The Irrawaddy Business Roundup (June 21, 2014)

By William Boot 21 June 2014

Burma’s Inflation Forecast to Stay Up at 9% in the Medium Term

Inflation in Burma is likely to remain as high as 9 percent in the medium term, an economic forecasting company specializing in frontier markets said.

“We expect overall inflation to continue speeding up throughout this year on account of the 2013 depreciation of the kyat, a recent electricity price hike, and increased wages for public employees,” said the assessment by Mantis, based in the Netherlands. “Inflation will stabilize around 9 percent in the medium term.”

It said inflation began to accelerate in the first quarter of this year due to food shortages triggered by a weather-affected harvest.

Mantis said foreign investment grew to about 9 percent of the gross domestic product (GDP) in the first quarter of the calendar year, “just in time to help finance the country’s highest merchandise deficit ever, which reached 7.3 percent of GDP in 2014 Q1.”

Exports fell to only 12.5 percent of GDP in the first quarter of 2014, down from their peak of 21 percent in the previous quarter and below their five-year average of 15.5 percent, said Mantis.

Assuming that economic reforms stay on course, both foreign direct investment and aid inflows will remain high, allowing the country to accumulate an international reserves buffer and contributing to broad-based growth of about 7 percent in the next five years, Mantis said.

However, Mantis warned that Burma’s economic transition “entails large uncertainties.”

Foreign Bank Licences Need Careful Monitoring, Says IMF

The Burmese government needs to firmly control bank licences when it gives the final go ahead for some foreign banks to open for regular banking business, the International Monetary Fund (IMF) has recommended.

Tight control will be necessary to allow banking capacity to develop in an orderly way, IMF mission head in Burma Matt Davies was quoted by Eleven Media as saying.

Naypyidaw is in the process of choosing which foreign banks will receive operating permits and is expected to initially issue between five and 10 licences.

More than 40 foreign banks have already opened representative offices in the country, but they can only provide consultation and advisory services.

Strong contenders include Thailand, which has four banks with offices already in Burma, including the large Bangkok Bank, said The Nation newspaper in Bangkok.

Mobile US Power Plant Brings New Electricity Supply to Mandalay

A 100 megawatt temporary gas-fueled power plant has begun operating in Mandalay Division less than four months after an agreement was signed between the US installer and the Naypyidaw government.

The plant, at Kyaukse, has been built by APR Energy, which says electricity generated will serve hundreds of thousands of people.

Its rapid development is due to the use of 68 mobile gas power modules, APR Energy said.

However, the plant is not a long-term solution to Burma’s massive energy shortages. The APR contract to supply electricity is for two years only, after which the equipment would be removed unless the contract is extended.

“We expect to be able to demonstrate to the Ministry [of Energy] that we can operate more efficiently and more reliably than anybody else on the grid. And I hope that if we can demonstrate that they’d be happy to keep our plant longer term,” APR Energy managing director Clive Turton said in a statement.

Rangoon and Mandalay Are Major Destinations for AirAsia Airline

Burma is set to become a major market for regional budget airline AirAsia, especially with advent of the Asean economic community in 2015, a senior company manager said.

“[Burma] and the entire Mekong region are main markets for Air Asia where we will focus growth activities and add destinations to increase flight frequencies,” Thai AirAsia chief executive Nadda Buranasiri told travel industry newspaper TTR Weekly.

AirAsia, one of the biggest budget airlines flying to Burma, said that in the first five months of this year passenger traffic on its Bangkok-Rangoon route increased 15 percent and the Bangkok-Mandalay route by 30 percent, compared with the same period of 2013.

The airline flies between Rangoon and Bangkok twice daily. Flights from Mandalay to Bangkok are once a day, as is the Rangoon-Kuala Lumpur service.

The Asean economic community is supposed to open up the 10-nation group to easier movement of people and business, although the Naypyidaw government has not yet signed visa-free travel agreements with all the member countries.

Rent Rangoon’s Ex-State Buildings to Wealthy NGOs, Says Economist

Vacant old buildings in Rangoon abandoned by the government when it moved the capital to Naypyidaw could be rented out cheaply to foreign agencies and NGOs as a way of curbing the huge rent inflation in the city, an American economist said.

The proposal follows reports of exorbitant rents being paid by large international agencies and charities to private property owners in Rangoon.

“[A] sensible solution is to lease vacant properties still owned by the government, especially after the move to Naypyidaw, to these prime tenants for a heavily discounted monthly payment and leaving it to the tenant to improve the property to their standards,” said the prominent economist, speaking on condition of anonymity to The Irrawaddy.

Another option could be for the government to “purchase prime properties from the former generals or their families at some negotiated price that represents a decent profit for the owners but is far below the market price and then lease the properties to the official agencies and NGOs,” the economist said.

“What I see is the government shutting its eyes to a problem and the international agencies playing dumb. The situation looks like a colossal failure of the imagination.”