Acumen Business Magazine April 2013

7/22/2019 Acumen Business Magazine April 2013

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Editors Note2012 was a year of profound change in Myanmar, and this momentum

looks set to continue into 2013. As the editor of the English-language edition of

Myanmar B2B Management magazine, ACUMEN, Id like to take this opportunity to

welcome you to this sample edition, and to thank you for your interest in our

publication.

In the past year, Myanmar has made impressive strides towards re-joining

the international community after decades of isolation. This countrys rapidly changing

political and economic landscape has brought with it an unprecedented amount of

international interest. While the international spotlight has shone uncomfortably on

Myanmar on a few occasions over the past decade, this time the rush of attention is

at least in part because of everything that is going right.

The changes Ive seen to Yangon, compared to my last stint here five years

ago, are remarkable. Portraits of Daw Aung San Suu Kyi, cloistered and unmentionable

in her University Avenue residence until not too long ago, are now ubiquitous. It

seems that every significant event in the city nowadays is a first. Jason Mraz concert

at Peoples Square and Park in mid-December marked the first major appearance by

a Western recording artist in Myanmar, and Yangons first public New Years celebrationsattracted thousands of revellers.

Whats most exciting about being in Yangon is the new sense of optimism

that people here seem to feel about the future. With the yoke of authoritarianism

being lifted, Myanmars citizens are keen to forge links with the rest of the world.

Yangons chattering classes talk of investor protection, transparency and the rule of

law, bringing institutions up to international standards and launching joint ventures

with foreign companies. Small-and-medium enterprises, long denied opportunities to

grow under the weight of corruption and economic mismanagement, are waiting in

the wings to bring their products and services to the world.

For all of its potential, foreign firms still perceive doing business in Myanmar

to be risky. While this fear is not unjustified, there is a lot of misinformation circulating

about this countrys investment climate. Much of this can be chalked up to history; the

media in Myanmar is still developing an identity and voice after decades of censorshipand repression, so accurate and engaging content about business issues is not as

readily available as it perhaps should be.

As Myanmar opens up, Myanmar B2B seeks to be a source of high-quality

information about this countrys business environment, and act as a link between

local companies and their foreign counterparts. The press is a crucial tool for promoting

transparent and ethical business practices in Myanmar, and we at Myanmar B2B are

honoured to have the opportunity to try to help build a more just and prosperous

future for this country and its citizens.

CEO / Chief EditorDr. Htet Zan Linn

DirectorDr. Hein Thu Aung, Tin Tun Kyaw

Executive EditorPhyo Wai

Editor English EditionAlex Bookbinder

EditorsHein Zaw, Khin Win, Su Le`Nandar

ReportersTha Toe Aung, Nang Aye Chan Moe

DesignersAung Aung (AN Computer), Thaw Tar Oo

Computer OperatorZin Wai Wai Shein

Marketing DepartmentJanuary Khine Mon, Naw Keziah, Yadanar

PhotographersBait Thar, Aung Kyaw Moe (New Image),

Thu Yein, Alex Bookbinder

Publisher and CopyrightDr. Htet Zan Linn

Printer

Editorial Board

ACUMEN

[email protected]

[email protected], [email protected],

[email protected], [email protected],

AdvisorsProf. Dr. Aung Tun Thet (Senior Advisor, UN Resident Coordinator's Office)Dr. Mg Mg Thein(Ph.D. (Law), LL.M., LL.B., B.A.(Law), ANZIIF (Australia), Pg. Dip in Applied Psychology)Prof. Maw Than(Rector (Ret), Yangon Institute of Economics Yangon)Soe Tint Aung(Special Consultant for Advocacy, PSI Myanmar)Dr. Tun Lwin(Consultant, Myanmar Climate Change Watch,Tun Lwin Foundation)Than Lwin(Deputy Governer (Ret), Central Bank of Myanmar)Tin Zan Kyaw (Principal, Device Business Management Academy)Grace Swe Zin Htaik (Media Advocacy Advisor, PSI Myanmar)

OfficeNo. 24/26, 4B-C, Race Course Condo, South Race Course Street, TAMWE TOWNSHIP, YANGON

Tel : (+959) 420033355~ 66~ 77 (Hot Line), (+959) 73045140, 49317457, 73143313, (+951) 8603886, 8603887


11/64

ACUMEN 5

We must behave

maturely and act

flexibly in order to take

advantage of the

current environment of

reform that is allowing

our country to open

up. There will be

profound challenges

in the future, and

people must be

realistic in their expec-

tations of politicians,

not reactionary and

extremist when politi-

cal problems arise.

U Thein Sein

President

Republic of the Union ofMyanmar

Biweekly Eleven Journal (VOL-5,

No 40), January 4, 2013.

(]]vlYtzGJUtpnf;twGuf ta&;tBuD;qHk;onf vuf&dSazmfaqmifaeonfhjyKjyifajymif;vJrsm;rSwpfqifhaocsmonfhtem*wfjzpfatmifwnfaqmufa&;yifjzpfaMumif;orwOD;odef;pdefajymMum;}})

The essence of a nation is its people. This country will

develop and perform well if people are competent and

well educated. Therefore, I wish that all of our peoplewill be well educated and competent. May all of our

people be free from fear when carrying out their national

duties, and may they be able to enjoy their rights.

Daw Aung San Suu Kyi

President

National League for Democracy

7 Days News Journal (VOL-11, No-43),January 3, 2013. (]]jynfolrsm; t&nftcsif;wdk;wuf&efa':atmifqef;pkMunfESpfopfqkrGefawmif;}})

Businessmen need to prioritiselong-term growth over short-termprofits. Thinking long-term is theonly way to bring about sustainedeconomic growth. If not, businesses

will not be able to survive in the longrun.

Dr. Maung Maung Lay

Vice-President

UMFCCI

Pyi Myanmar News Journal (No.852), January 3, 2013. (]]'DZifbmvukefrSpwifum w&m;r0ifukefoG,frIudkw&m;pGJqdkta&;,lrnf}})

Everyone must be protected under the law in a transparent man-ner. Foreign investments that are beneficial for this countrys devel-

opment are welcome, and locals must be granted the same legal

protections that foreign investors are.Daw Khin Sann Hlaing

Letpadaung Copper Mine Project Commission

ENVOY Journal (VOL-3, No.33), January 3, 2013.(]]EdkifiHjcm;&if;ESD;jrKyfESHonfhukrPDrSyk*dKvfrsm;tm; umuG,fapmifha&SmufouJhodkYjynfolrsm;tay: umuG,fapmifha&Smufr,fhOya'vnf;&dS&r,f}})

oicesV


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News in Brief

Aung Gyi Group to import Chinese vehicles

to Myanmar

With private citizens now able to im-port vehicles privately from foreign

countries, local companies have begun

to ramp up the importation of foreign-

made cars to Myanmar.

While markedly less popular than

second-hand Japanese models, new Chi-

nese-made cars are gaining a foothold

in the Myanmar market due to their

competitive pricing, costing far less than

new cars from other countries. JAC

(Jianghui Automobile Co., Ltd), Chinas

tenth-largest automobile manufacturer,has found a local distribution partner

in the Yangon-based Aung Gyi Group,

which held an exhibition and sale of

JAC-brand trucks, tippers, buses and

passenger cars at Shwe Lin Ban Indus-

trial Zone in Yangon on New Years day.

JAC products were sold at the exhibi-

tion at heavily discounted promotional

prices in honour of the New Year.

Mr. Yang Lixin, a representative

from JAC that attended the ceremony,was optimistic about the brands pros-

pects in Myanmar. I came from China

to attend this ceremony. This occasion

is very meaningful, as marks the launch

of a formal relationship between Aung

Gyi and JAC. We are proud to be al-

lowed to work in cooperation with Trad-

ers Company in the New Year.

JAC prides itself on its products

technological sophistication, and are par-

ticularly proud of the engine technol-

ogy at their disposal, acquired from theirAmerican joint -venture partner

Cummins, said Yang. Service centres for

JAC products are set to open in Yangon,

Mandalay, Naypyitaw and Mu-se. U

Aung Thu, CEO of Aung Gyi Group,

explained that servicing and accesso-

ries will be made available free of

charge under the terms of JACs one-

year manufacturers warranty. A

A workshop on developing printing andrelated industries in Myanmar, jointly

held by the Union of Myanmar Federa-

tion of Chambers of Commerce and In-

dustry (UMFCCI) and the Association

of Myanmar Printing and Publishing En-

trepreneurs, was held at UMFCCIs of-

fices on November 22, 2013. At the

workshop, entrepreneurs in the print-

ing industries presented papers on the

development of the publishing sector in

Myanmar and how it can be promoted.

Matters relating to printing industrywere also discussed in the presentations.

U Tin Sein, a prominent industri-

alist in the printing sector, made pre-

sentations on lending practices that

would benefit small and medium enter-

prises, and suggested that waiving cus-

toms duties and business taxes for lo-

cal printers would allow the Myanmars

domestic printing and publishing sec-

tor to grow by favouring domestic pro-

ducers. In our locally produced exer-

cise books, companies which import raw

materials - paper and cardboard boxes

- have to pay 3 percent tax on imports,

5 percent tax on trade and 25 percent

tax on income," explained U Thuya Lin

from Icon Exercise Books, another

Myanmar-based printer. This puts lo-

cal companies at a disadvantage com-

pared to foreign firms." A

Printing industry

entrepreneurs sug-

gest changes to taxa-tion regime

8 ACUMEN www.myanmarb2bmaga z i n e . c om April 2013


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Garment Makers go high tech

The first exhibition in Myanmar of high-

tech garment manufacturing equipment

from abroad was held at the Tatmadaw

Hall in Yangon between 14-17 Decem-

ber, 2012.

More than 100 entrepreneurs and

companies from 17 countries participated

in the exhibition, part of a new wave of

international interest in Myanmar follow-

ing significant political and economic re-

forms. Garment manufacturing in

Myanmar was largely unsuccessful in the

past for a number of reasons, including

economic sanctions imposed by western

countries, a lack of skilled workers, and

an inability to produce high-quality prod-

ucts.

This is likely to change, according

to government sources, as companies from

Japan, South Korea, and Europe have all

expressed interest in purchasing made

in Myanmar garments. The United States

was also a large purchaser of manufac-

tured goods from Myanmar before the

imposition of sanctions, and may resume

large scale importation in the future.

Myanmar-manufactured garments have

also been exported recently as far a field

as South America and Africa, according

to government sources.

Myanmars garment sector is likely

to flourish with the suspension of West-

ern sanctions, new policies to facilitate

international trade, and the improvement

of transport links with the outside world.

There are more than two hundred gar-

ment factories now in Myanmar, and more

than thirty of those are foreign-owned.

The garment manufacturing sector

provides employment for more than

20,000 people, a small number by regional

standards. However, Myanmar slack of

infrastructure, high real estate prices and

political instability has served to keep

away many foreign investors for the time

being.

This exhibition was intended to es-

tablish links between local and foreign

firms in the interests of promoting

Myanmar as an investment and sourcing

destination. To that end, various trade or-

ganizations and chambers of commerce,

both foreign and domestic, sponsored the

exhibition, including the Myanmar Trad-

ers Association, Yorkers Trade and Mar-

keting Service from Hong Kong, and the

Association of Myanmar Garment Manu-

facturing entrepreneurs. A

On December 19th, Yatanarpon

Teleport Company held a launch

ceremony for two new products,

Ytune and Ytalk, at the MICT

Park in Kamayut Township,

Yangon.

U Aung Myat, the head of

product development at Yatanar-

pon, elaborated on the value his

company provides to consumers.

We always strive to offer ser-

vices which are really beneficial

to the public," he said.

Ytune gives customers the

option of using songs of their

choosing as ringtones on their

cellphones, which can be pur-

chased through a new online

portal Yatanarpon has established

for this purpose. Ytalk is a call-

ing card that allows for Internet(VOIP) calling any where in the

world.

Unlike other VOIP solutions,

Ytune can also be used on

landlines and cellphones without

Internet access. Ytalk can also be

used on internet-enabled devices,

such as laptops, smartphones and

tablets, and calling cards are

available in various denomina-

tions in both Kyats and FECs. A

Yatanarpon

Teleport

launchestwo new products

ACUMEN 9


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News in Brief


To mark its re-entry into the Myanmar

market, Western Union held an event at

the Parkroyal Hotel in Yangon on 12th

January, 2013.

Money transfers with foreign coun-

tries, prohibited in the past due to finan-

cial sanctions, will now be possible us-

ing Western Union. Local banks includ-

ing Cooperative Bank, First Private Bank,

and Myanmar Apex Bank will now be

able to process remittances from any of

the five hundred thousand Western Union

agents around the world. Kanbawza

Bank, in particular, intends to partner

with Western Union in a big way by of-fering money transfer services at 250

branches across Myanmar within the

next year.

Myanmar nationals working all over

the world will be able to send money

home within minutes. The receiver on

this side must know the code number

with which money was sent from the

other side. The recipients citizenship

card must be shown before the money

to be handed over," explained U Pe

Myint , the managing director of

Kanbawza Bank. Western Union is the

first American financial services com-

Western Union marks re-entry to Myanmar

pany to have returned to Myanmar after

most financial sanctions were scrapped

earlier in 2012. We are glad to be able

to facilitate easy, quick and smooth re-

mittances services for people in

Myanmar," said Drina Yue, Western

Unions Managing Director and Vice-

President for Asia-Pacific operations.

We intend to provide current ac-

count services and offer loans. Extend-

ing credit should serve to accelerate

Myanmars economic development," he

continued. We promise to make con-

certed efforts hand in hand with our sup-

porting agent banks in order to estab-

lish remittance services for Myanmar

people living and working in various

parts of the world."

Standard Chartered Bank, a lead-

ing British bank, and Thailands Kasikorn

Bank have also opened branch offices

in Myanmar in conjunction with West-

ern Union. Other foreign banks are look-

ing into establishing links with local part-

ners in order to provide remittance ser-

vices. A


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ACUMEN 11

Seminar on

Myanmar-Vietnam

intellectual propertyinvestment and

business opportuni-

ties heldOn November 20th, 2011, a seminar on

Vietnamese investment in Myanmar, with

a special focus on intellectual property, was

jointly held by the Union of Myanmar

Federation of Chambers of Commerce and

Industry (UMFCCI), the Myanmar branch

of the Asian Patent Attorneys Associa-tion (APAA), the Embassy of Vietnam and

the Intellectual Property Association of

Ho Chi Minh City (IPA-HCMC).

Daw Tin Ohnmar Tun, a leading

Myanmar expert in intellectual property

law, gave a presentation on the prospects

and pitfalls of investment in Myanmar as

they relate to intellectual property pro-

tections. Dr. Daw Moe Moe Htwe, from

the Ministry of Science and Technology,

discussed the role of intellectual property

protection in promoting development, and

U Thein Aung from the APAA discussed

the potential for business-to-business links

between Myanmar and Vietnamese com-

panies.

As the notion of intellectual property

protection in Myanmar is quite new, Dr.

Nguyen Van Vien, chairman of the Intel-

lectual Property Association of Ho Chi

Minh City, Vietnam (IPA HCMC) explained

how his countrys intellectual property

regime protection works, and the poten-

tial lessons for Myanmar to be learned

from Vietnams experiences. A

Despite reforms granting em-

ployees the right to unionize

signed into law in March 2012,

employer-employee relations

in Myanmar remain strained.

More needs to be done to en-

sure that unionized employeesdo not live in fear of domi-

neering employers, says Ko Ye

Naing Win, a spoke-sperson for

the Formation of Dispute

Settlement Arbitration Coun-

cil, a Yangon-based NGO that

conducts dispute resolution for

labour issues. After labour re-

forms were passed, the num-

ber of unionized workers in

Myanmar swelled to some

70,000 individuals. But due toemployer intimidation, some

20,000 have already left the

unions. It is widely perceived

among workers that unions

are inefficient, and are unable

to protect [workers] rights.

Unionized employees gener-

ally live in fear of their em-

Union members

under pressure from employers

ployers," he said. Members of

the unions are routinely

singled for harassment and

abuse, with union leaders re-

ceiving especially harsh treat-

ment. In such cases," Ko Ye

Naing Win explained, wemake formal appeals on the

behalf of workers. We have

also spoken with the govern-

ment departments that should

be responsible for protecting

workers. But the government

has thus far been unwilling to

intervene." There is a popular

perception that, to solve prob-

lems between employers and

employees, employers need to

recognize and respect therights of workers to organize,

and that the government

needs to educate employers

on the right of workers to form

unions. At present, there are

roughly 300 unions represent-

ing approximately 50,000

workers across Myanmar. A


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Feature


Feature

The vast network of rivers that courses through Myanmar has

the potential to generate the electricity needed to improve liv-

ing standards and attract investment. However, if Naypyidaw

allows dozens of dams to be built without taking into accountecological and humanitarian considerations, and exports most

of the electricity generated to Myanmars neighbours, prospects

for political reform in ethnic areas and economic development

across the board may be jeopardised.By Alex BookbinderPhotography by Thu Yein, Aung Kyaw Moe (New Image)



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ACUMEN 13

Myanmar is a land of saints and spirits.

Out of the diverse array of figures wor-

shipped here, Shin Upagutta- the saint of

all waters - summarises the relationship

between Myanmars people and its geog-

raphy perhaps better than all others. Be-

lieved to prevent storms and natural di-

sasters, and to safeguard those travelling

by sea or river, the reverence accorded

to Shin Upagutta serves to underscore the

important position Myanmars rivers play

in the countrys collective consciousness,

and their significance as a resource.

Myanmars other rivers pale in stat-

ure next to the mighty Ayeyarwaddy, by

far the countrys most important water

way. From its origin at the confluence of

the NMai and Mali rivers in Kachin State,

the Ayeyarwaddy flows south for some

2,000 kilometres to the Bay of Bengal,passing through former seats of royal

power - Mandalay, Innwa, Sagaing, Bagan

- along the way. More than a simple con-

duit for information and trade, the

Ayeyarwaddy lies at the core of Bamar-

culture and identity.

Today, the most sought-af ter re-

source provided by Myanmars rivers is

electricity, both for export to neighbouring

countries and to improve Myanmars own

skeletal power grid. While its difficult to

argue that Myanmar isnt in massive needof basic infrastructure, the sheer scale of

these projects, their likely environmen-

tal, social, and cultural costs, and their

questionable benefits for Myanmar itself

have caused their appropriateness to

come into question. Myanmars govern-

ment has pencilled in the construction of

at least 75 new power projects, 67 of

which are slated to be hydropower, ac-

cording to a report by Eleven News in

November 2012. But precious few of these

will meaningfully improve infrastructurein Myanmar, as much of this capacity will

be built primarily to provide power for

export to Myanmars neighbours China,

India, and Thailand.

Even in the case of dams that will

produce electricity largely for domestic

consumption, power will be mostly gen-

erated in peripheral, underdeveloped

areas, and will be transported from there

to central Myanmar. Although rural resi-

dents of Myanmars restive minority ar-

eas will bear the brunt of the negative

effects of these hydropower develop-

ments, they unlikely to see many - if any

- of their benefits if reforms are not made.

If the Myanmar governments past poli-

cies are any indication, rural areas will

most likely not be granted easy access to

the electricity generated in their own

backyards.

Hydropower - in and of itself - is less

problematic than many other types of

power generation. It is renewable, cre-

ates no emissions, and can be imple-

mented in ways that respect the environ-

ment and the rights of people living in

areas affected by dams. But the sheernumber of projects set to go online in com-

ing years, and a pervasive lack of due

diligence throughout the construction and

development processes, bodes poorly for

the sustainability of Myanmars develop-

ment agenda. The mismanagement of

hydropower projects in Myanmar poses

a number of serious risks, including the

relapse of armed conflict, which may

serve to undermine investor confidence

and the international goodwill accorded

to President U Thein Seins governmentin recent months.

The furore surrounding the Myitsone

dam, a massive Chinese-funded project

on the Ayeyarwaddy just south of the

confluence, exemplifies the pitfalls of hy-

dropower development in Myanmar to-

day. If and when it is completed, the dam

will flood an area the size of Singapore,

and displace an estimated 15,000 people.

The geography of the confluence, the

Kachin peoples most sacred site, will be

permanently altered, and the dams en-vironmental impact will be felt all the way

downriver into Lower Myanmar. Given

the centrality of rivers - especially the

Ayeyarwaddy - in Myanmar li fe , the

Myitsone project is, unsurprisingly, highly

unpopular.

If the dam were to offer clear - cut

benefits to the people affected by it or, for

that matter, to people in other parts of

Myanmar, it might have managed to gain

more public support. But under the terms

of a secretive deal signed in 2006 be-

tween the former military junta and the

dams Chinese backers, 90% of the power

generated by the Myitsone dam would go

directly to China for a period of 50 years.

The fact that Myanmars people would

scarcely benefit from such an invasive

project was seen by the public as insult

piled on top of injury, prompting President

U Thein Sein, in September 2011, to an

ACUMEN 13


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Feature


nounce that construction would be sus-

pended until 2015.

The Presidents announcement was

hailed as a victory by prominent mem-

bers of civil society and opposition poli-ticians, including Daw Aung San Suu Kyi.

But although the suspension was widely

lauded at the time, the projects detrac-

tors may have rejoiced too soon. Whether

or not the dams principal backer, the

state-owned China Power Investment

Corp (CPI), ever actually stopped work

at the dam site is not clear. According to a

recent report by activist group Burma Riv-

ers Network, a group of Chinese work-

ers remain at the construction site, and an-

ecdotal reports from the region suggestthat limited construction is still going on.

In a leaked note from March 2012

reported on in the national media, local

authorities requested supplies from

Naypyidaw in anticipation of an influx of

new workers and equipment from China

arriving onsite to restart work, via a sup-

ply road - still under construction - lead-

ing from the Chinese border to the dam

site. In June 2012, the International Com-

mission on Large Dams (ICOLD) issued

a statement confirming that the plannersof the Myitsone dam formally requested

an assessment on the project from inter-

national dam experts. Both pieces of evi-

dence suggest that CPI intends to resume

full-scale construction well before the

2015 moratorium expires.

China has long been an important in-

vestor in Myanmar. When Western com-

panies were forced to leave due to the

imposition of sanctions in the 1990s, Chi-

nese companies swept in quickly to fill the

void. Most major Chinese-backed, capi-tal-intensive projects in Myanmar today,

either in progress or planned,were ap-

proved by the previous government be-

fore the November 2010 elections were

held. Given the historical indifference

shown to public opinion by previous mili-

tary regimes, President U Thein Seins

spurning of China, with the announcement

that dam project would be suspended, took

international observers by surprise. His

willingness go against the wishes of

Myanmars largest trading partner, many

claimed, was evidence that the new ci-

vilian-led government had become, for

the first time, responsive to the desires ofthe countrys people, and saw taking stock

of public opinion in their policymaking

as necessary to maintain their own legiti-

macy.

Public opinion certainly factored into

the Presidents decision to suspend the

dam - evidence that construction has re-

sumed not with standing. But the peoples

desire alone was not enough to make him

change his tune. With sanctions having

essentially closed Myanmar off to West-

ern investment, the former military gov-ernment had been forced into an uneasy

marriage of convenience with Myanmars

much larger neighbour to the North. In

2012, China surpassed Thailand to be-

come Myanmars largest foreign investor,

which, at 14 billion dollars worth of FDI

in 2011, amounted to 35% of all foreign

investment that year. While Chinas eco-

nomic footprint during the sanctions era

was comparable to that of other states, the

spectre of Chinese investment has come

to be considered particularly perniciousby some elements within President U

Thein Seins government. The nature of

the investments China intends to make in

Myanmar, and its strategic aims in the

region, have prompted many in Myan-

mar to treat Beijings aims with suspicion.

The ostensible suspension of the dam

project was intended to realise two stra-

tegic goals at once: to placate an increas-

ingly outraged population, as well as

improve relations with the West. By up-

holding a democratic value Western gov-ernments hold to be important - respon-

siveness to popular opinion - the Presi-

dent has sought to bring about a greater

level of engagement and interaction with

the West, in the eventual hopes of woo-

ing new Western investment and reduc-

ing Chinese economic dominance.

Companies from high-wage coun-

tries, both in the West and in Asia, have

expressed interest in investing Myan-

Given the historical

indifference shown to

public opinion by previous

military regimes,

President U Thein Seins

spurning of China,

with the announcement

that dam project would be

suspended, took

international observers

by surprise.


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ACUMEN 15

mars manufacturing sector, as the coun-

try has the potential to develop into a

competitive, low-wage manufacturer.

Chinese companies, by contrast, are fo-

cused almost exclusively on exploiting

Myanmars natural resources. While 30-

odd years of economic openness have

brought hundreds of millions out of pov-

erty in China, the Peoples Republic re-

mains highly economically stratified, with

a wide gap between the manufacturing

powerhouses of the East Coast and the

relatively underdeveloped provinces to

the West. Beijing, keen to further devel-

opment at home, has no desire to see

Chinese manufacturing jobs go to Myanmar.

What Myanmar does offer China,

however, is abundant natural resources

right on its doorstep, especially conve-

nient for its development plans in Yunnan,

with which Myanmar shares a 2000-

kilometre border. Myanmars largely

undammed rivers are seen by Beijing as

important for the development of West-

ern China, and state-linked Chinese firms

have moved to develop similar hydropower

projects in neighbouring Laos as well.

The scale of Chinas planned in-

volvement in Myanmars hydropower

sector extends well beyond the Myitsone

project itself. On the NMai and Mali riv-

ers alone, China plans to build a total of

six dams upstream of the Myitsone

project, and has already completed one

dam to generate power for the construc-

tion of the Myitsone dam itself. Chinese

companies are also helping develop dams

underwritten by Thai interests elsewhere

in Myanmar, primarily along the also as-

yet- undammed Thanlwin (Salween) river.

Much like China, Thailand is keen

to exploit the power resources of its less-

developed neighbours in order to provide

cheap power for its own manufacturing

sector, centred along the Eastern Sea-

board near Bangkok. A Thai company,

MDX Group, along with a consortium of

four Chinese contractors and investors,


22/64

Feature


began construction of the TaSang dam,

designed by a British firm, in central Shan

State in mid-2007, although not much

construction activity has taken place at the

dam site since 2008. If and when it is fin-

ished, the TaSang dam will be the tallest

in Southeast Asia, producing over7,000mW of electricity per day. Around

85% of its output is slated to go to Thai-

land.

Plans for at least five dams along the

Thanlwin were drafted under the former

military regime, and, if built, the vast

majority of the electricity generated by

them will go to China and Thailand. As

with the planned dams in Kachin State,

the proposed Thanlwin dams in Shan and

Kayah states lie in the middle of areas

long afflicted by civil war. While tradi-

tional wisdom has often equated devel-

opment in war zones with promoting

peace, dam building for distant clients at

the expense of local populations - as has

happened in the past in Myanmar - might

only serve to catalyse civil war to a greater

degree.

Despite a serious lack of infrastruc-

ture in rural areas, the government has

not announced plans to share the planned

hydroelectric bounty with communities

that will be directly affected by the dams

being built; hydropower developments in

Myanmars underdeveloped periphery

have a long history of not serving the

needs of the people most affected by them.

Dating back to the 1960s, the Lawpita damin Kayah State is Myanmars oldest, and

serves as a useful case study for the prob-

lems that irresponsible dam construction

can cause.

As with the latest round of proposed

dams, the power from Lawpita is trans-

mitted far away, directly to Yangon and

Mandalay, leaving Kayah State with se-

vere power shortages. Over four decades

of expansions, more than 12,000 people

have been displaced without proper com-

pensation, according to a 2006 report by

activist group Salween Watch. The flood-

ing of the reservoir swallowed thousands

of square acres of arable land and exac-

erbated water shortages, causing fish

stocks to dwindle. To date, 80% of Kayah

States population has no access to

Myanmars national electricity grid.

The previous military governments

lack of regard for dam-affected commu-

nities in Kayah State has ensured that the

April 2013

current administration enjoys little popu-

lar support there. Over the years, perva-

sive human rights violations perpetrated

by government forces, and a fundamen-

tal absence of the rule of law, have driven

local people to support ethnic opposition

groups, most notably the Karenni NationalProgressive Party and its armed wing, the

Karenni Army. Instead of treating the

ethnic peoples of Myanmars frontiers as

equal partners in development, previous

military regimes focus on national unity

at all costs allowed them to justify extract-

ing the resources they wanted through

summary subjugation, with no concern for

the human cost involved. In Kayah State,

the military has been accused of confis-

cating land by force without compensat-

ing its inhabitants, laying landmines, and

drafting local people to provide forced

labour.

President U Thein Seins govern-

ment has expressed an interest in end-

ing Myanmars myriad ethnic insurgen-

cies, a legacy that would be commendable

to leave if it is done by engaging ethnic

armed groups in good-faith dialogue. The

government has recently signed cease-

fires with a number of ethnic armed


23/64

ACUMEN 17

groups - most notably, the Karen National

Union in January 2012 - but ending open

hostilities without addressing the under-

lying dynamics of conflict will not be

enough to bring about lasting peace.

Naypyidaw will need to negotiate settle-

ments with ethnic parties to normalisetheir political status in government, and

allow them to establish a role in state-

level and/or national politics. Without

binding commitments from the govern-

ment, however, getting non-state armed

groups to disarm will be difficult.

Although poor rela tions between

Myanmars central government and eth-

nic minorities have defined ethnic poli-

tics in the country for decades, irrespon-

sible development practices have exac-

erbated tensions that might have other-

wise been lessened through dialogue and

collaboration. Despite the fact that most

of the non-state armed groups operating

in Myanmar today started out as armed

independence movements, the vast ma-

jority have now expressed a desire to

remain part of an inclusive and demo-

cratic Union of Myanmar, so long as a

modicum of political power is devolved

to the state level.

The military has had a longstanding

fear of federalism, based on a belief that

devolving political power to ethnic minor-

ity regions will lead to the dissolution of

the Union. To ensure long-term stability

and economic growth, however, ethnic

minorities will need to be meaningfullyincorporated into the development pro-

cess. This will only occur if ethnic minori-

ties are treated as equal stakeholders in

the central governments development

agenda.

Accountabi li ty, transparency and

thorough impact assessments need to be

of principal concern when it comes to

hydropower development in Myanmar.

Contracts for the export of hydroelectric-

ity signed under the former military re-

gime, subject as they are to no account-

ability or oversight, will need to be re-

examined, despite the inevitable politi-

cal fallout with Myanmars neighbours

that is likely to ensue. Ensuring that

planned projects in remote and underde-

veloped areas move forward in ways that

will benefit local populations is crucial for

political stability, and are prerequisite for

lasting economic growth to occur.

17

The flooding

of the reservoir

swallowed thousands of

square acres of

arable land and

exacerbated water

shortages, causing fish

stocks to dwindle.

To date, 80% of Kayah

States population

has no access to

Myanmars national

electricity grid.


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Feature


Activist groups, such as the Burma

Rivers Network and Salween Watch,

have taken an absolutist stance against

hydropower development in Myanmar,

claiming that the environmental and so-cial costs associated with dams outweigh

the benefits under all circumstances.

While many of their criticisms are legiti-

mate, blanket demonization of hydro-

power is counterproductive, as dams are

a relatively environmentally friendly way

of generating the power Myanmar will

need to improve its citizens standard of

living, at least when compared to viable

alternatives, like burning coal.

The way in which hydropower de-

velopment in Myanmar is slated to pro-gress, however, is highly problematic.

While environmental degradation is an

inevitable result of dam building, the eco-

logical impact of these projects will be

devastating due to the sheer number of

projects set to be built. An unacceptably

high number of people will be displaced

by these projects, and the inadequacy of

property and compensation laws currently

in place - let alone mechanisms to enforce

them - leaves companies with little incen-

tive to ensure that those displaced bythese projects will be properly compen-

sated for their losses.

The pending hydropower export

deals signed with Chinese, Thai and In-

dian firms are a hangover from the former

military regimes policy of selling off

Myanmars natural resources at fire sale

prices at the expense of developing the

economy at home. Internationally isolated

and starved for foreign currency, the

former government likely felt that giving

foreign interests rights over Myanmarsrivers was a pragmatic way to get cash

fast. But in the wake of recent economic

reforms, and new interest in Myanmar

from western investors, exporting the

resources necessary to develop Myan-

mars inadequate infrastructure will only

damage the countrys growth prospects

in the long run.

Despite a general feeling of optimism

about Myanmars future prospects among

those familiar with the countrys economy,

the expected rush of would-be foreign

investors has amounted to little more than

a trickle thus far. While the red tape as-

sociated with going into business has

diminished considerably, and recently

passed foreign direct investment laws

should serve to protect investors interests,

a lack of basic infrastructure makes

Myanmar a less attractive investment des-

tination than it might otherwise be.For all its natural endowments,

Myanmar should not be an energy-starved

country. Although the reliability of

Myanmars electrical grid has improved

steadily over the past few years, black-

outs are still unacceptably common, even

in major urban areas. Manufacturing

wages in Myanmar are the lowest in

Southeast Asia, but low wages alone will

not be enough to attract foreign invest-

ment; the savings to potential investors

in the manufacturing sector are offset bythe cost of dealing with the countrys poor

infrastructure. Additional capital costs

need to be incurred - buying diesel

generators and fuel, for example - in or-

der to guarantee factories a steady supply

of electricity.

If Myanmars current government re-

mains willing to send the lions share of

the countrys potential hydroelectric pro-

As Myanmar opens

to the world, the current

administration must

demonstrate the strong

leadership required to undo

the damage of the previous

governments mismanage-

ment, even if that means

straining relations

with Myanmars neighbours

in the short-term.


25/64

ACUMEN 19

duction abroad, foreign investors will

likely continue to ply money into other

countries in the region with better infra-

structure - such as Indonesia or Cambo-

dia - even if labour costs in those coun-

tries are higher. Attracting foreign invest-ment, however, is not the only reason to

use Myanmars resources for domestic de-

velopment first. Responsible hydropower

development that respects the rights of

individuals and communities in dam-af-

fected areas, combined with good-faith

negotiations with non-state armed groups,

may help prevent new bouts of civil war

from breaking out.

Decades of neglect and oppression

throughout Myanmars frontier areas

have left the present administration witha serious legitimacy problem. Harnessing

Myanmars natural resources to improve

standards of living for rural people and

ethnic minorities should be a priority, and

would serve to legitimate the govern-

ments development agenda in areas

where the benefits of Myanmars new-

found economic openness have not been

felt. Dams are invariably invasive, and can

have serious negative effects on the en-

vironment. While some hydroelectric

projects will be necessary to modernize

Myanmars infrastructure, the sheer num-

ber of projects currently on the books

would result in an ecological and eco-nomic catastrophe - profoundly affecting

forestry, agriculture and fisheries - if all

of them were to be built.

President U Thein Sein has shown

a willingness to break with many of the

excesses, inefficiencies and absurdities of

Myanmars former governments.

Myanmars rivers are an important re-

source that can help facilitate his

governments reformist agenda, but the

hydropower sector must be developed

cautiously if these reformsare to be du-rable and sustainable. Rather than per-

petuate the patron-client relationships

that have come to define Myanmars re-

lations with its neighbours, sustainable

hydropower development can allow

Naypyidaw to develop the countrys

economy with more diversified sources

of investment and serve to increase liv-

ing standards, as better infrastructure will

attract more foreign investment and pro-

vide greater opportunities for domestic

businesses to grow and prosper. An inclu-

sive, sustainable and comprehensive de-

velopment agenda - in tandem with po-

litical reforms that give ethnic minorityareas more control over their own affairs

- will be especially beneficial for the his-

torically neglected and marginalized ar-

eas where most hydropower develop-

ment would occur.

As Myanmar opens to the world, the

current administration must demonstrate

the strong leadership required to undo the

damage of the previous governments

mismanagement, even if that means

straining relations with Myanmars

neighbours in the short-term. Respon-sible hydropower development, in tan-

dem with political reforms and initiatives

to make ethnic minorities equal stake-

holders in the development agenda, must

replace the rampant, unchecked dam de-

velopment that looks set to export one of

Myanmars most crucial resources to

neighbouring countries against the

countrys best interests.A


26/64

Feature


ecades of mismanagement and

economic stagnation have resulted

in a serious unemployment prob-

lem in Myanmar. Accurate figures are hardto come by as the last nationwide census

was conduced in 1983, but a survey on

employment and poverty, released by Par-

liament in January 2013, found that some

40% of the country's labour force is unem-

ployed and that roughly 60% of the popu-

lation lives under the poverty line. To tackle

joblessness and poverty, concerned orga-

nizations and entrepreneurs have begun

to undertake job creation initiatives focused

on providing work opportunities for young

people.

Increasing personal income and cre-

ating jobs, especially for young people, is

critical for alleviating poverty and raising

standards of living, claims Myanmar Brew-

ery Ltd.s commercial director, U Myint Zaw.

If four members of a five-member house-

hold were to work, rather than two, the

additional productive members of the

workforce would add substantially to that

households total income. Indirectly, fami-

lies with greater income are able to con-

sume more food, clothing, etc. With greater

buying power comes greater spending,

which - if incomes rise significantly - should

allow Myanmars economic pie to grow

across the board," he said.

Despite the fact that foreign compa-

nies have begun to invest in Myanmar, it

is important that local firms continue to

expand, despite the challenges - real or

imagined - they might face. To compete

with foreign firms, local companies need

to overhaul their organizational structures,

work to optimize their costs and find quali-

fied workers with the ability to thrive in

the competitive pressure of a globalized

economy. Given Myanmars attractiveness

as a low-wage producer, the manufactur-

ing sector is set to expand considerably. If

the manufacturing sector is promoted prop-

erly, new jobs will be created for millions

of workers, which should serve to sub-

stantially reduce unemployment.

But how should potential employers

best contact qualified potential employees?

U Aung San, a consultant with the Naing

group, a construction company in Yangon,

thinks that employers need to make a con-

certed effort to find workers. Events ca-

tering to job seeking are in order. If the

state were to hold job fairs in conjunction

with big companies, new job creation- and

the consequential alleviation of poverty that

would result - would receive a big boost,"

he explained.

Myanmars unemployed include many

fresh graduates. Despite their high levels

of education, they remain jobless as em-

ployers are unwilling to hire them due a

perceived lack of work experience. Daw

Khin Lapyayt Wun, a manager at PKK

Feature

D



27/64

ACUMEN 21

Employment Agency, elaborates. The main

weakness of todays job seekers is that they

want to work as soon as they have fin-

ished their schooling or university educa-

tion. Those with work experience are eas-

ily employed. While opportunities abound

for qualified persons, the situation is more

difficult for fresh graduates."

Nevertheless, companies should start

employing eager and motivated youths,

taking into consideration their level of aca-

demic achievement alone, she explained.

If employers fail to overlook recent gradu-

ates level of motivation, despite their lack

of formal experience, and continue to

prioritise those with more experience, ca-

pable young people may be left in a lurch.

Although people are struggling worldwide

in these times of economic uncertainty, they

have a lot to offer if given opportunities to

work.

U Linn Htun of Yangon-based Devel-

opment Consultancy Co., Ltd. recognises the

need to incorporate recent grads into the

workforce as soon as possible. Most com-

panies usually look at the years of work

experience in would-be employees, which

constitutes great hindrance at job inter-

views. Thus, young people drift into pro-

longed unemployment. It would be ben-

eficial for youths if companies were to of-

fer training programs, with the eventual

goal of regular employment. Otherwise,

young people will be trapped in an end-

less cycle - joblessness leading to jobless-

ness for lack of experience. Its a classic

catch-22," he said.

Recent grads may also forego employ-

ment they consider to be less than ideal,

as they would prefer to find work related

to their field of study. Ma Yamin Shwe Sin,

an educational consultant based in

Kamaryut Township, Yangon, remarked:

Most people would prefer a job related to

their studies, and turning down unrelated

jobs might be a reason for the voluntary

unemployment of so many. But this doesnt

need to be the case. As more job opportu-

nities become available, unemployment will

go down. At present, applicants for scarce

positions greatly exceed the number of jobs

on offer, so creating more job opportuni-

ties overall is crucial," she said.

Myanmar has plenty of educated

people, but low salaries have prompted

many of the countrys best and brightest to

seek out opportunities abroad. While it is

unrealistic to expect either domestic or for-

eign companies to offer salaries commen-

surate to those on offer in more developed

economies, skilled workers might be

tempted to stay in the country if better re-

muneration was offered. To prevent the

outflow of the skilled labour force crucial

for Myanmars development, firms have

an obligation to provide salary levels high

enough to stop this brain drain of skilled

workers from the country.

Ultimately, the conundrum of unem-

ployment in Myanmar will only be solved

if all stakeholders act in a transparent

manner - job seekers, the government and

would-be employers alike. If the

governments policy is effective and indus-

try is receptive to the demands of the

workforce and international markets,

Myanmar will be able to decrease its un-

employment rate while increasing its citi-

zens purchasing power and living stan-

dards. A

ACUMEN 21


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Cover Story


Cover Story



29/64

ACUMEN 23

Coca-Cola and Pepsi the towering giants of

the global soft drink industry havent had

an official presence in Myanmar for de-

cades. While their products have been available

for years as unofficial imports, the easing of Ameri-

can sanctions has brought with it a full-on cola war

to Myanmar, as Coke and Pepsi jostle for space inan increasingly crowded domestic beverage mar-

ket. Aside from each other, the beverage titans will

have a host of domestic producers to compete with

for market share.

Dr. Sai Sam Htuns Loi Heng group is a major

player in Myanmars beverage industry. Our Prof.

Dr. Aung Tun Thet sat down with him to discuss

Coca-Colas official reappearance in the country, and

what it means for the future of Myanmars bever-

age industry.

Prof. Dr. Aung Tun Thet :As Myanmars transition towards

democracy has progressed, foreign investors have found

doing business in Myanmar to be an increasingly attrac-

tive proposition. As you know, Coca-Cola intends to ex-

pand its footprint in Myanmar in a big way. What are yourthoughts on that?

Dr. Sai Sam Htun : There are many pros and cons for our

country and economy associated with Coca-Cola making a re-

appearance in Myanmar. For the better part of the 20thcentury,

there were three countries where Coca-Cola didnt do business

North Korea, Cuba and Myanmar. So wed like to welcome

Coca-Cola back. Their presence will benefit Myanmar, either

directly or indirectly. While many countries and foreign inves-

tors are wary of making their way back to Myanmar, Coca-

Cola has been among the first multinationals to invest, setting a

strong precedent and example for others to follow.

Pepsi went on sale in the Soviet Union just as Khrushchevs

reforms got underway. You think theres a precedent there

for Myanmar?

That might be the case. Theres no way Coca-Cola would

have reinvested in Myanmar without the lifting of sanctions

and the express blessing of the US government. So its a good

thing that Coca-Cola has announced that its coming back. If the

United States didnt want investment in Myanmar, Coca-Cola

wouldnt be coming. I think both the US government and Coca-

Cola feel that theyve seen good progress in Myanmar, so theyve

chosen to come back.

Given their absence for so many years, it may be difficult

for them to compete against local producers on their own.

How will they go about making their investment?

There are two potential business models that Coca-Cola or

other companies operating in this sector could follow. The first

is where their entire operation is one-hundred-percent owned

and operated by them directly straight foreign direct invest-

ment, if you will. But under the current legal regime, they will

only be able to do this gradually. At this point, theyre only able

to hold a 49% ownership stake at most the majority partner

in joint ventures must be a local company. But over time, this is

likely to change: the government has expressed an interest inallowing foreign companies to own a greater share of joint

ventures than they are permitted to own now. Over time, Coke

may try to become the exclusive owner of their distribution

and/or bottling operations in Myanmar.

Do you think they would establish their own 100-percent

foreign-owned manufacturing and distribution facilities if

the government were to allow them to?

Theyre playing it cool for now, and havent made any

mention of their plans publically. At this point, theyre willing to

ACUMEN 23


30/64

Cover Story


collaborate with local

businesspeople and share

the wealth. Youre right that

they arent the majority

shareholder yet, but with alegal framework in place

that allows it I expect they

would establish their own,

bespoke bottling plants

distribution networks with-

out local partners involved.

Theyre already here, so

theyll probably be interested

in making a long-term in-

vestment.

Establishing their ownfacilities without local partners would be the first model,

then. I can assume that the second model youre going to

mention involves retaining a local partner?

Exactly, yes. The second model Coca-Cola could follow would

be to retain a partnership with a local counterpart, even if

theyre allowed by the government to set up a one-hundred-

percent foreign-owned subsidiary. This relationship would pri-

marily be retained to minimize their operational risks. For bet-

ter or for worse, doing business in this country is widely con-

sidered to be a risky proposition, so, instead of rushing into the

Myanmar market, theyll take it slow, make cautious moves.

Theyre well positioned because what they do is relatively niche,at least compared to an operation like my own: theyre in the

cold drink business, but arent involved in producing beer or

liquor. Aside from the risk management factor, foreign inves-

tors in the beverage industry might acknowledge that there is

an advantage to partnering with a local bottler or distributor

without marginalizing it in the marketplace or taking it over

directly. This is because established local companies often have

greater distributional reach than a new entrant would be able

to develop, not to mention specific know-how on how to do

business in this country that new entrants invariably lack.

How about management?As far as I know, the management will be 90 percent local.

Senior management some of whom will come from abroad

will be there primarily for oversight. Coca-Cola tends to man-

age its operations well wherever it goes in the world.

Do they need product specialists? Management that is spe-

cifically familiar with the intricacies of the food and bev-

erage sector in Myanmar?

No, they dont. The business model is pretty straightforward.

Their main job is managing retail distribution and especially

marketing. Coke is the kind of product that the company

wants to position as something you pick up automatically when

you enter the store.

What do you think of their advertising?When Coca-Cola enters the Myanmar market, youll see

red signs everywhere! On football fields, on TV, etc. Domestic

producers simply wont be able to compete. For now, foreign

brands like Coke and Pepsi will take charge of branding and

marketing while local companies will be responsible for distri-

bution and sales a relationship that may change if these com-

panies choose to establish their own bottling plants and distri-

bution networks in the future.

So their responsibility is marketing and advertising, and

they will outsource everything else to us (Myanmar na-

tionals)?

Our responsibility is to manufacture the product, and to

distribute it. For now, at least, were going to have to operate

like franchisees, if you will.

If and when they establish their own manufacturing facili-

ties, what do you think their production capacity is going

to be like?

Prof. Dr. Aung Tun Thet

When Coca-Cola

enters the Myanmar

market, youll see

red signs every-

where! On football

fields, on TV, etc.

Domestic producers

simply wont be able

to compete.


31/64

ACUMEN 25

That is going to be an important factor. The sheer amount

of capital at their disposal means theyd be able to establish

something quickly that would outstrip the capacity of our facili-

ties. Coca-Cola has an extremely strong brand, which should

work in their favour over domestic brands. In developing coun-tries, people tend to prefer foreign brands. Id imagine that in

this country people will prefer to drink Coca-Cola over our

brands - not that thats a reflection on the quality of their prod-

uct relative to ours, just that their brand is such a force to be

reckoned with.

So do you think you can keep your brands viable by com-

peting on price?

They wont make it easy for us! Coca-Cola is such a large

company that it can afford to run its operations with minimal

profits or even at a loss for a few years in order to build mar-

ket share.

Now that Coca-Cola has signaled its intention to invest, do

you think other foreign firms are going to follow suit?

Well, Pepsi is on its way. F&N (Fraser and Neave, from

Singapore) is also likely to get in on the action. The competition

should be stiff, and if domestic producers are unable to inno-

vate, theyll get lost in the shuffle.

So domestic producers dont have a choice? To stay alive,

will domestic companies need to cooperate with the largeinternational brands?

If they choose to cooperate with us, wed be happy to

cooperate with them. As I mentioned, domestic firms will be

producing their products for them, at least at first. If we (Loi

Hein Group) cooperate with foreign beverage companies, other

companies will, too. I think its pretty well understood in the

industry in Myanmar that trying to compete directly with the

foreign giants is futile. The only way were going to be able to

survive is to collaborate.

Do you think youre going to be able to retain your inde-

pendence?

I should clarify: Im referring to the soft drink market only.

There, it will be difficult for us to compete, but we (Loi Hein)

should still be very competitive to when it comes to purified

water. And our energy drink brand Shark is strong enough

to compete directly with the big boys. In Thailand, Shark and

Red Bull provide stiff competition for each other; in the energy

drink sector, the majors are going to be forced to play catch-up

with us. In Vietnam, for example, Coca-Cola just bought the

rights to Samurai, which isnt the number one brand. Shark

and Red Bull are.

In Myanmar, the Shark brand is very strong, and has

international cachet that our soft drink brands do not. When it

comes to energy drinks, were incumbents that will be much

harder to dethrone. Ultimately, soft drinks are trendy. People

in America accept that drinking Coke isnt good for your health.

But most people drink Coke every day because its fashionable

to do so. So domestic producers dont need to be afraid. Be-

tween our purified water business, the energy drinks and the

joint ventures, well be alright. But were going to need to be

flexible and bring our operations up to international standards.

We will need to improve the efficiency of our staff.

It sounds like we have to be ready!

Of course! I dont know much about other sectors. But as

far as the soft drink industry is concerned, I have to be ready.Coca-Cola has thrown down the gauntlet and offered us a real

challenge. If they ultimately decide to manufacture domestically,

it will be very challenging for us.

Did you hear that (Mayor) Michael Bloomberg has banned

sales of soft drinks with sugar to children in New York

City?

That goes back to what I was saying before. Coca-Colas

brand is extremely strong. Its common knowledge that drink-

Dr. Sai Sam Htun


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Cover Story


ing the stuff is bad for you. Everyone knows it, but people keep

drinking it.

So Coca-Cola is now going to be employing Myanmar staff.

Your business is in the same sector, therefore Id imagine

youre about as expert as it gets on the state of the bever-

age industry in Myanmar. But is Coca-Cola going to able

to find the local expertise it needs? Is there a shortage of

knowledgeable professionals in Myanmars beverage in-

dustry?

The beverage industry really doesnt need experts because

its so low-tech. A girl with high school education would know

how to sell the product if we were to train her. The only in-

stance where experts are really needed is when it comes to

strategic planning and designing business models.

So Coca-Cola et al. dont need to worry about finding

market experts?

Not at all. And they wont be able to steal away our ex-

perts either. Theyll train their own. Local companies wont

provide the management expertise theyre going to need

thatll all come from their side.

If you were to be able to experience their management

process, do you think that their strategies would be some-

thing youd find it useful to replicate?

Sure, we can imitate them. Its proven beneficial in other

industries, so why not in ours? It might not be a bad idea to

copy foreign companies management styles - how Chinese

companies manage to be so efficient, for example. After a while,well be able to transition from copying foreign companies man-

agement styles to developing to our own innovative and locally

appropriate style.

The ASEAN Economic Community is set to become a re-

ality in 2015, which will result in a much greater func-

tional integration of all of Southeast Asias economies. So,

technically, if we in Myanmar are able to produce bever-

ages at a sufficiently low cost, wed be able to sell our prod-

uct in Thailand without trade barriers. Do you think there

are opportunities here for Myanmar?

Absolutely, there will be. Here, the electricity and wagesare cheaper; Myanmar products will also be able to be ex-

ported to neighbouring markets outside of ASEAN, such as In-

dia and China.

So do people in Myanmar have a good opinion of Coca-

Cola, all things considered?

Yes, most certainly. I think people view Coca-Colas arrival

as a tangible symbol of just how far this country has come and

how things are changing substantially for the better. This coun-


33/64

ACUMEN 27

try still faces serious problems, but Coca-Colas re-entry is noth-

ing if not a positive sign.

When Coca-Cola invests in Myanmar, how much do you

think their initial capital investment is going to be?

Not too much. Given the perceived risks associated with

large-scale capital investments in Myanmar, its unlikely Coca-

Cola will establish operations straight away. Their domestic

partner will act as a sort of franchisee, a share of whose profits

Coca-Cola will be entitled to. Later on, once the company pur-

chases property and builds facilities, their dollars will flow to-

wards us.

How many billions of dollars will they invest?

In Southeast Asia, we cant talk billions. Economies here

are just too small. But in Thailand, Coca-Colas investment was

worth US$450 million, so that number may be an indication of

the numbers well be seeing for Myanmar.

In order to compete with Coca-Cola et al. in the long run,

what will Myanmar companies need to change about their

operations?

Well, weve already hired a foreign CEO to get our opera-

tion up to speed with international standards. We pay him

US$15,000 per month. He has lots of experience in the bever-

age industry. Hes been working with us since September 2011.

That, in my mind, is preparation. If we cant find a professional

in the field domestically, well employ foreigners. One day,

Myanmar people will become experts in this field. Paying a

foreigner a salary of US$15,000 is too much, you know. But wewould be happy to hire Myanmar-national experts who have

gone abroad and learned from their experiences. Its crucial

that we, as a country, work to get our operations up to interna-

tional standards.

What about the capacity of the staff to deal with all of this

change?

Well, thats where we as employers step in. Its imperative

that our people are trained properly. Its difficult to blame their

poor capabilities on them individually, because our education

system is woefully inadequate. For example, if I were to ask a

student with a distance education degree, How many dayshave you gone to university? a common response might be 30

days within a three-year period or 10 days within the span of

a year. Its deplorable. So what can we do to solve this prob-

lem? Much of it comes down to government budgets, which

are completely inadequate for both education and health.

Thank you very much for your time. A


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B2B Talk


B2B Talk


35/64

ACUMEN 29ACUMEN 29

On October 12th, 2012,

Myanmar B2B Management

Magazine (ACUMEN) held

a panel discussion between

various executives in the

airline and travel industry. Led

by Dr. Aung Htun Thet, the

panel discussed Myanmars

airline industry, its prospects

for growth and the challenges

the sector faces heading into

2013. Panelists included U Kyi

Win, the CEO of Asian Wings

Airlines; U Htoo Thet Htwe,

the Managing Director of Air

Bagan; U Moe San Aung, the

Managing Director of Air KBZ;

and U Phone Paing Oo, the

Managing Director of

Ayarwaddy Legend Travels

and Tours.


36/64


B2B Talk

Dr. Aung Tun Thet :Mingalaba to all present. Today, were

going to discuss the state of Myanmars airline industry, and

the changes the sector is likely to experience as the travel and

tourism sector expands. Myanmars poor road infrastructure

makes developing the airline industry important for the countryseconomic, political and social well-being. Id like to start the

discussion by asking U Kyi Win about Asian Wings history

and future business plans.

U Kyi Win :Asian Wings Airways was established on Sep-

tember 17, 2010, although we only obtained a business license

from the Myanmar Investment Commission (MIC) on January

12, 2011. We are licensed to fly both domestically and interna-

tionally, although weve chosen to focus on domestic opera-

tions only for the moment. We intend to offer international

flights in the future.The Directorate of Civil Aviation (DCA) is

the regulatory body that governs the airline sector in Myanmar.

For an airline to be allowed to operate, it must obtain two

certificates: a Permit to Operate, as well as an Operator Cer-

tificate, both of which are issued by the DCA. We received

both on January 24, 2010. Flight operations commenced a few

days later on January 27th, starting with a daily Yangon Nyaung

Oo Mandalay Heho Yangon route. We now service a total

of 13 destinations, with flights originating in both Yangon and

Mandalay.

Dr. Aung Tun Thet :Thank you for sharing information about

your company. Now, U Htoo Thet Htwe, please give us some

information about Air Bagan.

U Htoo Thet Htwe :Air Bagan started flying in November

2004, and was the first wholly private airline in Myanmar; in

the past, all airlines were required to enter into joint ventures

with the state carrier, Myanma Airways. At present, we oper-

ate flights to 19 destinations, including Chiang Mai two times

per week. In conjunction with MAHA tours, we operate char-

ter flights to Bodhgaya once per week.

Dr. Aung Tun Thet :U Moe San Aung, please give us some

information about Air KBZ.

U Moe San Aung :Air KBZ has operated with a fleet of two

ATR-72 500s since April 2011, and we expect to add two more

ATRs to our fleet soon. We fly to 13 destinations, and expect to

add Putao and Bhamo to the list in the near future.

Dr. Aung Tun Thet :How are relations between your airline

and MAI (Myanmar Airways International)?

U Moe San Aung :MAI is 20 percent owned by KBZ and 80

percent by the government. We are responsible for taking some

international passengers to domestic destinations connecting

to MAIs international flights. We do have a permit to fly inter-

nationally, but only operate on domestic routes at this time.

Dr. Aung Tun Thet :Lets hear what U Phone Paing Oo has to

say about his tourism business.

U Phone Paing Oo :Ayarwaddy Legend Travels & Tours wasestablished in July 2007. So were in our sixth year of exist-

ence, and have established a branch office in Mandalay. We

are involved in both domestic and international tourism, and

offer services to a wide variety of domestic and international

clients. We also arrange conferences and exhibitions, and deal

with the logistics associated with these events for our clients.

Dr. Aung Tun Thet :What are your plans for 2015, when

AFTA (the ASEAN Free Trade Area) and AEC (ASEAN Eco-

nomic Community)go into effect?

U Kyi Win :As ASEAN is set to introduce an open-skies

policy between member states, Myanmar will be obliged toallow international airlines unrestricted access to our airports.

Seven international airlines are currently allowed to fly here,

but domestic airlines are not in a position to compete with

them. I have learned that two new domestic airlines will be

granted operating licenses in the near future, two of which

intend to launch international services. If Myanmars aviation

industry can get its act together and pool resources instead of

maintaining the status quo of smaller airlines competing with

each other Myanmar-based airlines will be much better

equipped to compete with international airlines. The govern-


37/64

ACUMEN 31

ment should protect domestic airlines, because we havent been

profitable. For as long as weve been around, Asia Wings has

operated at a loss. In spite of our unprofitability, we still oper-

ate because the authorities have requested our help to meetMyanmars air transport needs. Im not saying that theres any-

thing wrong with international airlines flying to Mandalay or

Yangon, for example, but domestic airlines need to be allowed

to maintain a monopoly over domestic flights. If this sort of

protection is maintained, I believe that Myanmars airlines

should see sustained growth and be able to compete with for-

eign carriers in the long run.

Dr. Aung Tun Thet :Id like to know what preparations, if

any, Ayarwaddy Legend is making to provide services for the

Western tourists expected to arrive in Myanmar in unprec-

edented numbers in the near future.U Phone Paing Oo :As far as promoting our tourism business

is concerned, we need to obtain internationally recognized

qualifications ISO certification, for example. Without such

standards in place, its difficult to compete with foreign compa-

nies. Were working on capacity-building in-house to raise our

standards.

Dr. Aung Tun Thet :U Kyi Win, what challenges does your

business face as the aviation industry in Myanmar changes?

U Kyi Win :The single biggest problem

we have to contend with is the price of

fuel, which now accounts for 70 to 80 per-

cent of the airlines operating expenses.

Airplane fuel used to be roughly 2,500 kyatsto the gallon, but as of April prices have

increased to roughly US$4.5, or 4,000 kyats.

Our ATR planes consume fuel at a rate of

210 gallons per hour; we clocked 5093

flight hours last year, and as business has

increased, we have seen a substantial in-

crease in our fuel costs. Another challenge

we face is what is called fuel ride, in avia-

tion parlance. On our flight from Myeik to

Kawthaung, for example, it would be theo-

retically possible to take on a minimal

amount of fuel while carrying a full pas-senger load, so long as the plane would

be able to refuel at its destination. But as

is often the case in Myanmar, there might

not be enough fuel available in Kawthaung,

so our planes have to carry all the fuel

they will need to make the return trip,

adding weight and thus cost. Its also diffi-

cult for us to acquire spare parts for our

aircraft. In most countries, such parts are

not subject to import duties, but in Myanmar, we pay import

duties that increase based on the value of the pieces we wish

to import. To bring Myanmar in line with international avia-tion norms, aircraft parts must be exempted from import du-

ties.

Dr. Aung Tun Thet :In terms of foreign competition, I agree

with U Kyi Win in general, but I think that protectionism might

be perceived as corrupt in light of ASEANs moves toward

regional economic integration. If possible, Myanmars aviation

industry should try to promote itself rather than insulate itself

from foreign competition. Does Air Bagan have any plans to

expand, U Htoo Thet Htwe?

U Htoo Thet Htwe : Yes, we are currently in the process of

expanding our fleet; we intend to acquire another ATR-72 bythe end of the year. As U Kyi Win noted, we run Air Bagan at

a loss just to promote tourism development, and its true that

the government should protect domestic airlines from foreign

competition. When we enter the open-skies agreement in 2015,

we will likely face tremendous difficulties competing with gi-

ant foreign airlines.

Dr. Aung Tun Thet :Does Asian Wings have any expansion

plans, U Kyi Win?


38/64


B2B Talk

U Kyi Win :When the open-skies agreement is put in place,

we will be allowed to penetrate foreign markets, just as for-eign airlines will be allowed to do here. JetStar already has a

codesharing agreement with MAI for international flights, and

Air Bagan has experience flying to other regional markets.

Were not as experienced in this regard, but have an operating

license that allows us to expand internationally if we want to.

Well start by servicing regional markets first, and if that goes

well, well broaden our horizons to destinations further afield.

U Moe San Aung :Although KBZ has focused on the domes-

tic market for now, were keen to go further. When we receive

our new ATR-72 600, which we anticipate will occur in De-

cember, we will be the first airline in the region to operate this

aircraft variant. The 600 variant of the ATR 72 is a substantialimprovement over the 500, boasting a glass cockpit and touch-

screen instrumentation. As our domestic destinations tend to

be fairly close to one another, we are unlikely to purchase

aircraft better suited to servicing long-haul routes. ATR prod-

ucts suit our needs perfectly, because of their fuel efficiency on

short-haul routes.

Dr. Aung Tun Thet :What is demand for air travel like among

locals? One might imagine that consumers would prefer to fly

rather than travel by bus or train. Yet air travel remains out of

the financial reach of the majority of people in this country,

and so the cost of flying must go down for the sector to grow.

Do you intend to introduce flights at more reasonable price

points?

U Kyi Win :You raise a really important point. Lets use the

Chinese mindset as an example. Even as recently as four years

ago, trains were the dominant mode of long-haul travel in

China. People were afraid of flying, and cars were unaffordable.

Old Chinese trains covered long distances, but could take days

to reach some destinations. Trains were crowded to the point

where even going to the toilet became an arduous task. But

despite the discomforts of train travel, it took air travel a long

time to catch on. Over the past few years, flying has becomemuch more common in China, as ticket prices have gone down

and the media has promoted flying as being safe, affordable

and convenient.

There is still a perception among the Chinese public

that flying is unsafe, but thats a myth that can be debunked by

looking at the statistics. According to research conducted by

the ICAO (International Civil Aviation Organization), for every

thousand car trips, one person is killed in the United Kingdom.

Its even worse in America, where four people are killed for

every thousand car trips that are made. But the global fatality

rate for airline travel is one person killed for every million

passengers carried. It should be abundantly clear that air travel

is far safer than travelling by car or bus. I must say, though, I

personally prefer to drive instead of flying; because I used to

be a pilot, and I dont really enjoy being on flights that Im not

in command of. Sure, call me conservative; Im happy to take

the bus, which is usually how I travel unless its unfeasible to

do so.

Consumers in Myanmar will need to change their

attitudes towards flying. When some of those statistics I men-

tioned were published in a story that ran in a Wuhan, China-

based local paper, the local airline reported a spike in demand

perhaps not surprising, given that people were made aware

that driving is 250 times more dangerous than flying! Every-

day, new airlines are emerging throughout the Asia-Pacific

region. As of 2012, there are six airlines based in Myanmar,

which carried a total of 120,000 passengers this past summer.

I think thats far too few. In China, people have come to aspire

to fly at least once in their lives. We need to introduce similar

notions in Myanmar to make the airline industry here sustain-

able.

Dr. Aung Tun Thet :What growth opportunities do you see in

the travel and tourism sector, U Phone Paing Oo?


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ACUMEN 33

companies that want to export high-end vehicles to Myanmar,

for example, might choose to fly them over. Given how under-developed the market for air cargo is, that might be another

line of business for us to consider, but we should wait and see

if there will be any favorable changes to customs rules and

commercial taxation.

Dr. Aung Tun Thet : If you have anything else to discuss,

please do so.

U Htoo Thet Htwe : In Myanmar, qualified workers in the

airline business are hard to come by. Granting operating li-

cences to new operators will only exacerbate this problem;

the government should put a reasonable limit on the number

of new airlines that are allowed to operate.U Kyi Win :Another recent ICAO study claims that there will

be a global crew and cockpit staff shortage in coming years.

We, as the leaders of Myanmars aviation industry, should at-

tempt to fill this need, and should be in the business of training

skilled employees and technicians. Myanmar would benefit

greatly from the establishment of a civil aviation academy,

whose goal should be to produce aviation workers with the

kinds of skills and expertise needed to work internationally.

Dr. Aung Tun Thet :In conclusion, I would like to express my

thanks to all of you for taking part in this discussion. I duly

note your su

Acumen Business Magazine April 2013

Documents

Transcript of Acumen Business Magazine April 2013