The Irrawaddy Business Roundup (Sept. 19, 2015)

By Simon Lewis 19 September 2015

Analyst Warns of China Fallout for Burma’s Economy

With China’s economic slowdown causing concern in markets around the world, an analyst has warned that impacts are already being felt in Burma’s economy.

Doubts that China will not meet a 7 percent growth target this year mean that the economic woes of Burma’s giant neighbor—which has seen Chinese equity markets fall by some 40 percent since mid-June, according to Reuters—may still have some way to go.

Despite the arrival of Western investors in Burma in recent years, China remains the country’s largest trading partner, with investments including large mining projects and hydropower dams.

Paul Shortell, a scholar working in Burma for the New York-based Natural Resource Governance Institute, published an article this week in the World Politics Review arguing that Burma faces “risks and uncertainties” from the problems in the Chinese economy.

“Some impacts of China’s slowdown are already evident in the energy and mining sectors,” Shortell wrote.

“Falling energy prices, attributed in part to softening demand in China, have curbed Myanmar’s earnings on natural gas exports despite robust production. The annual Jade and Gem Emporium, which grossed 2.5 billion euros in sales in 2014, saw a sharp decline in participation by Chinese merchants this year.

“Flagging factory output and construction could also depress exports of tin, which China began purchasing from Myanmar in significant quantities in 2013.”

According to Burmese government figures, China has been the largest source of pledged foreign direct investment in since 1988, despite an influx in FDI from other places since the West removed sanctions.

But Shortell suggests that conditions inside China could be threatening a vital source of capital into Burma.

“And some analysts fear that stress on China’s financial system from stalling output, stock market losses, and a property bubble in China’s southwestern provinces might curtail future lending,” he wrote.

Shell Set to Begin Exploration as It Steps Into Dawei Fray

Oil and gas giant Royal Dutch Shell is set to begin offshore exploration before the end of 2015, the company confirmed shortly after announcing that it would throw its weight into a troubled economic hub project in southern Burma.

The UK and Netherlands-based company is leading a consortium that also includes Japan’s Mitsui Corporation, which was awarded three of 10 deep-water oil and gas exploration blocks in a competitive tender that concluded in March 2014.

In February this year, the companies announced that they had signed a production sharing contract with the state-owned Myanma Oil and Gas Enterprise (MOGE) to explore the blocks AD-9 and AD-11 off Arakan State and MD-5 off Tenasserim Division.

Responding to a query about a Myanmar Times report this month that exploration would begin in October, Shell told The Irrawaddy that exploration was expected to begin between the start of next month and the end of 2015.

“Shell is expecting to start seismic operations in Myanmar in Q4 2015,” said Graeme Smith, vice president of exploration, Asia and Australia, for Royal Dutch Shell, in emailed comments.

“Frontier exploration is a part of a long-term commitment which starts with data acquisition; geoscientific studies and the gathering of seismic, gravity, and magnetic data to determine possible prospects,” Smith added.

“This may take 2-4 years. If the results of the studies identify feasible prospects, then we could decide to drill.”

Dubai-based company Polarcus has announced that it has been awarded the deal to conduct the seismic exploration in Shell’s blocks.

Shell is also set to further its involvement in Burma, in a move that will be a major boost to the Dawei Special Economic Zone project on the coast of southern Burma’s Tenasserim Division, which is reportedly under development once again after years of delays apparently due to financing difficulties.

A new road link from the Andaman coast to Thailand is planned for the area, as well as a factory zone and power-generation projects. It is hoped new infrastructure will attract other investors to create an economic hub close to the sleepy port town of Dawei.

Shell signed an agreement last month to cooperate on the development of a liquefied natural gas (LNG) terminal in Dawei. The agreement with Thailand’s Italian-Thai Development will see the two companies jointly develop a receiving and re-gasification terminal, which will serve the long-awaited Dawei SEZ, according to a statement.

“Under the agreement, Shell will provide technical expertise on the development of the LNG terminal. It will also have access to terminal capacity and supply LNG to DSEZ customers,” the Shell statement said.

Swedish Firm to Build ‘Data Center’ for Thilawa Zone

Sweden’s Flexenclosure AB says will install a data center inside the Thilawa Special Economic Zone near Rangoon. The company specializes in setting up such facilities, which are used to house computer and telecommunications systems and usually provide backup power supplies.

The company announced this week that it had received a “multi-million dollar” order for a data center from Burst Networks, a company that provides broadband Internet services.

It said Flexenclosure would build the center at its factory in Vara, Sweden, before shipping it to Burma.

“When commissioned and licensed to operate, the teleport will provide a robust, scalable, state-of-the-art nationwide network offering broadband services to enterprise, SME and third-party provider clients such as data connectivity, VPN, VoIP, video conferencing, network redundancy, data storage & recovery, colocation and hosting services,” the statement said.

Japanese Farm Machinery Maker Establishes Burma Company

Japan’s Kubota Corporation, which manufactures tractors and other agricultural machinery, has established a company in Burma with the aim of expanding its reach into the country as more farms look to mechanize production.

The company said in a statement on Wednesday that while it has already been distributing Kubota machinery in Burma through a Thai subsidiary, it was looking to reach more of the country’s farmers.

“The total population and rice production volume of Myanmar are almost the same as those of Thailand; however, most of the farm work relies on human power and work cattle,” the statement said. “In the future, mechanization of farm work will make progress.”

The company was established this month with capital of $23.8 million, and will be based in the Thilawa SEZ.

The Singapore-listed conglomerate owned by local tycoon Serge Pun, Yoma Strategic Holdings, announced recently that its own venture into the tractor business was seeing some success.

The group’s business selling Case New Holland machinery brought in revenue of more than $5 million in the first quarter of the current fiscal year, according to a company filing.

British Insurer Moves to Burma

British company Jardine Lloyd Thompson (JLT) has reportedly set up an office in Burma, as international firms continue to see potential in the local insurance market.

The website Insurance Asia News reported that the company has opened a representative office in Rangoon.

Given restrictions still in place on the insurance sector, the local office “will be limited to sharing its knowledge and expertise with Myanmar insurance companies and local businesses, though it will not be allowed to provide services directly,” the report said.

The restricted environment—private firms can only offer a handful of policies while the state-run Myanma Insurance is able to offer more than 40—has meant that the presence of foreign firms in the sector has so far been limited.

However, a report from the Wall Street Journal earlier this month said that the Burmese government was “weighing a plan to allow foreign insurers to partner with local ones and open local branch offices,” citing Maung Maung Thein, a deputy director at Burma’s Ministry of Finance.

“The government will ‘wait and see,’ he said, before making final decisions on when and how foreign players can enter the wider market,” the Journal reported.