The Irrawaddy Business Roundup (July 4, 2015)

By Simon Lewis 4 July 2015

Coca-Cola Disclosure Highlights Transparency Issues

A campaign group has urged international investors entering Burma to disclose more information on their partnerships with local firms, after US soft drink brand Coca-Cola’s due diligence in the country fell short.

Coca-Cola has been praised for in-depth reporting on its activities in Burma, and its third human rights report published on Tuesday under US government rules runs to 17 pages of detail about its activities.

The report includes the disclosure that a key shareholder in Coca-Cola’s joint-venture partner, Pinya Manufacturing, also holds a stake in a company involved in Burma’s notoriously murky jade-mining industry.

Coca-Cola said that it only discovered that Daw Shwe Cynn, a shareholder in Coca-Cola Pinya Beverages Myanmar, is also a director and minority shareholder in the jade company, Xie Family Company, after “engaging” with London-based NGO Global Witness.

“Our original due diligence was based on the best information available at that time,” the report said, adding that company registration documents on Xie Family were only made public late last year.

“While the jade mining industry is unrelated to our business, we encouraged and facilitated engagement between Daw Shwe Cynn and Global Witness,” Coca-Cola’s report added.

The campaign group issued a statement on Wednesday highlighting the disclosure, and pointing out that Xie Family has worked as a long-term subcontractor for Myanmar Economic Holdings Ltd (MEHL), a company controlled by the Burmese military.

“Xie Family and MEHL have told Global Witness that they have not worked together since 2012,” the Global Witness statement said. “But figures from last year’s government jade auction show that they jointly marketed jade that sold for over five million euros.”

In a separate blog post on Global Witness’ website, the group said companies operating in Burma and elsewhere should take heed of Coca-Cola’s lapse, calling for firms to engage “more robust due diligence” and publicly disclose more information about local partners in order to allow the public to scrutinize their links.

“Myanmar has experienced decades of secrecy and severe restrictions of free speech resulting in scarce public information and serious gaps in even the best corporate due diligence,” the post said.

“To mitigate risk, international companies should publish the names and identifying information of the individuals who own and control their local ventures (also known as their ‘ultimate beneficial ownership’).”

Vicky Bowman, director of the Myanmar Center for Responsible Business, agreed that Pinya and other Burmese companies partnering with international investors should share more information on their corporate governance.

But in comments on the Coca-Cola report emailed to The Irrawaddy, Bowman said that the drinks company remained “far ahead of their US and international peers in disclosure of the human rights and business integrity challenges they face in Myanmar.”

She highlighted work conducted by Coca-Cola on gender equality in its workforce, excessive overtime for employees and the fact that the company is contributing to efforts to address child labor in Burmese teashops—most of which serve Coca-Cola drinks and are staffed by low-paid children.

The report, said Bowman, “provides useful advice based on experience, and should be read closely not just by their international food and beverage peers such as Heineken, Carlsberg, Pepsi, Nestlé and Unilever, but by any company doing business in Myanmar including local companies.”

IMF Issues Warning Over Private-Sector Credit Growth

A claim by the International Monetary Fund that rapid growth in bank lending may pose a risk to Burma’s economy has been met with skepticism.

The institution issued a statement on Wednesday listing the findings of an IMF team that visited the country in late June and met with senior Burmese government and Central Bank officials.

Naypyidaw will be glad of one finding—the IMF agreed with the government’s estimate for gross domestic product growth—at an impressive 8.5 percent last year.

Less welcome, however, the fund also said inflation in Burma was at about 8 percent year-on-year as of May, a trend that has not gone unnoticed among the Burmese public, for whom the recent dive of the kyat is beginning to hurt.

The IMF also warned that a stark rise in lending in the private sector could pose risks. The IMF said credit was up 36 percent year-on-year in the last fiscal year, which ended in March.

“The economy is facing some downside risks,” the statement said. “Persistent dollar strength and low natural gas prices could further weaken Myanmar’s fiscal and external positions. Vulnerabilities from rapid credit growth, an expansionary budget, and a widening trade deficit may pose risks to price and external stability.”

It is unclear why lending to the private sector may have jumped. Burmese enterprises often complain about the difficulties of obtaining credit without fixed collateral such as property.

Sean Turnell, an economist at Sydney’s Macquarie University, told The Irrawaddy that the IMF’s lending figures might not reflect the reality, since many of Burma’s private banks are part of large conglomerates, within which they provide loans.

“The trouble here is that what the IMF is seeing are simply lending aggregates,” Turnell said in an email.

“If we added up all the inter-group loans, credit exposures to large and more loosely connected enterprises, and the array of speculators in various sectors, and it might look like growing private sector lending.

“But loans to small to medium enterprises (SMEs), farmers—not to mention consumers—remain in very short supply.”

Singapore’s UOB Extends 2 Loans for Rangoon Developments

Singapore’s United Overseas Bank has signed two loan deals to finance new projects in Burma’s biggest city, with the bank backing new car showrooms and a hotel expansion in Rangoon, according to The Straits Times.

The Singapore-based newspaper said UOB announced the two deals at the opening of its new branch in Rangoon on Tuesday.

The bank is one of nine foreign banks recently granted permission to open branches and offer limited services in country. UOB has already announced the funding of a hotel project through Rangoon Excelsior Company.

The bank was now also funding Cycle & Carriage Automobile Myanmar Company—which is owned by a Singapore-listed parent company—to build two car showrooms and a workshop in Rangoon, the report said.

UOB has also reportedly given a loan to System-Bilt Myanmar—also owned by a Singapore-based firm—to extend the Summit Parkview Hotel on Ahlone Road.

“UOB did not disclose the two loan amounts,” the newspaper reported. “The bank earlier this week said that it plans to help its clients invest US$300 million in Myanmar over the next 12 months.”

Rural Lending Up for Cambodian Micro Finance Institution in Burma

Cambodian micro finance institution Acleda’s Burmese venture has given out almost $9 million in small loans in Burma, with an increasing proportion of that lending going to rural areas, according to a statement.

The recent statement said that Acleda MFI Myanmar said it was a “market leader” in Burma’s nascent micro finance sector.

“As of the end of March, 2015, ACLEDA MFI increased lending to the lower income business sector with total gross loans outstanding at US$8,846,618 of which US$ 2,673,245 or 34% was disbursed in rural areas,” the statement said.

In the previous year, the proportion of loans Acleda disbursed to rural areas was just over 12 percent of the total, it said.

The MFI, which is funded in part by the World Bank’s International Finance Corporation, currently has six offices in Burma, in both Rangoon and Pegu Divisions. The statement said Acleda would “Expand to other regions and townships in 2015/16.”

Indian Agriculture Storage Firm Sets Up in Burma

Indian company StarAgri Warehousing and Collateral Management has reportedly opened up operations in Burma as it hopes to expand trade links between India and Southeast Asia.

The company has also set up an office in Singapore, according to a report in India’s The Economic Times this week, citing the Mumbai-based company’s president for international business, Jimmy John.

According to its website, StarAgri is a “post harvest solution” company. “We help farming communities to protect their produce and reduce post harvest losses to increase food availability without placing additional burden on the environment,” the site explains.

StarAgri has “set up an office in Yangon to participate in India-Myanmar agricultural trade,” the newspaper report said, explaining that the company will use Singapore as a hub from which to expand its business.

“The company will initially focus on agri product trade from South East Asia and then move on to global network,” the report said.