While many sectors of Myanmar’s economy have great potential, the tourism sector is already highly profitable and growing rapidly. Flights into Myanmar have dramatically increased in number since 2010 as business visitors and leisure travellers flock to the frontier that until recently was isolated by international sanctions. Given the dearth in hotel accommodations and other facilities to meet the surging demand, many operators have doubled or even tripled prices, and investors are scrambling to build.
The country’s wealth of historical sites, culture and traditions, and breath-taking natural scenery provide clear potential for the tourism sector to continue to grow rapidly for many years ahead. And since much of what tourists demand is in short supply, opportunities abound for long-term investors who are able to navigate the gold-rush atmosphere and the conservative political and business culture.
The roots of the tourism sector go back to the 19th century, when the country, then known as Burma, fell to the British Empire. English writer Rudyard Kipling visited in 1890 and was among the first to popularise the attractions of the Burmese royal capital, Mandalay. The Persian-Armenian Sarkies brothers, builders of landmark hotels in South-east Asia, opened the stately Strand Hotel in the British colonial capital of Rangoon, now Yangon, in 1901.
But the ravages of the Second World War and the tumultuous transition to independence that followed in the many decades since nearly erased Myanmar from the map of tourist destinations. Ethnic strife, a turn towards socialism and repeated military coups resulted in isolation, capped by the imposition of economic sanctions by most of the West beginning in the early 1990s. For decades the largest tourist-related investment was the building of Inya Lake Hotel in 1958, a gift from Soviet leader Nikita Khrushchev meant to lure Myanmar into the Soviet sphere. Instead, the hotel gradually became a favourite of visiting capitalists from nearby countries.
Picking Up Speed
As tourism became an increasingly important growth driver for Thailand and other neighbours, regional investors took interest in developing Myanmar’s tourism potential. In 1993-94 two international chains entered the country: Hong Kong’s New World Hotels, which took over management of Inya Lake Hotel, and France’s Accor, which managed the Thai-built Novotel Mandalay. In 1993 Singaporean investors built Yangon’s first modern high-end hotel, the Summit Parkview.
Myanmar’s military government then threw its weight behind the sector by declaring that 1996 would be the “Visit Myanmar Year”. The promotion, aimed mainly at neighbouring countries, drew in several, mostly regional, hotel chains to develop and manage hotels in Yangon and Mandalay, including Traders (a sister brand of the Shangri-La), Sedona, Pansea and Chatrium. Accor also opened a Sofitel in Yangon. Foreign visitors increased from fewer than 20,000 in 1992 to more than 200,000 in 1996, according to the Myanmar Tourism Federation. But the momentum was undermined in 1997-98 by the Asian financial crisis and a sharp tightening of US sanctions. Foreign arrivals by air stagnated at about 200,000 per year for more than a decade.
The many newly opened hotels faced long years of disappointingly low occupancy rates. Accor and the US chain Marriott, which took over management of Inya Lake in 1997, both pulled out in 2002 even as the Swiss luxury travel group Orient Express enjoyed success, offering scenic riverboat cruises up the Irrawaddy River. Then, as the military government relocated Myanmar’s capital from Yangon to the newly built Naypyidaw in 2005, the focus of local hotel developers also moved to the new city.
Open To The World
Tourism began to grow again as reforms got under way in 2010, and, since 2012, when a breakthrough deal with the political opposition led to the lifting of most sanctions, the tourism sector has been enjoying a veritable boom. Foreign arrivals by air surpassed 590,000 in 2012 – about three times as many as in 2009. Total visitors for 2013 reached 2.04m, an increase of 93% over 2012 and the most visitors recorded in a year, the Myanmar Tourism Federation reported. Foreign arrivals by air are regarded as the best proxy for tourist numbers, as nearly all land border crossings are by low-spending day-trippers.
Rapid growth in arrivals led to a spike in hotel prices, especially during the peak tourist season of October through March. Tour operators and agents have told OBG they are also enjoying higher volumes, but that they are frustrated in trying to find hotels with acceptable quality and prices.
Other tourist-related businesses – such as souvenir shops and tourist-oriented restaurants near popular sites – are underdeveloped or lacking. The country is only beginning to learn how to maximise income from tourism. Aside from hotels, there are few services or attractions for tourists to spend money on, and credit and debit cards are not accepted outside hotels. ATMs, which began accepting international cards in early 2013, are being installed in easily accessible places but can be difficult to find or out of service.
Daw Kyi Kyi Aye, senior adviser at the Myanmar Tourism Federation, told OBG that the development of tourist-related business has a vital role to play in lifting the country’s people out of poverty. “Through tourism we want to make Myanmar a better place to live, by providing more employment and business opportunities for our people,” she said.
Ministry statistics show total tourism revenues at $534m in 2012, slightly more than 1% of the IMF’s estimate of 2012 GDP, and up from $196m in 2009. But that number appears to account for little more than hotel bills. After factoring in investment in hotels and other unaccounted for spending by tourists in restaurants, transportation and elsewhere, tourism’s share of GDP is more likely in the range of 3% to 4%. Due mainly to rising investment, the tourism sector was likely responsible for more than 1% of GDP growth in 2012 and 2013.
The mainstay of Myanmar’s tourism sector, especially in Yangon and Naypyidaw, is the business visitor. There are no reliable figures on business visitor numbers, but tourism executives told OBG that business visits had particularly surged since the lifting of sanctions. Business visitors come predominantly from Asian countries, especially Thailand and China, but are increasingly diverse.
Myanmar’s leisure tourism segment caters primarily to adventurous travellers who tend to fly into Yangon but spend most of their time elsewhere. The most popular draws for these travellers are the former royal capital of Mandalay, the medieval temples of Bagan, the picturesque fishing villages of Inle Lake and cruises up the Irrawaddy River.
Hotels and cruise boats in these areas have enjoyed rising demand and increasing pricing power, pushing many visitors to accept lower service levels than usual for their price range, and pricing some of their competitors out of the market. Respondents to a 2012 survey on leisure travel by the Myanmar Tourism Federation found that value for money of hotels was the top complaint for visitors of that category, but the survey also found that 91% of respondents said they would recommend visiting Myanmar to others.
“People are saying that Myanmar is the last frontier in Asia,” U Aung Myat Kyaw, managing director of Orchestra Travel, which operates riverboat cruises and a beach hotel, told OBG.
The tourism federation survey also found that leisure visitors stayed on average an unusually long two weeks in the nation, about twice as long as typical leisure stays in other countries, and twice the average stay for all foreign visitors to Myanmar who arrive by air. Most of the higher-end adventure travellers visit from Western Europe, while large numbers of budget leisure tourists come from Thailand.
There are many other locations with potential for adventure tourism, from Myanmar’s part of the Himalayas to the more than 800 islands of the Mergui Archipelago, stretching south-east towards Thailand’s popular Phuket resort. Daw Su Su Hlaing, director of Ayarwaddy Legend, a travel agency, told OBG that the government should take the lead in opening up new tourism destinations by adding infrastructure, giving the example of the Chin Hills in the north-west, which are famous for their beauty but are practically inaccessible.
So far the government has taken a slow approach to opening up new areas, in part due to strained relations with indigenous groups and others that are resistant to authorities. Investors in Mergui, for example, have been frustrated by the requirements for visitors to get special permits and be accompanied by a guide, and by illegal logging and dynamite fishing in the area, which spoil the attractiveness of the area. A recent series of terrorist incidents in a Yangon hotel and elsewhere may also have a dampening effect on development.
Myanmar’s vacation tourism market, dominated by three beach resorts, caters mainly to locals. However, increasing numbers of foreigners are visiting the two elite resorts, Ngapali and Ngwe Saung. Ngapali, named after Naples, is the country’s most high-end resort and the one the government has identified as having the best prospects to draw international tourists. Ngwe Saung has seen the most development recently as its location just a five-hour drive from Yangon makes it a popular weekend spot for Yangon’s elites and growing middle class.
According to Ministry of Hotels and Tourism data, the leading nationalities of visitors arriving in Myanmar by air in 2012 were: Thailand, accounting for some 16% of the total; China (12%); Japan (8%); the US and South Korea (6% each); Malaysia and France (5% each); Singapore, Taiwan, the UK and Germany, (4% each); and Australia and India (3% each). Asians as a whole accounted for 64% of foreign arrivals by air (more than 380,000) and Western Europeans for 22% ( just over 130,000).
Myanmar also has a growing outbound tourism industry, as the lifting of sanctions has increased interest in and confidence among the rising middle class in travelling abroad. Daw Su Su Hlaing, of Ayarwaddy Legend, told OBG that there has been a surge in locals booking leisure and shopping holidays to Bangkok, Singapore and Hong Kong, as well as significant numbers of locals going to Europe and increasing interest in visiting Sri Lanka, due to religious ties. There is also a large mass-market business for arranging pilgrimages to Gaya, India, one of Buddhism’s most sacred sites. Both Indian and Myanmar airlines offer flights.
During the long era of isolation, flight options to Myanmar were limited and expensive. Visitors could fly in from Bangkok, Kuala Lumpur, Singapore, Taipei, Beijing, Kolkata, Kunming and Guangzhou, with most flights operated by Myanmar’s flagship carrier, Myanmar Airways International (MAI), or the national airlines of neighbouring countries. Japan’s All Nippon Airways and Qatar Airways experimented with offering direct flights, from Osaka and Doha, respectively, but both soon gave up due to low demand. A large, modern Mandalay airport completed in 1999 drew only one international route, from Kunming.
Discount airlines began to shake up the market beginning in 2006 with Air Asia’s introduction of cheap flights between Bangkok and Yangon, by far the busiest route into Myanmar. Australian discount carrier Jetstar followed in 2009 with flights from Singapore jointly operated with MAI. As demand picked up in 2010-11, Air Asia added flights between Kuala Lumpur and Yangon, and domestic airlines introduced connections with Phnom Penh, the capital of Cambodia, and Chiang Mai in northern Thailand. With the lifting of sanctions in 2012, the number of airlines flying to Myanmar rose dramatically. Seven entered or re-entered the Myanma market: Qatar Airways resumed flights from Doha, All Nippon Airways returned with flights from Tokyo, DragonAir introduced flights from Hong Kong, Korean Air from Seoul, Asiana from Incheon, Vietnam Airlines from Ho Chi Minh City, and Condor from Frankfurt, the first direct flight to Myanmar from outside Asia.
Meanwhile, Air Asia introduced flights between Bangkok and Mandalay, which, given Bangkok’s wealth of connections, made Mandalay for the first time a practical entry point for tourists from anywhere in the world. The route to Mandalay proved to be quite popular, demonstrating the value of developing secondary entry points to ease pressure on Yangon’s airport and hotels. By March 2013 there were three more airlines operating on the Bangkok-Mandalay route – MAI, Thai Smile and Golden Myanmar Airlines – and a fourth, Bangkok Airways, launched the route in September 2013. Golden Myanmar, a domestic discount carrier, also introduced Singapore-Mandalay flights in 2013.
More of South-east Asia’s many discount airlines are finding their way into the market: TigerAir joined the Singapore-Yangon route in October 2013, and Thailand’s domestic discount carrier Nok Air introduced a pair of short flights connecting Mae Sot in western Thailand with Yangon and Mawlamyine, one of the largest cities in Myanmar. Naypyidaw received its first regular international flight in September 2013, a connection to Bangkok by Bangkok Airways.
The rise in arrivals has stretched Yangon International Airport’s capacity, especially its overnight parking space for planes, which is literally wingtip to wingtip. While encouraging airlines to fly into other secondary cities, the government is planning two major simultaneous projects to boost tourism capacity: a renovation and expansion of Yangon’s current airport, and a new, much larger airport to be built at Hanthawaddy, located 80 km outside of Yangon.
The project, with an estimated cost of $1.1bn, was offered in an international tender that was awarded to a South Korean consortium led by Incheon International Airport, Korea’s largest and widely considered to be the best airport in the world, in August 2013. Since then, however, talks with Incheon International Airport have broken down, local and international media have reported. Negotiations with a consortium including Singapore’s Changi Airport Planners, Yongnam Holdings and Japan’s JGC Corp to build and operate the new airport are currently ongoing. The consortium was originally named in August 2013 as the back-up candidate to take on the project. It is unclear when Myanmar’s Department of Civil Aviation will award the concession.
The government has also identified another $487m worth of smaller infrastructure and capacity-building projects in a “Tourism Master Plan”, developed in cooperation with the Asian Development Bank and others (see analysis).
Continued building to meet the pressing need for more hotel rooms is also under way, including at least five luxury hotel projects in Yangon alone, and more are in advanced planning stages with land already secured and financing committed even as they await final approval. Many of the projects now rushing towards completion started as far back as the late 1990s and were shelved when visitor numbers stagnated.
However, there are no easy or inexpensive routes into the hotel market for international investors. Relationships with established local business groups are crucial and take time to develop. Most of the best locations that still remain are owned by the government, which is offering them up slowly. Private landowners typically ask high prices for subpar plots, figuring that they will eventually get their asking price or better. Thus, the flow of new rooms into the market is not expected to catch up with growth in demand for at least another decade (see analysis).
Since March 2013 three major international hotel chains have come to Myanmar through management deals, struck mainly with developers of in-progress projects. Hilton announced in March 2013 that it had agreed to manage the nearly completed Centrepoint Towers Hotel, a 300-room, five-star property within a mixed-use tower in central Yangon, set to open in 2014.
Accor, which managed two hotels in Myanmar until 2002, will return with deals to manage one hotel each in Yangon, Naypyidaw and Mandalay. The first two are slated to open in 2014 and the Mandalay hotel in 2015. Best Western also announced in May 2013 that it will manage the Green Hill Hotel in Yangon, and followed up in July with a deal to manage The Grand in Naypyidaw, to open in 2014.
Marriott, which operated in Myanmar until 2002, is also eager to return. An executive who attended a World Economic Forum event in Naypyidaw in June 2013 told Bloomberg that Marriott was in discussions with different partners on “four or five” hotel locations. Two smaller global groups have been present for longer: the Orient Express, which has run river cruises since the 1990s and a Yangon hotel since 2006, and the Shangri-La, a Hong Kong group that has had a hotel under its Traders brand in Yangon since 1996 and is developing a second hotel to be opened under the Shangri-La brand in 2017.
Myanmar’s foreign arrivals by air were expected to surpass 850,000 in 2013, which would represent a quadrupling of annual tourist numbers since 2009, but that is still only about one-thirtieth as many tourists as neighbouring Thailand was expecting the same year. The strong momentum behind Myanmar’s tourism growth and the country’s beauty suggest expansion will remain rapid for the foreseeable future. Demand is deliberately restrained by a relatively restrictive visa regime, which is likely to loosen as infrastructure catches up with demand.
The biggest risks, however, are political. Insiders are closely watching the complex political dances between the government and the opposition, and say they are optimistic that progress and reforms will continue. Since much of the draw of Myanmar is its natural beauty and inviting cultures, the tourism sector is highly dependent on natural and cultural conservation. The government is keenly aware of that and has gone to great lengths to emphasise its sustainable development policies as part of the Tourism Master Plan, with additional support from the Norwegian government and Germany’s Hanns Seidel Foundation. There is also a strong consensus among tourism industry leaders that development needs to be cautious and respectful. As U Aung Myat Kyaw of Orchestra Travel told OBG, “If we now decide and try not to grow at a pace that we cannot handle, that will be more beneficial for our growth potential in the long run by sustaining our good image.”
Carrying out that vision in practice will be a perpetual challenge. Myanmar’s decision to open up its economy has generated significant interest globally, with figures indicating the country benefitted from around $3bn in foreign direct investment (FDI) in 2013. In securing increasing FDI, one difficult issue will be the inherent conflict between preserving Myanmar’s scenic river valleys and the potential to dam them for electric power, which is needed for all kinds of development, including hotel power supply.
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