The Irrawaddy Business Roundup (May 7, 2016)

By Simon Lewis 7 May 2016

China-Led Investment Bank to Begin Looking for Projects in Burma

The head of the new Chinese government-led bank promising to kick start infrastructure investment in Asia plans to visit Burma in search of projects by the end of the year.

Jin Liqun, the inaugural president of the newly formed Asian Infrastructure Investment Bank (AIIB) was in Frankfurt this week to sign an agreement with the region’s existing multilateral lending institution, the Asian Development Bank. The two banks are set to jointly finance a highway in Pakistan, confirming the AIIB’s previous assertion that it is open to co-funding projects with other institutions, also including the World Bank.

Burma was one of the first countries to sign up to membership of the AIIB and is located in the line of sight for both China’s “Maritime Silk Road” and its “Silk Road Economic Belt”—two major policy plans touted by President Xi Jinping that are known together as the “Belt and Road Initiative.” Those factors, plus the country’s infrastructure deficit—some US$60 billion worth of upgrades is needed by 2030, the ADB reckons—make it an obvious target for the new bank’s funds.

Questioned in Frankfurt by the Myanmar Times newspaper about the AIIB’s plans for Burma, Jin responded by saying the bank was focusing on looking for “ready and bankable” projects across its member states. He also said, however, that the bank had a “duty to help finance infrastructure in Myanmar” since it is a member country.

The newspaper said Jin was planning to visit Burma before the end of 2016, but was unspecific about what the bank might fund, beyond saying that transport and power projects were most likely.

“Even in low-income countries [like Burma] I believe we can have profitable, productive infrastructure projects,” Jin was quoted saying.

The AIIB—in which China holds a 26 percent stake, giving it a veto—has reportedly been infused with $50 billion. But investment is set to ramp up slowly: Jin recently told the Financial Times that it would invest only between $1.5 and $2 billion this year, rising to around $10 billion a year by 2018. (The Asia-wide infrastructure funding deficit is said to be as high as $8 trillion.)

In the past there have been concerns over the environmental and social impacts of Chinese investment in Burma, as in other developing countries. But the AIIB hopes to shake off that image, burnishing its credentials by bringing on board nations like the United Kingdom, Germany and Australia.

According to its website, “Its modus operandi will be lean, clean and green: lean, with a small efficient management team and highly skilled staff; clean, an ethical organization with zero tolerance for corruption; and green, an institution built on respect for the environment.”

Singapore’s BreadTalk Ties Up With Tycoon

Bakery chain BreadTalk has signed a franchise agreement with a company owned by Burmese tycoon Aik Htun.

Singapore-listed BreadTalk Group Limited told investors Tuesday that a company named Myanmar Bakery Co., Ltd. would hold the master franchise enabling it to open BreadTalk outlets in Burma. The brand is known across Asia and the Middle East for its buns topped with pork floss. It has almost 800 bakeries in countries including mainland China, Hong Kong and Thailand.

The company’s announcement quoted Tan Aik Peng, CEO of BreadTalk’s bakery division, pointing to Burma’s growing middle class as the target market for the chain.

The choice of local partner means the bakeries could potentially be opened in the five existing Junction shopping malls owned by Shwe Taung Group, which is the parent company of Myanmar Bakery Co., according to the announcement. It said the first bakery should be open by early 2017 in one of the malls.

“The Singapore team is working closely with the Shwe Taung Group to understand the Myanmar market and we promise an exciting line up with BreadTalk’s first boutique bakery in Yangon,” Tan Aik Peng was quoted saying.

Shwe Taung Group, formerly known as Olympic Construction, was founded in 1990, when Burma’s ruling junta opened up parts of the previously socialist economy. It was mired in scandal after its bank, Asia Wealth Bank, was sanctioned by the US Treasury for suspected money laundering and links to Burma’s heroin trade.

The group now operates a network of gas stations under the brand ST Oil, has construction materials and cement divisions, and recently signed a licensing deal with US software giant Microsoft.

Most visibly, Shwe Taung is currently building the Junction City development in the heart of downtown Rangoon, located opposite the historical Holy Trinity Cathedral and close to the city’s Bogyoke Aung San Market. BreadTalk’s announcement says the development will include, as well as a shopping center, a “Grade-A office tower and a 5-star luxury hotel in Phase 1 that is scheduled to open in the first quarter of 2017.”

Analysts See Opportunities in Agriculture

Analysts at BMI Research believe that Burma’s output of meat, milk and rice are all set to accelerate.

An industry trend analysis from the firm late last month looked at the prospects for agribusiness in the Mekong region, which also includes China’s Yunnan province, Laos, Thailand, Cambodia and Vietnam, concluding that the outlook was “bright” for the countries.

“The region will record some of the most robust GDP growth rates globally in the coming years,” it said. “Increased cooperation and economic and financial integration within the region, as well as the ongoing opening of Myanmar, will also boost trade regionally and globally.”

In Burma specifically, it said reforms to liberalize the economy “coupled with a good resource endowment, strategic location and encouraging foreign investment regulation—will drive the acceleration of production,” naming meat, milk and rice as products to watch.

“Interestingly, Myanmar already has the largest milk output of the region, suggesting adequate investment in the upstream and downstream dairy sector in the coming years would help the country join Vietnam as one of Asia’s key dairy providers in the medium term,” it said, adding that China would increasingly be the major market for agricultural exports in the region.

Burma was at one time the world’s largest exporter of rice, but agricultural productivity suffered under government policies during the country’s socialist era. Rice output has bounced back in recent years, but remains lower than regional competitors.

BMI Research tempered its forecast with a warning over the risks of climate change and a region-wide boom in the construction of hydropower dams that could change river flows, ecosystems and irrigation, impacting agriculture.

“Climate change is posing a more insidious and longer-term risk to the future prospects of agriculture in the Mekong region, as it will alter several key variables for crops production,” it said, highlighting the temperature rise that is likely to take place in Burma’s southern coastal and northern regions.

Airline’s Rangoon Route Hits a Snag

Thai-Indonesian joint venture Thai Lion Air, a low-cost carrier flying out of Bangkok’s Don Mueang Airport, has reportedly been censured by Thai aviation authorities for selling tickets for its planned Rangoon flight without obtaining permission.

Thai Lion Air’s plan to fly between Bangkok and Rangoon was reported in March, when an aviation consultancy flagged that the carrier would face fierce competition on an already crowded route.

According to the Bangkok Post, the airline on April 25 began selling tickets in a promotion for flights starting from May 20. However, the newspaper reported, the company jumped the gun, with Burma’s Civil Aviation Authority not signing off on the new route.

The report said passengers were even sold the tickets, and later told that the flight had been canceled due to “an IT system failure in Myanmar.”

The airline is reportedly now offering refunds for promotion flights, and Thai Lion Air’s website now has no mention of Rangoon as a destination.

Local Payment Union in Talks With MasterCard: Report

The Myanmar Payment Union (MPU) is discussing an agreement with MasterCard that would connect Burma’s bank card holders to the US-based company’s network, Deal Street Asia reports.

Quoting MPU Chairman Mya Than, the website said an agreement would primarily mean those holding MasterCards could use MPU-recognized ATMs and payment sites.

The payment network also reportedly signed a memorandum of understanding with South Korea’s KEB Hana Card, the report said.

MasterCard has already made agreements with several individual Burmese banks, and issued the country’s first prepaid card with CB Bank in 2013.

State media recently reported that about 1.8 million people in Burma currently hold MPU payment cards, which are issued by the 23 local banks that are members of the union.