Burma Business Roundup (Saturday, May 26)

By William Boot 26 May 2012

Investors Face ‘Reputation Risks’ despite Suspended Sanctions

Foreign firms seeking to invest in Burma now Western sanctions have been lifted face “complex challenges,” claims a risk assessment study.

Burma has become an increasingly attractive prospect for investors in the wake of seemingly liberal political and economic reforms over the past year, but all is not quite what it may seem, warns the British assessor Maplecroft in a new Burma Country Risk Report.

The assessment examines the investment climate, governance risks, changing legal and regulatory framework, potential security issues plus human rights and environmental concerns.

“Vast opportunities are likely to materialize for businesses looking to enter or return to [Burma], particularly in the largely untapped oil and gas, mining and agro-commodities sectors,” said Maplecroft Chief Executive Alyson Warhurst.

But foreign companies “face virtually intractable risks stemming from excessive state bureaucracy, corruption and inconsistent legal enforcement,” said Maplecroft.

Investing in Burma in the near term also poses reputational risk for prominent firms as human rights NGOs maintain a keen eye on developments.

“These include risks of being perceived as collaborating with a still-undemocratic regime, of potential complicity in human rights violations and of being associated with other damaging issues such as abuses against minorities and corruption,” Warhurst told The Irrawaddy this week.

“On-going human rights violations, particularly with regard to labor standards in rural areas and in city manufacturing zones, are thus expected to persist and NGOs will continue to monitor companies doing business in [Burma].

“Amongst the operational risks faced by businesses are uncertain land rights. Land grabbing and violence have marred the construction of large-scale projects in the infrastructure sector and extractive industries, particularly in border areas inhabited by ethnic minorities such as the Karen, Kachin and Shan,” Warhurst said.

Global Marketers Ogilvy & Mather Buy Stake in Rangoon Firm

The world’s largest marketing and advertising company, Ogilvy & Mather (O&M), has bought into one of smallest—Today Advertising of Rangoon.

Moving within days of the suspension of US sanctions, New York-based O&M has bought an undisclosed stake in Burma’s biggest marketing and publishing business.

Industry observers said it could open the door to the promotion of numerous foreign firms in Burma.

“O&M declined to release details of the partnership, which it said had been under discussions for some time. It is the only international agency to currently have a presence in [Burma],” Ad Age newspaper said. “Ogilvy’s [Burma] entry will probably put the country on other agencies’ shortlists for expansion.”

Despite Western sanctions, O&M has had a cooperative link with Today Advertising for some years. The Rangoon firm said it has been O&M’s “exclusive partner” in Burma since 1998.

Today Advertising is engaged in public relations, product launches, and advertising promotion. It has 60 employees compared with the 158,000 workforce of the global marketing group WPP to which O&M belongs.

WPP Plc is headquartered in London.

Burma’s advertising market had a value of just US $33 million in 2011, compared with $600 million in Vietnam, which O&M was the first to enter when US sanctions there were lifted in 1994, said Reuters news agency.

Burma is being described as the next “frontier market” but average income is only $4 per day, Reuters noted.

Tourists from Sanctions Countries Flock to Visit Burma

The number of tourists visiting Burma by air so far this year is more than double the figure for 2011, according to government statistics.

An average of 1,500 visitors are passing through the country’s airports every day, said the Ministry of Hotels and Tourism this week.

However, the overall number of tourists including land border crossings could be three times that figure—totaling almost 1.5 million people for the whole of 2012, latest numbers indicate.

Most tourists arriving by air so far this year have come from Western countries, says the Myanmar Tourism Promotion Board. Visitors are coming from all the regions and countries which until very recently imposed sanctions against the Burma regime – the United States, Canada, Europe, Australia and New Zealand.

Tourism in 2011 generated revenue of $319 million, according to Naypyidaw.

Airport arrivals figures exclude business travelers who from June 1 will be given 70-day visas on arrival at Rangoon Airport, said the minister for immigration and population. That allowance might be extended to all visitors through Rangoon before the end of this year, said the ministry.

Rangoon Coal-Fired Power Plant ‘May Cost $700 million’

Plans announced by the Ministry of Electric Power for a large coal-fuelled power station near Rangoon on a “joint venture” basis would cost between $700 million and $850 million, an industry expert estimates.

The ministry said it was negotiating with the Japanese firm J-Power for the construction of a 600-megawatt plant, which would offer nearly half of Burma’s entire current electricity generating capacity.

The plant is earmarked to be built in the greater Rangoon region, but no location or timetable has been given by the ministry, which described the venture as a “long-term project.”

“Depending on the fuel efficiency technology to be used, the cost would likely exceed $700 million and could be as high as US$850 million,” Bangkok-based energy industries consultant Collin Reynolds told The Irrawaddy. “A less environmentally friendly plant could be cheaper.”

Talks with J-Power follow the visit to Japan by Burmese President Thein Sein who visited thermal plants there and met numerous big business executives.

Some of the cost of the proposed Rangoon project could be financed by Japan, which had agreed to resume loans and other aid after canceling debts of several billion dollars owed by Burma.

J-Power specializes in hydroelectric, coal and gas-fueled power plants and electricity transmission systems.