U.S. com­pa­nies lag in the race to in­vest in Myanmar

Asian money pours in, but sanc­tions limit U.S. in­vest­ment It’s “one of the few re­main­ing largely un­tapped mar­kets”

Bloomberg Businessweek (Asia) - - NEWS - Bruce Ein­horn and Chris Blake

Af­ter decades of mil­i­tary rule, Myanmar at last has a demo­crat­i­cally elected government. Long­time op­po­si­tion leader Aung San Suu Kyi’s party took charge in March, with her ally Htin Kyaw be­com­ing president and the No­bel lau­re­ate her­self serv­ing as foreign affairs min­is­ter. In re­sponse, the U.S. last month an­nounced a par­tial roll­back of economic sanc­tions first im­posed in 1990 in an at­tempt to get the coun­try’s gen­er­als and their cronies to re­lax their hold on power. The new policy will make it eas­ier for Amer­i­can com­pa­nies to do busi­ness in Myanmar. How­ever, it doesn’t go far enough for Khin Shwe, the founder of Zayk­abar, a con­struc­tion com­pany that’s on a U.S. black­list of Myanmar busi­nesses and in­di­vid­u­als. Now that the coun­try has freely elected lead­ers, he says, “they should lift sanc­tions.”

For Myanmar, a lot rides on whether and when the U.S. fur­ther re­laxes trade and in­vest­ment re­stric­tions, which in­clude travel bans and as­set freezes tar­get­ing com­pa­nies and in­di­vid­u­als as­so­ci­ated with the old regime. Two-thirds of its 53 mil­lion peo­ple live in the coun­try­side, many with­out elec­tric­ity. An­nual per-capita gross do­mes­tic prod­uct is $1,200. Myanmar “is one of the few re­main­ing largely un­tapped mar­kets in the world,” wrote an­a­lysts Ong Kian Lin and Kasamapon Ham­nil­rat of Malaysia’s RHB Re­search In­sti­tute in a May 31 re­port.

That may not last long. The Asian Development Bank pro­jects Myanmar’s econ­omy will ex­pand 8.4 per­cent this year and 8.3 per­cent in 2017, mak­ing it Asia’s best per­former. Foreign di­rect in­vest­ment was a record $9.48 bil­lion in the fiscal year ended March. Most of the money is com­ing from other parts of Asia. Japan’s JGC and Sin­ga­pore’s

Yong­nam Hold­ings and Changi Air­port Group are part of a con­sor­tium that in Jan­uary signed an agree­ment to build a $1.5 bil­lion air­port in Yangon, Myanmar’s big­gest city. Viet­namese real es­tate de­vel­oper

HAGL Group in March started work on a $230 mil­lion res­i­den­tial and office development in Yangon, hav­ing al­ready opened a $440 mil­lion ho­tel and office com­plex last year. Ja­panese Prime Min­is­ter Shinzo Abe has pledged 100 bil­lion yen ($935 mil­lion) in loans to fund in­fra­struc­ture pro­jects.

“The in­ter­est among in­vestors is

tremen­dous,” says Ro­main Cail­laud, se­nior direc­tor cov­er­ing South­east Asia for FTI Con­sult­ing in Sin­ga­pore. “There is re­ally a lot of hope.”

The coun­try’s oil and gas in­dus­try draws one-third of all foreign di­rect in­vest­ment. Aus­tralia’s Wood­side

Petroleum early this year an­nounced two off­shore gas dis­cov­er­ies, and China’s Guang­dong Zhen­rong

Energy and local part­ners in April won ap­proval for a $3 bil­lion oil re­fin­ery with a ca­pac­ity of 100,000 bar­rels a day.

U.S. com­pa­nies have been tip­toe­ing in. Af­ter Aung San Suu Kyi’s party took part in the 2012 elec­tions, President Obama lifted a ban on most Myanmar im­ports and al­lowed Amer­i­can com­pa­nies to form part­ner­ships with local busi­nesses, so long as they don’t ap­pear on the sanc­tions list com­piled by the U.S. Department of the Trea­sury. Coca-Cola and Pep­siCo now have bot­tling plants in the coun­try, while Ford and General Mo­tors have opened deal­er­ships. Krispy

Kreme Dough­nuts an­nounced plans last Au­gust for 10 shops, and pri­vate eq­uity firm TPG in De­cem­ber bought half of Myanmar Dis­tillery, which sells a pop­u­lar brand of whiskey. The coun­try’s first fast-food restau­rant, KFC, opened last year. There are still no McDonald’s or Star­bucks.

With the lat­est eas­ing of sanc­tions, an­nounced in May, U.S. com­pa­nies can have deal­ings with seven for­merly black­listed state-owned en­ter­prises, use the main port, and work with state-owned banks. The policy change “will make life a lot eas­ier” for com­pa­nies hop­ing to en­ter oil and gas, min­ing, power, and real es­tate, says Tom Platts, a part­ner in Sin­ga­pore with the law firm Stephen­son Har­wood. “We are go­ing to see more U.S. in­ter­est in Myanmar.”

Still, Amer­i­can com­pa­nies con­tinue to face ob­sta­cles. Sanc­tions cre­ate “an un­level play­ing field,” says Judy Benn, executive direc­tor of the Myanmar chap­ter of the Amer­i­can Cham­ber of Com­merce. The re­stric­tions against work­ing with com­pa­nies or peo­ple as­so­ci­ated with the junta have “hand­cuffed” U.S. com­pa­nies, she adds, es­ti­mat­ing the policy puts “about 75 per­cent of the econ­omy” off-lim­its. Even some­thing as sim­ple as wiring money is a chal­lenge, says Aye Thiha, chief executive of­fi­cer of Yangon-based Thiha Group, which has joint ven­tures with Thai part­ners to op­er­ate pizza and ice cream shops, as well as a steel pipe fac­tory. “You have to prove you’re not on the sanc­tions list,” he says. U.S. banks “don’t want to go through the headaches, so they opt out of it.”

On May 22, U.S. Secretary of State John Kerry met with Aung San Suu Kyi in Naypyi­daw, the cap­i­tal, and said fur­ther eas­ing of sanc­tions would de­pend on progress in de­moc­ra­ti­za­tion. The U.S. also has con­cerns about the treat­ment of the Ro­hingya, Mus­lims who are long­time res­i­dents but whom the government says aren’t cit­i­zens. Aung San Suu Kyi her­self isn’t de­mand­ing the U.S. re­move all re­stric­tions. “We be­lieve that if we are go­ing along the right path, all sanc­tions should be lifted in good time,” she told reporters af­ter meet­ing with Kerry. That time, she added, will come “soon.”

The bot­tom line De­spite a grad­ual eas­ing of sanc­tions, large sec­tors of Myanmar’s econ­omy re­main off-lim­its to U.S. busi­nesses.

Pizza Hut

KFC

Coca-Cola

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