Category: News

Myanmar’s economy is expected to grow 7.8% this year, new figures from the World Bank say, amid scepticism over falling foreign investment, the impact of recent flooding and inflation.

While strong economic growth triggered by President Thein Sein’s reforms is expected to continue, the Bank’s economists cautioned that Myanmar should insulate itself against certain risks.

Sudhir Shetty, the Bank’s chief economist for East Asia and the Pacific, warned that Myanmar must take inflation very seriously. The report also urged Myanmar and other Asian nations to address widespread child malnutrition, which causes “health and cognitive deficits that are difficult to reverse,” and to use technology to provide the unbanked with financial services.

Myanmar should continue to be prudent with spending, enhance its monetary operations, be flexible with its exchange rate and beef up its ability to supervise its banks, said the biannual East Asia and Pacific Economic Update.

The report outlined a cautiously optimistic picture for Myanmar; the economy should bounce back from recent floods, while in the medium-term the country is expected to grow by an average of 8.2% a year.

That growth will come largely from the services sector, including information technology, logistics and transport, while light manufacturing, especially garments, will drive growth in the long term.

Habib Rab, senior country economist for Myanmar at the World Bank, said the sector was still hampered by high prices for electricity and land but that as the services sector grows “the costs of doing business will begin to decline.”

Mr Rab underscored the importance of reforming Myanmar’s tax system to make it more efficient, transparent and simple to make it easier for people to pay. The internal revenue department should reach out to people to explain the importance of paying tax, he added.

Exchange rate flexibility would make the country’s exports cheaper, he said. While allowing global supply and demand to drive down the price of the Kyat would make imports more expensive, he added, “that is not necessarily a big driver of inflation.”

Inflation is expected to ease to 8.5%, the report said, but Mr Rab said the Bank expects “the inflationary pressures to continue,” and drive up production costs.

“We need to ensure the cost of production remains manageable. If general levels of prices of goods and services are increasing, then consumption in the economy might decline. This may also affect economic growth negatively,” he said.

In the wider region, the report said China will continue to grow moderately as its economy rebalances. The Philippines and Vietnam have the strongest prospects among the larger economies, it said, with the former growing 6.4% this year and the latter expected to grow 6.3% in 2017, once it has recovered from a severe drought.

Source:https://www.mmbiztoday.com/articles/myanmar-must-tackle-inflation-resist-currency-controls-world-bank

In June 1960, Tom Monaghan and his brother James bought DomiNick’s, a small pizza store in Ypsilanti, Michigan.

In this town of less than 20,000 people, the brothers gave a $75 down payment and borrowed $500 to acquire the store. Barely eight months later, James bartered his half of the business to Tom for a second hand Volkswagen Beatle.

Over the next few years Tom worked hard and set up two more stores. It all went well except one thing. The initial owner refused him the right to use the original name DomiNick’s. After some thinking Tom come up with an alternative name: Domino’s Pizza, Inc. He also designed a logo – containing three dots representing his three stores, and the plan was to add further dots as the chain expanded.

At the same time American politics took a new turn. In November 1960, John F Kennedy was voted in as U.S. President. In Asia, he increased the country’s support for the South Vietnamese regime.

The domino effect

President Kennedy was influenced by game-theory specialists who envisaged a scenario whereby Asia would fall under communist influence one by one – the ‘domino effect’ – and threaten the global economy.

In November 1963, the leader of South Vietnam, Ngo Dinh Diem, was murdered in a military coup. Three weeks later Kennedy was assassinated in Dallas, and his successor, Lyndon B. Johnson, would continue to use domino theory to justify the escalation of the US’s military presence in Vietnam from a couple of thousand to more than 500,000 over the next few years.

In 1965, the same year that Domino’s Pizza got its name, America started the Vietnam War. This would change the world in three major ways. Firstly, the war was extremely costly, forcing the Americans to sharply increase borrowing domestically and internationally.

Secondly, the sharp increase in American debt would trigger the unraveling of the Bretton Woods Agreement, put in place towards the end of WWII among leading economies, and the end of the direct convertibility of the United States dollar to gold.

Thirdly, and perhaps most profound, it would usher in emerging markets, particularly Asia, as an asset class.

All these things took shape in a world that looks very different to today. In 1960, the share of the world’s real GDP was squarely in favour of America and Europe. Asia only accounted for a sixth (16.8%) of the world’s real GDP.

But the American presence and the war acted as a catalyst for Asia. A lot of funds, technology and human resources were channeled into the region.

Tipping point

In Thailand the American army built airports, roads and army bases across the country, including a marine base, which still sits on South Sathorn Road in Bangkok, now surrounded by luxury hotels, condominiums and embassies.

They also set up numerous scholarships for young, bright Thais to study in the US, which helps to explain why corporate Thailand is so Americanized, from the accounting and reporting standards of the Thai Stock Exchange, which was set up just after the end of the Vietnam War in 1975, to the cadres of top management at listed companies.

Consequently, Thailand and other Asian economies began to catch up with the West. In 2015 Asia’s share of global GDP had jumped to 45.4%, according to estimates by worldeconomics.com.

A lot of pundits believe that Asia will continue to grow, and surpass the 50% mark by 2020. If that is the case, we are about to reach a tipping point where the world economy is tilting towards Asia.

Myanmar is a great case in point. Not only is it home to an economy where GDP growth reached 7% in 2015 – making it one of the fastest growing economies in the region. It also has the world’s youngest bourse, The Myanmar Stock Exchange, which opened earlier this year.

For impatient investors unwilling to wait until the local market has grown enough depth, size and liquidity there are a number of Asian-listed companies which have operations in the country or are planning to put money into brownfield investments.

Of course, from time to time there will be setbacks and concerns. But it looks pretty certain that Myanmar and its economic growth will be important for investors looking for returns in Asia.

Skeptics will say the relationship between economic growth and stock market performance is weak. Perhaps, but an investor who put down $1 in the 1960s in emerging markets would have $75 today.

Compare that with the performance of developed markets. The S&P 500 Index has returned about $25 over the same period. Over the last 50 years emerging markets have outperformed developed markets by a factor of 3 to 1.

So what does this have to do with pizza? The performance of Domino’s Pizza has also been astounding. It is now the world’s second biggest pizza chain, after Pizza Hut, with 12,600 stores in 80 countries. It serves more than a million pizzas a day worldwide.

Fifty five percent of its stores are international, and the company sees a lot of future growth in emerging markets, particularly in Brazil, India, Malaysia and Turkey.

After listing in 2004, Domino’s share price languished for a few years before ascending after the onset of the great financial crisis of 2007 and 2008. Since then the stock has risen fivefold and the market cap is a whopping $7.3bn.

It would foolhardy to bet against a force that has been in motion for over 50 years. There is no sign of a change in this trend on the horizon.

Lars, a new Myanmar Business Today contributor, is an emerging markets expert with many years experience in Asia, helped by his command of five languages including Thai and Malay. He is a portfolio & strategy advisor focused on idea generation, market analyses and risk management for Asia ex-Japan funds. He divides his time between Southeast Asia and London.

Source:https://www.mmbiztoday.com/articles/myanmar-s-new-role-economic-tilt-towards-asia

October 7 was a historic day for Myanmar with President Obama officially lifting remaining economic and financial sanctions, acknowledging the successful transition from a military-led pariah nation to a democratic country with a civilian-led government at the helm of affairs. The previous quasi-civilian government that came into power in March 2011 under the leadership of President Thein Sein, surpassed expectations by successfully implementing political and economic reforms, raising foreign direct investment (FDI) to $8 billion in FY2014 from a mere $3 billion in FY2009.

Special Economic Zones, export-oriented policies and tax benefits also encouraged diversification of investment to sectors such as manufacturing and real estate. While some investors adopted a ‘wait and watch’ approach, others placed their bets early on the historic November 2015 elections further boosting investments, riding on the promise of a new era of growth under the democratic government, with Myanmar expected to be the fastest growing economy in Southeast Asia in 2016 with an 8.4 percent GDP growth rate forecast.

Uncertain economic policy, but optimism prevails

The promise seemed far-fetched few uncertain months later, when the much-anticipated economic policy announcement in July was limited to a three-page list of 12 bullet points, leaving businesses and executives wanting more, especially the “how” factor. However, investors remain optimistic and senior executives from Fortune 500 companies and other multinational companies ranging from the food and beverage sector to automotive and building materials industries, who recently participated at the Solidiance Executive Breakfast Roundtable in Bangkok last month expressed a general consensus that Myanmar is on the right track, albeit marred by challenges, offering a perfect testing ground for the survival of the fittest companies. Senior Executives spearheading existing manufacturing operations in Myanmar cited significant growth potential driven not only from the untapped local demand but also the possibility of catering to demand from neighbouring countries through exports by leveraging on Myanmar’s unique geographical location.

Asian firms dominate

The risk takers that firmly established themselves as the early entrants in Myanmar through representative offices or local partnerships will find that leap of faith rewarding as the recent lifting of all sanctions ushers in the second growth wave. Given the US sanctions, most of these early entrants are dominated by Asian and European companies who will benefit from the head start primarily relating to local market knowledge, relations, distribution networks and access to reputable Burmese companies and individuals, including their especially prized assets – land.

The Burmese companies, on the other hand, have also been able to adapt to the business requirements and processes of these early entrants, while relying on the international investors for their technical expertise with many Burmese executives receiving training at their headquarters or regional offices.

The US accounted for a mere 0.03 percent of all FDI in FY2015 compared to the leading investor Singapore at 44.8 percent followed by China at 35.1 percent. Some of the leading US companies with operations in Myanmar include Coca-Cola and Ball Corporation; both of which have factories in Myanmar, as well as GE and Chevron. However, the sanctions limited banking and financial transactions as well as imposed significant compliance requirements to be followed as part of the State Department’s Responsible Investment Reporting.

The “Second Growth Wave”

The October 7 Executive Order lifting sanctions on Myanmar received mixed reactions, with some hailing the move as an accelerator for economic growth in Myanmar while others criticised the loss of leverage on the removal of former generals, military associates and companies from the sanctioned list.

While the removal of sanctions came as a surprise to many, the general sentiment remains positive with the anticipated rise in international investment, especially from the US expected to benefit the masses, although only in the long run, as favourable domestic economic policies, infrastructural improvements, increased transparency and effective measures to address ethnic conflicts will continue to be the key drivers of growth and transformation in the post sanctions Myanmar.

The removal of financial transactions restrictions is expected to be the driving force of the second wave of growth in Myanmar, providing significant growth opportunities not just for US companies but also multinational firms relying on US banks to process transactions in US dollars. Given the collaborative economic investment approach adopted successfully by the Japanese so far, the Burma Strategy Act by the US also aims to support and work together with Myanmar to help meet the conditions for gaining the EU’s Generalised Scheme of Preferences (GSP) eligibility which include implementing effective IP protection measures, observing internationally recognized workers’ rights, and implementing any commitments to eliminate the worst forms of child labour, amongst others. Steps undertaken to achieve these conditions will be beneficial for all current and potential investors looking at establishing sustainable growth operations in Myanmar, especially as Myanmar seeks to position itself as a competitive destination as part of the ASEAN Economic Community (AEC).

As China’s era of low cost manufacturing is drawing to a close, investors have actively explored ASEAN as an attractive destination to diversify their manufacturing footprint with countries such as Vietnam benefiting from the trend. With the lowest labour costs in ASEAN, Myanmar had initially attracted traditional low cost manufacturing industries such as garments, however high logistic costs, insufficient quality of supporting infrastructure and lack of skilled workers had been the key deterrents for Myanmar to achieve its full potential as a manufacturing hub. With potential eligibility for GSP, manufacturing is expected to bounce back to take advantage of duty free exports to the US further supporting the country’s favourable export – oriented policies, especially in the special economic zones.

The nascent but fast expanding manufacturing sector in Myanmar, which has already seen investments across other sectors such as Automotive (Nissan, Suzuki, Koyorad, Komatsu) as well as Building Materials (SCG, Yojin) and Chemicals (Sika), offers attractive growth opportunities. However, rigorous due diligence and support from foreign investors in terms of improving operational management, quality control, transparency and accountability as well as human resource training in Myanmar will be crucial to ensure that local production and processes meet international standards.

Source:https://www.mmbiztoday.com/articles/myanmar-second-growth-wave

Denim Expert Limited, a market leader in quality denim manufacturing, has become the first manufacturer in Bangladesh to join the Sustainable Apparel Coalition (SAC). The manufacturer will use the group’s sustainability measurement suite of tools, the Higg Index, to drive environmental and social responsibility throughout its supply chain.
With its membership in the SAC, the Denim Expert joins more than 220 global brands, retailers, and manufacturers, as well as government, non-profit environmental organizations, and academic institutions, (including Adidas, Puma, American Eagle, Disnep, G-star, Levis, Gap, Aldo, United Colors of Benetton, Inditex, C&A, Esprit, H&M, American Apparel & Footwear Foundation, GIZ, WWF etc), which are collectively committed to improving supply chain sustainability in the apparel, footwear, and textile industry.

“We are pleased to join the SAC, confident it will have a positive impact on product sustainability over time and become a model for how industries can collaborate in making a positive impact on value chain performance,” said managing director of Denim Expert Ltd Mostafiz Uddin.

In its relationship with the SAC, Denim Expert will contribute both data and resources to support the Higg Index, which measures sustainability performance and drives supply chain transparency and decision-making to improve efficiency and sustainability impact. The Higg Index is an indicator-based suite of tools that enables suppliers, manufacturers, brands, and retailers to evaluate materials, products, facilities, and processes based on environmental performance, social labor practices and product design choices.

“We welcome the addition of Denim Expert Ltd to the Sustainable Apparel Coalition, and look forward to their participation in this industry-wide effort in sustainability,” SAC CEO Jason Kibbey said. “Having the Denim Expert as part of the Coalition widens the scope of our impact within the industry and accelerates the change we’re making towards responsible industry actions.” (RR)

Source:https://www.fibre2fashion.com/news/textile-news/denim-expert-first-bangladeshi-manufacturer-to-join-sac-242770-newsdetails.htm

The 19th edition of Textech will kick-start from September 12, 2018 in Bangladesh. The four-day event will provide an international platform for the exhibitors to interact directly with the buyers/ importers for a perfect buyer – seller meet and a strong under-one-roof market place for the ever-growing textile and garment industry of Bangladesh.
“Textech will once again be a great B2B platform with a unique networking opportunity for textile, garment and machinery manufacturers to interact face to face with the textile and apparel manufacturers in the exhibition,” said CEMS-Global, exhibition organiser.

With the industry now seeing firm competition, Textech brings a perfect one-stop opportunity for the investments occurring in Bangladesh. The growing textile industry is the backbone of Bangladesh’s economy. The textile industry in Bangladesh has been an important contributor to the economy for centuries, and today is one of the country’s most crucial economic sectors. (RR)

Source:https://www.fibre2fashion.com/news/textile-news/textech-bangladesh-to-begin-from-september-12-242241-newsdetails.htm

Cotton sector leaders from the United States want Bangladesh to lift the old fumigation rules on the import of US cotton as the process imposes an additional cost burden on the importers and spinners and results in increased lead time. American Cotton Shippers Association (ACSA) president Raymond Faus recently urged Bangladesh to review the unfair restrictions.

The restrictions include phytosanitary requirements.

Only US cotton is subject to fumigation in Bangladesh, allegedly to prevent boll weevil, which has been eradicated from the United States long ago, Bangladesh media reports quoted Faus as saying.Faus was part of a US delegation that visited Dhaka recently on the occasion of Cotton Day.

The fumigation rule was enacted in the late 1960s reportedly to protect Pakistani cotton against competition from US cotton.

But the rule is irrelevant now as Bangladesh is not a major cotton producer and depends heavily on imports, said Sabbir Ahmed Chowdhury, programme representative of Cotton Council International (CCI) in Bangladesh. Bangladesh is the largest cotton importer in the world, while the United States is the largest exporter.

But the US share in the Bangladeshi cotton market is very less as the latter is overwhelmingly dependent on Indian cotton for feeding its readymade garment industry.

The United States can be a bigger source of high-quality, reliable cotton in Bangladesh if a level playing field can be created, according to CCI director William R. Bettendorf.

“Almost no other cotton importing countries including China or Vietnam have that phytosanitary requirement,” Bettendorf noted.

Congestion at the Chittagong port also adds to the rise in cost while also creating much more exposure to price volatility, said Faus, who is the CEO of US cotton giant Omnicotton.

Even India imports most of its cotton from the United States, added Bettendorf. (DS)

Source:https://www.fibre2fashion.com/news/textile-news/us-wants-bangladesh-to-withdraw-cotton-import-restrictions-243590-newsdetails.htm