by President U Htin Kyaw on December 6 without a commencement date specified.
The new law, which was initiated by the former military-backed government in 2014, establishes guidelines on how a company is run and governed, removing outdated rules on share transfers and offering greater protection to shareholders.
Among the new regulations is one allowing foreign companies to take up to a 35pc stake in local companies, bringing about badly needed reforms for cash-strapped businesses in the local economy.
The Companies Law was approved even as two other important laws – the Investment Law and Condominium Law – took effect this year.
Fifth company approved to list on YSX
TMH Telecom Public Company received approval in December to become the fifth company to list on the Yangon Stock Exchange (YSX). The announcement was made this month, amid dismal trading volumes on the exchange.
TMH provides telecommunications, internet and top-up services. It became a public company in May 2016. The company will put up to 544,537 shares priced between K3,000 and K3,300 for sale in its Initial Public Offiering, which will enable it to raise a maximum of K1.6 billion in proceeds, according to its preliminary prospectus lodged on the YSX on December 2.
Around 70pc of the funds raised will be used for equipment and labour costs associated with 126 telecommunications towers in Mandalay and Shan regions.
Shares of TMH Telecom will begin trading on the YSX in the third or fourth week of January 2018.
Central Bank eases up on regulations
The Central Bank of Myanmar (CBM) said November that a maximum of three years would be given to banks to recover the overdraft loans that make up the bulk of their lending. The original deadline was January 2018, six months after the regulations were introduced in July.
Overdraft loans are estimated to amount to $9 billion, representing about 70pc of local banks’ total lending. The CBM will now allow banks to keep debt in the form of overdrafts – most of which were made on open-ended, preferential terms with customers – at 50pc of their loan books by July 2018 and 20pc by 2020.
The announcement came shortly after the CBM also permitted local banks to extend loans without the need for collateral in the form of land or property, provided they have the proper risk management procedures in place, U Set Aung, Deputy Minister at the Ministry of Planning and Finance, told The Myanmar Times in October.
The CBM also took progressive steps towards regulating companies in financial technology (fintech). In August, it issued a Mobile Financial Services (MFS) license to Ok Dollar, which provides money transfer services.
When it received its license this year, Ok Dollar had been providing unlimited money transfers for a year and claimed to already have 100,000 users.
The CBM’s licensing procedures for fintech companies were discussed by MPs during a Yangon Region Parliament session in October. Daw Sandar Min, MP for Seikgyi Khanaungto township, said the Central Bank should take better care in regulating such firms to prevent fraud.
Largest gas power plant ready
On December 24, officials from the Ministry of Electricity and Energy (MOEE), Mandalay Electricity Supply Corporation and the Electricity Supply Enterprise visited and inspected the construction site of a combined-cycle gas turbine power plant in Myingyan, Mandalay.
The first of its kind in Myanmar, the $300 million, 225-megawatt gas-fired plant is being constructed by Singapore’s Sembcorp Industries, which signed a build-operate-transfer (BOT) agreement with the MOEE in January.
Under the agreement, Sembcorp Myingyan Power Company will build and operate the power plant for 22 years, after which the facility will be transferred to the Myanmar government.
Two 71.5-megawatt gas turbine engines for the plant are now being generated on a test basis, with power distribution from those engines slated for January 2018, according to a statement from the government.
Mixed use development projects gain traction
The official opening of international luxury hotel Pan Pacific Yangon on December 8 marked the completion of Phase 1 of Junction City, a mixed-development project launched by Shwe Taung Group and Singapore’s Keppel Land.
Pan Pacific Yangon will expand the offerings currently provided by the Junction City Shopping Centre and Junction City Tower, a Grade-A office block. Construction of Phase 2 of Junction City, comprising serviced residences and offices, will commence in 2018.
The launch came shortly after Singapore-listed Yoma Strategic Holdings in November signed an agreement to build Yoma Central, which will feature Peninsula-branded luxury residences, two Grade A office towers, a business hotel and serviced apartments.
The project will be developed under Meeyahta Development Ltd, a joint-venture between Yoma Strategic, First Myanmar Investment Company (FMIC), several companies under Mitsubishi, the International Finance Corporation and the Asia Development Bank.
A second project will see the former headquarters of the Burma Railway Company restored into a luxury hotel called Peninsula Yangon. This project is a joint venture between the Hongkong and Shanghai Hotels , Yoma Strategic and FMIC.
Both projects will occupy a10-acre site near Bogyoke Aung San Road, not far from Junction City, and are expected to be complete in 2021. The combined contract value is over $400 million.