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 (North America) - - The Global Tech - 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.

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