Myanmar’s auto sector to shift up a gear

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Rising demand from an increasingly affluent middle class and an expanding economy will drive sales in both the passenger and commercial segments of Myanmar’s auto trade, though challenges remain on the road to higher vehicle ownership levels.

Myanmar was named as one of the next automotive frontiers in a recent analyst note published under the “Autofacts” report line by professional services firm PwC, with the country also called “Asia’s next rising star”.

The country’s auto sector is expected to grow on the back of economic liberalisation following the end of military rule, a young population of around 54m and an expected easing of restrictions on new car imports in a market still dominated by used car sales, according to the PwC paper, published in July.

“We expect that the shift to new vehicles will happen in tandem with the growth and expansion of the middle class – similar to other emerging markets like India, China and Brazil,” the report said.

It is not just sales that are set to expand, with PwC also forecasting a steady increase in kit assembly over the next three years.

Assembly capacity, which is now mainly concentrated in light commercial and larger multipurpose vehicles, is projected to rise from the current 7900 units per year to 22,600 by 2018. While capacity will remain steady at this level, utilisation rates will increase as demand stokes production.

Second-hand influx

While demand for new vehicles is rising sharply, regulatory reforms are struggling to keep pace with Myanmar’s increased appetite for cars. Though changes are in the pipeline, rules and tariffs currently in place restrict the import of new cars, meaning most vehicles brought into the country are second-hand.

Vehicle sales currently stand at just over 100,000 units a year, though only 3% of these are new. The remainder are second-hand imports, with Japan one of the main sources. Driven by increasing demand, sales are forecast to rise to 150,000 units by 2020, with 10% being new, both imported and locally assembled.

One area of policy that needs to be addressed is import tariffs and quotas for vehicles, in particular for new passenger cars, according to industry stakeholders.

There is an urgent need for a standardised tax system to be put in place, according to U Chan Mya, managing director of high-end dealer Prestige Automobiles.

“The lack of regulation has resulted in undervalued invoices being submitted for newly imported cars, which has a negative impact on the market,” he told OBG.

Furthermore, while the government has said that it will ease regulatory restrictions on the import of commercial vehicles as part of its policy to support agriculture and infrastructure development, permits are still required to bring in passenger vehicles.

Potholes

Another factor that is having an impact on the road transport sector is the relative lack of roads.

Though there has been an expansion of land infrastructure development, Myanmar still has an acute shortfall in roadways, with a road network-to-landmass ratio of 1:19, meaning it has one km of road for every 19 sq km of territory. By comparison, Thailand has a ratio of 1:5.

Furthermore, much of the country’s existing road grid is in need of repair or upgrade to effectively handle the rising tide of traffic.

In the World Economic Forum’s “Global Competitiveness Report 2015-16”, Myanmar’s roads are ranked 134th out of 144 countries in terms of quality, well short of neighbours such as Cambodia and Vietnam, which are ranked 93rd and 102nd, respectively. This situation extends to Myanmar’s major cities, with congestion clogging the transport arteries of the main population centres.

One measure taken to reduce traffic in Yangon has been the imposition of a requirement that all potential new vehicle buyers show that they have access to a parking space. While reducing the flow of new cars onto the roads, this has also cut sales.

“The parking permit is a reasonable idea, but it is not the complete solution to traffic management,” U Chan Mya told OBG. “There are various things that can be copied and pasted from more developed nations to regulate the flow of traffic, such as effective road signage and parking lots.”

Trucking on

Myanmar’s relative lack of road access is also having a particular impact on one segment of automotive trade, with demand rising sharply for heavy vehicles and construction equipment required for infrastructure development, such as roads. This demand will remain strong in the long term, with the government and the private sector both looking to invest extensively in infrastructure projects.

Another factor that will underpin sales of heavy vehicles will be the gradual expansion of the road network, allowing for a shift of freight haulage away from the country’s rivers, which currently account for up to 50% of cargo movement but are subject to disruptions due to climatic events such as flooding or drought.

An expanded road network will in time lead to higher sales of lighter commercial vehicles and strong growth in the logistics sector, as the broader reach of the road grid allows for improved access to suppliers and markets.

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