Myanmar government provides further investment incentives for industry and retail

With a long-term goal of developing advanced industries, local authorities have been working alongside international agencies and foreign governments in an effort to expand the country’s manufacturing capacity through investments in infrastructure and much-needed power stations.

Meanwhile, the adoption of legislation to support special economic zones (SEZs) in 2014 paved the way for growth by introducing a number of pro-business reforms – such as corporate income tax relief, import duty relief, long-term land leasing and expropriation protection mechanisms – aimed at encouraging investment (see Legal chapter).

Spurred by these moves, a significant amount of foreign money has come into the manufacturing sector, which is gradually transitioning the country from a low-value producer of textiles and food products to a mid-level producer of products such as electronic equipment and construction materials.

Investment

In FY 2017/18, which runs from April to March, total foreign direct investment (FDI) in the manufacturing sector increased from $1.5bn in November 2017 to $1.6bn in February 2018, according to data from the Directorate of Investment and Company Administration (DICA). By comparison, the full-year figure for FY 2016/17 was $1.2bn, itself an increase on $1bn the previous fiscal year.

This growth suggests investment in production may soon surpass the high of FY 2013/14, when the figure hit $1.8bn, the best performance since 1988. Moreover, in February 2018 DICA announced that the country had received more than $5.1bn in FDI in FY 2017/18. Coming from 49 countries, with China, Singapore, Thailand and the UK topping the list, the oil and gas, energy, manufacturing, and transportation and communications received the most funds.

Household Names

nternational brands, which have moved into the market only recently, have been seeing success in the country. In 2013 Coca-Cola re-entered the country after a six-decade hiatus with a five-year budget of $200m channelled into two processing facilities. Prior to their re-entry, Myanmar was one of three countries, alongside Cuba and North Korea, where the brand was not legally sold. Today the product can be found in most small, family-owned stores as well as supermarkets, with advertising boards seen across Yangon.

Unilever entered the market shortly after Coca-Cola in 2013, with an initial investment budget of $650m, to set up two factories for the production of hair care, hygiene and food-seasoning products. The company moved to increase its stake in the country in May 2017, when it entered into a joint venture with Europe & Asia Commercial (EAC), a domestic firm, to form Unilever EAC. Under the new venture Unilever’s 12 brands already produced domestically would be combined with EAC’s 22 brands.

The beer market has also been bolstered by the arrival of large names with Carlsberg and Heineken entering in 2015 with initial investments of $37m and $60m, respectively. Following suit, Japanese beer giant Kirin took a controlling stake in Mandalay Brewery for $4.3m in February 2017, nearly two years after it had invested more than $500m in Myanmar Brewery in 2015. On the back of these investments, and the gradual increase of beer consumption per capita, London-based research group Euromonitor predicts beer sales will reach $675m in 2018, a figure almost double that of 2015 sales of $375m. According to Euromonitor, the growing industry is fuelled by opportunities developing along with rapid urbanisation, a young population and growing middle class. In addition to the beer market, other notable investors within the manufacturing segment include Foster Electric, Koyo and international car manufacturers such as Nissan and Suzuki (see overview).

Bottlenecks

However, industrial output faces risk due to bottlenecks caused by factors such as inadequate infrastructure and an inexperienced workforce. While strides have been made in a number of sectors, transportation networks and the national power grid are in need of restructuring (see Energy chapter). According to the Asian Development Bank data reported in August 2017, approximately 60% of all roads were unpaved, with just 35% of the nation connected to the national power grid. Consequently, many firms have had to rely on their own or shared generators. In addition to these constraints, access to finance, difficulty in attaining suitable land and a lack of skilled workers are often identified as obstacles to business expansion and industrial output.

Success Story

Despite these challenges, Thilawa SEZ, comprised of 2400 ha of land alongside two sea ports, has continued to receive attention from investors since opening in 2015. In August 2017 local media reported a total of 87 companies from 17 countries had invested in the industrial zone, 32 of which had begun commercial operations. The total value of investments by local and foreign companies reached $1.14bn at the time, according to figures from the Myanmar Special Economic Zone Central Committee. The zone’s success can be attributed to the adoption of the pro-business legal incentives, as well as the successful mitigation of infrastructure gaps: unlike many of the country’s industrial zones, Thilawa has direct access to its own power supply, a water system, a sewage treatment plant and its own fibre-optic cable for internet access.

Priorities

In a bid to foster economic expansion, in December 2017 the Myanmar Investment Commission (MIC) put out an invitation for investors to develop logistics and manufacturing in major urban areas and trading hubs, local media reported. The logistics areas of focus included dry port services, bonded warehouse services, highway bus and freight terminals, as well as warehouses and wholesale centres. Additionally, the commission encouraged investments in 12 manufacturing areas, which included vehicles, vehicle related parts, machinery equipment, iron and steel, telecommunication equipment, edible oil, medicine and cosmetic products. For the activities that MIC is promoting, it has given assurances that it will provide assistance in terms of land rights, electricity supply and expedited process review. This comes after a June 2017 announcement by MIC that laid out 10 prioritised investment areas that would benefit from three to five years tax exemption and long-term lease agreements, with the minimum amount of capital requirement set at $300m. The establishment of industrial estates has been cited as a key area of focus alongside manufacturing.

Additionally, a large legislative change that occurred in April 2017 will further incentivise investment. Under MIC Notification 13/2017, foreign entities are allowed to own a 100% stake in a number of businesses that were previously restricted. These included the production of hybrid seeds and manufacture of rubber, vehicles, spare parts and construction materials. Moreover, a foreign entity can now establish a hydro or gas-fired power plant, or solar energy farm, without the need of a local partner. This is a welcome change that will hopefully ease power shortages and boost productivity.

Vision

Alongside the legal incentives and SEZ-focused development strategy, in 2015 a National Export Strategy (NES) was created to leverage future gains in the manufacturing sector. As it stands, exports are concentrated on a handful of unprocessed natural resources, with limited export destinations. With the long-term goal of export-led growth, the NES has enacted a number of plans that are boosting the competitiveness of local factories, while increasing export opportunities.

The NES is spearheaded by the Ministry of Commerce, with technical assistance provided by the International Trade Centre and the German Agency for International Cooperation, and financial support provided by Germany’s Federal Ministry for Economic Cooperation and Development. Policymakers aim to move the focus of the manufacturing base from low-value segments to those that are higher-value and more advanced, while tapping new export markets. In its first year, the NES undertook 96 trade-related projects, focused on access to finance, promotion, facilitation, logistics and quality management.

While the NES has provided Myanmar with a blueprint to develop a competitive export sector, a comprehensive long-term industrial policy was also established in 2015 by the Japanese Ministry of Economy, Trade and Industry. The Myanmar Industrial Development Vision (MIDV) proposes an urban-rural synergy strategy, by creating labour-intensive industries in urban areas, while developing local manufacturing in rural areas such as agriculture, forestry and fishery. Although the MIDV is yet to be enacted as official policy, it continues to serve as a vital guide, providing focus for industrial growth.

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The Report: Myanmar 2018

Industry & Retail chapter from The Report: Myanmar 2018

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