Foreign investment liberalisation to benefit Myanmar's untapped retail market

 

Myanmar’s growing retail sector received a boost in 2018 with regulations aimed at encouraging foreign investment in the sector and the economy as a whole, with more foreign brands now entering the market.

Foreign investment laws and regulations governing the retail sector were reformed in recent years, paving the way for more foreign players in the local market. In August 2018 the Myanmar Companies Law came into force, which allows foreigners to acquire up to a 35% stake in local companies – a first in allowing companies with foreign investors to maintain their local status.

Also relevant to the retail sector was Ministerial Directive No. 25 of 2018 passed in May of the same year, which authorises 100% foreign ownership of retail and wholesale companies, as well as joint ventures between international and domestic investors. The overall aim of the directive is to boost competition in the retail sector and provide the local economy with access to international technology, logistics systems and supply chain management. It also aims to prevent unfair competition among distributors that exploit consumers. Foreign companies, however, are still prohibited from owning convenience stores, defined as a retail space measuring under 929 sq metres, which is designed to protect small, family-owned stores.

The new rules allow 100% foreign-owned ventures if they invest $3m and $5m to launch a retail or wholesale business, respectively. Joint ventures with foreign partners where the local party has at least a 20% stake should make initial investments for retail and wholesale of $700,000 and $2m, respectively.

Previous foreign investment rules restricted foreign investment to joint ventures that required approval from the Myanmar Investment Commission. The recent changes are part of the government’s drive to liberalise the economy and improve the business climate.

Untapped Potential

The potential of the retail sector of Myanmar, which is considered to be one of the world’s last untapped markets, is substantial. The country had no international brands before 2011, when the economy began its move towards liberalisation. Economic growth, which the World Bank forecast to hit 6.2% in 2018, is reflected in increasing GDP per capita.

Luxury shopping malls have sprung up around Yangon in recent years, such as Junction Plaza, opened in March 2017. Hypermarkets are also appearing, most notably Star Mart. The expansion of malls and hypermarkets reflects changing consumer tastes – away from traditional markets and small shops to supermarkets – and the potential for further growth and opportunities for both local and international firms.

To Market

Encouraged by legislative and regulatory changes, several foreign companies have entered into the market. In August 2018 US doughnut brand Krispy Kreme announced it was opening 10 outlets in Myanmar, and petrol companies including Thailand’s PTT and the Netherlands’ Shell are also eyeing entrance to the local market and plan to open service stations starting from 2019. In addition to encouraging more investment, the latest regulatory changes aim to attract technology, logistics and marketing expertise.

“The retail sector will benefit from greater participation from international firms,” U Ye Aung, chairman of Tin Ye Win Group, told OBG. “The sector is still in the early stages of development, and there is much room for growth. One current limitation to growth is the country’s significant infrastructure gaps, which impact the final price charged to the consumer.”

Local Competition

Foreign competition could pose a challenge to small, family-run retailers. In Thailand, many local retailers were unable to compete with international-style convenience stores and shopping malls, pushing many out of business. While offering convenience, such stores have forced some family-owned operations to close their doors. In Myanmar, where retail is still dominated by small players, the entry of large foreign retailers could do the same, despite continuing protections extended to small store fronts.

You have reached the limit of premium articles you can view for free. 

Choose from the options below to purchase print or digital editions of our Reports. You can also purchase a website subscription giving you unlimited access to all of our Reports online for 12 months.

If you have already purchased this Report or have a website subscription, please login to continue.

The Report: Myanmar 2019

Industry & Retail chapter from The Report: Myanmar 2019

Cover of The Report: Myanmar 2019

The Report

This article is from the Industry & Retail chapter of The Report: Myanmar 2019. Explore other chapters from this report.