Business

The Irrawaddy Business Roundup (July 2, 2016)

By Simon Lewis 2 July 2016

Watchdog Says Burma Has Improved Anti-Money Laundering Measures

The intergovernmental Financial Action Task Force (FATF) on money laundering has removed Burma from its lists of countries with compliance issues, hailing the government’s progress toward clamping down on illicit funds.

The group—which is housed in the OECD’s Paris headquarters and is led by developed countries—keeps track of high-risk jurisdictions for money laundering and terrorism financing, and highlights those countries it says are not making sufficient efforts to tackle the problems.

Until this year, FATF listed Burma as a jurisdiction that had not made sufficient progress in implementing a plan to tackle money laundering. In a country where some are believed to have made vast profits from corruption and drug trafficking, the task force over several years repeatedly reminded the Burmese government that it needed to do more to make sure it wasn’t allowing funds to be laundered or to go toward terrorism.

In February, Burma was upgraded to a list of countries with only “strategic deficiencies,” with the FATF crediting the government’s moves to enhance financial transparency and establish a functioning Financial Intelligence Unit to investigate suspicious financial activity. The organization said it would conduct a visit to confirm the progress.

On June 24, in a statement following a plenary meeting in South Korea, the FATF said Burma, as well as Papua New Guinea, was being removed completely from the lists. It congratulated the countries “for the significant progress made in addressing the strategic AML/CFT [anti-money laundering/combating terrorism financing] deficiencies earlier identified by the FATF and included in their respective action plans.

“Both countries will no longer be subject to the FATF’s monitoring under its on-going global AML/CFT compliance process,” the statement said. “Both countries will work with the Asia/Pacific Group on Money Laundering as they continue to further strengthen their AML/CFT regime.”

Moving off the list could help to reassure overseas financial institutions, particularly in the US, on dealing with transactions involving Burma.

US Eases Reporting Requirement for Investors

American companies making an investment in Burma worth less that $5 million will no longer have to file reports with the US Embassy in Rangoon on what policies they have in place to protect human rights in the country.

Since the US government began loosening its sanctions regime to recognize democratic reforms, some firms have been required to file reports under State Department rules. From 2013, companies or individuals making an investment of more than $500,000 in most sectors, or any investor in the oil and gas sector, were required to file reports.

Companies already filing the reports include major investors like Coca-Cola, toothpaste company Colgate, Palmolive and Ball Corporation, which makes cans for drinks. Some even filed extensive reports beyond the legal requirements. Notably, Gap Inc., which although it only sources from external suppliers that own factories in Burma, has filed two reports on “responsible sourcing,” including the disclosure that it discovered that its suppliers had used child labor in the past.

Smaller firms or investment vehicles have also filed reports, some of which included the bare minimum to comply with the law.

Following the transfer of power to a National League for Democracy-led government in late March, the US government has further relaxed sanctions against Burma. In May, restrictions on dealing with financial institutions in the country were eased, and a rule allowing trade through Rangoon’s biggest port and airport, which are operated by a sanctioned company, was extended indefinitely.

The Embassy website’s page on reporting requirements was updated late last month to raise the threshold for the reporting requirement tenfold to $5 million.

Human rights and environmental campaigners have opposed the move, which they say was the result of lobbying by the US Chamber of Commerce and the American Chamber of Commerce Myanmar.

In a blog post June 24, Earth Rights International lawyer Zamira Djabarova said the decision, “effectively weakening the rule,” had been taken without any companies publicly opposing the reporting rule. While unpublished comments were likely to have been submitted, some large investors, including Coca-Cola and Gap, had spoken up in support of the requirement, Djabarova wrote.

Analysts Predict Construction Industry Growth More Than 10%

The construction industry in Burma is forecast to grow by an annual average of more than 10 percent in coming years, according to a report from analysts, who predict the sector will be worth $13.5 billion by 2020.

Business information company Timetric’s Construction Intelligence Center said in a press release that a new report on the industry found that construction in Burma was worth $8.2 billion in 2015.

It said, “growth will be supported by the country’s improving economic conditions, but will mainly depend on government investments in residential, energy and utilities, and public infrastructure projects, as well as a rise in foreign investments.”

A breakdown of the current state of the industry said about half of the sector in terms of value was in residential construction.

The analysts also forecast infrastructure construction on roads, bridges, airports and ports, will grow steadily. The government—presumably with the help of donors—set to pour a total of $26.8 billion into a transport masterplan up to 2030, it said.

“Consequently, infrastructure construction is expected to reach US$4.2 billion in 2020,” the press release said.

Bangkok Airways Wants to Fly to Bagan, Myeik

The boutique carrier Bangkok Airways is hoping to fly directly from Thai airports to the temple-tourism destination of Bagan and the archipelago gateway of Myeik, according to an industry publication.

aviationpros.com said in a report this week the carrier, based out of Bangkok’s Suvarnabhumi Airport, was applying to Burma’s Department of Civil Aviation for permission for two new flights. One would connect the northern Thai city of Chiang Mai with Nyaung U, close to Bagan, in Mandalay Division, and the other would link Bangkok and Myeik, also known as Mergui, in Tenasserim.

Burma’s smaller airports are generally only served by domestic airlines, but both destinations are expected to grow as the number of tourists visiting Burma increases. Some of the hundreds of islands off Myeik, most of which remain untouched, are currently undergoing development as tourist sites.

“Bangkok Airways hopes to secure regulatory approval from Myanmar civil aviation authorities for the two routes, a process that may take up to eight months,” the report said.

“But the carrier is not in a rush to launch the two new Myanmar routes, expecting to put them on its flight roster during the winter season, starting at the end of October,” it added.

Bangkok Airways already flies between Bangkok and airports in Rangoon, Mandalay and Naypyidaw, and connects Chiang Mai to Rangoon and Mandalay.

World Bank Study Recommends Diversification

A study conducted by the World Bank at the behest of Burma’s Ministry of Commerce has recommended that the government focus on light manufacturing, services and agribusiness to make the country less reliant on extractive industries.

A press release this week on the official launch of the Myanmar Diagnostic Trade Integration Study made recommendations on how to ensure inclusive growth as Burma’s economy develops. It urged officials to continue with reforms to make it cheaper for private businesses to trade, and encouraged “soft infrastructure reforms.”

Recommendations from the study include improving access to finance, addressing skills shortages and simplifying the system of trade tariffs.

The government should “encourage trade growth in the service sector by reducing administrative and regulatory barriers and consolidate coordinating mandate for services trade negotiation into one agency,” the recommendations said.

The press release said a key driver of inclusive growth would be “diversifying  into sectors with high potential such as light manufacturing, services and sustainable agribusiness to rebalance the economy away from its overdependence on natural resources.”

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