The Irrawaddy Business Roundup (June 11, 2016)

By Simon Lewis 11 June 2016

Sanctions Relief Not Sufficient, U.S. Businesses Argue

The American government’s recent relaxation of sanctions on Burma is not enough, the US Chamber of Commerce argued in a white paper published this week, calling for the US to “normalize” relations fully and introduce preferable trade terms to encourage export-led industries in Burma.

A number of state-run companies and banks were removed from US Treasury’s Specially Designated Nationals (SDN) list in May. The US introduced new measures to smooth financial dealings involving Burma and extended an exemption making it legal for US companies to finance shipments coming through Burma’s largest port and airport, which are owned by a company on the so-called blacklist.

But President Barack Obama also extended the International Economic Emergency Powers Act, which underpins the sanctions regime against Burma. Advocates of sanctions argue that retaining some targeted measures enables the United States to encourage reform in Burma, particularly for companies with ties to the military that remain sanctioned.

But many businesspeople wanted the act scrapped completely. In a statement Monday, the US Chamber of Commerce’s senior vice president for Asia, Tami Overby, said that after the successful elections in November, “we think it’s time to normalize this relationship.”

“Trade, investment and economic growth all promote progress in Myanmar,” said Overby. “Sanctions do the opposite.”

The body representing American business interests issued a white paper that called for sanctions to be totally lifted. It also called for Burma to be included once again in the Generalized System of Preferences (GSP), which would mean Burmese goods could be imported to the US duty-free. Burma was removed from the GSP in 1989 over child labor and forced labor concerns.

“Myanmar has benefitted to some extent from its ability to export to the United States, but greater access to the US market would be one of the quickest, most readily-actionable ways in which to support the country’s growth,” the white paper said.

It also warned that, with the European Union (EU) already reinstating preferential trade terms for Burma and other countries not holding back on investment, US companies were missing out on opportunities in Burma.

“Patience has worn thin, and should the US fail to grow into a significant presence this year, local Myanmar communities believe it may not happen for at least a decade,” it said.

Japanese Firm Hopes to Win Market Share With Noodles for Burmese Tastes

Osaka-based Acecook, a company specializing in instant noodles and soups, reportedly wants to begin making noodles in Burma next year, and hopes to be shifting 100 million servings a year of its products by 2020.

Nikkei reports that Acecook will invest about $18.6 million to build a factory in an industrial park in Rangoon and become the first Japanese noodle maker to set up production in the country.

“Myanmar’s growing middle class has begun slurping more instant noodles,” the report said. “With incomes rising, the market is seen expanding from 420 million servings last year to more than 1 billion in 2020.”

Acecook already operates in Vietnam, where it makes products tailored to local tastes, replicating Vietnamese pho, for example. The firm wants to do the same in Burma, and believes it can win a 10 percent market share within the next four years, Nikkei said.

By doing so, Acecook believes it can compete with Thai imported noodles in Burma (It currently imports noodles made by its Vietnamese subsidiary, at an extra cost).

“While the Thai versions are mostly based on tom yum soup, Acecook released a new offering this February that has a flavor like the ‘hin’ simmered dishes of Myanmar,” Nikkei reported. “That product is priced at around 250 kyat.”

Report Details Heineken’s Challenges in Burma

Heineken opened it’s $60 million brewery in Rangoon’s Hmawbi Township almost a year ago, but the return to the country hasn’t been as smooth as the Dutch beer company would have hoped, according to details in an article published this week by the Financial Times.

Faced with having to take on the market dominant, part military owned Myanmar Brewery, which makes the ubiquitous Myanmar Beer, Heineken faced problems before production could even begin, the report said.

Citing Heineken’s supply chain director Donald Otten, it said that the company’s launch in Burma last year—in a joint venture with tycoon Aung Moe Kyaw’s Alliance Brewery Company—in fact came half a year later than hoped.

“Heineken was delayed by more than three months be­c­ause customs officers rejected equipment over small errors in the import paperwork — delays Mr Otten suspects were aimed at extracting illegal bribes,” it said.

Like all companies operating in the country, Heineken has also had to battle with power shortages, employing a backup generator 44 percent of the time during the hot season in March, according to the Financial Times.

Company officials quoted in the story were generally positive about the brewer’s chances, and reported that sales targets were being exceeded, despite the teething problems.

There was also good news for the company in February, when it announced it had won back the right to brew its Tiger and ABC Stout brands in Burma. The brands had previously been brewed by Myanmar Brewery, a former partner of Heineken in an aborted 1990s attempt to enter the country.

Burma Tops Mekong Region for Oil and Gas Opportunities

Analysts at U.K.-based BMI Research believe that Burma offers the most opportunity in the Mekong region for investment in extracting oil and gas, with more exploration blocks possibly up for grabs this year.

In an industry trend analysis published this month, the firm said it expects encouraging exploration to be a priority for the new government, since much of the country’s existing natural gas production is pledged to China or Thailand under contracts signed by previous governments.

“The popularly-elected political leadership under [President] Htin Kyaw, is widely anticipated to be open to attracting greater international investment into its oil and gas sector,” the analysis said.

“This increases the likelihood of a licensing round in 2016, which could offer as many as 26 oil and gas blocks—comprising 13 onshore and 13 offshore blocks. While the exact date for the bidding round remains unconfirmed, it could pave the way for greater international investment in upstream activities.”

The previous government signed production-sharing contracts with a number of international oil companies, including Royal Dutch Shell, Thailand’s PTTEP, and Chevron of the U.S.

BMI Research pointed to the fact that 11 3-D seismic surveys had already been conducted in exploration blocks as evidence that the country’s oil and gas sector would overcome an infrastructure deficit and the current low oil prices.

“Myanmar will be the most attractive country in the Mekong region for upstream investments,” it said.

“Being well positioned for gas exports and home to a rapidly growing domestic market, the below-ground potential and greater certainty in Myanmar’s economic and political situation will support investments.”

German Transport Giant Sets Up Logistics Company in Burma

DB Schenker, a division of the German state-owned railway and infrastructure group Deutsche Bahn AG, has set up a company in Burma to take advantage of rising trade volumes.

A statement said that Schenker Myanmar Company Limited had begun operating as of June 1. The company will manage logistics work for telecommunications and consumer goods clients, while the group’s Thai subsidiary will continue to deal with freight customs and transport through it’s existing office in Rangoon.

“Myanmar has seen a significant increase in investments and activities in infrastructure, manufacturing and distribution, since the lifting of sanctions in 2012,” the new company’s general manager, Nay Htoo Aung, said in the statement.

“We can enable the development and growth of the Myanmar market by bringing our expertise and technology in warehouse design & management, as well as employing and training the Myanmar talent pool with warehouse & supply chain management skills, to serve our customers’ needs.”