Investment Handbook (Myanmar 2020)

Regional Economy

Investment Handbook (Myanmar 2020)

05 June 2020

Myanmar: A Country Overview

 

Macro forecasts: The Covid-19 pandemic will harm growth in the short term, but long-term prospects remain favorable

 
 

Growth is projected to slow to only +1.8% in 2020, but it should resume to its potential path of 6.0% - 7.0% p.a. on the horizon

Myanmar’s growth momentum is likely to be favorable over the medium term amid a bleak short-term outlook as a result of the covid-19 pandemic. In our view, there are 4 main factors to underpin the bright medium-term growth prospects:

  1. Underlying fundamentals including growing middle-class consumers and demographic dividend as well as a strategic location, among others.
  2. Ongoing structural reforms by upgrading economic institutions and modernizing policy frameworks as well as economic liberalization by allowing more foreign participation in various key sectors.
  3. Sustained foreign direct investment (FDI) inflows driven in part to diversification of production bases of foreign investors and untapped opportunities in the domestic market.
  4. Closer regional integration and free trade agreements  such as AEC and RCEP as well as unilateral trade preferences granted by AEs


 
 

Myanmar hence will remain one of the fastest growing EMDCs



Myanmar among ASEAN peers
Myanmar is ranked seventh among ASEAN peers in terms of both GDP at constant price (USD84.4bn as of 2018) and GDP at current price (USD67.2bn as of 2018). Like its frontier market peers, Myanmar attained the lower-middle income status in 2010 as a result of continuous high growth, with the current annual GNI per capita of 1,964.5USD. On the horizon, Myanmar is expected to remain one of the fastest growing economies with its growth potential of 6.0% -7.0% p.a.
 
 

Major milestone of Myanmar’s developments

 

FDI-driven manufacturing and domestic consumption will be main growth drivers

 

There is large room for FDI inflows into Myanmar

Since its re-engagement with the global economy in 2011, FDI inflows into Myanmar have surged again albeit a relatively small scale compared to those of ASEAN peers. However, looking ahead, based on its economic potentials and underlying socio-economic trends, FDI inflows should continue and be growing.

 

Improved business environment should be conducive and help underpin foreign investors’ confidence

 

Myanmar’s long-term prospects remains favorable underpinned by its underlying fundamentals

We are optimistic about long-term prospects of Myanmar as a result of its underling fundamentals which we group them into 5 themes.  These are expected to help drive Myanmar’s economic growth over the medium to long term to be around 6.0% -7.0% p.a. With this level of potential growth rate, Myanmar should remain attractive for foreign investment going forward.

 

Theme 1: Structural reforms and economic liberalization will be sustained  

We view that the reform momentum will be continued, and this would help modernize and upgrade institutions and policy frameworks which would subsequently underpin foreign investors’ confidence and attract FDI inflows. 

 

Theme 2: Industrialization and export-led growth development model will drive productivity

Manufacturing developments lead to a shift in Myanmar’s export structure and the overall economic structure

 

Export-led growth model exposes Myanmar to the global economy and fosters its interconnectedness with China

 

China has emerged to become the largest trading partner for Myanmar and a main source of supply for raw materials for the garment production

 
 

Theme 3: Myanmar has a strategic location between the two global economic powerhouses, China and India

 
 

Roads, rail networks, and infrastructure are being further advanced to connect Myanmar and others in the region

 

China will be pivotal for Myanmar’s socio-economic development due to its growing roles in the country

 
 

Theme 4: Wealthier middle-class consumers will become sizeable, coupled with a rising urbanization 

 
 

Myanmar is also about to enjoy the demographic dividend on the horizon

 

Theme 5: Myanmar has emerged as one of the key trading partners for Thailand

 

Myanmar is one of the key destinations for Thai direct investment (TDI) in ASEAN 

 

Investment incentives are offered differently in 3 investment zones across the country

 
 

Tax incentives are offered for the promoted sectors

Currently, Myanmar has prioritized 20 sectors for foreign investment and these sector are offered tax incentives by the Myanmar Government.

 

Myanmar is developing its manufacturing through labor-intensive activities, mainly garments and textiles

Based on the concept of Product Space1/, Myanmar is in a process of advancing its manufacturing activities by focusing on labor-intensive activities mainly garment and textile industries which are among main sectors of foreign investment. However, main comparative advantage products for Myanmar are still dominated by agriculture.

 

This is reflected through its cross-border trade structure, albeit sizeable export of commodities

 

Thailand is moving toward service-based economy and could shift some labor-intensive activities to Myanmar

Thailand is in line with the world economy in moving toward a service-based economy, and this is depicted by a rising contribution of service sector to GDP from 50.3% in 2008 to 56.9% in 2017. Based on the recent data, we found that Thailand also has relatively high valued-added labor productivity in the services sector. Thai businesses may be able to reap the advantages to export services to targeted countries.
 

 

Potential industries for Thai investment in Myanmar

Against the backdrop of favorable prospects of Myanmar in the long term and comparative advantages of Thailand in the services sector, we view that there are business opportunities for Thai investors to ride the wave of Myanmar’s growth potential. Top industries and services in our mind that should be considered for Myanmar market are:

 

Financial Services: Low-banking penetration against a backdrop of mobile usage provide opportunities for fintech and mobile-led financial services to flourish

 

Retail and consumer banking remains underserved, so the banking sector has potential room to grow

 

Consumer goods and retail: Local consumers become wealthier and local production does not meet demand


 

Food and beverage: The sector could reap benefits of growing young and more affluent consumers

 

Manufacturing: Relatively low wage rates could be favorable for some labor-intensive production

 
 

Tourism and hotel sector: Myanmar could potentially become the next top tourism destination

Myanmar has become another potential destination in ASEAN since its re-open of the country in 2011. Myanmar has a broad range of attractions- historical and cultural sites as well as beautiful beach holiday destinations. The number of tourist arrivals and tourism revenues have surged substantially. However, in the long term, the tourism sector has large room to grow as tourism revenue (% of nominal GDP) remain significantly lower than that of regional peers. This would offer business opportunities for Thai businesses as Thailand has a strong competitiveness in the tourism and hospitality sector. 

 

Rapid growth of the aviation will drive the tourism sector

 

Healthcare and pharma sector: growth is to be driven by macro-socioeconomic trends

Although Myanmar currently has a small market size of healthcare and pharmaceutical sector, we view that the potential of healthcare and pharma sector should continue to grow in the medium to long term in line with the increasing access to vital medicines and broader social and economic development. This would translate into higher demand for high quality healthcare services and pharmaceutical products.

 

However, challenges in doing business in Myanmar remain and some are structural and will take time to address

 
 

Challenge 1: Democratic transitions remain far from complete although NLD is likely to win the majority in the upcoming general election in November

The NLD-led government ‘s efforts to amend the 2008 constitution drafted by military to reduce the presence of the armed forces in phrase and to allow Suu Kyi to be eligible for the president position could be a source of political conflicts and yield political uncertainty. The constitution amendment can be done with the vote of 75% of the members of the parliament, and this gives the military a veto since  25% of the legislature is reserved for military officers. While a full democratic transition therefore in Myanmar will not be completed any time soon, political disruptions, if any, could delay reforms and undermine confidences of foreign investors as well as FDI inflows. 
 

 

In addition, internal conflicts among ethnic groups remain

 

Daw Aung San Suu Kyi will turn 75 in June 2020, but no one has been clearly identified as her political successor

Political transitions in Myanmar has been surrounded by uncertainties not only because of presence of military in the parliament but also because of the fact that there is no clear political successor of Daw Aung San Suu Kyi who will turn 75 years old soon. In addition, there is a concern over the capacity of the NLD government in managing the economy where key economic ministries and organizations are headed by old veteran officials and inexperienced NLD leaders. Looking ahead, this could result in a slower-than-expected structural reform momentum.


 

Challenge 2: Price stability is not well anchored, due in part to debt monetization and supply-side shocks

 

Exchange measures remain; currency becomes more stable 

 
 

Challenge 3: External stability remains vulnerable

 

Challenge 4: Vulnerabilities in the banking sector have not been successfully addressed

 

Challenge 5: Power shortages/blackouts are among the top challenging management issues for foreign investors

 
 

Cost of production in Myanmar may not be favorable compared to that of regional peers when taking quality into account

Although a low wage rate makes Myanmar looks attractive for labor-intensive manufacturing activities, costs of production may be actually higher than those of region peers, for example, when taking quality and skills of labor into account. Qualifications and skills of labor in Myanmar are among the top management issues for foreign forms in the  country and international investors should have plans to address these issues.


 

 
ประกาศวันที่ :05 June 2020
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