Frost & Sullivan: How to make smart entry to Myanmar?
BANGKOK, July 19, 2012 /PRNewswire/ — Today many businesses representing almost all industry sectors are eagerly seeking opportunities to either invest or expand to Myanmar. With a population of 60 million, the country has recently opened up and attracted many foreign investors due to its becoming pro-investment climate. Gaining further attention, Myanmar is hosting key upcoming events like the SEA Game in 2013 and the ASEAN Summit in 2014.
According to Dr. Monsinee Keeratikrainon, Thailand Country Manager, Frost & Sullivan, currently, the majority of foreign investment in Myanmar comes from China and Hong Kong, followed by Thailand and South Korea.
“Around 80% of foreign investment goes to Power, Energy, Oil and Gas; where as 11% goes to mining and manufacturing. Although the GDP composite in the industrial sector is as low as 20%, with service at 37% and the rest is agricultural, there are highly increasing demand for industrial goods due to many major infrastructure buildups. The key growing segments would be the power & energy, oil & gas, mining & minerals, and construction,” she said.
Recently, the Myanmar government promoted property investment in Myanmar, especially hotels, residential, as well as commercial buildings, in order to accommodate the dramatically growing number of business investors. The new property law allows foreigners to lease land directly from Myanmar residents, not necessarily through government like before, whilst the leasing term has also extended from 30 years to 50 years.
According to Monsinee, there are still four key major issues needed to be addressed in making the decision to invest in Myanmar;
- Land availability – Currently there is only 50 80,000-SqM leasing space available in Yangon which does not match the demand, causing the price to hike above $80 per SqM whereas the average price in nearby city like Bangkok is not more than $30 per SqM. Visitors may have to pay as high as $250 per night for a 4-star hotel which is always fully booked.
- Basic infrastructure – Transportation and logistics as well as utilities like electricity/water and telecom infrastructure are still mostly operated by the government. There are problems in basic infrastructure as witnessed in the quality of roads in suburban areas and regular electric lights-out even in the 5-star buildings in Yangon city. Also access to broadband is very limited and unreliable while data roaming is not available at all. The government has promised to upgrade its ICT infrastructure before the 2013 SEA Game.
- Manpower – Although the Myanmar population have high literacy rate (more than 90%), more than a third have lower than primary school education. Therefore, businesses will face problems in skill shortages and lack of manpower, especially for industrial goods where technical skill is a must.
- Regulation uncertainties – Whilst the new foreign investment law is expected to be passed within the next month, many investors are speculating dramatic improvement in flexibility and tax benefits. However, there are still many economic-related legislations not yet passed or drafted, leaving uncertainties underway. Therefore the legislative processes are moving slower than the market. Although the government is promising commitment, at the same time, a cautious approach has been taken in changing regulations.
Monsinee advised that the best entry strategy for most businesses would be in forming joint-ventures or partnerships with local players or state-own enterprises which give outsiders the opportunity to invest through product-sharing or profit-sharing models.
“This is the best way to leverage local capabilities and to minimize risks of uncertainties. Also it gives a short-cut and quick win while having access to current know-hows and business networks. Although it might take time at the initial stage to understand market landscape and identify potential partners, it has proven to be one of the smartest moves adopted even by large firms. The big-entry-big-funding model may give more visibility but also take more time and risk. At the end, the success factor of either model lies the same, i.e. how well you understand the market and its dynamics,” said Monsinee.
Corporate Communications, Thailand
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SOURCE Frost & Sullivan