Dr Aung Thura

7/30/2019 Dr Aung Thura

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Myanmar

The Last Growth Market Frontier in South East Asia

GES 2012

Dr. Aung Thura

CEO Thura Swiss


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About Me

Education

Dr. oec. in Banking and Finance at the University of St.

Gallen (2008)

M.A. in Quantitative Economics and Finance at the

University of St. Gallen (2005)

M.Sc. in Mechanical Engineering at the Swiss FederalInstitute of Technology (ETH) in Zurich (2003)

Professional Experience

CEO Thura Swiss: Research, Consulting, Technology (2012)

Quant with Zrcher Kantonalbank (2012)

Exotic derivatives trader with Zrcher Kantonalbank (2008 2012)

Business development with Credit Suisse (2005 2008)


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3

Myanmar: The Last Growth Market Frontier in South East Asia

Time Line of Myanmar History

Year Event Sentiment

1948 Independence

1962 Coup dEtat starting the Burmese Way to Socialism

1988 Student Protests

1991 General Elections

2007 Safran Revolution

2008 Cyclone Nargis

2008 Referendum for New Constitution

2010 General Elections

2011 Civilian Government

2012 By-Elections

2012 Suspension of Sanctions

2014 Chairmanship of ASEAN

+-

The sentiment curve is purely our own view and not based on any statistics


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4


Driving Factors in Myanmar Politics

Conflicts with

Ethnic

Minorities

Xenophobia

Relationship

with China

Inflow of Kuomingtang afterChinese civil war

Chinese support of Burmese

Communist Party

International support/ protection

by China

Uneasiness about rising influence

Colonial complex

Support of KMT by

US in the past

Perception of

opposition leader asa Marionet of the

West

Fear of invasion

Strained relationship

between Burmese

majority and ethnic

groups a legacy of

colonialism Fear of secession


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What Are the Reforms?

Unification of exchange rate

Freeing of political prisoners

Participation of the NLD in the by-elections in April 2012

Ceasefire agreements with armed groups

Invitation of Myanmar people living abroad to come back

Suspension of the Myitsone dam project

Revision of the Foreign Investment Law

More autonomy for Central Bank

You cannot just read the Myanmar Foreign Investment Law to

judge if it is investor-friendly. More relevant are the actual

procedures.


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The Exchange Rate Dilemma

State Economic Enterprises(SEEs) are a burden on the

countrys budget

Losses are covered up by an

extra foreign exchange

budget SEEs can buy foreign

currency at the official

exchange rate

Official rate: 6 Kyats per USD (fixed)Black market rate: 750 1200 Kyats per USD


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Next Steps

Foreign Investment Law (2012?)

Tenders for Oil and Gas (2012?)

South East Asian Games (2013)

ASEAN chairmanship (2014)

ASEAN Economic Community (2015)

General Elections (2015)

Beside the main topics there are so many things to be done that

require full attention


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Myanmar in Comparison

Thailand is a good peer to compare for Myanmar in size of

population and area

Myanmars GDP (PPP) is about 8 times lower than Thailands

Country Myanmar Thailand South Korea France

Population 60 66 49 66

Area 676,578 513,120 100,210 674,843

GDP (nominal in billion USD) 43 319 1,163 2,808

GDP (nominal) per capita (USD) 702 4,992 23,749 44,400

GDP (PPP in billion USD) 76 587 1,556 2,216

GDP (PPP) per capita (USD) 1,250 9,187 31,753 35,048

h h k h


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Comparison of FDI

Foreign Direct Investment in Myanmar is comparable to FDI in Thailand

and Korea in the late 80s Both Thailand and Korea experienced a sharp rise of FDI within the coming

decade

M Th L G h M k F i i S h E A i


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FDI by Sector

SectorApproved amount of investment

(mln USD) Percentage

Power 19,067.498 46.41

Oil and Gas 14,181.972 34.52

Mining 2,814.360 6.85

Manufacturing 1,826.282 4.44

Hotel and Tourism 1,064.811 2.59Real Estate 1,056.453 2.57

Livestock & Fisheries 324.358 0.79

Transport & Communication 313.906 0.76

Industrial Estate 193.113 0.47

Agriculture 182.751 0.44

Construction 37.767 0.09Other Services 23.686 0.06

Total 41,086.957 100

Data as of 31/07/2012

M Th L G h M k F i i S h E A i


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GDP Growth projections by Economist

2012 2013 2014 2015 2016-2020

Core Scenario 5 5.3 5.9 6.5 7.7

Golden Era Scenario 5 6.3 7.2 8.1 8.5

Dark Forces Scenario 5 4.6 4.2 4 4.4

0

2

4

6

8

10

2012 2013 2014 2015 2016-20

Real GDP growth projections, % change

core scenario golden era scenario dark forces scenario

Data taken from Economist Intelligence Unit

The core scenario implies

ongoing reforms withlimited real structural

change (60% probability)

Golden era scenario implies

rapid political and economic

reforms (25% probability)

Dark forces scenario where

reforms are reversed (15%

probability)


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M Th L t G th M k t F ti i S th E t A i


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Myanmar as an Investment Case

Abundance of natural resources: The government of

Myanmar is continuing to offer new hydrocarbon blocks forexploration. Development of the natural resources sector will

have a spillover effect on the rest of the economy now that

sanctions are suspended and that social responsibility is one

of the issues the government is raising when dealing with

foreign investors.

Strategic location between China and India

A population of 60 mln. which is a big unsaturated market and

at the same time a relatively young and cheap labor force

(although cheap is an inconstant variable)

M Th L t G th M k t F ti i S th E t A i


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Energy Source Potential

Crude Oil (Offshore & Onshore)

(Proven + Probable)

648.59 MMBBL

Natural Gas (Offshore & Onshore)

(Proven + Probable)

166.13 TSCF

Hydro 108,000 MW

Coal 711 Million Metric TonsBiomass 52.5 % of total land area covered with forest.

Potential available annual sustainable yield of

woodfuel: 19.12 Million Cubic Ton

Wind 365.1 TWH per year

Coastal strip of 2832 Km with south-westerlywind 9 months, north-easterly wind 3 months

Solar Power 52,000 TWH per year

Geothermal 93 Locations

Source: EPD, Ministry of Energy

Energy Sector



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Healthcare Market

The legal market size of pharmaceutical products in Myanmar

is estimated to be worth 366 million USD per year

Beside the official market, there is a huge black market with

drugs imported illegally from Thailand

The market has seen a growth rate of20% from 2010 to 2011



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Tourism and Hospitality

816,369 visitors in 2011 comprising

38% foreign independent travellers,

26% package tours groups

21% business travellers and

15% other travellers.

Increase of 3.3% y-o-y as compared to tourist arrivals in 2010

1.5 mn tourists are projected to arrive in 2012

Yangon received 364,743 tourists in 2011, up by 23% from 2010.Yangon is expected to receive approximately 675,000 tourists in2012.

Revenue collected from tourist increased by 25% in 2011 and was$319 mn compared to $254 mn in 2010



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Myanmar Stock Exchange

Myanmar Securities Exchange Centre established 1996 as a

JV between Japanese Daiwa Institute of Research andMyanmar Economic Bank

Two companies listed:

Forest Products Joint Venture

Myanmar Citizens Bank

MOU between Central Bank of

Myanmar, Daiwa and TSE to

develop a modern Securities

Exchange

The Exchange shall be operational

in 2015



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Portfolio Investment

Domestic

Direct Investment

Foreign

Type of Investment

SourceofInvestment

Investment Funds:

Limited number ofinvestment objects

available or accessible

Proper due diligence

required

Private Investors + Funds:

Operational challengerunning a business in

Myanmar

Restriction of sectors

Public Companies:

Apart from companies

created in 90s virtually

missing

Formation of a couple of

Public Companies recently

Private Companies:

The most common

investment type for

domestic investors

Limited possibilities of

funding

Investment Matrix



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Foreign Investment in Myanmar

Local Company Joint Venture 100% Foreign-Owned

ForeignInvestment

Big Companies

Operate as a Company under the

Myanmar Foreign Investment

Law

Small Companies

Operate as a Company under the

Myanmar Companies Act



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Corporate Income TaxThree years minimum corporate income tax exemption, extendible on a case-

by-case basis

Exemption from or Reduction of Taxes on Imported Capital Goods

Exemption from customs duty and other internal taxes on imported capital equipment

and materials during the construction, exploration and development period of the

investment project

Exemption from or Reduction of Taxes on Imported Raw MaterialsDuring the first 3 years of commercial production and operational period, exemption

from customs duty and other internal taxes on imported raw materials

Incentives in Current MFIL



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Other Incentives (i.e. Grants, Domestic Loans, Subsidies, etc.) Exemption or relief from income tax on profits which are maintained in a

reserved fund and re-invested within one year

Right to accelerate depreciation

Relief from income tax up to 50% on the profits accrued from exports

Right to pay income tax on behalf of the foreigners employed and to deductthe same from the assessable income of the enterprise

Right to pay income tax of the foreign employees at the rates applicable to

the citizens of Myanmar

Right to deduct the expenditures for research and development carried out

within the state Right to carry forward and set off losses up to 3 consecutive years, from the

year the loss is made

Incentives in MFIL (Cont.)



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Corporate Income Tax

Ownership Residence Status Relevant Law Corporate Income Tax

100% Myanmar Resident Company MCA 25%

JV Resident Company MCA

MFIL

25%

25%

100% Foreign Resident Company MCA

MFIL

25%

25%

Branch Non-resident Company MCA

MFIL

35%

25%

Corporations incorporated in Myanmar are treated as resident and taxed at the rate of25% on income accruing or arising in Myanmar and outside of Myanmar



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Tax Treaty Countries with Myanmar

UK India Korea Malaysia Thailand Vietnam Spore No DTA

Interests - 10% 10% 10% 10% 10% 8-10%* 15%

Dividend

s

0% 5% 10% 10% 10% 10% 5-10%** 0%

Capital

Gains

- Myanmar Myanmar Myanmar Myanmar Myanmar 0 10% 40%**

*

Services - 10% 0% if < 6

months

10% 10% 10% 0% if < 6

months

3.5%

* 8% if beneficiary is bank

** 5% if beneficiary owns at least 25% of company

** Capital gains from Oil & Gas ranges from 40 50% dependent on size



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The Big Players in Myanmars EconomyCompany Business Owner

Htoo Trading Timber, transport, tourism, construction, property

development, palm oil, AGD Bank

U Tay Za

Myanmar Billion

Group

Kanbawza Bank, mines, cement, Myanmar Airlines, hospital,

London cigarettes for Shan and Karenni states

U Aung Ko Win

SPA, Yoma, FMI Yoma Bank, real estate development, manufacturing,

technology, construction and real estate, automotive industry,

healthcare (Pun Hlaing Hospital)

U Serge Pun

Max Myanmar Road and rail construction, rubber, import export of heavy

machinery, hotel in Chaung Tha, Ayeyarwaddy Bank

U Zaw Zaw

Eden Construction, transport, communications, Traders's hotel,

Myanma Apex Bank

U Chit Khaing

IGE Oil and gas, agricultural products, timber, electrical

substations, transmission lines, machinery in oil and gas

industry, CNG filling stations, United Amera Bank

U Pyi Aung

U Nay Aung

Asia World Construction, transport, communications U Tun Myint Naing

(Steven Law)



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General Remarks on Myanmar Market

Myanmar is not virgin land. There already are powerful

incumbents (domestic and foreign)

Investment is better protected for big players

In recent years, Myanmar has seen market distortions in

many areas: Car, land, telecommunication Social contacts play a significant role

Rumor-based society

Lack of skilled labor and unreliable infrastructure make

productions costs not necessarily cheap in the short term

Qualified workforce could be found in the Myanmar

diaspora


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