Acumen Magazine August 2013

7/27/2019 Acumen Magazine August 2013

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ACUMEN 67

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66 ACUMEN www.myanmarb2bmagaz ine . com July 2013



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ACUMEN 67



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Editors Note

While foreign investment continues to trickle into Myanmar, the narrative of this

countrys unbridled progress both politically and economically has come into

further question over the past month. To be fair, some truly significant events haveoccurred recently that point to a level of progress that even the most hard-nosed

naysayers would have deemed impossible even one year ago. The World Economic

Forum, held in Naypyidaw in early June, served as a coming out party of sorts for

Thein Seins reformist agenda, and provided a frank forum to discuss Myanmars

political and economic future in the company of the worlds business elite. The

issuing of two telecom operator licences on June 27 likewise showed that Myanmars

government is capable of conducting high-level business in a transparent manner,

and the gains Myanmars people should see from improved connectivity will invariably

be profound.

But problems remain. Sectarian tensions show no sign of abating, and there are

precious few signals on display that the government has any intention of doing

anything substantive to promote deep and lasting national reconciliation. A new

press law ratified by the lower house of Parliament threatens to undo many aspects

of the newfound press freedom enjoyed by Myanmars burgeoning media. And foreign

investment to date has been less than the government might have hoped it would be,

owing to investors fears that this country still has a long way to go before investments

can be considered safe in any way.

This issue ofACUMEN looks at these issues in-depth from many different angles.

Our cover story takes a close-up look at the social impact of the two Chinese-funded

pipelines originating on the Rakhine coast, which despite the obvious financial

benefits to the government that it will bring about will do little to benefit the people

directly affected by their development. We look at the pernicious problem of land

speculation one of the biggest factors limiting foreign investment from coming to

Myanmar and discuss the state of Myanmars anaemic capital markets with financial

expert Aung Thura, whose work revolves around demystifying Myanmars confusingand contradictory financial environment.

As ever in Myanmar, it is difficult to say with any certainty what changes the

next month will bring, for better or for worse, but ACUMEN remains committed to

documenting and analysing these developments as Myanmar continues to undergo

profound and rapid change. A

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

ContributorsMyitmakha, Naing Thit, Isaac Malone

DesignersAung Aung (AN Computer), Thaw Tar Oo

Computer OperatorZin Wai Wai Shein

Marketing DepartmentJanuary Khine Mon, Naw Keziah, Yadanar,

Nan Mo, May Hsu Mo Mo

PhotographersAung Kyaw Moe (New Image), Myitmakha,

Alex Bookbinder, Hein Zaw

Publisher and CopyrightDr. Htet Zan Linn

Printer

Editorial Board

ACUMEN

[email protected]

[email protected], [email protected],

[email protected], [email protected],

AdvisorsAdvisorsAdvisorsAdvisorsAdvisorsProf. Dr. Aung Tun ThetProf. Dr. Aung Tun ThetProf. Dr. Aung Tun ThetProf. Dr. Aung Tun ThetProf. Dr. Aung Tun Thet (Senior Advisor, UN Resident Coordinator's Office)

Dr. Maung Mg TheinDr. Maung Mg TheinDr. Maung Mg TheinDr. Maung Mg TheinDr. Maung Mg Thein (Ph.D. (Law), LL.M., LL.B., B.A.(Law), ANZIIF (Australia), Pg. Dip in Applied Psychology)

Prof. Maw ThanProf. Maw ThanProf. Maw ThanProf. Maw ThanProf. Maw Than (Rector (Ret), Yangon Institute of Economics Yangon)

Soe Tint AungSoe Tint AungSoe Tint AungSoe Tint AungSoe Tint Aung (Special Consultant for Advocacy, PSI Myanmar)

Dr. Tun LwinDr. Tun LwinDr. Tun LwinDr. Tun LwinDr. Tun Lwin (Consultant, Myanmar Climate Change Watch,Tun Lwin Foundation)

Than LwinThan LwinThan LwinThan LwinThan Lwin (Deputy Governer (Ret), Central Bank of Myanmar)

Tin Zan KyawTin Zan KyawTin Zan KyawTin Zan KyawTin Zan Kyaw (Principal, Device Business Management Academy)

Grace Swe Zin HtaikGrace Swe Zin HtaikGrace Swe Zin HtaikGrace Swe Zin HtaikGrace 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

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ACUMEN 67



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14 ACUMEN www.myanmarb2bmagaz ine . com August 201 3

Cover Story


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ACUMEN 15ACUMEN 15



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How is electricity so expensive for us?

asked a Kyaukphyu resident who refused

to give his name. Of course, there are a

few people who can afford to pay these

outrageous sums, but most of us live inpoverty when we should be enjoying the

prosperity created by natural resources.

Ko Arakan is incensed by the injustice.

People in Yangon Region pay just 25

kyats per kilowatt-hour for electricity, he

explained. Its absurd that we have to

pay so much. Nobody around here has

access to electricity, even though so much

natural gas is being extracted offshore.

Its all being sold abroad.

Kyaukphyu is a crucial node in

Chinas new energy strategy. Beijing has

invested billions of dollars to construct twin

pipelines from Kyaukphyu all the way to

Yunnan Province in Chinas southwest,

carrying natural gas from the Bay of

Bengal and crude oil extracted further

afield. Strategic planners in Beijing have

come to view Myanmar as Chinas

California a western conduit to the

Indian Ocean. As roughly 40% of Chinas

oil comes from the west from Africa and

the Middle East the trans-Myanmar

pipeline was constructed to allow oil

shipments to bypass the notoriouslyinsecure Straits of Malacca and provide

the countrys relatively less-developed

west with a readily accessible source of

fuel oil.

CNPC (China National Petroleum

Corporation), the Chinese state-run firm

behind the pipeline project, started

construction on the pipeline project in

2009. The firm has already constructed

storage facilities with the capacity to hold

300,000 barrels of crude, and has

constructed six natural gas processing

stations around Kyaukphyu. These stations

will allow some 12 billion cubic metres of

natural gas per year to be transported

800 or so kilometres between the Rakhine

coast and Kunming, Yunnans largest city.

The crude pipeline, which runs parallel

to the natural gas pipeline, is anticipated

to carry 22 million metric tons of oil

There are a few

people who canafford to pay these

outrageous sums,

but most of us live

in poverty when

we should be

enjoying theprosperity created

by natural

resources.

Cover Story

The path of the twin pipelinesacross Myanmar, which termi-

nate deep inside ChinasYunnan Province.



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ACUMEN 19

annually an estimated 7% of Chinas

current annual demand. Both pipelines

are set to come online in mid-2013,

according to official sources at CNPCs local

subsidiary, the Southeast Asia Pipeline

Company.

Daewoo, a major partner in

developing the gas fields off the coast of

Rakhine, claims that natural gas

exploitation will provide Myanmar with

US$1.5 billion per year. But locals worry

that they may never see any benefits from

the project.We hope well have regular,

affordable electricity and that the pipelines

will provide us with employment, said

Ko Than Win, who lives near the mouth

of the pipelines.

But despite the windfall generated by

the pipeline development, locals have

largely been locked out thus far. In

Minbyin village, some 14 miles east of

Kyaukphyu, the biggest local industry is

oil but it is gathered the old-fashioned

way, from hand-dug wells and employing

rudimentary equipment. This oil is then

sold to refineries that produce gasoline

for the domestic market. Local

landowners charge prospectors a fee

equal to one-seventh of their findings.

Most of the oil pits are able to produce

20 or 25 gallons each, although some are

able to produce a full barrels worth, or

50 gallons, claimed U Than Myint, a local

landowner who derives his income fromartisanal prospectors.

Residents of Minbyin claim it would

be difficult to leave their village to seek

out work else where, despite the dirtiness

of the work they must do to survive and

the low pay that comes with it. The land

where the oil can be found was our

ancestors land long before it was ours,

said U Than Myint. Even if we were

commanded to leave, we really cant

move elsewhere, he elaborated.

When asked, the villagers in Minbyin

seemed largely unaware of the Shwe gas

project and deep-sea port development

under construction a few miles away.

Taking photographs of work sites is

banned, and local peoples access is highly

restricted. They [the consortium

developing the pipeline] have fenced off

the worksites where the pipelines are

being laid; nobody can go in, claimed Ko

Thein Tun, a local resident. Theyve alsobrought in workers from elsewhere and

have barely hired any locals. I think

theyve brought in their own people so

they can do whatever they want, with no

concern for our needs, he explained.

While the pipeline project is ostensibly

a joint venture with Myanmars Ministry

of Energy putting up 49.1% of the

construction costs and CNPC investing the



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24 ACUMEN www.myanmarb2bmagaz ine . com August 2013

Feature


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ACUMEN 25

Yangon skyline from Golden Hill Towers - soelin/Flickr

ACUMEN 25



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Ko Maung Maung has no intention of

going abroad to look for work which,

at age 35, is still a viable option for him.

Instead, he works as a land broker

buying and selling land around Yangon.Business is good. Investing in land is a

lucrative business, he said. We often turn

profits of more than 50% on each plot we

sell.

He has been in the business since

economic reforms got underway in 2010.

I dont rush into thee investments but

it does pay to be quick. After I find out

that a project is starting, I rush to buy

land in the area, he said.

Things get really lucrative when the

government is interested in his property,claimed Ko Maung Maung, as he can earn

massive profits, selling land for three times

what he purchased it for in most cases.

He is unapologetic about his line of work.

Lots of rich people are interested in land

speculation, he explained, because you

can make much more money than in other

businesses.

Land prices in Myanmar have broken

world records due to pervasive

speculation, claim foreign business

interests. And its true: office space in

Yangon now goes for as much as centralLondon or Manhattan, owing to crushing

demand and limited supply.

U Soe Thane, an influential minster in

the Presidents office, announced that the

government would no longer announce

where it intends to launch projects, as

speculators have historically pounced on

this news and driven up land prices,

wasting the governments money in the

process, he claimed. From now on, if we

say a project will be constructed in the

south, you can assume itll actually be built

in the north, he joked.But its no laughing matter. In Yangon,

nearly 90% of properties are residential,

with a mere 6% zoned as being for

industrial use. Thats problematic for

people who want to set up factories or

establish offices, as would-be investors find

themselves at the mercy of ruthless

speculators.

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28 ACUMEN www .myanma r b2bmag a z i n e . c om August 2013

There is more empty industrial space

in Yangon than there are factories, and

we dont have a solution for that yet,

claimed U Myint Zaw, vice-chairman of

Myanmars Chamber of Commerce.

Speculators pay minimal taxes on the

undeveloped property in their possession,

which serves to dissuade construction. If

the authori t ies make sure these

speculators pay proper taxes, this will

allow people who really want to build

factories to do so and will drive down

land prices, he explained.

According to Dr. Kyaw Latt, an expert

on industrialization, 40% of Yangons area

should be zoned for industrial use, butindustrial development is hampered by

land speculation that makes building

factories uneconomical.

The Myanmar government , in

cooperation with the Japan International

Cooperation Agency (JICA) has launched

a Strategic Urban Development Plan for

Greater Yangon. While developing a

There is more

empty industrial

space in Yangon

than there are

factories, and we

dont have asolution for that

yet.

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ACUMEN 29

master plan for the ci ty and i ts

surrounding regions is long overdue, the

announcement of these plans has had the

unintended consequence of attracting

speculators, and land prices have risenastronomically as a result.

In Dalla Township, a quick ferry ride

across the river from downtown Yangon,

land prices have surged fivefold over the

last year, from roughly two million kyats

per hectareto 12 or 15 million as of mid-

2013, fol lowing the government s

announcement that it intends to build a

bridge connecting the two sides of the

river.

There is widespread concern that

foreign investors will be put off frominvesting in Myanmar due to the countrys

sky-high land prices, and a lack of foreign

capital and know-how may, in turn,

prevent Myanmar from developing.The

Directorate of Investment and Company

Administration, the first stop for foreigners

looking to invest in Myanmar, has

allegedly instructed would-be foreign

buyers to look at purchasing land further

afield in Ayeyarwaddy Division due

to sky-high prices around Yangon.High prices have also precluded land

from changing hands, as buyers are not

willing to meet the astronomical demands

of speculators. Many of the cronies the

profited from their close links to the

former military regime are set to earn a

windfall, as they were able to amass vast

amounts of land through their personal

relationships with Myanmars former

military rulers. These cronies have come

to dominate the land market, said a

businessman that used to enjoy close tieswith Ne Wins Burma Socialist Programme

Party, who refused to be named. The joke

is that, in areas where foreigners are

allowed to buy land in Thailand, it is much

cheaper than it is in Myanmar. Its absurd

abnormal that Myanmars land prices are



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Yadanarpon Diamond Plaza, inMandalay, exemplifies the rapidgrowth of Myanmars real estatemarket - even if these gains arelargely speculative in nature.

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ACUMEN 31

so high.

The problem is not limited to

Yangon, say insiders familiar with

the property market. High land

prices have had a knock-on effect

for the prices of apartments, which

have also soared in recent months.

For this reason, U Soe Thane is

loath to disclose future project sites.

Look at Dalla, he laments. Land

prices went through the roof really

quickly, so its important that we

dont give too much away.

Ko Maung Maung notes thatprice controls may be an effective

solution to bring prices back down

to earth, but of course this isnt

something hes keen to see happen.

The government can dictate what

it wants, and theres nothing we can

do about it. I guess everything in

life is the result of fate! he laughed. A

These croniesThese croniesThese croniesThese croniesThese cronies

have come tohave come tohave come tohave come tohave come todominate the landdominate the landdominate the landdominate the landdominate the land

market.market.market.market.market.

The joke is that, inThe joke is that, inThe joke is that, inThe joke is that, inThe joke is that, in

areas whereareas whereareas whereareas whereareas where

foreigners areforeigners areforeigners areforeigners areforeigners are

allowed to buyallowed to buyallowed to buyallowed to buyallowed to buyland in Thailand, itland in Thailand, itland in Thailand, itland in Thailand, itland in Thailand, it

is much cheaperis much cheaperis much cheaperis much cheaperis much cheaper

than it is inthan it is inthan it is inthan it is inthan it is in

Myanmar.Myanmar.Myanmar.Myanmar.Myanmar.



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ACUMEN 33ACUMEN 33



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ACUMEN 35

Myanmar has long been theconnectivity basket case of Asia.Only 10% of the population hasa mobile phone a figure eclipsed even

by war-torn Afghanstan, which, at 50%

mobile penetration, is still on the low end

for the continent. So when the government

announced its intention in January to hand

out two operator licences to foreign

providers, many in Myanmar let out a

collective sigh of relief, anticipating the

day when dropped calls and expensiveservice would be a thing of the past.

From an initial list of 22 contenders,

a shortlist of 12 was announced in early

April. The candidates were a diverse array

of companies and consortiums from across

the globe, keen to acquire a slice of

Myanmars untapped market for telecom

services. Two winners would be

announced on June 27, and the global

telecom industry awaited the results with

baited breath.

Following an extensive vetting

process, carried out by a state-appointed

panel in consultation with by German IT

firm Roland Berger, the two finalists were

announced on schedule on June 27. The

lucky pair were Norways Telenor and

dark-horse candidate Ooredoo, from the

small Persian Gulf emirate of Qatar, both

of whom pledged to have networks

covering at least half of Myanmars

population by early 2014.The tendering

committee chose a joint venture between

Japans Marubeni and France Telecom as

a back-up choice in case one of the twograntees is unable to fulfil its commitment

to build a network.

The telecoms tendering process has

been considered by outside observers to

be an important litmus test for the trans-

parency of Myanmars economic reforms

to date. The governments telecom mas-

ter plan called for two foreign companies

to establish networks, but maintains the

While phone cards arereadily available on the streets of

Yangon, only 10% of Myanmars popu-

lation currently uses a cell phone.



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Feature

Even in war-torn Afghanistan,cell penetration has

eclipsed 50% of the population -imfti/Flickr.

Bidders in the tenderingprocess, including as Irish-owned, Jamaica-based Digicel,made efforts to raise brandawareness before the June 27announcement.

Mobile phone shops, like this one in

Yangons Hledan Junction area, havemultiplied since the governementreduced SIM card prices over the pastyear. There will be more to come asnew networks come online.



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ACUMEN 37

incumbency of state-run Myanmar Posts

and Telecommunications (MPT) which

is at present Myanmars sole operator

and also granted a licence to Yadanapon

Teleport, a joint venture between MPT

and a number of local companies with

close links to the state.

I think there is a pent-up demand,

basically, in this society for mobile com-

munications, said Telenors president and

chief executive, Jon Frederik Balsaas, in

an interview with CNBC following the

announcement. This is a very important

infrastructure, this is a phenomenal en-

abler to many aspects of private life and

institutional life in the country we be-

lieve mobile has a future here; we know

that it will take time to build it up, but we

know that penetration is sure to grow

rapidly.

Accord ing to a recent report by

consulting firm McKinsey and Co.,

Myanmars telecom sector is likely to

contribute as much as US$6.4 billion to

the countrys GDP by 2030, up from a

paltry US$100 million in 2010. For Telenor

and Ooredoo, the lucre provided by their

share of these anticipated gains is

impossible to deny.

Telenor was widely tipped to be a

top contender for a licence, as the

company has a proven track record in

the region. The company has the largest

market share in neighbouring Bangladesh,

is the number two operator in Thailand

and the third-largest in Malaysia. Although

it has not disclosed the precise terms of

its investment as yet, its proven ability to

build networks in underserved, green-field

markets undoubtedly strengthened its bid.

Ooredoos bid was considered a long

shot by many observers, despite its



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commitment to invest an astronomical

US$15 billion in Myanmar over a 15-year

period. Roland Berger estimated that

potential licensees would need to invest

an estimated US$2 billion to establish anew network from the ground up. The

high figure promised by Ooredoo has

prompted speculation about its ability to

realise quick returns on its investment,

but how much the company really cares

about this is debatable.

Both Ooredoo and Telenor are

enterprises operated by their respective

state governments, and the Al-Thani

dynasty in charge of Qatar has made

significant moves in recent years to

improve the countrys regional and

international status, moving out of the

shadows created by its much larger

neighbours, including Saudi Arabia and

the United Arab Emirates. A major move

into Myanmars telecoms sector despite

the questionable returns the project will

deliver would serve to improve the tiny

emirates international standing, and

bolster its newfound status as an

international power broker in many of the

worlds conflicts a role it has attempted

to play, to varying degrees of success, in

both Afghanistan and Syria.The past year has seen a wave of

anti-Muslim sentiment envelop Myanmar,

and Ooredoosaffiliations with a Muslim

government was thought by many to

preclude it from getting a licence. To the

governments credit, it appears to have

cast aside political considerations when

making its decision, basing the results on

which companies would be able to best

deliver results. But the transparency of

the tendering process has done little to

placate many of Myanmars radical

Buddhists, who are incensed that a majorpiece of Myanmars new infrastructure will

be in nominally Muslim hands.

At le as t on e pr om inen t monk

affiliated with the Buddhist-nationalist 969

movement, Ashin Wimala, has called for

a boycott of Ooredoos services. Despite

a recent public statement by the

presidents office in support of 969-

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ACUMEN 39

Cell phone towers - like this one in California- are set to become a much more commonsight around Myanmar in the near future -

Gary Lerude/Flickr



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affiliated monk Ashin Wirathu, Set Aung,

the minister in charge of the selection

committee, is unrepentant, claiming that

choosing Ooredoo shows just shows how

transparent we are and how unbiased.

The politics of race and religion aside,

the new entrants have other issues to

contend with namely, the fact that

Myanmar has not yet passed a long-awaited telecommunications bill, and its

proposed contents are still a matter of

dispute. Potential entrants to Myanmars

telecom market have essentially made a

blind investment into a very shaky

regulatory environment where their

property rights may not be secure.

Indeed, a last-minute attempt by the

lower house of parliament to stall the

announcement of the winners speaks to

the vested interests of Myanmars

entrenched corporate classes, which still

have significant sway over the decision-

making process and whose influence has

- admirably been resisted by the

selection committee. But this is not enough

to allay investors fears. The telecom

law needs to come in place before thefinal framework for the licence is spelled

out and made clear in this second phase

after we won this first round here,Balsaas

told CNBC.

While largely unenforced nowadays,

restrictive laws limiting freedom of speech

remain on the books, and international

NGO Human Rights Watch (HRW) has

warned would-be entrants to Myanmars

telecom sector to avoid collaborating with

the government to keep tabs on dissidents.

HRW sent a letter to both winners

expressing their concerns following the

announcement, but received no reply from

Ooredoo to alleviate their concerns.

The establishment of new mobile

networks in Myanmar should serve to

greatly improve the countrys economicperformance and the lives of many of its

citizens. How this will play out in practice,

however, remains to be seen. At the very

least, however, Myanmars current mobile

phone users can look forward a future of

greatly improved services as much lower

costs and millions will come to enjoy

the long-overdue benefits of mobile

communications for the first time. A

Feature

On the phone, Hledan Market, Yangon.



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ACUMEN 43ACUMEN 43

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The main talking point from JunesWorld Economic Forum, held inNay Pyi Taw in June, was AungSan Suu Kyis admission that she would

like to run for the countrys Presidencywhen the elections come around in 2015

for those also not in the know, Elvis

Presley has been found dead at his

Tennessee home.

But there was another point she made,

in front of a packed audience at the

Myanmar International Convention

Centre, which spoke more candidly of the

countrys future. Talking of the increased

interest from foreign companies investing

in Myanmar, Daw Suu said that while

many companies were visiting the countryto assess the current situation, few were

really taking any real action and actually,

there isnt much investment coming in.

She clarified that point a few days later

at a party rally in Pyin Oo Lwin, citing

the countrys lack of rule of law a point

she has been vocal on for some time as

well as the poor infrastructure in a country

that has been practically isolated to the

international community for 50 years as

reasons why international businesses are

not yet ready to pour their money into an

economy which is the poorest in theASEAN region.

If there is no rule of law, she said,

it is impossible for a country to develop.

There should be a guarantee that their

investment and businesses will not be

stolen or confiscated if they make an

investment in Myanmar.

A recent Reuters report said that

Myanmar attracted $1.4 billion in foreign

investment in the 2012-2013 fiscal year,

and while that figure was reasonable in

a country that has only recently opened

up to the international community, it is along way short of boosting an economy

that, according to a recent report by global

consulting firm McKinsey, needs $170

billion in foreign investment for the first

stage of its economic transition.

While there may appear to be a

perception that foreign investment has

slowed in recent months, many in

Myanmars business community argue that

may not necessarily the case, or that there

might be other reasons at play that

investment is taking longer than some

expected to filter into the country.Sally Austen, international legal consultant

for Myanmar Legal Services, who

specialises in aiding foreign companies

in moving into Myanmars market says

that while there has seemingly been a

slow increase in action from foreign

investors, that should not come as too

much of a surprise and there might be

other factors at play.

It is worth noting that the process of

establishing an entity and getting a

Myanmar Investment Commission Permit

[required by companies to register inMyanmars market] can take three to six

months. No capital will come into the

country until this has happened, she said.

Another factor, according to Austen,

may be that international companies,

particularly large multinationals, want to

take more time in their process of moving

into a new market in order to ensure that

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Myanmars burgeoning property market- as evidenced by Mandalays booming -has been criticised by many as being a

bubble, and has served to dissuadeforeign investment.



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ACUMEN 47

One major issue for many potential investors is a lack of clarity

around US Sanctions. While the EU announced a permanent

ending of all economic sanctions in April, the US has only

suspended sanctions, in a move that many believe gives the

US government more power should the Myanmar governmentdecide to backslide on reforms. While that decision has been

supported by many Human Rights groups particularly since

the outbreak of anti-Muslim violence in recent months - there

are those in Americas business community who feel that the

State Departments ambiguous stance is stifling American

companies interested in investing.

Speaking to Voice of America during a US Delegation of

business people, which visited Myanmar in February, Darren

Brookes, Asia Pacific Senior Legal Counsel for Caterpillar

Machinery, said that the sanctions made many businesspeople

cautious about investing.

Right now, we would like to see more reliability or morestability in the fact that the sanctions have to be lifted, so its not

like you can come in and invest $100 million right away, he

said.

The lack of stability around US sanctions indirectly leads to

other issues too, particularly with regards to accessing money.

While the US Treasury announced in February that it would

authorise transactions with four Myanmar banks namely

Ayeyarwady Bank, Asia Green Development Bank, Myanma

Economic Bank and Commercial Bank in a move that was

aimed at encouraging responsible US investment in Myanmar,

instances remain where transactions to those banks from the

US have been blocked, leaving people without access to their

money.It is legal for US banking institutions to do business with

certain banks in Myanmar, but we havent seen that translate

into a system that works properly, said Travis W Baker of

Scipio Services, who deal with a number of US investors looking

to invest in Myanmar. US banks are still hesitant to do anything

directly with banks in Myanmar, he said before adding that

there had been instances of transactions from the US to Myanmar

being blocked even if the transaction referenced Myanmar in

the description but was not necessarily heading for the country.

As a result, people have to carry hard currency into the country,

or hope that their landlord or business has a foreign bank

account, but there are always costs to doing business like that,

he said, referring to transfer fees and bank charges.Even without the rule of law situation, legal issues persist

too. Industries such as banking, finance and insurance, as well

as the much talked about telecommunications sector, are all

expected to introduce new legislations in the coming months,

while the oil & gas sector - an economy that has long attracted

the bulk of Myanmars foreign investment it is still governed

by laws and regulations from almost 100 years ago. These will

need to be updated if serious foreign investment is to flood in. A



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66 ACUMEN www .myanma r b2bmag a z i n e . c om July 201366 ACUMEN www .myanma r b2bmag a z i n e . c om July 2013

advertising.pmd 6/6/2013, 6:23 PM66


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ACUMEN 51ACUMEN 51

MCC A Franchise Empire.pmd 7/9/2013, 10:16 AM51


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ACUMEN 53

as evidenced by our eponymous foundation (the MCC

Foundation) and our work with the EERI. Were launching

another EERI project soon, with Italian government funding.

Were looking to establish the first private university in

Myanmar once laws are changed allowing us to do so. Wehope to establish five faculties, and will award both bachelors

and masters degrees in computer science, engineering,

environmental science/resource management, as well as a loosely

affiliated school of business management.

Weve also moved to establish a joint bachelors degree

program in technology with Rangsit University in Thailand,

and will offer a school of multimedia and creative arts in

conjunction with the governments University of Culture. We

also offer diploma courses on multimedia game development at

five schools around the country.

We have also established an international software

development centre as part of our ICT services side of thebusiness. This encompasses data centres and supply chain

management services. We hire our own graduates to run the

centre and theyre well positioned to conduct business with

foreign partners. Were working to establish a new cloud

computing architecture for clients in enterprise and the

government.

What is your franchising model like? To my knowledge,What is your franchising model like? To my knowledge,What is your franchising model like? To my knowledge,What is your franchising model like? To my knowledge,What is your franchising model like? To my knowledge,

youre the only company in Myanmar that doesyoure the only company in Myanmar that doesyoure the only company in Myanmar that doesyoure the only company in Myanmar that doesyoure the only company in Myanmar that does

anything like it .anything like it .anything like it .anything like it .anything like it .

The company was established in 1989, and we launched

our educational franchises in 1990 or 1991 starting in Mandalay.

Over time, we expanded outward to become the largest suchcompany in Myanmar comprising some 170 franchises around

the country as of 2013.

Im interested in hearing more about this.Im interested in hearing more about this.Im interested in hearing more about this.Im interested in hearing more about this.Im interested in hearing more about this.

From the outset, we were interested in franchising as a

way to grow the business. Its tough to set up branches in other

regions, primarily due to administrative and capital

constraints.We decided to start franchising after expanding our

business out into a couple of different sectors. We realised that

it would be easier to take a hands-off approach to our franchises,

and in this way it would also be easier to build our brands. We

derive regular income from the franchises, in the form of royalties

and annual fees.We are able to charge for the ancillary aspects of the

business: we issue the certificates and diplomas, for example,

and franchisees need to purchase our teaching materials and

use our system. The investment is theirs, of course, and they

derive the bulk of the profits, but this sort of arrangement is

mutually beneficial. And the benefits are manifold: by placing

highly-skilled graduates across formerly underserved parts of

the country, we make it easier for our other businesses to grow



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in the future. We profit from creating human capital, which we

are then able to leverage into building other areas of the business.

In terms of service provision, its much easier to do this on

a franchise basis, as filling a contract for electricity billing in

Taunggyi, for example, would be difficult to carry out fromYangon. Our teaching services arent the only services we

franchise out. Providing services to local governments is a

specialty of ours, and we are able to do so efficiently due to our

franchise-based business model.

There are a lot of wildcards when it comes toThere are a lot of wildcards when it comes toThere are a lot of wildcards when it comes toThere are a lot of wildcards when it comes toThere are a lot of wildcards when it comes to

franchising and a big one is maintaining standards.franchising and a big one is maintaining standards.franchising and a big one is maintaining standards.franchising and a big one is maintaining standards.franchising and a big one is maintaining standards.

I spoke with the CEO of YKKO (a local restaurantI spoke with the CEO of YKKO (a local restaurantI spoke with the CEO of YKKO (a local restaurantI spoke with the CEO of YKKO (a local restaurantI spoke with the CEO of YKKO (a local restaurant

chain) about this and he claimed he refuses to switchchain) about this and he claimed he refuses to switchchain) about this and he claimed he refuses to switchchain) about this and he claimed he refuses to switchchain) about this and he claimed he refuses to switch

to a franchise model because he thinks he wouldntto a franchise model because he thinks he wouldntto a franchise model because he thinks he wouldntto a franchise model because he thinks he wouldntto a franchise model because he thinks he wouldnt

be able to control the qual i ty of YKKOs products .be able to control the qual i ty of YKKOs products .be able to control the qual i ty of YKKOs products .be able to control the qual i ty of YKKOs products .be able to control the qual i ty of YKKOs products .

What do you think?What do you think?What do you think?What do you think?What do you think?Weve made push to get ISO certification for our franchises,

starting in Yangon and expanding the initiative to Mandalay.

Much of what we do is standardised our teaching franchisees

use a fixed curriculum, which we prepare for them. While we

are hands-off, its not as though theres no oversight on our part.

We do regular performance reviews on all our staff and

franchisees.

How do most franchises operate? Are franchiseesHow do most franchises operate? Are franchiseesHow do most franchises operate? Are franchiseesHow do most franchises operate? Are franchiseesHow do most franchises operate? Are franchisees

both owners and managers, or do owners/investorsboth owners and managers, or do owners/investorsboth owners and managers, or do owners/investorsboth owners and managers, or do owners/investorsboth owners and managers, or do owners/investors

generally hire managers to take over day-to-daygenerally hire managers to take over day-to-daygenerally hire managers to take over day-to-daygenerally hire managers to take over day-to-daygenerally hire managers to take over day-to-day

operations?operations?operations?operations?operations?

At first, owners act as managers and many even do theirown teaching, As their business expands, they are likely to

appoint dedicated managers if their business reaches a certain

size. In rural areas, franchises can only be so large, so we see

more of this kind of integration with smaller, rural operations.

Whats really interesting is that franchises have a tendency to

spread organically entrepreneurs from areas without franchises

see their success and then transport the concept back home.

For us, its interesting, because it allows us to grow, without

necessarily making a concerted effort to do so.

What happens to franchises that dont follow the rules?What happens to franchises that dont follow the rules?What happens to franchises that dont follow the rules?What happens to franchises that dont follow the rules?What happens to franchises that dont follow the rules?

If they dont follow the stipulations of the ISOIf they dont follow the stipulations of the ISOIf they dont follow the stipulations of the ISOIf they dont follow the stipulations of the ISOIf they dont follow the stipulations of the ISO

certification and/or MCCs own internal benchmarks?certification and/or MCCs own internal benchmarks?certification and/or MCCs own internal benchmarks?certification and/or MCCs own internal benchmarks?certification and/or MCCs own internal benchmarks?Can they have their franchises pulled?Can they have their franchises pulled?Can they have their franchises pulled?Can they have their franchises pulled?Can they have their franchises pulled?

Weve done so in the past. I look at performance; once a

year franchisees have to make a presentation on their successes

at a conference I hold once a year, and franchisees must file

monthly reports. We only inspect intermittently, but will evaluate

their performance once a year, in terms of how much they

make, how much is going on.

If they break the rules, thats really bad copying textbooks,

changing them slightly and publishing it as their own work, for

example. Thats plagiarism. If they can do this, they wont buy

books from us anymore. We can catch this because when they

purchase texts, they lower the number of students they claim

are enrolled, so we can figure out that theyre using othermaterials and pocketing the difference. We also had one incident

where a franchisee actually produced his own fake certificates

that dilutes the brand and the quality of education it stands

for. Instant termination, in that case, as stipulated in the contract

we enter into with our franchisees. Well also close franchises if

they dont perform very well, but we classify the viability of our

franchises based on where they are located: rural, urban or

somewhere in between. Depending on classification, their annual

fees are higher or lower, and we hand out favours based on

how well they perform based on how well they do in evaluations.

U Tin Win Aung

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ACUMEN 55

Ar e th er e ev er in sta nc es whe re a fr an chi se e ke ep sAre th er e ev er in sta nc es whe re a fr anc hi se e ke ep sAr e th er e ev er in sta nc es whe re a fr an chi se e ke ep sAre th er e ev er in sta nc es whe re a fr anc hi se e ke ep sAr e th er e ev er in sta nc es whe re a fr anc hi se e ke ep s

on providing services without your authorization?on providing services without your authorization?on providing services without your authorization?on providing services without your authorization?on providing services without your authorization?

This can happen, yes. Franchisees have been known to

cut all ties with MCC and carry on themselves without paying

royalties. This has only happened on a few occasions, and theygenerally change brand names as a result. Theres a disincentive

to do this, however, as the MCC brand stands for quality, and it

makes business sense to maintain a relationship with home

office for this reason alone. We also provide them with plenty

of tools to succeed in their home communities, and we have

even taken franchisees to conferences held abroad to help them

grow their businesses and expose them to international best

practices. So while a few former franchisees have successfully

gone independent, these have been few and far between, and

there are good reasons for franchisees to avoid doing so.

Let s turn the discussion towards the prospects forLet s turn the discussion towards the prospects forLet s turn the discussion towards the prospects forLet s turn the discussion towards the prospects forLet s turn the discussion towards the prospects for

ICT development in Myanmar more generally. WhatICT development in Myanmar more generally. WhatICT development in Myanmar more generally. WhatICT development in Myanmar more generally. WhatICT development in Myanmar more generally. What

sort of strategy is Myanmar pursuing? And how doessort of strategy is Myanmar pursuing? And how doessort of strategy is Myanmar pursuing? And how doessort of strategy is Myanmar pursuing? And how doessort of strategy is Myanmar pursuing? And how does

MCC fit in?MCC fit in?MCC fit in?MCC fit in?MCC fit in?

I used to be actively involved in planning ICT policy withthe Myanmar ICT Association, but I dont do that anymore. I

used to think up solutions for Myanmars ICT problems in

conjunction with my colleague, Ko Thein Oo. We were responsible

for a lot of the work that took place on ICT over the past couple

of decades. Now I dont want to insinuate that the government

didnt do anything on this front: they certainly did. But whats

most important is actually putting these things in place, and

thats what we did. Unfortunately, the Association disintegrated

somewhat over the years, and many of the decisions we wanted

to enact never came to pass.

The government really needs to have a more standardised

way to deal with external consultants. This isnt just the case forICT its important across all sectors, but for ICT its particularly

important because of how embryonic ICT development in

Myanmar is at present. To be honest, implementation of ICT

reforms only goes halfway here; theres a lot of incompetence.

We try to point out mistakes to the government, but they dont

like it when we make suggestions. They keep us out of the

decision-making and consulting process. To be honest, a lot of

what happens here is for show there isnt a lot of substance

behind policy decisions, and politicians are more concerned

with appearances than with outcomes. This isnt just a problem

with the government: this is a problem on all levels of society in

this country. For there to be substantive change when it comes

to ICT policy, things really do need to change. There aregovernment departments that are proactive and responsive,

but these are few and far between, and comprehensive reforms

need to be made.

Ac tu al ly , th is is somet hi ng I d li ke to di scu ss . ManyAc tu al ly , th is is some th ing I d li ke to di scu ss . ManyAc tu al ly , th is is somet hi ng I d li ke to di scu ss . ManyAc tu al ly , th is is some th ing I d li ke to di scu ss . ManyAc tu al ly , th is is some th ing I d li ke to di scu ss . Many

off icials in this country have begun to discuss theoff icials in this country have begun to discuss theoff icials in this country have begun to discuss theoff icials in this country have begun to discuss theoff icials in this country have begun to discuss the

notion of e-Government, ways to take governmentnotion of e-Government, ways to take governmentnotion of e-Government, ways to take governmentnotion of e-Government, ways to take governmentnotion of e-Government, ways to take government

service provision online. Many people have alsoservice provision online. Many people have alsoservice provision online. Many people have alsoservice provision online. Many people have alsoservice provision online. Many people have also

speculated that offering more government servicesspeculated that offering more government servicesspeculated that offering more government servicesspeculated that offering more government servicesspeculated that offering more government services

online will act as a way to reduce corruption. Theonline will act as a way to reduce corruption. Theonline will act as a way to reduce corruption. Theonline will act as a way to reduce corruption. Theonline will act as a way to reduce corruption. The

government has been discussing these initiatives forgovernment has been discussing these initiatives forgovernment has been discussing these initiatives forgovernment has been discussing these initiatives forgovernment has been discussing these initiatives for

ages, but l i t t le progress has been made as yet toages, but little progress has been made as yet toages, but l i t t le progress has been made as yet toages, but little progress has been made as yet toages, but l i t t le progress has been made as yet to

implement these systems. Why has the governmentimplement these systems. Why has the governmentimplement these systems. Why has the governmentimplement these systems. Why has the governmentimplement these systems. Why has the governmentbeen so slow to adopt them?been so slow to adopt them?been so slow to adopt them?been so slow to adopt them?been so slow to adopt them?

Sure, the government set up e-Government initiatives long

ago, but this is a repeat, of sorts: they need to start from the

beginning. There were some positive changes after e-

Government initiatives were put in place, which I helped initiate.

It was great; we had almost unlimited access to the prime

ministers office, and we saw our ideas translated into policy.

We had real successes, but it was difficult to make it work in

Prof. Dr. Aung Tun Thet



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the end, primarily due to a lack

of know-how on the part of

the people entrusted with

implementing it. To be honest,

Myanmar was not and is not,in some respects ready for

e-Government, as the

infrastructure required to

implement such a system

simply isnt in place yet. There

needs to be a framework in

place before the government

can effectively provide services

through e-Government-type

systems.

For starters, there needs

to be better data. Thegovernment isnt going to get

anything accomplished unless

the government has decent

data at its disposal which it can

then use to guide policy. Some

of this data could theoretically

be worth millions of dollars

but theres no database

currently in existence for the

government to use. Moreover,

the data in these databases

about public works and

demographic information needto be constantly updated:

unless the government has

reliable data at its disposal, it

will not be able to make

relevant policy decisions that

are receptive to the needs of

the people. The government

thinks that it can throw money

at the problem, that by building

infrastructure, all things will

sort themselves out.

But this sort of technolog-

ical determinism has its draw-backs. Infrastructure on its own

is useless without a master

plan: a comprehensive notion

of what youre going to do with

that infrastructure once you

have it in place. What I have

found is that the government

tends to think that all it needs

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ACUMEN 57

to do is put the infrastructure in place and things will sort

themselves out. But this is never the case: unless the govern-

ment has a good idea of what it is going to use the infrastruc-

ture for, it will waste a ton of money building it. Aside from

technical concerns, its important to have proper people in-volved as well: there are project managers out there that are

inefficient, and then there are the kinds of personalities that

be crushed by foreign competition? Are you going tobe crushed by foreign competition? Are you going tobe crushed by foreign competition? Are you going tobe crushed by foreign competition? Are you going tobe crushed by foreign competition? Are you going to

ask for government protection?ask for government protection?ask for government protection?ask for government protection?ask for government protection?

At present, we dont have any government protection in

the IT sector, which is a challenge, but were confident that we

can persevere. The fact of the matter is that we really do needthe technical assistance and capital from abroad: foreign

companies are going to come to us and want a partner to enter

into Myanmars underdeveloped IT market. Honestly, it all comes

down to how well we prepare: the foreign onslaught is inevitable,

so we have to be as prepared as possible. We need to improve

infrastructure, improve HR, and bring expats into the fold. Ive

already hired a couple of foreigners to help us get up to

international standard. Ive also invited chairmen and managing

directors from well-established global firms to consult with us,

in an effort to promote collaboration between our company and

multinationals. I think its important we show them we have

something to offer, and that its in their best interests to partnerwith us as opposed to out-competing us entirely.

But whether we partner with international firms or not,

theres a lot that still needs to be done in this country. And

while foreign companies can add much-needed capacity, itll be

up to us to develop these systems ourselves, to develop supply

chains on our own and train people on how to operate in a

newly modernized environment. It will be up to us to develop

all of this, and whether or not we are able to deliver will be up

to us alone. If we are able to create efficient supply chains of our

own, well be able to compete with multinationals directly. I feel

that MCC can be a true player in Myanmar, and have entered

into negotiations with a number of companies to develop strategic

partnerships, including SAP and Oracle. But theyve been honestwith me, and have made it known that we cant be an exclusive

partner for them in Myanmar. That doesnt mean we wont be

able to provide service and installation for their products,

however. Were looking at establishing a cloud computing

architecture at the moment, and then well give the software

away to the government as a loss-leader. We want the

government to understand the value modernizing their systems.

Im also setting up an international software development

centre at the moment, and will hire many MCC graduates to get

it up and running. By 2014, I hope to have four or five hundred

employees, expanding to a thousand or so over the next couple

of years. As we have one graduating class every six months, I

provide graduates with jobs straight away. Were looking to setup four data centres around the country, at Yatanarpon,

Mandalay, Naypyidaw and Yangon, with the one in Naypyidaw

dedicated for government use and the Mandalay and Yangon

ones dedicated for our own internal use. We arent planning to

rent or sell space to other companies.

Business-to-business links are a new phenomenon inBusiness-to-business links are a new phenomenon inBusiness-to-business links are a new phenomenon inBusiness-to-business links are a new phenomenon inBusiness-to-business links are a new phenomenon in

Myanmar, where historically business has beenMyanmar, where historically business has beenMyanmar, where historically business has beenMyanmar, where historically business has beenMyanmar, where historically business has been

will get things accomplished, by hook or by crook.

One of our first major implementation projects was for the

prison system, and we managed to put that in place and its

working rather well, I must say. It wasnt easy to establish it, but

we did it, and it marks the most notable example of an IT-

based solution youll find in the Myanmar government at the

moment. This is a reflection on the vision of the government

officials to allow us to set this up, as well as the managers in

charge of actually putting the systems in place. I hope that this

is just the beginning.

What are the prospects for IT development onceWhat are the prospects for IT development onceWhat are the prospects for IT development onceWhat are the prospects for IT development onceWhat are the prospects for IT development once

foreign investment comes in? Wont the local industryforeign investment comes in? Wont the local industryforeign investment comes in? Wont the local industryforeign investment comes in? Wont the local industryforeign investment comes in? Wont the local industry

At present, we dont have anyAt present, we dont have anyAt present, we dont have anyAt present, we dont have anyAt present, we dont have any

government protection in thegovernment protection in thegovernment protection in thegovernment protection in thegovernment protection in the

IT sector, which is a challenge,IT sector, which is a challenge,IT sector, which is a challenge,IT sector, which is a challenge,IT sector, which is a challenge,

but were confident that we canbut were confident that we canbut were confident that we canbut were confident that we canbut were confident that we canpersevere. The fact of thepersevere. The fact of thepersevere. The fact of thepersevere. The fact of thepersevere. The fact of the

matter is that we really domatter is that we really domatter is that we really domatter is that we really domatter is that we really do

need the technical assistanceneed the technical assistanceneed the technical assistanceneed the technical assistanceneed the technical assistance

and capital from abroad:and capital from abroad:and capital from abroad:and capital from abroad:and capital from abroad:

foreign companies are going toforeign companies are going toforeign companies are going toforeign companies are going toforeign companies are going to

come to us and want a partnercome to us and want a partnercome to us and want a partnercome to us and want a partnercome to us and want a partnerto enter into Myanmarsto enter into Myanmarsto enter into Myanmarsto enter into Myanmarsto enter into Myanmars

underdeveloped IT market.underdeveloped IT market.underdeveloped IT market.underdeveloped IT market.underdeveloped IT market.



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conducted between pri-conducted between pri-conducted between pri-conducted between pri-conducted between pri-

vate companies and thevate companies and thevate companies and thevate companies and thevate companies and the

government or companiesgovernment or companiesgovernment or companiesgovernment or companiesgovernment or companies

and consumers directly.and consumers directly.and consumers directly.and consumers directly.and consumers directly.

What kind of business-to-What kind of business-to-What kind of business-to-What kind of business-to-What kind of business-to-business links do you havebusiness links do you havebusiness links do you havebusiness links do you havebusiness links do you have

with other companies?with other companies?with other companies?with other companies?with other companies?

MCC has B2B (business-

to-business) links with a

Singaporean company, a UK-

based company operating in

Malaysia, and a company from

Thailand. The Thai company

has over two thousand

software engineers. It s a

conglomerate of sorts, as it

bought up a lot of smallercompanies to reach the size it

has attained today. It s

inspirational, really: Id like to

mimic that sort of success here

in Myanmar. This is going to

be especially important after

2015, when the AEC (ASEAN

Economic Community) comes

into effect, which will gradually

liberalise Myanmars labour

markets and its access to other

markets in the region. Were

going to be forced to go regional,so to speak. It is through these

B2B linkages with our regional

counterparts that we are going

to be able to grow and thrive

in Southeast Asias post-2015

business environment.

Working with these other

companies, we were definitely

the junior partners in the

relationship: its now time to

step it up to the next level and

make MCC a player to be

reckoned with in Myanmarsrapidly-emerging economy.

Many thanks for your time.Many thanks for your time.Many thanks for your time.Many thanks for your time.Many thanks for your time.

Thank you very much. A

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(From Alex, UML) Dr.Aung Thu Ya.pmd 7/8/2013, 7:36 PM60


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ACUMEN 61ACUMEN 61



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ACUMENACUMENACUMENACUMENACUMEN : What motivated you to return to Myanmar?: What motivated you to return to Myanmar?: What motivated you to return to Myanmar?: What motivated you to return to Myanmar?: What motivated you to return to Myanmar?

What role do you foresee for Thura Swiss in MyanmarsWhat role do you foresee for Thura Swiss in MyanmarsWhat role do you foresee for Thura Swiss in MyanmarsWhat role do you foresee for Thura Swiss in MyanmarsWhat role do you foresee for Thura Swiss in Myanmars

changing economy?changing economy?changing economy?changing economy?changing economy?

Aung ThuraAung ThuraAung ThuraAung ThuraAung Thura ::::: We have been in Myanmar for one-and-a-halfyears now. We started operations in January 2012, and before

that I was living in Switzerland, working in banking. The last role

I had was as a trader of equity derivatives, exotic options, and

structured products; these are my primary areas of expertise. I

had an interest in Myanmars capital and financial markets for a

long time, but I couldnt just come back and say, Lets enter financial

markets! I mean, the capital markets arent developed yet, and

you cant just go into the banking sector. I wanted to set up something

independent my own company. I didnt want to join with an

existing bank, and I realised that research was one area where I

could build up a network and reputation in a very short period of

time. We have many foreign investors coming to meet with us,and have a wide range of domestic contacts. With research, its

also great because theres a steady cash flow, so we get paid to

learn about the Myanmar market ourselves!

Currently, research is really important, because there is very

little information available about Myanmar. Typically, we find that

investors now are in a preliminary phase of their engagement

with Myanmar. They are just coming to check things out, they

want to learn about the Myanmar market, but they are not really

investing yet. So the most demand will be in research, at the

beginning at least. At a later stage, we want to expand to our

consulting business further. In Myanmar, research and consulting

often go hand-in-hand; they arent completely independent. We

do research, and then advise companies on how to proceed basedon the research we conduct. In the long-term, however, I see us

focusing more on capital markets. We have already written one

equity research report [on Serge Puns FMI Co.], and we see

ourselves as filling the role of educators, to inform the people about

the importance of capital market development.

ACUMENACUMENACUMENACUMENACUMEN : What is the state of capital markets in: What is the state of capital markets in: What is the state of capital markets in: What is the state of capital markets in: What is the state of capital markets in

Myanmar now, and what are some fundamental thingsMyanmar now, and what are some fundamental thingsMyanmar now, and what are some fundamental thingsMyanmar now, and what are some fundamental thingsMyanmar now, and what are some fundamental things

that need to change for them to be effective?that need to change for them to be effective?that need to change for them to be effective?that need to change for them to be effective?that need to change for them to be effective?

Aung ThuraAung ThuraAung ThuraAung ThuraAung Thura ::::: There are various things. For the moment, the

most important aspect is encouraging understanding of capital

markets. Daiwa, a Japanese company, is currently building a stockexchange in Myanmar, but we feel as though they are focusing too

much on the technical aspects [of establishing a bourse] alone. its

pointless to have a technologically perfect stock exchange if nobody

is using it. People need to be educated. It will be important to talk

to Myanmar companies and ask them if they are interested in

getting listed, or if theyre interested in having an IPO [Initial Public

Offering], but having spoken to many of them we found that many

of these concepts were foreign to them.

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We also ask local companies what their financing

requirements are. A mid-range company - which, for example,

might have a capitalization of US$40 million - may feel it needs

another $20 million. We might say, We can advise you in this

process, but we will only do so if you agree to be transparent withus. We will not sell your shares unless you are, because our own

reputation is at stake, and we will not work with you unless we

truly believe in your company and can work on a strategy together

to move things forward. Transparency and accountability are our

primary concerns, and are notions we are trying very hard to

promote.

ACUMENACUMENACUMENACUMENACUMEN : The notion of transparency in Myanmar has: The notion of transparency in Myanmar has: The notion of transparency in Myanmar has: The notion of transparency in Myanmar has: The notion of transparency in Myanmar has

been nonexistent. I take it there are certain accountingbeen nonexistent. I take it there are certain accountingbeen nonexistent. I take it there are certain accountingbeen nonexistent. I take it there are certain accountingbeen nonexistent. I take it there are certain accounting

standards, etc, but are they enforceable? When youstandards, etc, but are they enforceable? When youstandards, etc, but are they enforceable? When youstandards, etc, but are they enforceable? When youstandards, etc, but are they enforceable? When you

analyse a company, can you say with certainty that theanalyse a company, can you say with certainty that theanalyse a company, can you say with certainty that theanalyse a company, can you say with certainty that theanalyse a company, can you say with certainty that the

information youre receiving is reliable? Do mostinformation youre receiving is reliable? Do mostinformation youre receiving is reliable? Do mostinformation youre receiving is reliable? Do mostinformation youre receiving is reliable? Do most

Myanmar companies make an effort at transparencyMyanmar companies make an effort at transparencyMyanmar companies make an effort at transparencyMyanmar companies make an effort at transparencyMyanmar companies make an effort at transparency yet,yet,yet,yet,yet,

or is this something they are as yet largely unaware of?or is this something they are as yet largely unaware of?or is this something they are as yet largely unaware of?or is this something they are as yet largely unaware of?or is this something they are as yet largely unaware of?

Aung ThuraAung ThuraAung ThuraAung ThuraAung Thura ::::: As we all know, in Myanmar some companies

have two sets of books, maybe three or four sets of books. This

means that transparency can often be a risky proposition for them,

if true information about the nature of their finances were to leak.

Everyone is a bit scared. But I think its up to the government to

promote this, because if they really want capital markets to develop,

people need to be comfortable that things are moving in the right

direction. Even if the past was a bit shady, signals need to be sent

that things are improving. But there is a balance that needs to be

struck. In the past, companies rarely paid appropriate taxes, andof course this is something that needs to change. But, on the other

hand, if the government becomes keen to pursue companies to

pay back taxes, these companies would have no incentive to become

transparent.

So I propose that the government develop an amnesty

scheme, saying, for example, that within two years [companies]

must attain a certain level of transparency. But if these companies

havent done so within the defined period, this will open them up

to prosecution. In the interests of moving on, however, some of the

problems of the past will need to be forgiven, although there should

still be measures to regain some of lost tax revenue, such as, lets

say, a 10% penalty on the profit companies failed to report in the

past. This gives companies an opportunity to break with the pastand become transparent over time. Its difficult for companies who

have opaque pasts to become transparent without such schemes.

ACUMENACUMENACUMENACUMENACUMEN : Do you think theres any political will to do: Do you think theres any political will to do: Do you think theres any political will to do: Do you think theres any political will to do: Do you think theres any political will to do

this? There are state-linked and military-linkedthis? There are state-linked and military-linkedthis? There are state-linked and military-linkedthis? There are state-linked and military-linkedthis? There are state-linked and military-linked

enterprises that are rather secretive and would have aenterprises that are rather secretive and would have aenterprises that are rather secretive and would have aenterprises that are rather secretive and would have aenterprises that are rather secretive and would have a

lot to lose if there were to be a comprehensive push forlot to lose if there were to be a comprehensive push forlot to lose if there were to be a comprehensive push forlot to lose if there were to be a comprehensive push forlot to lose if there were to be a comprehensive push for

transparency.transparency.transparency.transparency.transparency.

Aung ThuraAung ThuraAung ThuraAung ThuraAung Thura::::: I was referring more to the private sector, but for

successful capital markets to emerge you need companies to trust

that they can become transparent, and for the government to

establish a framework that allows them to do so. If a company

doesnt want to become transparent, thats another thing I imagine

that some would be willing to pay appropriate taxes, but they

need to be assured that they will not be prosecuted for what they

did in the past. As far as state-owned enterprises go, they tend to

lose a lot of money, because they have out-dated technology and

are often located in remote areas. Their policies are generally

determined more by political concerns than sound economics, such

as promoting jobs in certain areas. Many of these companies may

simply cease to exist, as they have little intrinsic value.

Military conglomerates will need to reform, as well. The main

Interview



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and extending access to finance. The barriers to entryand extending access to finance. The barriers to entryand extending access to finance. The barriers to entryand extending access to finance. The barriers to entryand extending access to finance. The barriers to entry

are high: companies will need to show a minimumare high: companies will need to show a minimumare high: companies will need to show a minimumare high: companies will need to show a minimumare high: companies will need to show a minimum

capitalization of 500 million Kyats (US$5.3 million) ascapitalization of 500 million Kyats (US$5.3 million) ascapitalization of 500 million Kyats (US$5.3 million) ascapitalization of 500 million Kyats (US$5.3 million) ascapitalization of 500 million Kyats (US$5.3 million) as

well as two years profitability. I would imagine thatwell as two years profitability. I would imagine thatwell as two years profitability. I would imagine thatwell as two years profitability. I would imagine thatwell as two years profitability. I would imagine that

these kinds of figures would lock out a lot of smallerthese kinds of figures would lock out a lot of smallerthese kinds of figures would lock out a lot of smallerthese kinds of figures would lock out a lot of smallerthese kinds of figures would lock out a lot of smallercompanies that also need access to financing, whichcompanies that also need access to financing, whichcompanies that also need access to financing, whichcompanies that also need access to financing, whichcompanies that also need access to financing, which

would serve to further enrich Myanmars biggestwould serve to further enrich Myanmars biggestwould serve to further enrich Myanmars biggestwould serve to further enrich Myanmars biggestwould serve to further enrich Myanmars biggest

companies because they will be the only ones with thecompanies because they will be the only ones with thecompanies because they will be the only ones with thecompanies because they will be the only ones with thecompanies because they will be the only ones with the

resources to be able to list. First of all, who do youresources to be able to list. First of all, who do youresources to be able to list. First of all, who do youresources to be able to list. First of all, who do youresources to be able to list. First of all, who do you

think the stock exchange is going to benefit immediately?think the stock exchange is going to benefit immediately?think the stock exchange is going to benefit immediately?think the stock exchange is going to benefit immediately?think the stock exchange is going to benefit immediately?

Second of all, for companies that are just shy of theSecond of all, for companies that are just shy of theSecond of all, for companies that are just shy of theSecond of all, for companies that are just shy of theSecond of all, for companies that are just shy of the

capitalization requirements to list, what can be done forcapitalization requirements to list, what can be done forcapitalization requirements to list, what can be done forcapitalization requirements to list, what can be done forcapitalization requirements to list, what can be done for

them? What measures can be taken to improve theirthem? What measures can be taken to improve theirthem? What measures can be taken to improve theirthem? What measures can be taken to improve theirthem? What measures can be taken to improve their

access to financing?access to financing?access to financing?access to financing?access to financing?

Aung ThuraAung ThuraAung ThuraAung ThuraAung Thura::::: Myanmar is a bit odd. In other countries, there is

a clear distinction between private companies and public companies,

and public companies are usually listed. In Myanmar, the situation

is that there are many public companies that are not likely to be

listed once the exchange is established. While these companies

enjoy public status, their shares are not traded on an exchange,

as is standard practice elsewhere in the world.

Over the past year, the government allowed new public

companies to form once again, but without a securities exchange

law in place, public companies function in a very unregulated

manner. Around 60 companies were formed over the past year,

but there are no tough requirements in place in terms of formulating

a prospectus, for example. In other countries, a prospectus is

generally around 300 pages, but here it might be six pages. There

was one company that recently released a detailed and professionalprospectus of around 90 pages, but its not as though there was

anything legally binding that compelled them to do so. They did

this of their own accord, as they saw it as increasing their chances

of attracting investment.

In terms of actually being allowed to sell shares, the process

is pretty simple companies have to submit their prospectuses to

DICA (Directorate of Investment and Company Administration),

and if their applications are approved, they can begin to sell shares.

But because there are basically no formal exchanges, companies

often do so in odd ways. Ive seen companies selling shares from

booths outside of City Mart [a Yangon supermarket].

There are also many public companies that are not true

public companies. Companies are often motivated to go public toavail themselves of certain advantages; for example, the government

is now hesitant to give contracts to private companies, as they do

not want to be seen as favouring the cronies that have long

dominated Myanmars economy. Forming a public company is a

typical way of circumventing this problem; the public company

will get the contract, which it will then subcontract out to its private

affiliate.

Many public companies are managed like private companies

problem is that, until now, they have received special treatment

from the state and would not have had to pay taxes. From here

on, they will no longer have exclusive access to certain economic

areas. If they do not start to reform, especially with foreign

investment coming in, they might be left behind as foreign

companies will not want to partner with them, as they will perceive

their products to be inferior to those produced by the private sector.

These companies will have to decide whether they want to privatise,

and by doing so reduce their military affiliations. If they do this,

they can be removed from sanctions lists and become viable partners

for international investors.

ACUMENACUMENACUMENACUMENACUMEN : We discussed the stock exchange before,: We discussed the stock exchange before,: We discussed the stock exchange before,: We discussed the stock exchange before,: We discussed the stock exchange before,

which is a big step forward in terms of modernizationwhich is a big step forward in terms of modernizationwhich is a big step forward in terms of modernizationwhich is a big

Acumen Magazine August 2013

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