BUSINESS ROUNDUP (October 5, 2012)

By William Boot 6 October 2012

Regional Rice Exporting Consortium to be Based in Burma

Burma has joined a three-nation grouping which aims to “become the biggest rice consortium” in Southeast Asia. The consortium brings together Agritech Corporation of the Philippines, Capital Rice Company of Thailand, and Burma’s International Sun Moon Star Agricultural Company which is part of the IBTC Group.

“Agritech will contribute its rice technology and varieties to the venture while the Myanmar [Burmese] partner will provide the land for production. The Thai partner will handle global marketing,” reported the Philippines’ Inquirer newspaper.

Burma will be the location of the joint business, still to be named, and the production base because land and labor costs are lowest, Agritech chairman Henry Lim Bon Liong was quoted by the Inquirer as saying.

Before World War II, Burma was the world’s largest rice producer and exporter, but production declined during the decades of military rule. Exports have declined from 7 million tonnes annually in the 1930s to 778,000 tonnes in 2011. Thailand is now the biggest exporter at 10 million tonnes per year.

The Myanmar Rice Industry Association, created in 2010 by merging producers, traders, and millers associations, has previously said that tens of millions of dollars is needed to rebuild Burma’s rice industry infrastructure, such as modern rice mills.

Japan Billions Pouring into Burma while West Hesitates

Japan is contributing at least US $18 billion to Burma while Western companies and state aid agencies await new laws on foreign investment and labor and land rights. That’s the investment estimate made by Reuters following a survey of Japanese government departments and agencies and private enterprise.

The $18 billion is made up from commercial investors, waived old loans debts, and new aid packages from Tokyo government agencies, according to Reuters. Much of the new investment by the Japanese is going into the new port development at Thilawa on the edge of Rangoon. Reuters said a “small group of well-connected Japanese pushed Tokyo’s bureaucracy and aid agencies to fast-track key decisions, even while [Burma’s] laws on investments were still being debated.”

“The deals have made Japan a major player overnight in the opening of [Burma]. The part of the Thilawa package that includes debt forgiveness and refinancing adds up to nearly US $5 billion, dwarfing the US $76 million in aid from the United States in 2011 and 2012 and a two-year package of US $200 million the European Union has pledged,” said th report.

Thai State Oil Giant in Joint Venture Fuels Business in Burma

Thailand’s state-owned oil and gas conglomerate PTT has signed a joint venture agreement with a Burmese firm to develop a retail fuel oils business.

The link-up with Denko Trading Company is aimed at developing a national retail business for domestic and vehicle fuels within five years, said PTT’s international markets vice-president, Auttapol Rerkpiboon.

Demco operates 15 petrol stations in Rangoon and has land which could be used to construct a fuels store.

The Thai giant is establishing PTT Oil Myanmar Company in readiness for when Burma opens its retail fuels sector to foreign investors, Auttapol told reporters in Bangkok.

Burma consumes only a tiny percentage of the volume of oil fuels such as petrol and diesel used in Thailand—38 liters per person compared with 700 liters. Even Cambodia’s consumption is three and a half times more than in Burma.

However, the market in Burma has “very strong potential” for growth as the country opens up and expands its economy, said Auttapol.

Land Prices in Rangoon Rocket Higher than in the US

Land prices in parts of Rangoon are rocketing higher than for development land in the United States, according to a survey by the US business new agency Bloomberg. In the Hlaing Thar Yar district of the city some land is being valued at US $500,000 per acre—ten times the price of building land in parts of the US, said Bloomberg.

The mushrooming prices are being caused, among other things, by speculative investment from cash-rich jade miners.

The Asian Development Bank, which recently re-opened an office in Rangoon after a 23-year absence triggered by unpaid loan debts which the former military regime ignored, has warned that the highly inflated prices could deter foreign industrial investors.

“It is a significant barrier to attracting foreign investment,” the ADB’s assistant chief economist Cyn-Young Park told Bloomberg. “Provision of adequate infrastructure would help mitigate these pressures on property prices by allowing more land to function efficiently for any business purpose.”

The inflationary land prices in Rangoon come as the government and tourism industry calls for investment in more accommodation for leisure and business visitors to the country.

Between January and August there were 340,458 visitor arrivals by air alone in Rangoon and Mandalay, which is 40 percent higher than in the same period of 2011.

US Orders Could Spur Burmese Garment Industry

Electricity shortages and poor labor rights threaten to undermine hopes of Burma’s garment enjoying a boom now that US import bans are being lifted, an industry analyst says.

“[Burma’s] biggest advantage is the very cheap availability of labour, compared to even other low-wage manufacturers such as Bangladesh and Cambodia,” UK business risk assessor Maplecroft’s Arvind Ramakrishnan said. “However, shortages of electricity and extreme levels of labour rights violations will be severe risks associated with this sector in the medium term,” Ramakrishnan told the Singapore Internet website AsiaOne.

But the vice-chairman of Myanmar Garment Manufacturers Association, Aung Win, said the re-opening of the American market could lead to more clothes-making factories and jobs. It could tempt back the hundreds of thousands of Burmese currently living and working in Thailand.

The garment-making currently employs only a quarter of the 400,000 workers it used to provide work for, he said.