Gems of opportunity but beware the cut

This story was first published in The Straits Times on May 7, 2013

TUCKED away in Singapore's latest quarterly trade data was a nugget of information that speaks volumes about the emergence of Myanmar as a potentially major trading partner for the Republic.

In the three months ended March 31, Singapore's trade with this emerging nation came in at $667.1 million, a 39 per cent jump over the $479.7 million seen in the previous quarter.

This may seem like a drop in the ocean compared with Singapore's trade with Indonesia for example, where last quarter, the amount came in at $18.2 billion.

But don't dismiss this number. It is, in fact, the highest quarterly level of trade ever recorded between Singapore and Myanmar.

So even as economists fret about trade sagging with the big boys of China, the United States and the European Union, these numbers tell of growing optimism on the part of Singapore investors as Myanmar takes its halting steps back into the international fold.

There is a buzz in the air, literally. Singapore Airlines offers 16 flights a week between Singapore and Yangon - with SIA having switched to using its larger aircraft instead of SilkAir's planes for some of the flights.

The flights are packed as businessmen rush there to seek investment opportunities. Scores of delegations from countries near and far huddle in the waiting rooms of government ministries.

Expansion opportunity

AS THE US takes its unsteady steps towards recovery and with China faltering, businessmen are looking towards Asean, including Myanmar, to deliver growth, especially with the goal of a single Asean market come 2015.

A recent survey by United Overseas Bank - which has long had a presence in the country - says that 54 per cent of Singapore small and medium enterprises it interviewed see Myanmar as an expansion opportunity, compared with 41 per cent of regional peers.

More than half (56 per cent) are confident that Myanmar will perform better this year than last, against 49 per cent for Vietnam and China.

Myanmar is the flavour of the month, if not the year.

The country of about 55 million offers one of the largest untapped consumer markets for businesses. Investors are also eyeing the vast potential of petroleum reserves, gems, teakwood and even hydropower.

Reforms are being introduced by the government. A foreign investment law has been enacted, giving more clarity on how much investors can own. And steps have been taken towards liberalising the exchange rate.

But the country faces a laundry list of challenges, such as upgrading infrastructure quickly.

Longer-term challenges include tackling poverty and raising education levels.

Meanwhile, ethnic unrest simmers in the background.

One of the most urgent items on the agenda is reforming the financial system, to set up a sound banking system, along with supporting institutions.

Cash is the predominant mode of transaction. Even property purchases are made using bundles of cash, although credit cards can now be used at a few hotels, restaurants and certain shops.

Transport infrastructure is another pressing issue. Traffic jams are an everyday affair on roads which, although well-laid out, cannot cope with the dramatic growth in the vehicle population.

The frequency of power failures is falling but offices and many homes still have power generators for backup supply.

Businessmen are also frustrated with the ageing, and in some cases non-existent, telecoms infrastructure. Roaming is difficult for foreign visitors. Internet connections are available only where there is Wi-Fi, which is mainly limited to hotels.

And despite all the encouraging progress, one unspoken worry is that the pace of reforms may slow or even be reversed.

Singapore's advantage

WHAT stands Singapore investors in good stead is that Myanmar has some familiarity with the Republic and its businesses.

Although the Chinese, first and foremost, and the Japanese and Koreans to a lesser extent, have already made significant inroads in Myanmar, some Singapore companies have established a presence there.

Those Singapore firms will have an advantage in reaping the benefits as the country opens up.

Keppel Land, for example, invested in its first hotel in Yangon in 1993 - the Sedona Hotel Yangon. It now also has Sedona Hotel Mandalay. The pair are among the few top hotels in Myanmar available to the business visitor.

There is no denying the optimism and excitement that greets the visitor who steps into Yangon these days. Just 12 months ago, politics was at the centre of discussion - but now the economy is another major focus of attention.

Some analysts have voiced concerns that Myanmar might disappoint investors, just as another emerging economic power in the region, Vietnam, lost its shine after rampant inflation kicked in.

Still, one advantage that Myanmar starts off with is that its population is familiar with English and an administration based on the British system. In comparison, Vietnam has been weighed down by a cumbersome bureaucracy stemming from its communist history.

But there is no guarantee that reforms will succeed in Myanmar. Investors need to be willing to stay invested for the long-haul if they wish to do well.

The market is very substantial, but newcomers will need deep pockets to fund an initial investment as well as to sustain operations until cashflow from the business starts coming in.

And even though there is much potential, IE Singapore reminds those heading to Myanmar that Singapore businesses must offer something unique to distinguish themselves from the competition.

Also, local laws stipulate that any investment by a foreigner requires a Myanmar partner. The choice of partner is crucial.

Prospective investors also need to be sensitive to the fact that the country has been relatively isolated for decades. As a result, the people have a certain way of doing things. Rushing in too fast to seal that deal with a partner, for instance, may backfire if the partner decides to walk away.

Myanmarese heading home

ONE factor working in Myanmar's favour is its returning diaspora who left in droves in recent decades and now, wealthy and educated, are keen to play a part in the nation's rebuilding.

And although Myanmar is the last to the Asean party, this may be no disadvantage.

In essence, the country is like a blank sheet of paper. The government has the opportunity to get it right the first time.

Take the ongoing tender process of two mobile phone licences. Unlike other countries, which handed out too many telecom licences so that firms eventually became unprofiitable, Myanmar is awarding only two licences.

There is a Singapore presence. One consortium including Singapore-listed Yoma Strategic and another with SingTel are among those pre-qualified to bid.

The rest of the region is arriving in other ways too.

The momentum ensuring economic reforms stay on track should be helped as Myanmar hosts the SEA Games later this year and takes the chair of Asean next year.

So, it's better late than never. The country has the chance to learn from economic mistakes made by other countries just as Singapore businesses now headed for Myanmar can take heed of previous lessons learnt.

This story was first published in The Straits Times on May 7, 2013 

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