Emerging opportunity in Myanmar
Sept. 9, 2013
by Michael King
There are few historical precedents for the speed of Myanmar’s about-turn in relations with the rest of the world. Back in 2011, the country seemed perpetually caught in a 50-year-old political and economic time tunnel, its military leaders unable and unwilling to free the yoke of oppression first imposed on the populace back in the 1960s. But in just two years, the U.S. and Europe have removed almost all sanctions against the country, formerly called Burma, and it is rapidly being re-integrated into the global economy.
Already investment in new roads and ports is flowing in from abroad. As long as President Thein Sein’s commitment to democracy remains strong, he retains the support of the populist favorite Aung San Suu Kyi, and powerful military figures do not re-emerge to reclaim their flailing political and economic influence, then the process is set to continue. The implications for grain and agri-product suppliers in the medium and long-term are substantial.
Myanmar’s estimated population of around 60 million offers a huge potential new market for imports and investors. Economists predict high single figure growth in GDP over the next decade following growth of 10.5% per annum between 2005 and 2010. Yet entire areas of the Myanmar economy are almost virginal, and so low is current per capita income that growth rates could easily accelerate, particularly if fast-expanding parts of the black economy are factored in.
Myanmar’s small middle class is already devouring ever growing numbers of food imports, while the cost of labor is very cheap, making Myanmar a prospective base for manufacturing, particularly for textiles and other industries, which could rapidly boost economic growth and consumer demand.
It is also located at a strategic crossroads between India, China and Southeast Asia and offers easy access to the Bay of Bengal, further increasing its attractiveness to investors. In short, the world’s politicians and business community see Myanmar as a major untapped, strategically located market boasting abundant natural resources including oil, gas and minerals, and a large, cheap labor market.
All of which makes Myanmar one of the most promising markets in Asia for grain and processed food imports over the next decade and more. One delegate at the 7th Asia Grain Transportation Conference, hosted in Bali, Indonesia in May by a range of grain organizations including the U.S. Department of Agriculture and U.S. Grains Council, compared Asia’s newest tiger economy to one of its Southeast Asian peers. “Vietnam’s commercial feed production was 500,000 tonnes in 1996. Now it’s about 13 million tonnes. Myanmar could go the same way,” he said.
GROWING MIDDLE CLASS
Speaking at the same conference, Singapore-based Tony Emms, managing partner at Stanton Emms Strategy Consultants, said the number of middle income consumers in Myanmar had grown rapidly since around 2006 as the economy has partially industrialized and people have migrated from the agricultural sector to services and industry.
Although still at a very early stage, this trend is changing diets and consumer trends, driving up food imports, not least for consumer-ready branded foods and drinks, both soft and alcoholic.
At the moment, the number of middle income consumers in Myanmar totals only around half a million, with a fringe group of around another million now occasionally consuming beer and other premium products. But Emms said food imports have increased at over 40% per annum since 2005 to total $1.6 billion in 2011, and growth has continued with major shortages of branded foods and drinks apparent across the country. Import growth for feed materials grew 117% over 2005-11, while drinks imports were up 60%, edible oils 34% and cereals 22%, in part to satisfy growth in local production of dairy products, fish and meat.
Total imports have increased 16.9% per annum since 2000, while exports have risen almost 30% per annum, according to figures from Emms calculated using external customs figures.
The huge opportunities available help explain the June decision by the Australian Trade Commission (Austrade) to open an office in Yangon to help support Australian companies looking to invest or supply products to Myanmar. Agriculture, food and beverages were some of the sectors newly appointed trade commissioner Mark Wood said would be targeted in a series of trade exhibitions and product promotions through 2014.
“Companies looking to do business in Myanmar need to be fully informed about the operating environment,” he explained.
The removal of more sanctions by the E.U. and U.S. will see more growth in an already dynamic market, said Emms, with the E.U. already clearing Myanmar to export textiles into its huge market, potentially creating a new production base for those seeking lower costs than now available in China.
“The economy has been in the process of change for some years,” he said. “We’re seeing strong growth in industrial output and better paying job indicators. Things are changing.”
Much more investment will come from Europe, Japan, India, Thailand, Singapore and the U.S. as Myanmar seeks to reduce its dependence on Chinese investment, which has mainly focused on established export routes for raw materials back to China. However, Emms warned investors that there were still many negatives clouding the picture. These include a “tainted legal system,” a major brain drain, overvaluation of the Kyat currency, corruption, doubts about whether the ruling elite are really ready to hand over power, and if the opposition has the ability to govern.
On the positive side, liberalization of economies across the ASEAN bloc is bringing pressure to bear. Myanmar’s leaders have seen the progress being made in terms of growth and wealth creation in Thailand, Indonesia, Vietnam and Malaysia. “The ASEAN charter is legally binding and has built in dispute mechanisms, while Free Trade Agreements agreed by ASEAN leaders provide a huge market and a source of capital and new opportunities,” said Emms.
The planned ASEAN Economic Community will gradually remove trade barriers from 2015, while some tariffs with Australia and China are already at 0%, making Myanmar’s low labor costs particularly attractive for investors in low-tech production operations.
Emms said the Asean-Australia-New Zealand FTA will gradually remove more trade barriers in the coming years with Myanmar’s tariffs on meat and poultry falling to 0% in 2021, dairy products except UHT milk at 0% some point between 2021 and 2024, milling industry and animal feed products except those that are corn based falling to 0% by 2021, and processed cereal-based products also declining to 0% in 2024.
“Myanmar will be the first Asian country to develop in a free trade environment,” he said. “The rush to invest has now started. It’s not like Malaysia and Indonesia, with high trade barriers. Myanmar will be open to everyone and, with its FTAs, will offer access to a market of 3 billion people. It’s very different to the 1980s Asian tiger economies.”
At present, imports of grain and most other projects use small vessels — typically general cargo ships — to deliver imports to a slew of small facilities up and down Myanmar’s lengthy coastline. But huge port and trading zones are now being established at Sittwe, Kyaukpyu, Thilawa and Dawei. As these projects reach completion, they will create thousands of new jobs. New highways to Bangkok in Thailand, Manipur in India and Yunnan in China are also planned.
Emms compares Myanmar’s current “wealthy market” to Malaysia in the early 1980s, although he said Myanmar’s market is perhaps more sophisticated, with consumers price sensitive and more concerned about food health and safety. As a comparison, the U.S. Grains Council says Malaysia’s 29 million population now accounts for grain imports of some 3 million tons per annum, mainly from European and Australian suppliers, with corn mostly used as feed.
“There is no reason why Myanmar cannot become a similarly large market and eventually bigger as the population is so much larger,” he said. “It’s hard to say exactly when this might happen, but there is a big opportunity for growth in animal feed grain and wheat imports as investment flows in over the long term.
“The only reason I can see why this might not happen is if there is a protectionist reaction to such imports. Myanmar has a lot of land, but most of it is in the north, so getting it to market would be difficult, and the wheat they produce is not of the right quality for better quality baked products, so it’s not really set up for this.”
He predicted chicken and fish would be the core animal proteins eaten in the future, but pork and beef consumption would be limited due to mainstream Buddhist and animist beliefs.
“Multinationals have already taken the opportunity to supply Myanmar with lots of agri-based products,” he said. “A study completed by us in February 2013 estimated that Nestle and the other multinationals already control more than 50% of the processed food market.”
Emms said if Myanmar’s economy grows at only 5% to 10% with low to moderate inflation to 2018, demand growth for beer and poultry would increase at 5% to 10% each year, milk powders and formulas at 8% to 12%, instant noodles at more than 10%, and traditional noodles at 3% to 5%. However, GDP could grow much more quickly, with Myanmar having the potential to become the fastest growing economy in the world. If this happens, demand for a whole range of grain-based or reliant products will soar.
“U.S. wheat has good opportunities; Australia also has good noodle wheat,” he said. “Soy is already in the diet and Myanmar produces a lot. But with more meat demand, soybean meal imports are already growing. There is latent import demand across all grain categories, although corn and rice will be a challenge due to local production, which is reported at more than 100% self-sufficient.
“If Myanmar gets lots of investment, it could make an economic leap like Malaysia has since 1980, but a lot depends on the military elite. But it’s not like Vietnam in 1992; the state is not as powerful. It’s more of a private sector driven economy, with the ASEAN free trade agreements as the long-term driver.
“The downside to this potential is, however, large, lying in very poor infrastructure, the quality of human resources, the legal system, the complexities of the business environment, politics, and how government policy deals with these factors over the next 5 to 10 years. So Myanmar is possibly a new Asian tiger economy, but for investors it could be one that bites.”
Michael King, a freelance journalist and editor, has been writing about shipping, transport and commodities for more than a decade. Currently based in Singapore, he can be reached at: Michael@borderline.eu.com.
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Key suppliers to Myanmar:
China (36% share);
Thailand * (25%);
Singapore * (14%);
South Korea (7%); and,
*: Includes Myanmar market leading re-exported multinational brands.
Key investors in Myanmar:
China and Hong Kong (50% share);
South Korea (7%);
British overseas territories ** (7%);
Singapore (4%); and,
** Not the UK.
Source: Stanton Emms Strategy Consultants