southeast asia's last truly frontier markets laos...

© 2013 Reciprocus

Southeast Asia's Last Truly

Frontier Markets

Laos & Myanmar

November 2013

© 2013 Reciprocus

Chairman’s Message

Letter from the Editor

Consistently ranking among the world’s fastest growing economies in terms of GDP, the frontier markets of Laos and Myanmar offer investors the possibility to realize tremendous upsides for those prepared to navigate these brave new markets. This is especially true for the first movers who are making their entries now, eclipsing some of the more cautious investors who are opting for higher certainty in emerging markets such as Indonesia, Vietnam and China. In Myanmar particularly, the world has responded to recent reforms and new market openings with much hype and enthusiasm. But, despite all the anticipation, this potential long-term economic promise is equally counterbalanced by the very real possibilities for miscalculation and disappointment. The world is now waiting to see whether recent momentum, and in the case of Myanmar significant reformations and an abundance of international goodwill, can indeed be harnessed, sustained and translated into long-term progress.

The growth story of Myanmar is exciting, marked by recent,

fundamental and positive changes to the country’s political and

economic frameworks. Nestled between the regional

heavyweights of China and India and with direct access to the

Strait of Malacca, one of the world’s busiest shipping routes,

Myanmar’s is strategically well positioned for integration into

both the Asia Pacific and the broader global economy. The

large deposits of natural resources, low labor costs and robust

population of 53 million are key factors enticing multinationals

from diverse industries and geographies, such as Norwegian and

Qatar telecoms Telenor Group and Ooredoo and oil and gas

giants ExxonMobile and Royal Dutch Shell.

Laos, on the other hand, has kept a relatively low profile in

recent years compared to neighboring Myanmar, largely

attributable to its much smaller population of 6.5 million as well

concerns about poor infrastructure and corruption. However,

with GDP growth rates of 8% over the past five years and a

strong surge in trade activity with China and Vietnam, the heart

of Indochina may not stay under the radar much longer. With

activities in the agricultural and natural resource spaces quickly

ramping up and possible large-scale mega infrastructure

projects, like the approved US$ 7.2 bn Vientianne-Kunming

Chinese railway, on the horizon, we see reason for optimism.

Laos has already benefited from Cambodia’s progress in the last

2-3 years quite significantly and a compelling story may very

well be emerging, one punctuated with tangible projects and

important market improvements.

With Myanmar’s economy only contributing 0.2% of the Asian

economy overall and Laos significantly less, both markets have

clearly missed out on the region’s economic boom over the last

few decades. However with the establishment of the ASEAN

Economic Community in 2015, there may be opportunities to

accelerate growth based on new regional cooperations,

especially those that strengthen trade and investment ties. We

have seen the progressive easing of sanctions on Myanmar and

the normalization of political relationships with the United

States and Europe create a high degree of interest among

European and Japanese private equity investors and among

Singaporean companies exploring manufacturing setup options

in Yangon. While we believe that certain opportunities in

Myanmar, and to a lesser extent Laos, have been over-hyped,

both markets hold great potential and will likely reward patient

and well prepared investors.

Dear readers,

We have just crossed an important milestone,

celebrating our two year anniversary in September.

With a growing client base across continents and

industries as well as several completed projects now

under our belt, we are most pleased to see that our

clients are gaining traction in markets in which we

facilitated entries. Progress with our teams in Europe,

the United States and our partner CrossBridge in Italy is

providing us great encouragement and a lot of

excitement about what lies ahead. In a continued

effort to broaden our geographic coverage, we recently

formed a strategic partnership with an advisory in

Japan and now indeed we are daring to take a closer

look at smaller economies like Myanmar, which you

can find more information about in this report. With

trips planned to Yangon this month and early next

year, we look forward to further building on our

research and insight into these frontier markets.

David Emery Founder and Chairman

Reciprocus International Pte Ltd

Laos and Myanmar have IMF estimated

8.3% and 6.8% GDP growth rates

respectively for 2013

Robert MacPherson Vice President and Editor


http://www.facebook.com/reciprocus

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Letter From Our Partner:

Italy’s recession eased in the three months to June from

the first quarter. GDP shrank 0.3% q/q, more than initially

reported, after a 0.6% drop in the three months to March.

In year-earlier terms, output declined by 2.1% after a

2.3% contraction in the first quarter. The economy should

return to growth in the third quarter, but hurdles remain.

GDP expected to report a decline of 1.8% for 2013,

although stabilizing manufacturing and new fiscal

stimulus could support household consumption and

activity in the private sector. FMI estimates a growth of

GDP by 0.7 % for 2014.

Tight credit, a lack of competitiveness, and elevated

unemployment will remain key hindrances in coming

months. In 2013 the unemployment rate will increase to

11%.

The Italian economy will have to depend on external

demand to return to growth. The Italian companies are

going the right way. In fact, Italy’s exports will reach 409

billion EUR with growth rate of 5 % compared with 2012.

In contrast, Asia Pacific’s export will increase by 10 %,

especially 27 % in Laos, 12 % in Malaysia, 10 % in China

and Singapore.

The majority of Italian’s exports are still flowing within

Europe, but the share to countries outside Europe is

increasing. This trend has to be raised if we consider that

the growth of world GDP during the next years will be

concentrated in BRIC and ASEAN countries. In 2050 these

countries will produce 50% of world GDP (currently 30%).

At the same time the incidence of EU will decrease from

22% to 17%.

Crossbridge supports the Italian companies to develop

their internationalization projects to the Far East with the

collaboration of reliable partners like Reciprocus.

Crossbridge works in the most attractive Italian vertical

sectors like Food & Beverage, Healthcare, Fashion,

Furniture, Industrial Machineries, Technical Textile and

Fertilizers, etc. In fact these industries are improving their

performances in the Far East in terms of export.

Considering 2012-2013, the exports for Food & Beverage

will grow by 10 %, 30 % in Healthcare, 10 % in Fashion, 2

% in Industrial Machineries, 16 % in Furniture, 10 % in

Technical Textile, 8 % in Fertilizers.

Countries located in the Far East represent a huge

opportunity due to the growth of their industry and the

increase of personal income levels. Both the public and

private sectors are also investing a lot of resources in

infrastructure, technologies and productivity. It is the

moment for the Italian companies to capitalize on their

experience and know-how in these specific areas.

In addition the growth of the middle class, sensitive to

taste, fashion trends and refinement, is creating a large

destination market for Italian products.

To survive and grow, Italian enterprises cannot lose these

opportunities. The vast experience of Crossbridge team

and their partners are a useful asset to achieve this

purpose.

CrossBridge is an Italy-based, boutique advisory firm

bridging Italian companies to expansion opportunities

in the emerging markets of the Far East.

Paolo Engheben Founder and CEO

CrossBridge srl

Paolo Engheben, born in Brescia on May 21 1953, graduated with a degree in Electronic Engineering. He is a senior executive, with a strong record of sales and business development in fast changing and competitive local and international environments in the service and IT sectors. He was Chief Executive Officer of Dell Italy and more recently President and Chief Executive Officer of Dun & Bradstreet in Italy and Europe Business Leader of Dun & Bradstreet Corp.

© 2013 Reciprocus

Table of Contents (Laos)

Introduction

Country Profile 1

Economy 2

World Rankings 3

Investing in Laos

Factors Driving Investment in Myanmar 4

Achievements of the 6th National Socio-Economic

Development Plan/NSEDP (2006-2010)

5

Macro-Economic Policy Framework 7th NSEDP 2011 - 2015 6

New features of Investment Law (FDI Law (3rd revised) 2009 6

Sector Investment Opportunity 7

Financial Markets in Laos

Origin & Development 8

Importance of Microfinance 9

Private Equity in Laos

Private Equity Market 10

SWOT Analysis of the PE Industry 11

Appendix 12

Disclaimer: This report is an aggregation of available information gathered from extensive research done on the net. While Reciprocus endeavors to ensure accuracy of information, we do not accept any responsibility for the consequences of any actions taken on the basis of the information provided and any loss or damage to any person resulting from it.

© 2013 Reciprocus

Table of Contents (Myanmar)

Introduction

Country Profile 13

Economy 14

Investing in Myanmar

Factors Driving Investment in Myanmar 15

FDI in Myanmar 16

Financial Markets in Myanmar

Financial Structure of Myanmar 19

Banking Sector 19

Capital Markets 20

Insurance Sector 21

Private Equity in Myanmar

Private Equity Market 22

SWOT Analysis of the PE Industry

23

Appendix 24

Disclaimer: This report is an aggregation of available information gathered from extensive research done on the net. While Reciprocus endeavors to ensure accuracy of information, we do not accept any responsibility for the consequences of any actions taken on the basis of the information provided and any loss or damage to any person resulting from it.

© 2013 Reciprocus 1

Country Profile

Map

South-eastern Asia, northeast of Thailand,

West of Vietnam

Figure: 1

About Laos

Languages

Lao (official), French, English, various

ethnic languages

Capital City

Vientiane

Religions

Buddhist 67%, Christian 1.5%, other and

unspecified 31.5% (2005 census)

Administrative Divisions

Laos is divided into 16 provinces

(Khoueng) and one prefecture (Kampheng

Nakhon) which includes the capital city

Vientiane (Nakhon Louang Viangchan).

Provinces are further divided into districts

(muang) and then villages (ban). An

'urban' village is essentially a town

Flag

Figure: 2

The flag of Laos consists of three

horizontal stripes with a white circle in the

middle. The top and bottom stripes are

equal width and are red; while the middle

stripe is blue and equal to the width of the

two red stripes

Population

Figure: 3

Age Structure

0-14 years: 35.5% (male 1,198,288/female

1,178,180)

LAOS


15-24 years: 21.3% (male 706,679/female

716,368)

25-54 years: 34.6% (male

1,143,265/female 1,174,102)

55-64 years: 4.9% (male 160,650/female

166,605)

65 years and over: 3.7% (male

113,301/female 137,728) (2013

estimates)

Economy

Despite of challenging global

economic scenario, latest government

reports suggest successful

implementation of the socio-economic

development plan has resulted in

growth of 8.3% for the first half of the

fiscal year 2012-2013 and that it is

expected the government will reach

its 8.1% growth target for the fiscal

year

Sectors such as mining, services

hydropower, agriculture and tourism

are trending towards increased

expansion

Currency reserves are high and the

central bank is maintaining the

inflation rate at 4.85%

Data from IMF too indicates healthy

growth rates and expansion of exports

of goods and services at a health rate

Figure: 4

Figure: 5

Figure: 6

Figure: 7


Main Industries

Agriculture: 26%

Industry: 34%

Services: 40% (2012 estimates)

International Organization Participation

ADB, ARF, ASEAN, CP, EAS, FAO, G-77,

IAEA, IBRD, ICAO, ICRM, IDA, IFAD, IFC,

IFRCS, ILO, IMF, Interpol, IOC, IPU, ISO

(subscriber), ITU, MIGA, NAM, OIF, OPCW,

PCA, UN, UNCTAD, UNESCO, UNIDO,

UNWTO, UPU, WCO, WFTU (NGOs), WHO,

WIPO, WMO, WTO

World Rankings

Ease of Doing Business in 2013 (World

Bank)

163 out of 185 countries

Transparency International’s 2012

Corruption Perception Index

Rank 160 out of 174 countries

Currency

Lao KIP


Factors Driving Investments in Laos

Laos economy has maintained high

GDP expansion rates

The National Socio-Economic

Development plan (NSEDP) 2011-2015

targets at least 8% annual GDP

growth, 60% of which will be from

private investments

Further boosting economic

development are government

initiatives to decentralize control of

the government and promote private

sector participation

Business support by government includes

Stronger public finances

Improving foreign investments

Promoting and improving service

sector growth

Improving overall business

environment

Location Advantage

Located at the crossroads of the

Greater Mekong Sub-region (GMS)

Proximity to China, Vietnam and

Thailand, three of the largest and

fastest growing economies in the

region

Popular tourist destination

Investment climate

Foreign ownership limit up to 100%

Attractive tax incentives for foreign

companies

Foreign land lease of upto 50 years

Low entry valuations

Open capital account; easy

repatriation of profits

Increasing Trade Integration

Reduced quota restrictions and import

tariffs

Lowering tariffs on a wide variety of

products to below 5%

Signatory of a bilateral trade accord

with the US

ASEAN Free-Trade Area (Expected in

2015)

Supportive Labour Conditions

Competitive labour costs

Median age of 21 (lowest in the

region), with 60% of the population in

the working age of 15-64

Low-cost of Energy

Region’s lowest electricity cost

US$ 0.04 - 0.14 kw/hr depending on

business activity

INVESTING IN LAOS


Infrastructure

Improving connectivity - North-South

Corridor of Asian Highway Network

will connect China, Myanmar, Laos,

Vietnam, Thailand and Cambodia

Mekong river facilitates over 260,000

tons of cargo between China and

Thailand through Laos

Abundant untapped natural resources

Diverse mineral resources including

copper, gypsum, tin, gold and

gemstones

Copious amounts of timber

Excess fertile farmland for agricultural

development

Abundant water for irrigation and

hydropower

Diverse mineral resources

Achievements of the 6th National Socio-

Economic Development Plan/NSEDP

(2006-2010):

The nation achieved rapid and

sustainable growth, increase in

national reserve, controlled inflation

rate and successfully implemented the

planned budget for the first time in its

history

The level of poverty has declined to

25.6% from 33.5% in 2009-2010

Considerable improvement in income

and lifestyle

Human Development Index ranking of

the country improved from 137 in

2007 to 130 in 2008

Some of the fundamental achievements

are as follows:

GDP growth rates

7.9% per annum on average, during

2001-2005 and 8.1% in 2010

Agriculture and Forestry sector: 30.4%

Industry: 26.1%

Services: 37.2%

GDP per capita

US$ 573 in 2005-2006 up to US$ 1,069

in 2009-2010; US$ 1,087 in 2010

Inflation: 8% (2001-2005) to 4.41%

(2009-2010); 7.93% in 2010

Trade deficit: 5.3% of GDP

Budget revenue: 16.5% of GDP

Budget deficit: 4.7% of GDP

Foreign reserve covers about six

months

Investment balances

State investment (2006-2010): Totally

KIP 24,747 bn of which KIP 20,765 bn

is Official Development Assistance

(US$ 488 mn per annum)


During 2006-2010 domestic and

foreign investment: 1,022 projects

with US$ 11.06 bn of which domestic

private investment is about US$ 2 bn

Export products:

Wood products

Coffee

Agricultural products

Garments

Electricity

Mining

Gold and silver

Copper

Import products:

Machinery and production equipment

Vehicles

Fuel

Construction/electronic equipment

Material and garment machines

Luxury products

Electricity

Macro-Economic Policy Framework 7th

NSEDP (2011 -2015)

Ensuring Economic Growth at ≥ 8%

p.a.

Ensuring Sustainable Development -

Balancing Socio Economic

Development along with

Environmental Protection,

emphasizing on HRD

Promotion of Gradual Development of

Industrialization and Modernization

Achieving Millennium Development

Goals (MDGs) –poverty reduction by

2015 and graduating from the least

developed country status in 2020

Promotion of Regional and

International Integration

New features of Investment Law (FDI Law

- 3rd revised) 2009:

This revision combined the domestic

investment law and foreign direct

investment law into one, to create a

“level playing field” for both domestic

and foreign investors

Shorten procedures to open new

businesses

No terms for investments for

promoted activities

Extended Investment incentives:

Education and Health care sectors are

top priorities

Foreigners can have access to local

financial sources

Foreign Invested Companies can own

a piece of land for building their

residences (conditions applicable)


Foreigners can invest in the real estate

sector

Promotion of the development of SEZs

and Industrial Parks

Sectors for Investment Opportunity

Agriculture and Forestry: Agriculture

to grow at 3.5% (Rice, Corn, Coffee,

Biofuels)

Electricity Generation-Hydropower:

only 623MW/18,000MW/23,000MW.

“Battery of ASEAN” - 8 dams to be

constructed-2,865MW power

generation

Mining: Emphasize on effectively

regulating the mining sectors and

value-added processing-semi-and

finished products

Tourism: important supporter for

economic development and income

distribution. Promote Eco-Culture and

Agro-Tourism. Allow 70% of

investment for foreigners in tourism


Origin and Development

In spite of facing various challenges at

the domestic and international levels,

economic performance of Laos has

evinced a sustainable trend with a

growth rate of about 8% in 2011

The industrial sector, which includes

mining, electricity and manufacturing

industries was the major driving force

for the economy followed by services

and agriculture

Total deposits in the commercial

banks grew 26.52% amounting to KIP

23,532.24 bn in 2011

At the end of 2011, total loans

provided by commercial banks stood

at KIP 17,608.02 bn and amounting to

26.80% of GDP

Apart from commercial banks other

financial institutions include deposit-

taking micro finance institutions, non-

deposit taking microfinance

institutions, credit cooperatives and

saving deposits institutions, western

unions, financial leasing companies

and pawn shops

At the end of 2011, there were 85

Bank of Lao (BOL) registered micro

finance institutions out of which 25

were deposit taking and non-deposit

taking institutions, 18 credit

cooperative and savings deposits, 28

pawn shops and 12 other institutions

The total assets of micro-finance

institutions in 2011 amounted to KIP

198.3 bn, up by 29% compared to

2010. Total credit amounted to KIP

142.9 bn, an increase of 26.70% and

total deposits amounted to KIP 122.9

bn, up by 5.90% compared to 2010

Lao Securities Exchange: The exchange

was officially launched in January 2011

with the first two companies

registered in Lao Securities Exchange

namely: Banque Pour Le Commerce

Exterieur Lao Public (BCEL) and EDL

Public Company

In parallel, to facilitate IPOs and

trading, the Securities Exchange

Commission authorized two securities

exchange companies: BCEL-KT

Company and Lane Xang Public

Company. The Securities Exchange

Commission also approved two

external audit companies

About 288 FDI projects were approved

in the year 2011 amounting to US$

2,734.46 mn

FINANCIAL MARKETS IN LAOS


In 2011, net FDI was US$ 2,417.68 mn,

representing a 95.01% increase

compared to 2010

Major investments were in the mining

sector (up by US$ 1,464.35 mn) in

2011. Investments in agriculture,

largely from Vietnam and China rose

by US$ 176.34 mn during the same

period

In 2011, foreign investments in the

Lao Stock Exchange amounted to US$

11.04 mn

Appreciation of the US Dollar, increase

in crude oil prices along with other

factors such as inflation are some of

the factors which weighed on the

growth rate of Laos

In addition, severe natural calamities,

higher global foodstuff prices has put

pressure on economic growth and

continue to pose various challenges to

the socio-economic development of

Laos

Importance of Microfinance

Laos is primarily an agricultural based

society with approximately 80% of the

population living in rural areas

Small-scale agriculture in the

countryside accounts for more than

30% of GDP and employs 70% of the

population

The World Bank’s Global Financial

Inclusion Database indicates that a

mere 20% of the population in the

lower 40% income segment have an

account with a formal financial

institution

Laos Securities Exchange

The 6th National Assembly session had

adopted the 5 year plan to develop

the national socio-economic plan for

the period 2006–2010; to establish the

Laos Securities Exchange (LSX) at the

end of 2010

On 19th September 2007, the

Memorandum of Understanding was

signed between Bank of Lao PDR (BOL)

and Korean Exchange (KRX) in Seoul

Current status (2012 updates)

At present two former state

enterprises, EDL Generation (EDL-Gen)

and BCEL are listed on the stock

exchange

Out of the total transactions for 2012,

foreign investors’ share stood at

58.46% followed by individuals with

29.04%, general corporations with

9.93%, institutions with 0.18% share

and others by 2.03%


PRIVATE EQUITY IN LAOS

The Role of Private Equity in Laos

One of the major challenges for

growth of the small scale industries is

unavailability of short term bank loans

So far the capital markets have lacked

the PE funds which are willing to

invest in SMEs in a growth phase but

the scenario is changing and the

nation is witnessing a surge in Private

Equity Funds

Cambodia-Laos Development Fund

(the Fund) is a proposed private equity

fund that will make equity and equity-

related investments in SMEs in

Cambodia and Laos. The Fund will

invest in SMEs across multiple sectors

with a preliminary early focus on

business services, agribusiness, and

microfinance

The Fund was established in 2009 with

a total capital of US$ 20 mn

A new PE Fund was also established in

collaboration with the Lao National

Chamber of Commerce and Industry

and Lao Golden Capital LLC

This fund is targeting to raise US$ 50

mn initially to invest in various sectors

of the Lao economy

The mining sector of Laos is expected

to witness strong PE activity


SWOT Analysis

Strengths

Availability of young labour force

Investment friendly incentives by

the government

Political stability

High growth rates

Low wages

Healthy business climate and

business confidence

Weakness

Inadequate training and project

management skills

Weak financial infrastructure

Infrastructure challenges

Shortage of funding for ICT

development

Small domestic market with low

purchasing power

Opportunities

Abundant rich natural resources

Growing tourism and mining

sectors

Infrastructure development

Development of financial

infrastructure

Supportive regional political ties

for development

Growing technology awareness

Threats

Delays in policy implementation

Overall hurdles in approaching

capacity building efforts

Poor operational facilities

High bureaucracy


APPENDIX

Top Ten Countries by FDI

Source: Lao National Chamber of Commerce and Industry

Figure: 8

Laws and Decrees of the Financial Sector in Laos

Source: Spearhead Business Research/Reciprocus

Figure: 9

Country Projects Value of Investment (in US$)

Vietnam 438 4,85,48,05,514

Thailand 750 4,02,71,35,894

China 807 3,59,24,70,043

Korea 287 61,99,28,170

France 226 50,83,19,743

Malaysia 97 41,79,58,773

Japan 106 41,49,37,461

Norway 6 35,82,65,000

India 22 15,06,04,702

Australia 89 13,60,78,812


Country Profile

Map

Southeastern Asia, bordering the

Andaman Sea and the Bay of Bengal,

between Bangladesh and Thailand

Figure: 1

About Myanmar

Languages

Burmese (official); minority ethnic groups

have their own languages

Capital City

Rangoon (Yangon)

Religions

Buddhist 89%, Christian 4% (Baptist 3%,

Roman Catholic 1%), Muslim 4%, Animist

1%, others 2%

Administrative Divisions

7 regions (taing-myar, singular - taing) and

7 states (pyi ne-myar, singular - pyi ne)

Regions: Ayeyarwady, Bago, Magway,

Mandalay, Sagaing, Taninthayi, Yangon

states: Chin, Kachin, Kayah, Kayin, Mon,

Rakhine (Arakan), Shan

Union territory: Nay Pyi Taw

Flag

Figure: 2

Design consists of three equal horizontal

stripes of yellow (top), green, and red;

centered on the green band is a large

white five-pointed star that partially

overlaps onto the adjacent colored

stripes; the design revives the triband

colors used by Burma from 1943-45,

during the Japanese occupation

Population

Figure: 3

Myanmar


Age Structure


7,227,893)

15-24 years: 18.6% (male

5,183,653/female 5,060,385)

25-54 years: 42.8% (male

11,724,297/female 11,879,420)


1,963,051)

65 years and over: 5.2% (male

1,244,758/female 1,615,243) (2013

estimates)

Economy

Figure: 4

Figure: 5

Main Industries

Agricultural processing; wood and

wood products; copper, tin, tungsten,

iron; cement, construction materials;

pharmaceuticals; fertilizer; oil and

natural gas; garments, jade and gems

Other Sectors include:

Infrastructure Development

Telecommunication Sector

Energy and Electricity Sector

Healthcare

Water and Water Treatment

Outsourcing

Real Estate

World Rankings

Transparency International’s 2012

Corruption Perception Index

Rank 172 out of 174 countries

International Organization Participation

ADB, ARF, ASEAN, BIMSTEC, CP, EAS, FAO,

G-77, IAEA, IBRD, ICAO, ICRM, IDA, IFAD,

IFC, IFRCS, IHO, ILO, IMF, IMO, Interpol,

IOC, IOM, IPU, ISO (correspondent), ITU,

ITUC (NGOs), NAM, OPCW (signatory),

SAARC (observer), UN, UNCTAD, UNESCO,

UNIDO, UNWTO, UPU, WCO, WHO, WIPO,

WMO, WTO

Currency

Burmese Kyat (K)


Strategic Location

Myanmar sits at the crossroads of

three of the most important economic

engines of the 21st century – China,

India and ASEAN countries

Construction of Dawai deep-sea port

will link the Indian and Pacific Oceans

while by-passing the Strait of Malacca

Economic Reforms

Government dedicated to reforming

the economy - Central Bank has

implemented a managed-float of the

local currency (Kyat)

President Thein Sein announced a

“second wave” of economic reforms.

The US, EU, and a host of other

nations have lifted and/or suspended

all major economic sanctions against

Myanmar as of May 2012

Increased International Support -

World Bank/IMF agree to provide

technical assistance on financial and

economic issues after a 25 year hiatus

Strong Economic Growth

Myanmar reported impressive GDP

growth rates, averaging 10.2% during

1992–2010 and 12.2% during 2000–

2010

The near-term outlook for Myanmar’s

economy is relatively upbeat on the

back of strong export earnings from

resource commodities and a pick-up in

FDI flows. The Asian Development

Bank forecasts that Myanmar’s GDP is

likely to grow by 6.3% in 2013

ASEAN Integration

Myanmar’s new openness is well

timed to take advantage of the

establishment of the ASEAN Economic

Community free trade zone at the end

of 2015

Natural Resources

Myanmar is rich in natural resources

such as arable land, forestry, minerals,

natural gas, as well as freshwater and

marine resources, gems and jade

The country has recently emerged as a

natural gas exporter, with exports to

neighbouring countries providing an

increasingly important revenue stream

It has aquaculture, livestock farming

and processing potential

Myanmar holds the largest landmass

in mainland Southeast Asia, including

vast forests, navigable rivers, fertile

deltas and a vast coastline with

natural deep-sea ports

Infrastructure

Transport Connectivity Railroad

system is being rehabilitated

INVESTING IN MYANMAR


An additional international airport is

being built at Bago

Railroads, roadways and oil pipelines

from southern China (Kunming) to

Rhakine State are under construction

Deep-sea ports at Dawei are being

built in the south

Workforce

The country boasts a 92% literacy rate

Development of the social sector has

kept pace with economic

development. Expansion of schools

and institutions of higher education

have been considerable especially in

the States and Divisions

Large working age population (15-64

years)

Workforce participation, household

formation, and urbanization will all

show robust growth over the next

decade

Figure: 6

Figure: 7

Strong Investments in Myanmar

Myanmar offers opportunities for

investors, both foreign and domestic,

in virtually all sectors

In the manufacturing sector, the

abundance of low cost labour presents

an opportunity to expand into labour-

intensive and export-oriented

manufacturing, including the garment

sector

Foreign Direct Investments in Myanmar

Myanmar opened its doors for FDI in

1988 subsequent to the enactment of

the Foreign Investment Law on 30

November

Foreign investments in Myanmar is

governed under the Foreign

Investment Law (FIL), 1988

The Myanmar Investment Commission

(MIC) has issued a notification listing

the types of economic activities that

are open to foreign investments. It

covers most activities with the

exception of those reserved for the


State under the State-owned

Economic Enterprises Law (SEE Law)

Based on the MIC Notification No.

1/89 of 30 May 1989, foreign

investments may be made into

economic activities which are

classified into nine sectors as follows:

o Agriculture and irrigation

o Livestock and fishery

o Forestry

o Mining

o Power

o Oil and gas

o Industries involving food stuffs,

textile, personal goods,

household goods, leather

products and similar products,

transport equipment, building

materials, pulp and paper,

chemicals, chemical products

and pharmaceuticals, iron and

steel and machinery and plant

o Construction

o Transportation and

communications

In addition to foreign investments

under the FIL, foreign investors may

invest under the Myanmar Special

Economic Zone Law of 2011 (Myanmar

SEZ Law) and the Dawei Special

Economic Zone Law of 2011 (Dawei

SEZ Law)

The main regulatory body handling

foreign investments under the

Myanmar SEZ Law and the Dawei SEZ

Law is the Central Body for the

Myanmar Special Economic Zone

which was formed by the President’s

Office in April 2011

The Myanmar SEZ Law is a basic law

for any Special Economic Zone (SEZ)

within Myanmar whereas the Dawei

SEZ applies only to a specified

designated area, i.e. the Dawei SEZ,

which is located in the Tanintharyi

Region in the south, and is the first SEZ

in Myanmar

In general, the investment projects in

the Dawei SEZ must be approved by

the Central Body. Tax exemptions or

relief may be granted under the Dawei

SEZ Law upon application by the

investor

The Myanmar SEZ Law and Dawei SEZ

Law contain, inter alia, provisions

relating to developers and investors,

exemptions and reliefs, restrictions,

duties of developers or investors, land

use, banks and finance management

and insurance business, management

and inspection of commodities by the

customs department, quarantine,

labour and guarantee of non-

nationalisation

Incentives under the Myanmar SEZ

Law include:

o Tax holidays for the first five

years

o 50% income tax relief on

revenue from products sold

overseas for the next five years

o 50% income tax relief on

reinvestments obtained from


export sales for the following

five years

o Exemption on customs duty for

certain goods (e.g. machineries

and vehicles) for five years. A

50% exemption applies for the

next five years

With respect to land use under the

Dawei SEZ Law, land use may be

granted under an initial lease of at

least 30 years (or 60 years), renewable

as follows:

o For another 30 years (plus 15

years) for a large-scale

business; or

o For another 15 years (plus 15

years) for a medium-scale

business; or

o For another five years (plus five

years) for a small-scale

business. The additional years

may be granted on a

discretionary basis, depending

on the investment amount and

success of the business

With the approval of the Union

government and the Central Body, and

pursuant to the Dawei SEZ Law and

existing Myanmar law,

developers/investors may rent,

mortgage or sell land and buildings to

another person for investment

purposes within the term granted for

operating in the Dawei SEZ

China is the topmost country for

foreign investments in Myanmar

Thailand is the second largest foreign

investor in Myanmar, with

approximately US$ 9 bn invested in

manufacturing and mining projects.

Investments have been particularly

strong in oil and gas – through PTT

Exploration and Production, the

overseas arm of state owned PTT,

which operates the Zawtika gas

project in the Gulf of Mottama, while

also being a partner in the Yetagun

and Yadana offshore gas projects

South Korea is the fourth largest FDI

contributor, with 48 projects

amounting to US$ 2.9 bn being

undertaken since 1988. South Korean

companies are looking to further

increase their investments in

construction, mining, agriculture,

electricity, energy, logistic and freight-

forwarding, vehicles and auto parts,

communication and multimedia, iron

and steel, agro-fishery, timber and

wood, financing, real estate, garment,

transport, hotel and tourism and civil

engineering industries, according to

the Korea Trade-Investment

Promotion Agency

Singapore and Malaysia are also

among the top sources of FDI to

Myanmar, particularly since the latter

joined ASEAN in 1997


Financial structure of Myanmar

The financial sector in Myanmar is

small and highly underdeveloped

It is made up of state owned banks,

private banks, finance companies and

representative offices of foreign banks

Myanmar is closed to foreign

competition in accordance with the

existing Financial Institutions Law,

which prohibits foreign banks from

operating or engaging in any joint

ventures with local banks. Myanmar

has, however, committed to allow

foreign banks to establish wholly

owned operations once domestic

banks have been prepared for foreign

competition

A new banking law license allows 19

domestic private banks to operate and

permits 32 foreign banks to open

representative offices in Myanmar

The Central Bank of Myanmar has also

allowed 11 out of a total of 19 local

private banks to operate foreign

currency accounts. However, only four

banks have started operating foreign

currency accounts up to date

Banking Sector

The overall banking sector is largely

confined to fixed deposits and one-

year fixed-rate loans

Some banks also offer domestic

remittance services, but these are

limited to urban areas, with hundys

(informal domestic and international

transfers) serving the larger rural

market

Recently, private banks have been

authorized to establish international

banking businesses; 11 private banks

are in the process of installing SWIFT

to begin international remittance

operations

The Central Bank has expanded the

eligible list of collateral to include

land, buildings, gold, exportable crops,

and bank deposits. The loan-to-value

ratio of 50% is a self-imposed industry

standard that reflects the

conservativeness of the banking sector

The potential for branchless banking is

limited because of the monopolistic

and underdeveloped status of the

communication sector

State owned banks

Myanmar Foreign Trade Bank (MFTB)

The bank specialises in conducting

foreign exchange operations

concerning external and non-trade

foreign exchange operations. The

functions of the bank are to accept

deposits in Kyats as well as foreign

currencies, provision of loans and

FINANCIAL MARKETS IN MYANMAR


advances both seemed and

unseemed, issuing, accepting,

discount buying, selling and collecting

all securities, including Bills of

Exchange, sale and purchase of

travellers cheques and foreign

currencies, fund transfer issues and

handing of bank guarantees

Myanmar Economic Bank (MEB)

Myanmar Economic Bank originated

from the State Commercial Bank

(SCB), established in 1954, which

provided a wide range of commercial

banking services across the country.

The functions of the bank are

accepting current accounts, savings

and deposit accounts, issuing of saving

certificates, advancing loans to

economic enterprises and personal

loans, and financing private business

undertakings such as production,

trade and services

Myanmar Investment and Commercial

Bank

The functions of the bank are

providing investment development

and commercial banking facilities

to local and foreign investors,

partnership firms, joint ventures,

limited companies, organisations,

sole proprietorships and exporters

Myanmar Agriculture and

Development Bank

The bank was established with the

intention to promote agricultural,

livestock and rural society

economic enterprises including

processing and production. The

bank has a countrywide network

of 14 regional offices, 164

branches and 48 agency offices

providing short and long term

credit for crop production, salt

production, livestock, fish and

dairy farming

(List of Banks in Myanmar-Refer Figure:

9)

Capital Markets

The Rangoon Stock Exchange (RSE) is

the country’s first stock exchange

followed by the Myanmar Securities

Exchange Center (MSEC). The former

traded shares of a few British and

American stocks in the 1930s. The

fledgling exchange, operated by seven

European firms, was a secondary OTC

market with most of the quotes

sourced from Calcutta and Bombay

exchanges. It closed down at the

outbreak of World War II. The RSE was

revived in the late 1950s to trade

shares of nine public-private joint-

venture corporations. But this OTC

market too died in the 1960s when all

the firms were nationalized by the

military government that seized power

in 1962

The exchange is a 50-50 joint venture

between the state-owned Myanma

Economic Bank and the Daiwa

Securities Group and currently lists

only two securities, both of which are

rarely traded. The OTC market is

planned to be replaced by the Yangon

Stock Exchange (YSE) by 2015


The Myanmar Securities Exchange

Centre was formed with an authorized

capital of US$ 17 mn and paid-up

capital of US$ 3.4 mn in June 1996. It

listed two public-private joint-venture

firms: Forest Products Joint Venture

Corporation and Myanmar Citizens

Bank. The exchange began its trading

operations in December 1996

No new companies have signed up

beyond the first two, and there is little

trading. State-owned and private

enterprises have also chosen not to

list. Some of the reasons being the

firm's fear of tax liability, fear of loss

of control and unfamiliarity with the

corporate culture

Myanmar will take its first steps to

develop its capital markets with the

help of the Tokyo Stock Exchange and

Daiwa Securities to develop a

securities exchange. With their

assistance, the Central Bank of

Myanmar has drafted a Securities

Exchange Law, which authorizes the

Yangon Stock Exchange, and is

expected to become a law in later

2013

The new exchange still faces many

challenges. According to estimates,

less than one-third of the

approximately 70 local public

companies in the country are

expected to qualify for listing. Even

those that qualify may still not list due

the issue of taxes that have prevented

them from listing on the MSEC in the

first place

Moreover, the country's securities

companies, accounting firms and law

firms are sufficient to support only a

small capital market. A report stated

that between five and ten companies

are to list during the YSE’s first year of

operation in 2015 and 10 to 20 listed

by the end of 2017

Insurance Sector

There is only one state-owned

insurance company in Myanmar. It is

small in size, scale and outreach and

offers no insurance for any form of

agricultural sector activities, such as

flood, crop, or livestock

For the first time in more than 50

years, private insurance companies

have been given conditional approval

by Myanma Insurance and the

Insurance Business Supervisory Board

(IBSB) to begin operations

IBSB received 20 applications, but only

12 have been approved (all local and

no foreign), pending their ability to

meet paid-up capital requirements

and deposit funds in Myanmar

Economic Bank

Of the 12 companies, three plan to

offer life insurance, which requires

paid-up capital of K 6 bn (nearly US$ 7

mn). The remaining nine institutions

plan to offer life and general

insurance, which requires a total

capital of K 46 bn or (US$ 53 mn)


PRIVATE EQUITY IN MYANMAR

Snapshot

Myanmar is emerging as a potentially

high growth target market for private

equity investments due to its

abundance of natural resources,

including oil and gas and young, well-

educated labor force eager to work at

regionally-competitive wages

In spite of economic reforms to

decentralize the State’s role in the

economy and restructure the financial

system, the development of

Myanmar’s private sector is limited by

the lack of financing options and

technical expertise. Furthermore, after

years of government control of the

economy, Myanmar’s business class

lacks technical know-how. However,

partnering with private equity firms

can provide businesses with critical

financing capital and technical

expertise that will ultimately foster a

strong and sustainable business

community in Myanmar

According to industry sources, private

equity players poised to invest in

Myanmar include Leopard Capital,

Cube Captial, Link Road Capital

Management and Bagan Capital

Myanmar has different licensing

systems for wholly-Myanmar owned

companies. As a result, a Myanmar

company is and has always been

owned by Myanmar nationals; a

foreigner cannot simply purchase

those shares

Although the Myanmar Companies Act

allows such transfers, a combined and

strict reading of the FIL and the

Myanmar Citizens Investment Law,

plus the prevailing practice of the

authorities basically make private

equity transactions unfeasible

Foreigners who wish to acquire a

shareholding of less than 100% in an

existing Myanmar business need to

establish a joint venture company

under the FIL. The local partner will in

the process of setting up a JV

Company transfer the business to it,

with approval of the investment

regulator (Myanmar Investment

Commission). The foreign investor

owns shares in a Myanmar-registered

company (the JV Company) which also

has Myanmar shareholders

Myanmar PE Fund

Myanmar Capital Partners is currently

placing the Irrawaddy Fund LP which

targets US$ 150 mn to invest across

various sectors in Myanmar. This is a

private equity fund subject to the

conditions of private placement with

eligible professional investors. Its

investment strategy is complementary

to the work of Development finance

Institutions with whom the

management team work in close

cooperation as business partners,

investors and co-financers


SWOT Analysis

Strengths

Political reforms aimed at creating

stability

New laws to promote FDIs

Rich in natural resources

Myanmar’s leadership has changed

course and is re-engaging

internationally

Entrepreneurs keen to participate in

economic growth, urbanization and

the new economy

Exposure to the regional growth

dynamics of southeast Asia

Weakness

Economy still in the process of

development

Locals lack exposure to international

business

Opportunities

Potential for great export growth and

value build-up

Potential hedge against low growth in

the developed world

Business & investment opportunities

now in many sectors

The setting up of a stock exchange will

pave the way for more business

avenues in the country

Threats

Lack of a developed legal or financial

framework for investments

The number of deals that are

conceived on the faulty premise that

the foreign investor will at some stage

buy shares in a wholly Myanmar-

owned company


APPENDIX

Key Industries in Myanmar

Source: Ministry of National Planning and Economic Development

Figure: 8

No Industry US$ in mn %

1 Power 18,874 46.40%

2 Oil and Gas 14,063 34.60%

3 Mining 2,814 6.90%

4 Manufacturing 1,761 4.30%

5 Hotel and Tourism 1,056 2.60%

6 Real Estate 1,056 2.60%

7 Livestock and Fisheries 324 0.80%

8 Transport and communication 314 0.80%

9 Industrial Estate 193 0.50%

10 Agriculture 173 0.40%

11 Construction 38 0.10%

12 Other Services 24 0.10%


State owned banks

•Myanmar Foreign Trade Bank (MFTB)

•Myanmar Economic Bank

•Myanmar Investment and Commercial Bank

•Myanmar Agriculture and Development Bank

Private banks

•Myanmar Citizens Bank Ltd

•First Private Bank Ltd

•Yadanabon Bank Ltd

•Myawaddy Bank Ltd

•Yangon City Bank Ltd

•Yoma Bank Ltd

•Myanmar Oriental Bank Ltd

•Asia-Yangon Bank Ltd

•Tun Foundation Bank Ltd

•Kanbawza Bank Ltd *

•Myanma Industrial Development Bank

•Myanma Livestock and Fisheries Development Ltd

•Sibin Tharyar Yay Bank Ltd

•Innwa Bank Ltd

•Co-operative Bank Ltd*

•Asia Green Development Bank Ltd*

•Ayeyarwaddy Bank Ltd*

•United Amara Bank Ltd

•Myanma Apex Bank Ltd

Finance companies

•Myanmar Orient Leasing Company Ltd.

Representative offices of foreign

banks

• United Overseas Bank Ltd.

• Overseas-Chinese Banking Corporation Ltd

• Malayan Banking Berhad (MAYBANK), Malaysia

• Bangkok Bank Public Company Ltd

• National Bank Ltd.

• Brunei Investment Bank (BIB)

• First Overseas Bank Ltd.

• First Commercial Bank, Singapore Branch

• CIMB Bank Berhad

• Sumitomo Mitsui Banking Corporation

• DBS Bank Ltd

• The Bank of Tokyo-Mitsubishi UFJ Ltd

• Bank for Investment and Development of Vietnam

• AB Bank limited

• Industrial and Commercial Bank of China Ltd

• Mizuho Corporate Bank Ltd

• Siam Commercial Bank Public Company Ltd

• Krun Thai Bank Public Company Ltd

List of Banks in Myanmar

Source: Central Bank of Myanmar

* With effect from 9 July 2012, these banks have started operating Foreign Exchange Accounts

Figure: 9


For More Information Contact:

Robert MacPherson

Vice President


10 Anson Road, #10-22, International Plaza, Singapore 079903

Mobile: +65 9171 5768 Tel: + 65-6225-9986 Fax: +65 6225 8223

Website: http://www.reciprocus.com

http://www.reciprocus.com/

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