MYANMAR

SPECIAL REPORT

MOVING IN ON
Is this Singapores moment?

Preface
Moving in on Myanmar is a final-year business journalism project that focuses on Singapore Incs investment in Myanmar. It also explores the attractiveness of Myanmar as a business destination and how Singapore, with its historical ties with the country, is faring in the race for deals in the emerging market. The team that comprises of Jasmine, Krystal and Mark spent two weeks in Yangon, the commercial capital of Myanmar, to uncover the opportunities and challenges that Singaporean businesses face when looking to invest in Myanmar. Once the richest country in Southeast Asia, Myanmar is re-entering the world economy as it emerges from decades of military rule and crippling global sanctions. In a bid to draw jobs, the country has thrown its doors open to foreign investment and is working feverishly to introduce new investment laws and modernise its very basic banking system. With a population of almost 60 million and vast agricultural and oil resources, investors see Myanmar as the last sizeable economy in Asia that remains untapped. As foreign firms flock to the newly opened economy, the result has been one of the biggest emerging market gold rushes since Vietnam and Russia opened up to more investment in the 1990s. The team would like to thank Dr Cherian George for his guidance and constant support. Also, the project would not have been possible without the assistance of generous and helpful contacts (from both Myanmar and Singapore) that the team had met along the way.

The four basic ingredients for success are: you must have the will to want something; you must have the right kind of attitude; you must have perseverance, and then you must have wisdom. Then you combine these four and then you get to where you want to get to. -- Myanmar Nobel laureate Aung San Suu Kyi

The Team

Contents
4 Myanmar: A game of goodwill and gratuity

FOCUS

14 Doing it the Myanmar way

CULTURE

20 Daunting challenges keep investors at bay

From left to right: Jasmine Ng, Mark Tay & Krystal Chung.
Jasmine Ng Jasmine has interned at Singapores financial daily, The Business Times, where she covered news about the economy, financial markets, companies and politics. She also spent a semester in Europe an experience that has sparked her love for travel. Jasmine now splits her time between school and her work as a part-time journalist at BT. She was fascinated by the jade market in Yangon, where people traded authentic jade pieces at teahouses. A Myanmar friend joked that it is easier to mine real jade than create fake ones in the country, which is known for its abundance of precious stones. Krystal Chung Krystal interned at Singapores Maritime and Port Authority corporate communications department, where she developed an appreciation and enthusiasm for Singapores business in shipping and port services. The first thing that caught her eye when she first arrived in Myanmars commercial capital was the number of people wearing slippers. Even in their business attire, which consists of the longyi and a white long-sleeved shirt for men or floral blouses for women, their choice of footwear was still a pair of slippers. The popularity of this footwear among Myanmars rich and poor has given rise to the countrys unique slipper culture that has transcended social classes. Mark Tay Having completed internships at the Financial Times, Thomson Reuters and The Straits Times, Mark is passionate about financial journalism. While sitting in front of screens with live stock quotes bore many, he finds great joy in watching numbers change from green to red to black and back to green again. He sees financial markets as a giant puzzle that journalists should try to make sense of. As a souvenir from Myanmar, he brought home a pack of Golden Lion cheroots (locally produced Myanmar rolled tobacco) because of its creative packaging and branding, which bears a striking resemblance to Singapores Lion Head symbol. 2 MOVING IN ON MYANMAR

CHALLENGES

26 A glimpse of Yangon streets

SNAPSHOTS

OPPORTUNITIES
32 Spore brand a winner in Myanmar

38 Myanmar tourism sector to face headwinds

SECTOR WATCH

MOVING IN ON MYANMAR

FOCUS

Photo by: Jasmine Ng

Myanmar: A game of goodwill and gratuity

Singapores long-standing ties with the Golden Land stand it in good stead to reap first-mover advantages, but rival economic powerhouses are digging deep into their war chests to gain deals.
By JASMINE NG

n a particularly dull year for business almost everywhere in the world, there was nevertheless one business destination that stood out as a bright spot: the long-suffering nation of Myanmar. After decades of poor economic management under a military junta, Myanmar emerged as the hottest must-go place for property developers, oil executives, traders and gem merchants, from Asia and as far afield as North America. Singapore firms are quick to hop on the bandwagon as the recent reforms seek to lure more foreign direct investment. Several business missions have taken place over the past year to help businessmen understand the new developments in Myanmar, explore business opportunities and network with local business representatives. Last year, the Republic invested US$49.2 million in Myanmar, ahead of Japan and South Korea, but trailing China and Vietnam. But Singapores economic rivals like the Japanese and Koreans are hot on its heels as they are snapping up deals. The Koreans have closed about 25 deals in the past 12 months, more than any other country. Japan, on the other hand, has won a huge contract to develop a 2,400-hectare special economic zone at Thilawa, a spot near Myanmars largest city and along the coast of the Indian Ocean. In return for the project, Japan agreed to absolve about US$3.36 billion of debt owed to it in two phases throughout 2013, and lend an extra $56.1 million to Myanmar this year. Its hard for Singapore to fight that, said Maung Maung Lay, vice-president of the Union of Myanmar Federation of Chambers of Commerce and Industry (UMFCCI), explaining that countries like Japan and Korea are offering huge amounts of official development assistance (ODA) to Myanmar. This is expected to give the countries a leg up in the race to win a share of the emerging market. But we dont have any other choice, he added. Dr Maung Maung Lay acknowledged that Singapore would have had advantages in the past, before the reforms. In those days, [Singapore] had the advantage. But frankly and candidly speaking, with this opening up, I dont know if Singapore still has that advantage. Singapore-Myanmar relations Favouring engagement with Myanmar even when others imposed tough sanctions, Singapores strong historical ties with the country has given it an edge over other foreign investors. Singapore is one of the midwives for our attainment of democracy, said Dr Maung Maung Lay. We owe a lot to Singapore for being steadfastly behind Myanmar during our naughty days. Over the years, Singapore has pushed for constructive engagement with Myanmar to encourage reforms. This is while other countries adopted more hardline approaches. Tan Seng Chye, senior fellow at the S. Rajaratnam School

Key Events
1962 Then-Burma came under military rule by General Ne Win after a major coup. Currency devaluation wiped out many peoples savings and triggered anti-government riots. Burma changed its name to Myanmar and the name of the capital from Rangoon to Yangon. Aung San Suu Kyi was placed under house arrest for charges of trying to divide the military, charges which she denied. Myanmar joined ASEAN (Association of Southeast Asian Nations). The Asian Financial Crisis reduced Myanmar rice exports by one-third. The government resorted to rigid controls over the private sectors trade activities. Naypyidaw became the new administrative capital. Wave of public dissent sparked by fuel price hikes, later dubbed the Saffron Revolution after the robes of monks who joined in. Dozens of activists were arrested. Thein Sein was sworn in as president of a new, nominally civilian government. Foreign investments started to pour in. Myanmars total foreign investment in FY2011 grew to over US$20 billion, up at least 70 per cent from the year before. (Source: UN) Candidates from Myanmars opposition party, the National League for Democracy, swept the board in parliamentary by-elections; leader Suu Kyi was elected. The US and European Union eased sanctions against Myanmar.

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MOVING IN ON MYANMAR

MOVING IN ON MYANMAR

The Shwedagon Pagoda is a reminder and symbol of Myanmars past riches and wealth of natural resources. The countrys reforms have perked the interest of many foreign investors, including Singaporean businesses. Photo by: Mark Tay

Photo by: Jasmine Ng

Top 10 Foreign Investment of Permitted Enterprises as of Jan 31, 2013

Permitted Enterprises No. 1 2 3 4 5 6 7 8 9 10 Country China Thailand Hong Kong Republic of Korea United Kingdom Singapore Malaysia France Vietnam India No. 42 61 47 77 54 83 43 2 5 8 Approved Amount (US$ Million) 14178.009 9658.093 6381.334 2979.231 2799.185 2166.986 1031.285 469.000 361.796 273.500 % 33.88 22.87 15.25 7.12 6.69 5.18 2.46 1.12 0.86 0.65

Source: Directorate of Investment and Company Administration, and Ministry of National Planning and Economic Development

of International Studies (RSIS) and a former ambassador to Myanmar, explained that the country was a very strategic one in mainland Southeast Asia. If you go back in history to the 1950s and 1960s, Myanmar was one of the worlds largest rice exporting nations. It was also the second most advanced economy in Asia, relatively speaking, in 1970s. Singapores former foreign minister George Yeo had noted that applying more pressure on Myanmar would make national reconciliation there harder to achieve. In any case, the preference of all the Asean countries is to continue to engage Myanmar, and keeping it in the family. This is certainly Singapores position, he said. Singapores unwavering support has forged strong ties between the two nations. This has earned the Republic a good reputation among Myanmar businessmen and officials alike. Located between China, India, Bangladesh and the Asean countries of Laos and Thailand, Myanmar offers access to its neighbours and a combined market of close to three billion people. The country is also rich in natural resources such as petroleum, timber, natural gas, limestone and precious stones. After President Thein Sein took office in March 2011, his efforts to open the country to more foreign investments, following a series of political and economic reforms, were widely lauded. Restrictions on participation have eased, as was witnessed during the last parliamentary by-elections, which saw opposition leader Aung San Suu Kyi gain a place in the legislature. Civil liberties have also strengthened, with greater me-

dia freedom and fewer restrictions on the right to assemble. Many political prisoners have been released and some exiled dissidents granted permission to return home without the fear of persecution. These paved the way for the lifting of foreign sanctions that had throttled the economy. With sanctions imposed by major Western powers winding down, foreign investments are pouring into the country, with a lot more projects waiting in the wings. Singapore is in a good position to benefit or be engaged with Myanmar, said Aaron Franz, senior associate of corporate advisory firm Vriens & Partners. The relationship between Singapore and Myanmar is strong and there are a lot of opportunities to leverage on those good relationships, he added. However, now that Myanmar has liberalised its economy, Singapore might not be getting the kind of payback it had expected. Goodwill opens doors, but at the end of the day, it all boils down to dollars and cents, said TEE Internationals director for corporate finance and strategy, Yap Shih Chia. The Singapore-listed engineering and integrated real estate group has recently signed a memorandum of understanding (MOU) with Myanmar conglomerate A1 Group to set up a cement plant there. While the governments of Japan and Korea are offering large sums of ODA to Myanmar to help their companies compete for opportunities in the country, an official from the Singapore embassy in Yangon explained that it was not Singapores policy to offer ODA. Instead, Singapore helps Myanmar in less sexy, but still

important ways, such as offering technical assistance and training. These projects are often less publicised, the embassy official added. During Thein Seins state visit to Singapore last year, the two countries signed an agreement under which Singapore will share its developmental experience and provide training to Myanmar in the legal, banking and financial sectors. The pact also calls on Singapore to share its expertise in trade, tourism and urban planning. IE Singapores centre director in Yangon, Ng Cheong Yew, said such engagements between Singapore and Myanmar have been ongoing for many years, even when other countries shunned the ex-pariah state. Thats one characteristic that youd find very unique to Singapore. Weve been with Myanmar throughout the entire journey, he said. Singapores constant encouragement and emphasis on training, rather than economic sanctions, have given local firms a headstart in the Myanmar market. Currently, Singapore is the countrys sixth-largest investor with a cumulative investment of some US$2.2 billion as at the start of the year.. The city-state is also Myanmars third-largest trading partner after China and Thailand. Bilateral trade between the two countries has doubled between 2007 and 2011 to reach US$2.4 billion, based on the latest available data. Mini-Singapore Today, there is a significant Singapore business presence in Myanmar, a large Myanmar community in Singapore and a pool of Myanmar companies using Singapore as an MOVING IN ON MYANMAR 9

MOVING IN ON MYANMAR

intermediary hub to expand overseas. It is not uncommon to see Myanmar-owned shops and businesses bearing the Merlion logo on their shopfronts to symbolise premium services and product offerings. Singaporean banks, like the United Overseas Bank (UOB) and Oversea-Chinese Banking Corporation (OCBC), have also carved out a name for themselves in Myanmars financial sector, as they were the main conduits for money transfers in and out of Myanmar during sanctions. Foreign banks in Myanmar are required to set up a representative office in the country. The rep offices conduct non-transactional operations, such as providing customer service and helping to maintain a close relationship with correspondent banks like the Myanmar Investment and Commercial Bank and Myanma Foreign Trade Bank. We also have to resolve any problems between the UOB head office in Singapore and the customers here, said U Ye Myint, assistant chief representative of UOBs Yangon rep office. He added that UOB, which has been in Myanmar since 1994, is well-known among Myanmar banks and corporate customers. Mr Ye Myint estimates that as much as 95 per cent of Myanmars foreign banking transactions went through UOB when sanctions were imposed. The Republic also established itself as one of the preeminent players in sectors such as hospitality and services, thanks to a combination of Singapore-Myanmar trade links and historical relations. Singapore is the largest player in the hotel industry and the biggest investor in Yangons top hotels, Parkroyal Yangon and Sedona Hotel Yangon. A shortage of hotel rooms, owing to a surge in visitors keen on participating in Myanmars growth story and tourists who want to go off the beaten track, has led to room rates tripling in recent months. The Singapore Association of Myanmar (SAM), made up of almost 160 members, seeks to assist and provide channels of support among Singapore companies and interests in Myanmar. Some 70 per cent of its members are from small and medium enterprises, according to the president of the association Argus Ang, who owns private international education and training provider RVi Group. This familiarity and warm relations are added advantages for Singapore companies, said IE Singapore. Out of the wilderness Given the constant and promising stream of developments coming from Myanmar, Mr Franz is bullish about a politically and economically reformed Myanmar. He believes that this round of reform is significantly different from past ones because it sees a more inclusive process. The generals have established the foundation for reform. The difference between now and the reforms in the 1990s is that last time they did not include all the necessary players, in particular, Aung San Suu Kyi, he said. Back then it was just one small part of the elite trying to open the country to the world. The World Bank gives Myanmar a decent report card, projecting growth for 2013 at a respectable 6.3 per cent. But as business people quickly discovered, Myanmars 10 MOVING IN ON MYANMAR

Singapore has established a strong reputation in Myanmar. It is not uncommon to see local shops and businesses bearing the Merlion logo on their shopfronts to symbolise premium services and product offerings. Photo by: Mark Tay

potential is large, so are its obstacles. Its population of around 60 million is more than 10 times that of Singapore, but also among the poorest in Asia. It also faces challenges including poor skills, weak infrastructure and administrative capacity, and a rudimentary legal system. Hence, this might force many firms to adopt a wait and see approach before committing significant funds. Even TEE, which has put its name down to enter Myanmar, is treading carefully into the emerging market. The MOU it signed was intended as an expression of interest and preliminary commitment. The company is leading the technical studies of the project and will complete its assessment on Jun 8, before committing itself fully to the project. Currently, the Myanmar government is looking to simplify its complex foreign-exchange regime that involves multiple exchange rates. It is also proposing new rules aimed at levelling the playing field for foreign investors after years of favoring businessmen with close ties to Myanmars military. The newly passed foreign investment law would give outsiders

more control over property and businesses. The new law allows overseas firms to fully own ventures and lease land from the government or authorised private owners for up to 50 years, depending on the type and size of the investment. The old law did not define land lease periods but, in practice, contracts tended to cover 30-year terms, extendable for two periods of five years. Foreign firms may be entitled to a tax holiday for the first five years of operation. Other forms of tax relief may also be available depending if the investment is deemed in the nations interest. The old law only allowed for a threeyear holiday. Foreign manufacturing companies may be entitled to a tax relief of up to 50 per cent on profits made from exports, provided the money is reinvested in the business within one year. Next, the government has to try to implement the law by drafting bylaws, the Singapore embassy official said. Id have to give it to them. They are working very hard. Although foreigners will no longer need a local part-

ner to set up businesses in Myanmar, IE Singapores Mr Ng said that sourcing a good local partner is definitely encouraged. Singapore businesses (who wish to do business in Myanmar) must forget about the kind of business practices they are used to in Singapore. If they try to do business here alone, they can expect to encounter many difficulties. When they run into problems, there will be no one to help them. They may have lawyers, but there is only so much a lawyer can do for you (in Myanmar), Mr Ng said. TEE International can attest to that. Mr Yap said the MOU with A1 Group is likely to go ahead, as its Myanmar partner will see that the procedure goes smoothly. Our partner is one of the largest conglomerates in Myanmar. The chairman is also a member of parliament of the district where the cement plant is. Chances are, I think documentations will be fairly smooth, Mr Yap said. Looking ahead RSIS senior fellow Mr Tan expects Singapore to be a major player in Myanmar in time to come. He advised SingaMOVING IN ON MYANMAR 11

Goodwill opens doors, but at the end of the day, it all boils down to dollars and cents.
Yap Shih Chia Director (Corporate Finance & Strategy) TEE International
porean companies eyeing expansion in Myanmar to start building inroads, understand the market and establish business linkages. I think now is the right time (to enter Myanmar). Companies should at least be preparing the ground, he said, adding that several businesses have already set up trade offices there to explore opportunities in the country. Mr Tan also believes that Myanmar is a country worth cultivating, and urged businessmen not to be overly concerned about the various hurdles there. You must not worry about too many of these things. You work within the system. n

Whats in a name?
Myanmar, with its historical, business and legal complexities, has come up with a surprisingly easy adjective to describe its culture just Myanmar. We use the word Myanmar to refer to our culture, our people and our language, said Dr Maung Maung Lay, vice-president of UMFCCI. Words like Myanmarese and Myanmese are incorrect, he added. Instead, the people of Myanmar are simply known as Myanmar people. Its language is called the Myanmar language, and its culture, Myanmar culture. The British, during their time as colonial overlords, referred to the country as Burma and to its principal city, Rangoon. But after widespread pro-democracy protests in 1988, the ruling military junta changed its name a year later from Burma to Myanmar. Rangoon also became Yangon. The name change was recognised by the United Nations, and by countries such as France and Japan, but not by the US and the UK. A statement by the UK Foreign Office said: Burmas democracy movement prefers the form Burma, because they do not accept the legitimacy of the unelected military regime to change the official name of the country. Internationally, both names are recognised, it added. In Myanmar, the Burmese refer to a larger ethnic group (Burman), which has more cultural influence in Myanmar. To reflect the countrys ethnic diversity, people from other minor ethnic races prefer to be known as Myanmar.

IE Singapore: Making the match

ingaporean firms looking to successfully do business in Myanmar must acquaint themselves with the importance of relationship-building. This is where the International Enterprise (IE) Singapore plays the role of a facilitator to help companies find the necessary connections in Myanmar. Ng Cheong Yew, IEs Yangon centre director, explained that the national agency helps to conduct business missions to link Singaporean companies with Myanmar partners. Since he arrived in Myanmar last October, he has coordinated several company- and industry-specific missions focused on the transportation, real estate, hotel, goods distribution and medical sectors. In Myanmar, there is a procedure to follow if you want to register a company. Even if you knew exactly whom to approach, there would be issues along the way like trying to get your application through, framing your proposal in a way that the Myanmar government understands, or the way you portray your value proposition, the 29-year-old said. Maybe youd find out on your own eventually, but that would take you very long. You need a local partner to help you to speed up the process if you want to capture the opportunities in Myanmar, Mr Ng added. If IE did not have the existing contacts, he would refer the companies to the UMFCCI, Myanmars business federation. Charged with spearheading the overseas growth of Singapore-based companies, IE works with these companies in their various stages of growth towards being globally competitive. Last December, the trade agency re-opened its Yangon office at Sedona Hotels annex tower, which is used for offices and service apartments. The Yangon office fields many phone and online queries from firms each day, while handling visits from others which are exploring the country for the first time. The response from Singaporean firms is overwhelming. Since I came here, Ive been working seven days a week, and for almost 16 hours a day, Mr Ng said. But these networking sessions can be a bit unpredictable, as businesses would not know the types of companies that show up from Myanmars side. As with every business matching, 80 per cent of it will amount to nothing. 20 per cent will churn out some commercial projects, Mr Ng said. He noted that some Singaporean companies might be cautious about investing in Myanmar as they do not know much about the operating environment there. Thats why we are here to share our local knowledge and connections with them to facilitate investment. Its all about trying to lower the companies cost of market entry, and to help them to mitigate some of the risks.

He urged companies to develop a business strategy that is not reckless or too prudent. Now Myanmar is at a state where it is medium-risk and yields high returns, so it really depends on the companies own risk appetite, Mr Ng said. If they adopt the right business strategy and are able to adapt to the rapidly-changing business environment here, they can do very well.

JASMINE NG

IE Singapores Yangon centre director, Ng Cheong Yew, stressed that Singaporean businesses hoping to enter Myanmar should find good and reliable local partners who can help with drafting proposals and navigating the bureaucracy. Photo by: Mark Tay

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Photo by: Jasmine Ng

MOVING IN ON MYANMAR

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CULTURE
ficial at the Singapore Embassy in Myanmar said. He advised Singaporean firms seeking expansion into Myanmar to be more flexible in tailoring their business tactics to suit the developing nation, instead of applying a methodical approach, which is more appropriate for developed countries. A rigid way of doing business in different jurisdictions could have an adverse effect on firms that are not flexible or creative enough to deal with the uncertainties and the distinct styles of business negotiations. Accustomed to a structured business environment, Singaporean businessmen may be unnerved by the fluidity of the Myanmar system that is still undergoing rapid changes. Emerging from the shadows of the previous military regime, the country faces an uphill task at reforming various sectors to improve its image as a destination for foreign investors. One undesirable business practice that the president is bent on eradicating is the legacy of graft left behind from the countrys decades of military rule. This problem continues to plague all levels of society, including the government. In a speech broadcasted on national television and radio last year, President Thein Sein made a rare criticism of his cabinet and officials for allowing poor governance to continue. But weeding out corruption will be no easy task, said Maung Thet Naing Oo, a Myanmar-born Singaporean businessman. Although he supports the presidents initiatives, Mr Maung Thet Naing Oo explained that there might be resistance to changing the system, as it is a deeply rooted culture. Giving to the poor, elderly, or as religious offerings is part of the Myanmar culture; its a lovely culture, but it is misused as bribery (sometimes), said Mr Maung Thet Naing Oo. He explained that favours could take the form of donations to causes or temples that the other party supports, instead of going directly into their pockets. Singaporean businessmen who seldom encounter undertable dealings may find it difficult to navigate Myanmars practice of giving, as the line between outright bribery and subtle donations are blurred. Although President Thein Sein has initiated a series of unprecedented reforms, time is needed for the changes to take effect and improvements to be seen. Such cultural differences are hurdles Singaporean businessmen would have to overcome in a developing nation like Myanmar. Mr Win Aung said greater awareness about such issues was needed to avoid misunderstandings that could cause friction between foreign and local partners. Myanmar has people who are less educated and they dont understand about doing business in a modern way, he said, adding that cultural differences could lead to unnecessary panic. Ethnically diverse Myanmar, which has 135 recognised ethnic groups, is a more complex society than Singapore. The diversity in races also requires Singaporean investors to be more sensitive when dealing with locals and not assume that racial harmony is a given in the country. A Singapore embassy official added that Singaporeans MOVING IN ON MYANMAR 15

ingaporean firms interested in setting foot in Myanmar might trip over a lack of understanding of the local business culture and adopting an overly rigid approach to doing business. If they become too demanding of their counterparts of the nascent economy, the positive perception of the Singapore brand established from years of engagement could be hurt. The biggest problem about Singapore is that we think we are completely rational. Our only objective is profitmaximising, said Singaporean Zulkifli Baharudin, who has been doing business in Myanmar for over 20 years. Mr Zulkifli is the managing director of logistics firm Global Business Integrators and a former nominated Member of Parliament. He was running a small transportation business in Myanmar before partnering Singapore-listed mDR Holdings to distribute mobile phones in the country. Our business practices are not the most admirable to start with. We dont have power, we dont trust people, and we are risk-averse, he said, adding that business is more than just the economic and political factors; a premium must be put on some of the human and cultural factors as well. He urged Singaporean firms to look within themselves and understand their idiosyncrasies. Only then can they try to blunt the cultural distinction between them and the Myanmar businessmen, Mr Zulkifli said. For foreign firms keen to expand overseas, knowing how to operate in a country with a different culture is the most important strategy, said Win Aung, chairman of a tour agency in Myanmar. He added that Myanmars cultural similarities with neighbouring Thailand have benefitted the latters investment in the country. From 1989 to 2011, Thailand invested a total of US$9.5 billion in Myanmar, second only to China. Singapore was Myanmars sixth largest foreign investor with US$1.8 billion worth of cumulative foreign direct investment over the same period. Economic cooperation between Thailand and Myanmar also looks set to deepen as both have declared a goal of tripling bilateral trade by 2015 from the current US$6.1 billion achieved in last year alone. We have the same culture, religions and history. The Thais understand Myanmars strengths and weaknesses very well, Mr Win Aung said. The middle way The similarities between both countries are most pronounced in the sphere of religion, where Buddhism is the predominant faith in Myanmar and Thailand at 89 per cent and 95 per cent of the population respectively. Humility is prized in Buddhism, Mr Zulkifli explained. Hence, the first thing he does upon arriving in Myanmar each time is to put on the traditional longyi and slippers. I cant change the differences the fact that Im Singaporean. But I can do something to increase the common areas, he said, adding that business success in Myanmar has everything to do with understanding and respecting its operating culture. Due to Singapores legalistic culture, Singaporeans tend to go by the book and are not likely to bend rules, an of-

Doing it the Myanmar way

A clash of cultures can get in the way of Singapores investment
By KRYSTAL CHUNG
14 MOVING IN ON MYANMAR

Photo by: Mark Tay

Buddhism, which is deeply rooted in Myanmar society, has impacted business culture as the common tradition of giving alms to religious monks has influenced businessmen to adopt the practice of patronage. Photo by: Mark Tay

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should not impose their standards on locals, as circumstances between the two countries are vastly different. Bridging the culture gap and establishing a relationship with local partners are vital to businesses set on long-term growth in the country. This can be achieved by engaging in communication to build mutual trust needed for a successful partnership said Singaporean Argus Ang, who operates a private education agency in Myanmar. He added that because most local businessmen were not as forthcoming about expressing their discontent; the onus is on Singaporean firms to be more proactive in the relationship. You really have to communicate, ask questions, and build trust, said Mr Ang who has nearly two decades of business experience in Myanmar. Learning from each other Despite the gripes about Singaporeans inflexibility when doing business, Myanmar firms could benefit from the formers understanding of the Western culture to reach out to modern consumers. Singaporean Miki Ow, the general manager of Ikon Mart in Yangon, said her employees limited exposure to cuisines from around the world could get in the way of the companys operations. Ikon Mart is in the business of supplying white goods, such as ovens and espresso machines, to high-end hotels

and restaurants around the country. Ms Ow explained that her staff might not understand the need for various kinds of serving dishes. For example, when chefs request for a ramekin dish to serve crme brle (a French dessert), they might not know what the chefs are looking for, she said. The locals are very familiar with basic European dishes like chicken chop and steak, but anything beyond that might be difficult for them, Ms Ow added. It is not their fault because the country was closed to the outside world for a long time. Myanmar companies could draw on the experience of expatriates to better understand the demands of their new international clients, and to bring fresh ideas to the team. If you get somebody from outside of Myanmar, it brings a whole new skill set and knowledge to the company, Ms Ow said. Although more time is needed for Myanmar to play catch-up with the rest of the world, signs of modernisation are slowly creeping into various aspects of daily life, such as fashion. For example, it is culturally acceptable to wear the longyi and slippers for job interviews today. But this might phase out in the near future as Myanmar people, especially the youths, are trading their traditional costumes for modern clothing. Although the sartorial choices of the people may change with the times, Myanmars culture is likely to remain a

dominant and binding part of its social fabric. Misunderstandings over cultural differences and being overly demanding on a nation still in the infancy of economic development may fray business relations. Beyond just cost and benefit analyses and risk assessments, Singaporean firms entering Myanmar should be prepared to cope with the culture shock. Building mutual trust with the local partners should be a priority, Mr Ang advised. Do your homework, understand the market, find out how things work, and take the necessary precautions. You cannot expect everything to be delivered on a silver platter to you. n

Whos who in Myanmar

It is a common practice for Myanmar people to refer to a businessman together with his companys name. This helps to differentiate those who share the same names and to identify the organisation they belong to. For instance, the chief executive of Myanmar conglomerate Dagon International is better known as Dagon Win Aung in the business circle. Adding the organisations name also serves as a way to distinguish the whos who in the scene. This naming reflects the relatively small size of the local business community that is dominated by a few big players. These tycoons had profited from years of Western sanctions and restrictions, carving out a name for themselves. The prefix U and Daw are often added to names as an honorific title. U can be included in the names of men in senior positions, while Daw is for married or older women. Myanmar is one of the few countries where its people do not have surnames, so such titles play a significant part in shaping a persons identity.

Thai devotees on a pilgrimage to the Shwedagon Pagoda offer prayers while circling the stupa with a long cloth. Buddhism is the predominant faith in Myanmar and Thailand. Photo by: Krystal Chung
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Daunting challenges keep investors at bay

While Myanmar aims to transform its economy to win foreign investors over, its shortcomings could keep Singaporean and foreign investors from taking the leap into Myanmar.
By MARK TAY
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CHALLENGES

nconsistent Internet speeds, threats of power and water supply outages are inconveniences expected of a developing country like Myanmar. But when seen from an investment perspective, these problems make investors shudder as productivity and output are constantly at stake. Beyond Myanmars lack of physical infrastructure, foreign investors, including Singaporean companies, also face systemic challenges when seeking investment opportunities in the country. Sinking in huge investments is difficult, as we can never know what would happen next, said veteran Singaporean businessman in Myanmar, Argus Ang. Mr Ang, who started education centre RVi Group in Yangon in 1996, has had his fair share of power outages and rationing too. We had to get a generator and make sure we had uninterrupted power supply, or basically a battery, for our computers. If the power trips, all the data will go. The lack of infrastructure was the biggest challenge, Mr Ang said. Over a year since reforms started, businesses in Myanmar continue to struggle with poor infrastructure, an immature financial system, unclear legal framework and widespread skills shortage. Beyond the lack of business infrastructure, the country is also persecuted for its corruption legacy, where bribery, nepotism and kickbacks are blighting efforts to develop the country. Most of Myanmars problems stem from the countrys close-door policies that began in the 1960s when the country was ruled by the controversial military junta. The introduction of a military government led to the dismissal of technocrats from the previous government who were replaced by military leaders with little to no experience in managing the country or its economy. Military personnel only know two things: giving orders and following orders. It is the easiest way to just give orders; no questions, no discussions, just shut your mouth, said veteran Myanmar lawyer U Mya Thein. If you are talkative during a meeting, [the military] makes a note of it and then you will be discriminated in some way or another, he added, explaining that many private companies could not survive in the dictatorial climate imposed by the junta. Myanmars labour force, particularly the skilled-workers, also suffered due to the military governments fear of losing power as it closed its universities for two years after the 1988 student-led democracy protests. Teething problems The nascent Myanmar market is beset with teething problems arising from 50 years of isolation caused by sanctions that prevented the development and flow of critical technologies such as telecommunication services and a viable banking system. Singapore and Myanmar are about 1.5 hours apart, but when you come to Myanmar, you have to reset your watch to about 50 years back, said Maung Maung Lay, vice-president of the Union of Myanmar Federation of Chambers of Commerce and Industry (UMFCCI). As Myanmar liberalises its economy and enters the race for foreign investment and double-digit economic growth, 22 MOVING IN ON MYANMAR

Myanmar, which is Southeast Asia's least mobile-connected country, relies on makeshift stalls that provide locals with landline telephones to make calls from. Owning a mobile phone is still difficult as mobile SIM cards are sold for about US$250, well beyond the reach of the average worker. Photo by: Mark Tay
it is far behind its closest competitors in the greater Mekong subregion. Countries like Vietnam, which have embraced an opendoor policy since the mid-1980s, have had the luxury to develop its infrastructure and build capacity. For example, tourists visiting Vietnam have a plethora of quality hotels to choose from without having to pay the cutthroat prices Myanmar hotels are charging. Many in the tourism and hospitality industry attribute the current tripling of room rates to the making up for 15 years of lost profits. The lack of quality hotels and flights into the countrys business capital, Yangon, have made visiting Myanmar a harrowing experience for business travellers like Yap Shih Chia. We couldnt find hotels so we put up at an accommodation that had individual compressor-type aircon units, and of course, the aircon did not work. It was a horrible experience, said Mr Yap, TEE Internationals director of corporate finance & strategy. These impressions, though superficial, leave a bitter taste in the mouths of foreign investors who are looking to sink hundreds of thousands into the country. Singaporean Miki Ow, who first visited Yangon for an interview with a local company two years ago, described Myanmars most advanced city as backward or thirdworld. When I first arrived, my house did not have a generator, so I went through summer with six hours of power shortage every day. I also have to fill up my water tank daily, or I would have no water to shower with, Ms Ow said. While she has gotten used to the few extra chores and inconveniences of Yangon city-life, Ms Ow bemoans that network speeds are inconsistent. A one-megabyte file could be downloaded very quickly on some days, while files much smaller could take longer or not load at all on other days. Our lives improve with connectivity and because the connectivity here is not efficient it causes a drop in productivity and efficiency, she added. But grumbling over Internet speeds and connectivity problems are issues that only the rich in Myanmar grapple with. For a large segment of its unwired population, owning a simple mobile phone is a luxury. According to the World Banks development indicators, only one per cent of the countrys 60 million people own mobile phones. The countrys mobile penetration rate is also ranked the lowest in all the countries, according to data compiled by the Asian Development Bank. MOVING IN ON MYANMAR 23

Mobile SIM cards used to cost US$5,000 before falling to the current price of about US$250. But this is still beyond the reach of the average local, where a waitress at a hotels restaurant earns about US$60 a month. To remain in contact with their families in the countryside, little shops along Yangons bustling streets offer callers fixed-line telephone calls for a fee. Starting at 200 kyat (28 Singapore cents) for a domestic call, each additional minute costs 100 kyat. Reform-minded politicians like President Thein Sein are well aware of the countrys lack of basic infrastructure, which are crucial in attracting and sustaining foreign direct investment. In January, the president proposed that SIM cards be sold at about US$60 so as to boost the countrys connectivity. It also announced that it was launching tenders for two nationwide telecommunications service licences, which will be awarded in the first half of this year. Curbing corruption In the presidents bid to solve infrastructural problems like the countrys dismal mobile penetration rate, a can of worms was opened, linking Myanmars former telecommunications minister, Thein Tun, to graft. The recently retired minister did not approve of the presidents suggestion to make SIM cards more affordable because it would affect the profits of the Myanmar Post and Telecommunication, a state-owned company placed under his charge. Corruption, graft and favours are commonplace in Myanmar, whose 2012 corruption perception index score is ranked 172 out of 176 countries by Transparency International. Despite the countrys abysmal transparency ratings, many veteran businessmen place emphasis on connections and not blatant bribery. A Singaporean restaurant owner, who has been in Myanmar for over a decade, said his encounter with corruption was in the form of a name card belonging to a high-level transport official. On the back of the laminated name card is a signature belonging to the official and the handwritten name of the Singaporean businessman. "If there are any problems on the road, excluding fatalities in an accident, the official told me to flash his name card to the police. There shouldnt be a problem after that, he said on condition of anonymity. Dr Maung Maung Lay described corruption in the country as systemic, even though its not congenital. We dont have that in our DNA, he added. According to veteran Myanmar lawyer Mr Mya Thein, Myanmars corruption culture was a result of the military governments mishandling of the economy. As the military government began nationalising factories in the 1960s, inflation started to rise as military personnel who had no technical or business know-how were suddenly made to decide production quantities and quality for the people. Because (of the mismanagement of the economy), there was inflation and we were afraid of it, so we began to buy in bulk, Mr Mya Thein said. The judicial system started to collapse because of the 24 MOVING IN ON MYANMAR

Veteran lawyer U Mya Thein is familiar with Singapore, which he calls his second home, as he often visits the city-state for medical checkups and short holidays. He owns a few residential properties and cars in Singapore. His son and grandson were also educated in the country. Photo by: Mark Tay

rise in inflation, he added. This had created a spillover on government officials, who had to turn to corruption in order to maintain their standards of living. The judicial system was also plagued by the dictatorial intervention of the military government. The courts the judicial system had to follow the orders of the military; the intrusion of the executive branch into the judicial branch, said the 74-year-old lawyer, who added that the legal system is gradually improving. Legal system revamp Apart from removing corruption from the judicial framework, Myanmars legal system needs an overhaul, as many existing regulations are unclear and sometimes not enforced. Chester Toh, a partner at Singapore law firm Rajah & Tann, described some of the countrys laws as antiquated. There is a disconnect between the law and practice. In Myanmar, it is not just a simple case of getting legal advice per se, he said. For instance, when borrowing money in Singapore, borrowers have to charge assets to the lender. While there are similar laws in Myanmar, it is not practised because there is little credit available and few loans that are extended. This is one clear example where the law provides for it, but not many people act in accordance to it. Because of that, the regulators themselves are not very familiar with the law, Mr Toh said. The new foreign investment law that was passed last November seeks to provide foreign investors with an assur-

ance backed by the judicial system. The 1988 version of the law did little to protect investors after the government went back on its word. Back then, the government practised delay tactics, which made it difficult for foreign investors in Myanmar to repatriate profits from investments, said Mr Mya Thein, who is also a member of the parliaments legal affairs and special issues commission. This could drive investors today to adopt a more cynical approach towards Myanmar government policies and to withhold their ventures. How could investors do business if the government didnt keep its promises? The law was not bad, but the way they applied it was not good. Thats why they are trying to upkeep the standard today, he added. While Mr Mya Thein believes the newly passed law is adequate, he said feedback would only come one or two years later, after investors have had contact with the law. But further revisions to the law after that are unlikely to have a drastic impact on investors. He added that more has to be done to beef up the countrys ancillary judicial framework as unlike Singapores statutes that are made publicly available online, Myanmar does not have such platforms. This makes legal affairs unclear for investors interested in the country. Dearth of human capital Dr Maung Maung Lay said human capital was the countrys biggest challenge. This could take much longer to address, as compared to the one to two years needed to sort

out issues related to the new foreign investment law. We were under the military for 49 years and the bureaucracy only obeys orders regimentally. They dont have the creativity or the guts to do things their way. They only listen and obey orders, he said. The effect of decades of harsh military rule is evident in Myanmars lack of skilled workers such as doctors, nurses and engineers. According to a 2010 United Nations Population Fund report, an average Myanmar doctor sees about 3,315 patients compared with a Singaporean doctor who only has 555 patients to care for. In the past, many Myanmar doctors fled to countries like Australia and the US, where they could earn a more attractive wage working as nurses or medical assistants. Since the reforms, President Thein Sein has urged the nations millions-strong diaspora, which had fled Myanmars corrupt economy and political repression, to return and rebuild the country. Mr Ang, who is also chief executive of RVi Institute, a professional development institute of RVi Group, said the brain drain had made finding people with the right skill sets difficult. Education in Myanmar is now a big thing, and that is good (because it aids) human capital development. The issue is having skilled labour in Myanmar; it is still a challenge and the government recognises that, he said. The recent opening up of Yangon University and Yangon Technological University after a review of the education system is seen as an encouraging sign. But this may prove to be too little too late, as investors would require reasonably skilled workers as soon as they commence operations, said Mr Aaron Franz, a senior associate at political risk analysis firm, Vriens & Partners. People are attracted to Myanmar because of its low labour costs, but the labour there has limited abilities. They need to develop that capacity, he said. Hence, RVi has put in place different programmes to train and upgrade workers in the country, such as human resource, leadership skills, and change management. The latest additions to their list of courses also include a course that helps service staff improve their English and an aviation-training course. It is about helping people to find the right job, Mr Ang said. But private educational institutes like RVi Group need the support of the government to ensure that the quality of Myanmars workforce improves. Advisors like Mr Mya Thein often remind the countrys top leaders that they must continue to train their people to help them find suitable work. This will go some way in alleviating social crimes and corruption, he added. There is this Myanmar saying: if you can keep your stomach full, you can also keep your morals, he said, explaining that education was the best solution to the countrys challenges. n

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PHOTO SNAPSHOTS SPREAD

A glimpse of Yangon streets

Productivity in Myanmar remains a key challenge for businesses as the countrys labour force lacks essential skills. It is common to see workers using moulds to make bricks on site, unlike the precast bricks that are usually used in Singapore. Photo by: Krystal Chung
26 MOVING IN ON MYANMAR MOVING IN ON MYANMAR 27

Roadside vendors in Myanmar use a traditional hand press to extract sugarcane juice. Mechanisation in the country is virtually unheard of, as most of its manufacturing processes are done manually as a result of its former closed-door policies. Photo by: Jasmine Ng

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Phoe Htuang, 13, has never been to school. He heads to the Bogyoke Aung San Market every morning to work as a coffee runner. Like him, many Myanmar children forego schooling to help supplement their family income. Photo by: Mark Tay
30 MOVING IN ON MYANMAR

OPPORTUNITIES
are renowned throughout the world; a reputation for high quality, on-time and reliable services, Mr Ng said. With its fourth outlet opened for business in March this year at 47th Street, Singapore-owned Chewy Junior currently has three franchise outlets in Yangon and another in Mandalay, all within a year of its foray into Myanmar. On display at its outlet located in upmarket shopping mall Junction Square, neat rows of its signature chewy cream puffs and the words international franchise from Singapore aim to attract shoppers. We are basically one of the best brands there, so we stand out, said its managing director Kevin Ong. The winning factor Across many sectors, the strong Singapore brand name that has been built up can be credited to persistent political engagement and enduring commercial presence in Myanmar, when other countries shunned or withdrew investments from it. While Myanmars military regime faced heavy sanctions from the West, the Singapore government continued to engage the country through Asean, providing training and technical assistance to Myanmars officials. Other Singaporean companies spotted at Junction Square include clothing retail shops bYSI and iora, which were at the forefront of style at last years Myanmar International Fashion Week, an event organised by the mall. Elsewhere at the historic Bogyoke Aung San Market, footwear outlets U.R.S. Inc and Heatwave Shoes were buzzing with activity as customers tried on stylishly designed heels and sandals boasting of Singapore heritage. Companies keen on entering the Myanmar market could benefit from the Singapore brand as the Republics products are usually perceived as premium and sold at higher prices than back home, Mr Ng noted. Despite the relatively higher priced cream puff pastries compared with locally made alternatives such as doughnuts and bread buns, Chewy Juniors Mr Ong believes that attracting customers will not be a problem. He said business opportunities in Myanmars consumer sector are aplenty, as the country has a large and youthful population of close to 60 million. Even with just one per cent of the upper class population, as long as it is not overly congested with foreign brands yet, there will still be plenty of opportunities to make money, Mr Ong added. The Singaporean confectionery firm has chosen franchising as a means to expand into overseas markets and grow its business. I wanted something new for the people, something that they dont usually have, said Myanmar-born Singapore citizen Maung Thet Naing Oo, who has bought the master franchise rights to sell Chewy Juniors products in Myanmar. Adding that the use of quality ingredients, such as Belgian chocolate, would attract people with higher spending power, Mr Maung Thet Naing Oo said he is targeting those who can afford to eat, but have few choices. Food choices for the average consumer are often limited to locally produced goods. Myanmar remains one of the last few nations where international fast food chains and convenience stores have not set up shop. Instead, street vendors line the roadsides selling local MOVING IN ON MYANMAR 33

Singaporean brands are marketed as premium brands in Myanmar. It is common to find references or motifs such as the Merlion displayed prominently on shopfronts. Photo by: Mark Tay

Spore brand a winner in Myanmar

Singaporean firms can leverage on its strong reputation for a bigger slice of Myanmars growth pie.
By KRYSTAL CHUNG

walk down the streets of Yangon might surprise Singaporeans with sights reminiscent of home - Merlion symbols and home-grown Singapore brands. The Republic has established a strong reputation for its premium goods and services, and this is reflected in having the most number of permitted enterprises in Myanmar. Since its reforms, resource-rich Myanmar has lured many international suitors, from big corporations like Coca-Cola to smaller enterprises such as Singaporean confectionery chain Chewy Junior, eager to profit from one of the last untapped markets in the region. This has made it a fiery battleground for foreign investors, including its prosperous Asean neighbour, Singapore. IE Singapores centre director for Yangon, Ng Cheong Yew, urged firms here to draw on the strong Singapore brand when pitching their business propositions. Companies should focus on Singapores qualities that

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People do respect that we are a company from Singapore, so thats a huge advantage.
Argus Ang Managing Director RVi Group

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MOVING IN ON MYANMAR

Photo by: Mark Tay

35

Singaporean brands like Chewy Junior, Popular bookshop and fashion retailer iora have outlets in Junction Square, one of Yangons newest shopping malls. Photo by: Mark Tay
dishes, fresh-cut fruit, and local variations of beverages such as lapae yea (Myanmar milk tea) and Blue Mountain Cola. It is also common to see locals carrying tiffin carriers packed with home-cooked lunches to work. The absence of global chains such as McDonalds and Starbucks positions Myanmar as a unique market for foreign investors. Mr Ong remarked that cream puff pastries are something that is simply out of this world for the locals. Prominent lawyer U Mya Thein concurs with this. Myanmar people do not understand what the standard for Coca-Cola is, whether it is made in Thailand or Taiwan. We only know it is an international brand, he said. The iconic American enterprise made its first shipment of soft drinks to Myanmar in 60 years. Missing out on some five decades of overseas influence and competition has resulted in no benchmark for comparison. The few international brands available in the market today are thus invariably seen as of a higher standard than local ones. Mr Mya Thein added this could signal that the timing is right for foreign investors to enter Myanmar. Tapping on hidden potential Beyond just its consumer market, resource-rich Myanmar also possesses latent potential in the extractive and mining industries. A lot of people will cite population as a reason to come into Myanmar, but that may not be a fair assessment, Mr Ng said. In January, the Ministry of Energy placed an advertisement in a state-newspaper calling for bids on 18 onshore blocks earmarked for petroleum exploration. Abundant in natural resources such as timber and pre36 MOVING IN ON MYANMAR cious gems, Myanmar also has vast stores of oil and natural gas, which 2011 official data estimates at about 2.1 billion barrels and 25 trillion cubic feet respectively. When oil majors start to explore for oil, a lot of supporting services will be needed, said Mr Ng. He sees opportunities for Singaporean companies like SembCorp and Keppel Corp to set up shipyards, while Jaya Holdings and Viking O&M could provide ancillary support by supplying vessels and equipment. Despite the many challenges investors face when dealing with Myanmar, therein also lies the opportunities for firms from certain sectors. The country may still be in its early developmental stage, proving an obstacle for companies that require a more robust infrastructure network to operate. But engineering and construction firms, for instance, could benefit from the grand plans that are underway to transform various parts of the country into industrial nodes. The Myanmar authorities have implemented plans on the creation of the Thilawa, Dawei and Kyaukpyu special economic zones, in addition to the establishment of industrial estates aimed at providing long-term economic opportunities for investors. They are taking steps to improve basic infrastructure and develop the necessary human capital to boost Myanmars image as an investment-friendly location. This is likely to create spillover opportunities for supporting services. Singapores TEE International is moving in on this opportunity. As Myanmar undertakes more construction projects in the coming years, TEE foresees a strong demand for building materials such as cement. The SGX mainboard-listed firm has recently embarked on its first project in Myanmar to build and operate a cement plant to manufacture Portland cement. To achieve

this, it is planning a joint venture with Ayeyarwaddy Cement, a subsidiary of Myanmars A1 Group, and has signed an agreement last November. Youd need cement for roads, highways, airports and buildings, said TEEs director of corporate finance & strategy, Yap Shih Chia, who added that it is a surrogate way of participating in infrastructural development. Another concern of Myanmars leaders is the development of a skilled workforce to meet the needs of the industries. A lack of quality employees with the right skill sets has plagued the country, whose education system was ravaged under military rule. Beyond language preparation, Singapore-owned private school RVi Group is also offering corporate training programmes that cover human resource management and leadership skills. The school, which has been in Myanmar for almost two decades, has established a strong presence in the cities of Yangon, Mandalay and Tachileik. Over the last 15 years, RVi has sent around 6,000 Myanmar students to Singapore for further studies, making them the largest preparation and exporter of students to the Republic. While reforms to liberalise the economy could mean more competition in the private education sector, RVis managing director Argus Ang believes that the general optimism and increased activity will generate even more opportunities. The business has widened on our side, Mr Ang said. The school is in talks with a civil aviation training institute and hotels to provide aviation and hospitality English courses respectively. He added that there is an appetite for knowledge in the country as Myanmar youths are eager to learn. I think education was, and still is, a sector that you cant really go wrong simply because there is a great need. People here really love education. When conducting risk assessments of a sector, precedence and certainty of existing investments are important factors, according to Alroy Chan, a lawyer from Rajah & Tanns Yangon office. Industries such as education, fast-moving consumer goods and hospitality bear lower investment risks as compared to more sensitive sectors like mining and timber, which are heavily regulated by the state. Foreign-owned hotels such as Yangons Parkroyal, Traders and Sedona hotels, which were established over a decade ago has created a low-risk paradigm for future investments in the hospitality sector. It is low-risk because the likelihood of nationalisation and expropriation is low, Mr Chan said. Finding the right balance Political stability remains a huge obstacle in the way of investors joining the gold rush. Observers expect the 2015 general election to be a litmus test of democratic Myanmars commitment to social reforms and economic liberalisation. In the meantime, potential investors have to strike a careful balance between being too cautious and too optimistic. While regulations and laws may still be unclear or opaque, opportunities may slip through the fingers of businessmen who are reluctant to take risks. If you want to wait for everything to be perfect, you

Trailblazers
Sectors Banking Hospitality F&B

Spore firms lighting the way in Myanmar Firms UOB, OCBC Parkroyal Hotel, Sedona Hotel Super Group, Asia Pacific Breweries, Viz Branz, Chewy Junior, Frolick RVi Group Interra Resources TEE International AsiaMedic Iora, bYSI, U.R.S Inc, Heatwave, Osim, Popular Holdings Yoma Strategic Holdings

Education Oil and gas Engineering Medical Retail Property

have to wait another 50 years. By then, you cannot build hotels, because everyone would have built them, said Mr Mya Thein. The right time to enter Myanmar varies for different businesses as some choose to strike while the iron is hot, whereas others prefer to conduct extensive market research before investing. But competition is heating up in Myanmar. IE Singapores Mr Ng urged new entrants to act prudently but fast, as the pool of potential Myanmar partners who own land is shrinking. It is currently fever pitch as agencies like the UMFCCI and IE Singapore play host to an endless stream of trade delegations, business missions, and entrepreneurs interested be one of the early birds to set foot in a place also known as the Golden Land. Furthermore, there is already keen competition over limited resources such as office space and hotel rooms. Mr Ng also reiterated the importance of finding the right local partner to help foreign-owned businesses break into the market and overcome obstacles such as language, culture and bureaucracy. To Myanmar business veterans like Mr Ang, who has established a foothold in the private education industry, his strategy in the face of an evolving economic landscape is to simply move forward and stay relevant. He also revealed expansion plans into other cities such as Bago and Taunggyi, and tie-ups with more universities and academic institutions. He added: People do respect that we are a company from Singapore, so thats a huge advantage. The rapid growth of Chewy Junior in Myanmar was not something that happened overnight, Mr Ong said, and called the opening of the first outlet a miracle. Despite the prospect of increased rivalry, he remains confident of the future and said his firm has reaped the rewards from the first phase of growth by entering the market early. Things will become more challenging but by the time competition comes in, we should have built our base and branding with hopefully ten over outlets. n MOVING IN ON MYANMAR 37

SECTOR WATCH
tive tourist destination, said Golden Express Tours general manager Kaung Set. (Hotels) should charge more only because they can provide better service. It shouldnt be because there is a lot of demand, so they charge however they please, he said. Two-star Thamada Hotel, one of Myanmars oldest hotels has seen its rates triple to US$70, from US$23 a night before the reforms. As one of the cheapest hotels in the city, the hotel is often fully booked as budget-conscious travellers see good value in its downtown location. The rooms, however, are in less-than-satisfactory conditions. Leaking water pipes and discoloured bathtubs are proof that hotels could be charging too much for substandard rooms. Dr Maung Maung Lay, vice-president of Myanmars business federation, described Thamada Hotels current prices as seven-star rates with three-star services. A fair price for the hotel would be around US$40 or US$50, he added. The lucrative hotel room rates are attracting businessmen to invest and build hotels, a move to help increase the supply of hotel rooms. Clover Hotel, which opened in November last year, has had stellar starts as its rooms were completely snapped up within five days of its opening. Statistics published by the Ministry of Hotels and Tourism show that about 1,000 new rooms were added last year. Yangon currently has about 9,000 hotel rooms. Travel agent Mr Win Aung, who specialises in eco-tourism, is confident that hotel room rates will fall in time to come. There are more hotels coming up. With more room, the rates will be more competitive and come down eventually, he said. Mr Win Aung also feels that human capacity and hotel service standards should improve, though that might take more time. The tourism industry currently lacks service staffs that are fluent in English as a lost-generation of locals missed the opportunity of English education and practice of using the language when the country was closed to foreigners. Travellers Mr Rintoul and Ms Robinson said they had a hard time looking for Myanmar taxi drivers who could comprehend simple directions in English. We had to find someone who actually understood what we wanted. Thats why we chose a better hotel; the staff there can be of more help, Ms Robinson said. Airport too small Growing tourist interest in Myanmar has spurred international carriers like Singapore Airlines (SIA), Qatar Airways, Japans ANA and Korean Air to start routes to Yangon. As flights into Yangon arrive every hour from 6am to midnight, tourist arrivals have outgrown the Yangon International Airport, which currently has only five gates and a single runway that can accommodate a maximum size of a Boeing 747 with reduced cargo weights. Silkair, a subsidiary of SIA, previously had only one inbound flight (an Airbus A320 aircraft) a day, according to Mr Win Aung. But since last October, SIA began daily flights to Yangon with a bigger Boeing 777 wide-body aircraft that can carry MOVING IN ON MYANMAR 39

Photo by: Mark Tay

Myanmar tourism sector to face headwinds

The tourism boom, with its sky-high hotel room rates and sub-par quality, could start turning visitors away.
By MARK TAY

lanning a holiday to Myanmar can prove to be a logistical nightmare fraught with many challenges that range from booking hotel rooms months in advance to finding pristine US dollar bills. Australian couple Craig Rintoul and Rhonda Robinson experienced it first-hand, despite giving themselves close to nine months to plan their holiday. The hotel rooms were either too cheap or expensive, said Ms Robinson. She added that many of the hotels they considered for their year-end holiday were fully booked by March last year. For now, the accommodation crunch that has led to artificially high room rates is benefitting Singaporean firms. The Republic is the top foreign investor in Myanmars hospitality industry, with $740 million invested across 12 hotels and apartments. But this trend could reverse if the country gains a reputation of being an expensive destination lacking in quality standards. This will impact the long-term development of Myanmars tourism industry, said U Win Aung, the owner of a local travel agency. Hotel services are a big issue in the country today. There is a lack of human resources, and the shortage of 38 MOVING IN ON MYANMAR

good service can ruin the reputation of the hotels and the country, Mr Win Aung said. According to Myanmars Ministry of Hotels and Tourism, more than a million tourists visited Myanmar last year, a jump of some 30 per cent since the countrys start of reforms in 2010. But with more than half of the one million visitors entering the country via Yangon, the city with slightly over 200 hotels is finding it hard to cope with the influx of visitors. Keen demand and the severe lack of hotel rooms, have led to hotels raising their room charges by as much as three times their pre-reform rates. Its payback time: hotels Singaporean firms like Keppel Land and the Pan Pacific Hotels Group, which own five-star hotels Sedona Hotel and Parkroyal Yangon respectively, are well positioned to benefit from the growth in visitors, in particular business travellers. As foreign investors visit Yangon for business dealings, many are willing to fork out more for quality hotels that are centrally located and provide reliable Internet access. According to hotel-booking website agoda.com, basic

rooms in Parkroyal and Sedona cost about $372 and $335 a night respectively. This surge in rates caused the government to intervene last July by capping the maximum rate for standard rooms at US$150 per night, an attempt to help local travel agents honour packages sold before the price hike. Even as hotels rake in large sums of tourist dollars today, business has not always been a bed of roses. The two hotels, which have been in Myanmar long before the reforms, suffered heavy losses when the country closed its doors to foreigners. Sedona was built in 1997. Together with Parkroyal, they suffered for some 15 years, said IE Singapores centre director for Yangon, Ng Cheong Yew. During 2005 and 2006, room rates fell to about US$22 per room despite being rated as five-star hotels, he added. To mitigate the low occupancy rates, Parkroyal rented out half a floor to the RVi Group, an international school run by Singaporean businessman Argus Ang. The rooms were converted into a library and classrooms that could seat about 100 students. The school has since vacated the premises, allowing the hotel to convert the space back into rooms for guests. But Parkroyals general manager Ram Nurani argued the room rates in Myanmar have risen so sharply because they have remained the lowest in the region for several years. When you start from a low base, any increase may seem like a significant increase. Pricing follows demand patterns. Hotels need to abide by local guidelines and ensure that quality products are offered to tourists, he added. While Parkroyal has been working to enhance its rooms and service offerings to match the higher prices it is charging today, other smaller hotels in the city have not. The shortfall between the quality expected and what is delivered is hurting the countrys standing as an attrac-

Foreign Investment in Hotels and Commercial Complexes by Country

No. 1 2 3 4 5 6 7 Country Singapore Thailand Japan Hong Kong Malaysia United Kingdom Vietnam Total No. of hotels/ apartments 12 10 6 4 2 1 1 36 Investment US$(M) 597.756 235.75 183.013 77.00 20.00 3.40 300.00 1416.919

Accommodation Numbers in Popular Tourist Destinations

City Yangon Mandalay Bagan Naypyidaw Ngapali No. of hotels, motels & guesthouses 204 79 75 33 17 Number of rooms 8915 3374 2196 2111 619

Source: Myanmar Tourism Statistics 2012, Ministry of Hotels and Tourism

323 passengers, raising its total weekly seating capacity by 55 per cent. To accommodate the growing numbers, the government announced plans last June to develop a new international airport about 80 kilometres north of Yangon. The Hanthawady International Airport project has drawn interest from Singaporean companies like Yongnam Holdings, Changi Airport Planners and Engineers and Yoma Strategic Holdings. The three companies have qualified as firms eligible for the project and have been invited to submit tenders, according to the Department of Civil Aviation. As the country beefs up its physical infrastructure, effective immigration systems were still lacking as porous borders made it difficult to know the actual number of visitors Myanmar receives each year. Mr Kaung Set, general manager of travel company Golden Express Tours, said discrepancies in the countrys tourist arrival data are to be expected. Nothing is computerised here. Everything is counted manually. While most travellers entering Myanmar have pre-approved visas, the authorities introduced a business visa-onarrival programme last June, which aims to make business travel easier. But the process is still not clear-cut. The Ministry of Immigration and Population (MIP) website lists 17 terms and conditions that have to be fulfilled to qualify for a business visa on arrival. Among the terms, applicants must provide two recent passport photographs, a valid passport and a letter of invitation from the sponsoring company or copies of company registration issued by the local authorities. Failure to meet the requirements would mean immediate deportation, according to the MIP. Hope on the horizon Despite the industrys fears over infrastructure, pricing and human capacity, the tourism sector is making headway. 40 MOVING IN ON MYANMAR

Interest from foreign hoteliers like US hotel chain Best Western International and French hospitality group Accor indicate the level of confidence multinational companies have in the sector. Hotels will be better staffed, as the younger generation shows great interest in upgrading their language proficiencies, said Thamada Hotels manager Ni Ni Mo, who has been in the hospitality business for over two decades. In the past, my generation had no opportunities. But today, there are more opportunities for the younger generation. They know the importance of English and are learning it, she said. The tourism industrys biggest breakthrough was the reintroduction of credit card services and payment, which will make the country more tourist-friendly. MasterCard became the first international payments network to issue a license to a Myanmar bank last September. Tourists who own MasterCards are allowed to withdraw the Myanmar kyat from designated automated teller machines in the country. Travellers to the country can soon do away with the practice of bringing large quantities of perfect US dollar notes to last the duration of their stay. The unification of the Myanmar currency also means that tourists can exchange foreign currencies for kyats at official moneychangers, bringing about greater transparency and more honest dealings. For Ms Robinson, this came as a pleasant surprise as she read many stories online about money-changing scams in the country. At the Bogyoke market (a major tourist attraction), we managed to change money without being cheated, she said, adding that the locals were honest and gentle. For all the dings and dents in Myanmars tourism industry, Ms Robinson feels it is the people and culture that continue to make the country a place worth visiting. We love the people and the place; its going to be a major tourist destination. n

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