Wednesday, 2 April 2014

Myanmar: Developing Southeast Asian Nation On A Tear

While the catchphrase for finding opportunity was once, “Go West, young man,” I suggest the new catchphrase for developing markets investors should now be, “Follow Coca-Cola.” If you’re among the intrepid investors heeding my advice, Myanmar should be on your radar screen.

Myanmar—still known as Burma by many—is developing rapidly. Its 2013 GDP growth was an impressive 6.8% and its unemployment rate, a low 5.2%.

In March 2011, a parliamentary government took power in the first peaceful election since 1962 and Thein Sein, a Burmese politician and former military commander, became Myanmar’s Prime Minister. Throwing off 52 years of totalitarian government, Sein instituted major economic changes, including liberalizing foreign investment rules; changing tax rates; letting the Kyat float on the world markets (currently 966 Kyats = US $1.00); implementing anti-corruption laws; and populating government ministries with foreign lawyers, accountants, and consultants in order to more quickly modernize.

Prior to 2011, the past five decades of military government mismanagement left the country impoverished. In 2013, Burma had a GDP of US $53 billion (#75 world ranking) and per capita income of US $1,700 (#201 world ranking). Despite these bottom of the barrel rankings, Myanmar is rich in gemstones, agricultural products and natural gas/crude oil, and has a rapidly-growing textile industry; McKinsey Global Institute forecasts Myanmar's GDP quadrupling by 2030 to US $200 billion and its world ranking jumping to #48.

Following Sein’s economic reforms, Myanmar was reinstated in June 2013 into the European Union’s Generalized System of Preferences for duty-free and quota-free market access, and a graduated easing of restrictions on financial institutions and banks. Further, in response to Sein's political reforms, in July 2013 the United States eased sanctions by waiving restrictions on financial services, allowing US investment, and permitting the import of all products from Myanmar, except jade and rubies.

The Sein government has embraced foreign partners as its preferred method of moving into the 21st century. Knowing that a vibrant stock market is necessary to attract foreign investment, and with only two stocks listed and trading spasmodically on the existing Myanmar Securities Exchange Centre (MSEC), Daiwa Securities Group (8601-Tokyo Exchange)/Daiwa Capital Markets America Inc. (DCMA) was selected as a 50-50 partner with the state-owned Myanmar Economic Bank to establish a stock exchange. Scheduled to open in 2015, the exchange will emphasize Myanmar companies with foreign partners, which will enable western investments through the resulting ETFs and ADRs the Sein government hopes will follow.

Investors wanting to get in on the rich opportunity Myanmar represents today can buy into a company investing in Myanmar. These include multinationals in the telecommunications, pharmaceuticals, food and beverage, and personal consumer goods industries. The products of these companies are in great demand by Myanmar's young—the median age is 27—and western-leaning population. Which, by the way has a 92.7% literacy rate (age 15+; male and female).

Coca-Cola (KO) and Unilever (UL), the Anglo-Dutch global consumer goods company, both announced major investment plans when they opened manufacturing facilities in Myanmar last year; Chevron (CVX), General Electric (GE), and Pepsi (PEP) quickly followed. Cisco (CSCO) announced the opening of two academies designed to train locals for work in the country’s burgeoning IT sector, while Standard Chartered Bank (SCBFF) became the first western bank to apply for a banking license. Norway’s Telenor and Qatar Telecom’s Ooredoo were awarded cellular phone licenses to connect the country.

In partnership with local bottler Pinya Manufacturing Co. Ltd, Coca-Cola became one of the first US companies after the lifting of sanctions to be awarded an investment permit under Myanmar’s new Foreign Investment Law. It has been manufacturing and shipping soft drinks throughout Myanmar since June 2013, and now has $200 million of investments planned over the next five years that will increase production capacity, grow sales, logistics and distribution operations. Coca-Cola expects to create 22,000+ jobs servicing 100,000 retail outlets over the next five years.

Unilever’s new factory is part of its US $ 700 million investment plan to produce consumer products in Myanmar. Unilever views Myanmar as critical to its focus on developing markets, which now amount to 57% of its business. Unilever restarted distributing its brands in Myanmar two years ago, when the Sein government replaced the prior military junta; its Knorr soups, and Lux and Pond's skin-care products quickly become market leaders. “We see the makings of another Vietnam here, where we started from scratch 17 years ago, but now our business there is worth almost $1 billion," said Unilever COO Harish Manwani.

Additionally, Myanmar is successfully courting the West's geopolitical interest in using investment to counter Chinese influence in Asia. Japanese Prime Minister Shinzo Abe identified Myanmar as an economically important market that will help stimulate the Japanese economy; in 2013, Japan forgave some $3 billion in debt, and offered $600 million of soft loans for an industrial zone and deep-water port at Thilawa outside of Yangon (Rangoon).

The Myanmar Investment Commission has already accepted proposals to set up garment factories in industrial zones this year. Major Japanese apparel makers Honeys Co Ltd (TSE: 2792), Aoyama Trading Co (TSE: 8219) and TakaQ Ltd (TSE: 8166) are shifting their sourcing to Myanmar; in 2013 Japan transferred 43.9% of its clothing imports from China to Myanmar.

In March 2012, the Thai Garment Manufacturers Association announced that Thailand's top six largest garment manufacturers would relocate to Myanmar for its lower wages. The restored low-duty access to the US and EU markets has led the Myanmar Garment Manufacturers Association to forecast textile exports of US $1 billion in 2013—up from the $300 million exported during sanctions—and an expected increase of some 70,000 jobs.

In short, Myanmar's pro-growth, pro-business government has made the country attractive to international investors. With its young population, low-unemployment rate, strategic location and an upcoming western-oriented stock market, Myanmar is a market well worth investigating before the good news spreads!

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

source: NASDAQ
Related Posts Plugin for WordPress, Blogger...