Doing Business in Burma/Myanmar: An On the Ground Report

Doing Business in Myanmar Burma

Robert Walsh, sometime Seattle resident and extensive-time mate of our law organization (we labored on a number of China offers together and we — Dan and Steve — satisfied up with him on our final vacation to Myanmar), has expended the final four years in Myanmar, the place he operates a vivid business enterprise consultancy. Robert is fluent in Chinese and Korean and, astonishingly more than enough, Burmese (multiple dialects), acquiring figured out Burmese even though doing the job in the U.S. Embassy in Yangon a lot of years ago.

Robert has been sending us email updates from Myanmar for some time and we post some of them on in this article. Back in 2014, it was Myanmar: Open up For Company? and in 2013, it was Myanmar Overseas Financial commitment. Tough And Highly-priced, But Alternatives Are There. In our 2013 post I pointed out that my law firm had “been concerned in a several Myanmar issues, but fact be informed, Myanmar is a complicated spot in which to do business enterprise and a lot of of the organizations likely there are even bigger organizations typically searching to get in now and make revenue later. In the final year.” Considering the fact that that time, our Myanmar perform has basically shrunk as desire in Myanmar by SMEs has greatly waned and their non-China Asia concentration these days seems to be additional on Thailand and Vietnam. Early final year, in A Report from Myanmar from an outdated China Hand I talked about how a lot had modified, owing in massive measure to the relaxation of sanctions.

Today’s post is on how optimism is waning as things just hold finding even worse.

1. The electric power predicament in this article is likely to get even worse prior to it will get far better.

a. Overseas oil & gasoline organizations are pulling out of their offshore blocks en masse. They had a necessity to drill or wander absent, and they are walking absent. Low gasoline price ranges drive part of it, but also the royalties techniques with the Burmese govt are the other part. Prevailing knowledge is that they will return later when the blocks go up for bid once again, and provide a lot much less and drive a more challenging bargain with the Burmese govt.

b. A number of of the techniques for producing additional electric power have hinged on gasoline coming in from offshore. The 2 gas turbine plants managing are finding their gasoline for free of charge from the govt, from the Yadanar fields that have been in production considering that the 90’s.  But creation is dropping in amount and good quality and Thai TPP has initially phone on it. 

c. The govt has provided a green light-weight for organizations to do LNG, but the only credible one particular is led by Complete. We have already been approached by one particular group of unqualified Burmese hire seekers who have had a gasoline turbine project on the back burner for additional than 4 years, who now say that they want to increase a LNG gasification plant.  They are supplying absolutely nothing additional than a 60-acre parcel that they don’t seem to own but, but want 20% equity in the thing.

d. Coal is what the IFC and earth lender are pushing the govt, but there is a lot of grassroots-level pushback. A lot of communities have suffered air pollution from coal-burning cement plants, and there is concern for waterways as properly. Still, a so-identified as “clean coal” plant would be 5-7 years in the making, and would also require importing all the coal, as there is no supply of acceptable coal in the full region.  

e. All of this, and electric power demand is growing 15-20% year-on-year.  The govt nevertheless subsidizes expenses of electricity and buyers shell out really minimal of the expenses of delivery. Past year the expenses of subsidies have been north of $900 million, with $358 million of that for Rangoon Division alone.  The govt will not grant a power purchase arrangement (PPA) to any foreign or domestic company that addresses CAPEX and managing expenses, permit alone allow for a good return, so private electricity providers are keeping absent. Raising fees for the shopper to the point where expenses of delivery are covered is regarded as political suicide.

f. With the higher than in intellect, consensus is that it could be as late as 2025 prior to we see one thing constructive in the electricity sector.

2. Politics in normal. 

a. The consensus is that Burma’s political reforms plateaued additional than a year ago and are in simple fact in a gentle backslide. Readers will take note that Countrywide League for Democracy head Daw Aung San Suu Kyi (ASSK) has been stripped of a several honors, and is in simple fact held in some moderate disdain by a lot of outside the region. 

b. In her defense, the armed service nevertheless retains handle of the important ministries of defense, house affairs, and borders.nationalities. I can notify you from extensive and painful practical experience that out in the provinces it’s nevertheless 1965, as all of the authorities at the condition, district, township, all the way to the village degree are nevertheless appointed by the armed service-led home affairs ministry. 

c. On the other hand, ASSK has been decidedly unwilling to weigh in on the racial strife in Rakhine condition, and her attitude in the direction of the several ethnic armed teams is quite a lot “it’s my way or the highway”. As a end result of her unwillingness to play a part the teams that have any beat electricity at all have taken to the discipline once again. None want to indicator the countrywide ceasefire arrangement until they get what they want. The only signatories to the arrangement are groups that have not fired a shot in anger for many years. Still, some issues has a short while ago been brewing with signatories the Karen Countrywide Union, who are pissed at Burmese Army encroachment into territory that was agreed to be off-limits.

3. Everyone and his brother wants to construct and run particular economic zones and industrial parks, here, there, and everywhere you go.  Even the Korean govt Ministry of Land & Housing is doing a 600-acre park(KMIC/ Korean Myanmar Industrial Middle) about 100 miles north of Rangoon, jointly with a Korean private firm.

a. We can’t recognize the drive for these parks, particularly in regions the place the roads and other infrastructure, -to say absolutely nothing of electrical electricity availability- are in normal missing.

b. A important detail, one particular I concentration on any time I chat to developers of these things is: “Which organizations have already weighed in as tenants?”.  The solution is invariably “nobody yet”. 

c. A lot of the developers are both disregarding or even worse but, -ignorant- of sure information about Burmese staff.  They are not very cell, like the hundreds of millions of Chinese who gravitate to Shenzhen and other Chinese megacities for perform. My most effective guess is that 4/5th of these parks are sited in regions the place labor is likely to be a problem.

d. For the garment manufacturing sector, the absence of US GSP for textiles and garments has seriously slowed things up. Past 7 days the govt passed a daily minimum wage of MMK 4800 (USD $3.63), and the factory entrepreneurs bitched a blue streak. 

4. When Trump tore up the TPP a lot of describe the action as “pressing pause on American designs for Asia”. Nicely, the Chinese have not pressed pause, but relatively accelerated designs. Not as well extensive right after Trump’s inauguration ASSK expended time in Beijing finding initiated into resumption of Burma’s standing as a Chinese shopper condition.  

a. The Chinese are now everywhere you go in Burma, pursuing developments that are all relatively land-intense.  In addition to the Kyaukhpyu SEZ up on the NW coastline, they are likely right after one more 4-5 developments each individual over 5000 acres.  What they all have in frequent is a absence of concentration on fundamentals.

b. For its part the Burmese govt is overwhelmingly receptive to all of this, as the Chinese are searching at other massive-ticket infrastructure things that no other donor govt is searching at doing.

c. As an aside, the existing Burmese govt nevertheless does not challenge sovereign debt. A lot of the ADB and other sovereign wealth fund financial loans have absent to private considerations like Yoma/FMI.

d. And of class the Chinese are in no way, shape, or form inclined to carp on Burma’s human legal rights predicament.

e. I was on a 4-month venture in Magway division final summertime, and a solid o’1000’s of Sinopec men and women have been all around Burma’s onshore oil patch doing seismic perform. In one more year pieces of the division are possible to turn into a forest of drilling rigs.

5. FDI is flat, and declining, but the Burmese do not seem to recognize how to incentivize financial commitment, because they are so bound to the cronies they simply will not let financial commitment disorders that could possibly conceivably manage a foreign firm an gain around locals. 

a. The only exception to the rule I can see is telecoms, with Ooredoo and Telenor finding licenses in early 2014. But people two organizations have been flummoxed to see the Japanese KDDI/Sumitomo move in and perform with the legacy government MPT to revitalize what ought to have been a failing competitor. And additional a short while ago the Vietnamese Army VietTel paired with the Burmese Army UMEHL to form a 4th contender, MYTel/MecTel.  

b. Some sectors like mining nevertheless demand foreign organizations to get on neighborhood associates, most of whom provide minimal in the way of price. Still, in the border regions controlled by favored (and not-so-favored) ethnic armed teams, there’s not shortage of filthy smash & seize mining functions. Most are for gold, some for tin, other individuals for antimony.

c. Oddly more than enough, the regions the place wholly degree free of charge marketplace participating in fields exist are the regions under government-granted autonomy to the several ethnic armed teams, e.g. DKBA, KNU, and the UWSA regions (as noted higher than).

d. As of a few weeks ago the US was waaaaaay down the DICA-published list of financial commitment supply international locations. If you can get its web site to kickstart alone, the Directorate of Financial commitment and Organization Administration is in this article.

e. Entertaining to examine was the 2017 State IG report on AmEmbassy Rangoon. According to the IG report:

-There are now all over 127 American immediate hires assigned to the embassy, and an further 388 or so as local hires/neighborhood nationals. I have no concept what they do all day. None in anyway. Our prospects and status in this article have quite a lot sunk that low it’s attainable that no person in the Hitler’s Bunker-modeled embassy setting up knows this.

-The embassy has at least 71 leases for housing for which it pays at least $10.7 million a year. Just this number makes the embassy the solitary most significant American economic player in Burma. If all that is expended on office house for USAID and its contractors is figured in, we could be talking north of $100 million/year just for expatriate good quality-of-lifetime routine maintenance. Staggering. By natural means USAID’s contractors bill back all of that overhead, which is possible deducted from whatever was allocated for Burma help. That would reveal why I don’t see a lot proof of USAID doing anything in the regions of Burma I perform and know most effective.

-Puzzling is that the IG factors out that 5 men and women in the embassy develop 5 distinct translated neighborhood media reports per day. I guess foreign provider officers no extended examine newspapers in the neighborhood language at the start off of their work day. (The report does take note that language schooling prior to assignment only allows our diplomats to engage in greetings and casual chit-chat) Go here for the whole detail.

6. We do in fact have an American Chamber of Commerce chapter in this article, but most associates are local companies. The chamber does not do a hell of a lot. The New Zealand and French chambers are really active and do a a lot far better occupation of engagement. Still, American involvement in Burma’s financial system is waaaaaaaay down the list, as reflected in the Myanmar Financial commitment Committee’s month-to-month stats. China (of class), Korea, and Japan are the massive hitters. In terms of American economic exercise, Coca-Cola is the most obvious.

a. We do have a Tricky Rock Cafe now, began by a few of Crony Princelings, but as they simply cannot seem to appropriately handle it, and are usually out of a lot of menu products, the spot is not preferred.

b. Other US brands in this article are Ford (RMA Team Thailand) and Chevy (AA Healthcare Team). Neither manufacturer is specifically punching higher than its body weight against utilised Toyota products and solutions and the Korean offerings. Practically 2 million autos have absent on neighborhood roads considering that the final letter. The govt is now properly stipulating that autos coming in be much less than 2 years outdated and be still left-hand drive (the greater part are Japanese utilised autos much less than 7 years outdated, and ideal-hand drive).

-I purchased the really initially off the neighborhood assembly line Suzuki Super Have Kei truck. The Japanese cleverly utilised the way-back machine to include 1960’s design and style and technological innovation which is filth-simple and appropriate for Burmese countryside disorders. Electronic absolutely nothing, factors and condenser, carburetor. $5700 delivered, with Rangoon metropolis plates, vice triple that for a utilised truck from Japan.

 Burma Law Firm

c. Out in the sticks the place I perform, US farm machinery manufacturers have after once again screwed the pooch by not sending in an “A Team” they’d relatively uncover a neighborhood vendor and 50 %-assed support it. Kubota owns the marketplace now, acquiring figured out a way to provide financing to whole villages for a offer of everything essential to plant and harvest rice. More mature Burmese farmers have nostalgia for Ford and John Deere tractors, and every single after in a even though I operate across the bones of one particular of these in out-of-the-way destinations.

-I had a significant jade mining firm searching for new hefty vehicles could not get any US maker on the plane to occur for a meeting. That $57 million all-cash deal went to Komatsu. The purchaser had been vetted for all sorts of US Treasury things, so that could not have been the issue.

d. As with China, we have KFC and Pizza Hut, franchised from YUM! by neighborhood moneybags Serge Pun’s FMI/Yoma. Each are preferred but deal with stiff opposition from Lotteria and other proven neighborhood and foreign brands. FMI/Yoma expended awhile sorting out the source chain, as YUM! basically has requirements for what goes in their foodstuff.

7. A several weeks ago we had American law firm Eric Rose announce that he was throwing in the towel. He had been one of Burma’s most significant boosters, and carried a lot of drinking water when it came to sanctions lifting. He will be skipped.

As always, if any of the viewers uncover by themselves in Burma, I’d be additional than joyful to assistance.

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