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Myanmar
The Last Growth Market Frontier in South East Asia
GES 2012
Dr. Aung Thura
CEO Thura Swiss
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About Me
Education
Dr. oec. in Banking and Finance at the University of St.
Gallen (2008)
M.A. in Quantitative Economics and Finance at the
University of St. Gallen (2005)
M.Sc. in Mechanical Engineering at the Swiss FederalInstitute of Technology (ETH) in Zurich (2003)
Professional Experience
CEO Thura Swiss: Research, Consulting, Technology (2012)
Quant with Zrcher Kantonalbank (2012)
Exotic derivatives trader with Zrcher Kantonalbank (2008 2012)
Business development with Credit Suisse (2005 2008)
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Myanmar: The Last Growth Market Frontier in South East Asia
Time Line of Myanmar History
Year Event Sentiment
1948 Independence
1962 Coup dEtat starting the Burmese Way to Socialism
1988 Student Protests
1991 General Elections
2007 Safran Revolution
2008 Cyclone Nargis
2008 Referendum for New Constitution
2010 General Elections
2011 Civilian Government
2012 By-Elections
2012 Suspension of Sanctions
2014 Chairmanship of ASEAN
+-
The sentiment curve is purely our own view and not based on any statistics
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Myanmar: The Last Growth Market Frontier in South East Asia
Driving Factors in Myanmar Politics
Conflicts with
Ethnic
Minorities
Xenophobia
Relationship
with China
Inflow of Kuomingtang afterChinese civil war
Chinese support of Burmese
Communist Party
International support/ protection
by China
Uneasiness about rising influence
Colonial complex
Support of KMT by
US in the past
Perception of
opposition leader asa Marionet of the
West
Fear of invasion
Strained relationship
between Burmese
majority and ethnic
groups a legacy of
colonialism Fear of secession
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Myanmar: The Last Growth Market Frontier in South East Asia
What Are the Reforms?
Unification of exchange rate
Freeing of political prisoners
Participation of the NLD in the by-elections in April 2012
Ceasefire agreements with armed groups
Invitation of Myanmar people living abroad to come back
Suspension of the Myitsone dam project
Revision of the Foreign Investment Law
More autonomy for Central Bank
You cannot just read the Myanmar Foreign Investment Law to
judge if it is investor-friendly. More relevant are the actual
procedures.
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Myanmar: The Last Growth Market Frontier in South East Asia
The Exchange Rate Dilemma
State Economic Enterprises(SEEs) are a burden on the
countrys budget
Losses are covered up by an
extra foreign exchange
budget SEEs can buy foreign
currency at the official
exchange rate
Official rate: 6 Kyats per USD (fixed)Black market rate: 750 1200 Kyats per USD
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Myanmar: The Last Growth Market Frontier in South East Asia
Next Steps
Foreign Investment Law (2012?)
Tenders for Oil and Gas (2012?)
South East Asian Games (2013)
ASEAN chairmanship (2014)
ASEAN Economic Community (2015)
General Elections (2015)
Beside the main topics there are so many things to be done that
require full attention
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Myanmar: The Last Growth Market Frontier in South East Asia
Myanmar in Comparison
Thailand is a good peer to compare for Myanmar in size of
population and area
Myanmars GDP (PPP) is about 8 times lower than Thailands
Country Myanmar Thailand South Korea France
Population 60 66 49 66
Area 676,578 513,120 100,210 674,843
GDP (nominal in billion USD) 43 319 1,163 2,808
GDP (nominal) per capita (USD) 702 4,992 23,749 44,400
GDP (PPP in billion USD) 76 587 1,556 2,216
GDP (PPP) per capita (USD) 1,250 9,187 31,753 35,048
h h k h
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Myanmar: The Last Growth Market Frontier in South East Asia
Comparison of FDI
Foreign Direct Investment in Myanmar is comparable to FDI in Thailand
and Korea in the late 80s Both Thailand and Korea experienced a sharp rise of FDI within the coming
decade
M Th L G h M k F i i S h E A i
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Myanmar: The Last Growth Market Frontier in South East Asia
FDI by Sector
SectorApproved amount of investment
(mln USD) Percentage
Power 19,067.498 46.41
Oil and Gas 14,181.972 34.52
Mining 2,814.360 6.85
Manufacturing 1,826.282 4.44
Hotel and Tourism 1,064.811 2.59Real Estate 1,056.453 2.57
Livestock & Fisheries 324.358 0.79
Transport & Communication 313.906 0.76
Industrial Estate 193.113 0.47
Agriculture 182.751 0.44
Construction 37.767 0.09Other Services 23.686 0.06
Total 41,086.957 100
Data as of 31/07/2012
M Th L G h M k F i i S h E A i
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Myanmar: The Last Growth Market Frontier in South East Asia
GDP Growth projections by Economist
2012 2013 2014 2015 2016-2020
Core Scenario 5 5.3 5.9 6.5 7.7
Golden Era Scenario 5 6.3 7.2 8.1 8.5
Dark Forces Scenario 5 4.6 4.2 4 4.4
0
2
4
6
8
10
2012 2013 2014 2015 2016-20
Real GDP growth projections, % change
core scenario golden era scenario dark forces scenario
Data taken from Economist Intelligence Unit
The core scenario implies
ongoing reforms withlimited real structural
change (60% probability)
Golden era scenario implies
rapid political and economic
reforms (25% probability)
Dark forces scenario where
reforms are reversed (15%
probability)
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M Th L t G th M k t F ti i S th E t A i
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Myanmar: The Last Growth Market Frontier in South East Asia
Myanmar as an Investment Case
Abundance of natural resources: The government of
Myanmar is continuing to offer new hydrocarbon blocks forexploration. Development of the natural resources sector will
have a spillover effect on the rest of the economy now that
sanctions are suspended and that social responsibility is one
of the issues the government is raising when dealing with
foreign investors.
Strategic location between China and India
A population of 60 mln. which is a big unsaturated market and
at the same time a relatively young and cheap labor force
(although cheap is an inconstant variable)
M Th L t G th M k t F ti i S th E t A i
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Myanmar: The Last Growth Market Frontier in South East Asia
Energy Source Potential
Crude Oil (Offshore & Onshore)
(Proven + Probable)
648.59 MMBBL
Natural Gas (Offshore & Onshore)
(Proven + Probable)
166.13 TSCF
Hydro 108,000 MW
Coal 711 Million Metric TonsBiomass 52.5 % of total land area covered with forest.
Potential available annual sustainable yield of
woodfuel: 19.12 Million Cubic Ton
Wind 365.1 TWH per year
Coastal strip of 2832 Km with south-westerlywind 9 months, north-easterly wind 3 months
Solar Power 52,000 TWH per year
Geothermal 93 Locations
Source: EPD, Ministry of Energy
Energy Sector
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Myanmar: The Last Growth Market Frontier in South East Asia
Healthcare Market
The legal market size of pharmaceutical products in Myanmar
is estimated to be worth 366 million USD per year
Beside the official market, there is a huge black market with
drugs imported illegally from Thailand
The market has seen a growth rate of20% from 2010 to 2011
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Myanmar: The Last Growth Market Frontier in South East Asia
Tourism and Hospitality
816,369 visitors in 2011 comprising
38% foreign independent travellers,
26% package tours groups
21% business travellers and
15% other travellers.
Increase of 3.3% y-o-y as compared to tourist arrivals in 2010
1.5 mn tourists are projected to arrive in 2012
Yangon received 364,743 tourists in 2011, up by 23% from 2010.Yangon is expected to receive approximately 675,000 tourists in2012.
Revenue collected from tourist increased by 25% in 2011 and was$319 mn compared to $254 mn in 2010
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Myanmar: The Last Growth Market Frontier in South East Asia
Myanmar Stock Exchange
Myanmar Securities Exchange Centre established 1996 as a
JV between Japanese Daiwa Institute of Research andMyanmar Economic Bank
Two companies listed:
Forest Products Joint Venture
Myanmar Citizens Bank
MOU between Central Bank of
Myanmar, Daiwa and TSE to
develop a modern Securities
Exchange
The Exchange shall be operational
in 2015
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Myanmar: The Last Growth Market Frontier in South East Asia
Portfolio Investment
Domestic
Direct Investment
Foreign
Type of Investment
SourceofInvestment
Investment Funds:
Limited number ofinvestment objects
available or accessible
Proper due diligence
required
Private Investors + Funds:
Operational challengerunning a business in
Myanmar
Restriction of sectors
Public Companies:
Apart from companies
created in 90s virtually
missing
Formation of a couple of
Public Companies recently
Private Companies:
The most common
investment type for
domestic investors
Limited possibilities of
funding
Investment Matrix
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Myanmar: The Last Growth Market Frontier in South East Asia
Foreign Investment in Myanmar
Local Company Joint Venture 100% Foreign-Owned
ForeignInvestment
Big Companies
Operate as a Company under the
Myanmar Foreign Investment
Law
Small Companies
Operate as a Company under the
Myanmar Companies Act
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Myanmar: The Last Growth Market Frontier in South East Asia
Corporate Income TaxThree years minimum corporate income tax exemption, extendible on a case-
by-case basis
Exemption from or Reduction of Taxes on Imported Capital Goods
Exemption from customs duty and other internal taxes on imported capital equipment
and materials during the construction, exploration and development period of the
investment project
Exemption from or Reduction of Taxes on Imported Raw MaterialsDuring the first 3 years of commercial production and operational period, exemption
from customs duty and other internal taxes on imported raw materials
Incentives in Current MFIL
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Myanmar: The Last Growth Market Frontier in South East Asia
Other Incentives (i.e. Grants, Domestic Loans, Subsidies, etc.) Exemption or relief from income tax on profits which are maintained in a
reserved fund and re-invested within one year
Right to accelerate depreciation
Relief from income tax up to 50% on the profits accrued from exports
Right to pay income tax on behalf of the foreigners employed and to deductthe same from the assessable income of the enterprise
Right to pay income tax of the foreign employees at the rates applicable to
the citizens of Myanmar
Right to deduct the expenditures for research and development carried out
within the state Right to carry forward and set off losses up to 3 consecutive years, from the
year the loss is made
Incentives in MFIL (Cont.)
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Myanmar: The Last Growth Market Frontier in South East Asia
Corporate Income Tax
Ownership Residence Status Relevant Law Corporate Income Tax
100% Myanmar Resident Company MCA 25%
JV Resident Company MCA
MFIL
25%
25%
100% Foreign Resident Company MCA
MFIL
25%
25%
Branch Non-resident Company MCA
MFIL
35%
25%
Corporations incorporated in Myanmar are treated as resident and taxed at the rate of25% on income accruing or arising in Myanmar and outside of Myanmar
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Myanmar: The Last Growth Market Frontier in South East Asia
Tax Treaty Countries with Myanmar
UK India Korea Malaysia Thailand Vietnam Spore No DTA
Interests - 10% 10% 10% 10% 10% 8-10%* 15%
Dividend
s
0% 5% 10% 10% 10% 10% 5-10%** 0%
Capital
Gains
- Myanmar Myanmar Myanmar Myanmar Myanmar 0 10% 40%**
*
Services - 10% 0% if < 6
months
10% 10% 10% 0% if < 6
months
3.5%
* 8% if beneficiary is bank
** 5% if beneficiary owns at least 25% of company
** Capital gains from Oil & Gas ranges from 40 50% dependent on size
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Myanmar: The Last Growth Market Frontier in South East Asia
The Big Players in Myanmars EconomyCompany Business Owner
Htoo Trading Timber, transport, tourism, construction, property
development, palm oil, AGD Bank
U Tay Za
Myanmar Billion
Group
Kanbawza Bank, mines, cement, Myanmar Airlines, hospital,
London cigarettes for Shan and Karenni states
U Aung Ko Win
SPA, Yoma, FMI Yoma Bank, real estate development, manufacturing,
technology, construction and real estate, automotive industry,
healthcare (Pun Hlaing Hospital)
U Serge Pun
Max Myanmar Road and rail construction, rubber, import export of heavy
machinery, hotel in Chaung Tha, Ayeyarwaddy Bank
U Zaw Zaw
Eden Construction, transport, communications, Traders's hotel,
Myanma Apex Bank
U Chit Khaing
IGE Oil and gas, agricultural products, timber, electrical
substations, transmission lines, machinery in oil and gas
industry, CNG filling stations, United Amera Bank
U Pyi Aung
U Nay Aung
Asia World Construction, transport, communications U Tun Myint Naing
(Steven Law)
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Myanmar: The Last Growth Market Frontier in South East Asia
General Remarks on Myanmar Market
Myanmar is not virgin land. There already are powerful
incumbents (domestic and foreign)
Investment is better protected for big players
In recent years, Myanmar has seen market distortions in
many areas: Car, land, telecommunication Social contacts play a significant role
Rumor-based society
Lack of skilled labor and unreliable infrastructure make
productions costs not necessarily cheap in the short term
Qualified workforce could be found in the Myanmar
diaspora
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