Business

The Irrawaddy Business Roundup (June 13, 2015)

By Simon Lewis 13 June 2015

Is Burma ‘Missing the Boat’ With China Infrastructure Finance?

As Burma’s opposition leader Aung San Suu Kyi sat down with Chinese leaders in Beijing this week during her first official visit to the country, headlines focused on the political implications of the trip.

But more important for the long-term relationship between Burma and its neighbor may be recent Chinese moves to become a major backer of regional infrastructure projects. The Asian Infrastructure Investment Bank—a Chinese initiative that has multilateral support—is set to start life before the end of this year with a kitty of some US$50 billion.

Burma has a massive need for cash to fund infrastructure improvements, but the administration of President Thein Sein has turned away from the military government’s former patron since canceling the massive Chinese-backed Myitsone dam in Kachin State.

Burma-watcher and economist Stuart Larkin told The Irrawaddy this week that Burma’s leaders, distracted by internal concerns, may miss a major opportunity to access much-needed finance.

Larkin, a visiting fellow at Singapore’s Institute of Southeast Asian Studies, said in a paper published in May that for Southeast Asian countries, including Burma, the AIIB could be “a knowledge bank providing much needed advice and assistance, helping countries to build capacity in establishing ‘shovel ready’ infrastructure project pipelines.”

The new bank is an opportunity to fill the large gap in infrastructure funding in the region, the paper said, adding that Southeast Asian countries will hope China will not use it to garner political leverage with states.

“Myanmar missed the boat when it opted for socialist isolationism instead of developing a market oriented economy targeting exports for growth,” Larkin said by email.

“It then missed the democracy boat with benefits when it attracted sanctions and pariah status for being an unacceptable regime type in the post-cold war era.

“The country is now in democratic transition but risks missing the biggest development boat of all—China finance. Mired in issues of internal ethnic conflict, is Myanmar’s political elite paying enough attention to what China is doing?”

Plan to Cut USD Use Not Likely to Impact Retail: Lawyer

A new directive on use of the US dollar from Burma’s Central Bank (CBM) is causing concern among investors, raising uncertainty about future transactions, a legal advisor operating in the country has said.

The order, known as Letter 904, began circulating early this month, according to a client briefing note from Edwin Vanderbruggen, a founding partner of regional legal advisory firm VDB-Loi.

“[T]he CBM advised Government agencies and [state-owned enterprises] not to agree to any commitments in foreign currency, and to instead conclude agreements that provide payment in MMK [Burmese kyat],” Vanderbruggen’s note said.

He said that transactions with overseas firms, such as those involving the purchase of equipment from abroad, are not covered by the order.

“With Letter 904, the CBM is addressing domestic situations, so most likely transactions where the Government’s counterparty is also established or registered in Myanmar, even if such counterparty is owned by foreigners,” the note said.

The measure comes as the kyat has fallen against the dollar in recent weeks. The Central Bank’s official exchange rate stood at 1,105 kyat to the dollar on Friday.

Burma’s cash-dominated economy uses a mix of kyat and US dollars, with the latter preferred by many as it can be used easily overseas. Outlets targeting tourists and expatriates accept the American currency and often display prices in dollars rather than kyat.

“It is not certain yet whether payments between enterprises and individual consumers [retail] are also to be targeted,” The VDB-Loi note said. “It seems this is less of a priority for the CBM, perhaps given the smaller volume of USD transactions there. But wholesale payments, payments between enterprises are certain to be restricted, so is the [central bank’s] intention.”

Letter 904 is only an announcement to notify companies about incoming rules, which will likely include more detail, the note said, advising VDB-Loi’s clients that it is too soon to start refusing to use US dollars in transactions.

Thailand’s Saha Group Says Burma Land Prices Too High for Industrial Project

Thai conglomerate Saha Group has scaled back its plans in Burma after finding the price of land prohibitively high in the country, according to a report in the Bangkok Post.

Land prices have soared in parts of Burma since a political and economic transition begin in 2011. The rise is thought to be fueled partly by speculators looking to make large profits by selling on to investors keen to capitalize on the so-called frontier market.

Saha Group—Thailand’s “leading consumer product conglomerate,” according to the Bangkok Post—had previously announced that it would set up an industrial zone in Burma.

However, Chairman Boonsithi Chokwatana told the newspaper that the cost of leasing land for the project for 30 years was too high, according to a report on June 9.

“It won’t work to develop our own industrial park over there [in Burma] due to the high investment cost,” he was quoted saying. “The land is very expensive.”

“Saha Group has altered its business strategy in Myanmar by renting some land for factories at an industrial park to be jointly developed by Japanese investors and the Myanmar government,” the Bangkok Post added.

According to a 2014 report from Japan’s Nikkei, Saha Group has also entered a joint venture with Burma’s MK Group to transport consumer goods between the two countries.

The report, also citing Boonsithi, said Saha Group was also planning to set up a detergent factory.

It is unclear whether the firm’s other plans have also changed, but the Bangkok Post said this week that Saha Group planned to use an existing facility in Mae Sot, on the border with Karen State, as a hub for bilateral trade with Burma.

Indonesia’s Lippo Group to Open 20 Hospitals

Indonesian conglomerate Lippo Group plans to build 20 private hospitals in Burma and is working with local tycoon Serge Pun in the country, according to the Jakarta Globe newspaper.

The two firms have entered a joint venture to set up the 174-bed Pun Hlaing Siloam Hospital on the tycoon’s Pun Hlaing Golf Estate in western Rangoon, a recent report said.

The Jakarta Globe report quoted James T. Riady, CEO of real estate giant Lippo Group, saying that the company would spend $1 billion in the next three to five years to build 20 medical facilities both in Rangoon and elsewhere in Burma.

“We will build six to seven hospitals in Yangon, while the rest will be outside Yangon,” Riady reportedly said. “The investment value of one hospital including the land is around $50 million.”

Burma’s state-run health care services have been starved of funding for years. Despite recent increases in government budget allocations to government health care services, most middle-class and wealthy Burmese turn to private clinics and hospitals—or travel overseas—for medical care.

Sedona Hotel Expansion to Open Late This Year

The Sedona Hotel on the shore of Rangoon’s Inya Lake will open a new wing later this year as the city’s hotels finally begin catch up with increased demand for rooms.

Burma’s former capital and economic center was caught unprepared four years ago when the government’s reform program began, with hotel rooms in short supply as unprecedented numbers of business people, aid workers and tourists began arriving.

New hotels from international chains Best Western and NovoTel have recently opened in the city, and a number of new hotels are under construction.

In recent months a 29-storey tower has gone up behind the existing Sedona Hotel, which is owned by Singapore’s Keppel Land.

The extension, known as the Inya Wing, cost the group $80 million and is set to open before the end of 2015, according to the website Deal Street Asia.

Citing Keppel Land CEO Ang Wee Gee, the site also said that the Singaporean firm was also involved in a joint venture with US-blacklisted construction company Shwe Taung Group to build a 23-storey office tower, part of a larger Rangoon project named Junction City.

“An investment of $47.4 million has been made by Keppel Land in this latest asset,” the report said, adding that the tower is set for completion in the first half of 2017.

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