Bloomberg News

Myanmar Hosting VIPs to Expose Country’s Growth Challenge

June 03, 2013

Myanmar Hosting VIPs Exposes Growth Challenges

Workers labor on a construction site in Yangon. The economy may grow 6.75 percent this fiscal year, led by natural gas sales and investment, the International Monetary Fund said in a report last month. Photographer: Dario Pignatelli/Bloomberg

Myanmar’s efforts to catch up with the world around it after half a century of military rule is being put to the test this week as a summit of government and business leaders fills hotels and stretches phone networks.

Myanmar hosts the three-day World Economic Forum on East Asia starting tomorrow, with heads of state and executives from companies including General Electric Co. (GE:US), Coca-Cola Co. (KO) and WPP Plc (WPP) attending. Delegates may struggle to communicate over phone networks that have yet to be expanded and will have difficulty finding businesses that accept credit cards. Many hotels are still cash-only, with some only recently accepting Visa and MasterCard payments, including the Parkroyal Yangon.

President Thein Sein has allowed more political freedom and loosened economic controls since coming to power two years ago, prompting nations including the U.S. to ease sanctions and attracting companies such as Ford Motor Co. (F:US), MasterCard Inc. (MA:US) and Unilever NV. (UNA) The country needs to spend $320 billion by 2030 to achieve economic growth of 8 percent a year, according to a report by McKinsey Global Institute released last week.

“There is a gold rush” into Myanmar, said Maung Zarni, a visiting fellow at the Department of International Development at the London School of Economics. “This is one of the last few remaining places that has not has been penetrated, but the infrastructure is just not there.”

Thein Sein signed a foreign investment bill in November to woo overseas companies into spending more. Companies scouting opportunities or striking development agreements include Visa Inc. (V:US), the biggest payments network, Unilever, the second-biggest consumer-goods company, and closely held hotel chain Best Western International Inc.

Growth Potential

Modernization plans include upgrading Myanmar’s financial system, building roads and airports, as well as giving the country’s 64 million people greater access to mobile phones.

The economy may grow 6.75 percent this fiscal year, led by natural gas sales and investment, the International Monetary Fund said in a report last month.

Myanmar’s gross domestic product could more than quadruple to $200 billion with an 8 percent annual growth rate, according to McKinsey, almost double the pace from 1990 to 2010. That may help lure $170 billion in capital inflows, with foreign direct investment accounting for $100 billion, more than twice as much as it attracted in the previous two decades, it said.

Of the $320 billion McKinsey estimates is needed to spur the economy, about 60 percent will be for residential and commercial real estate. The agriculture-dependent economy also needs power plants, roads and railways, it said.

Airport Bids

Myanmar’s Department of Civil Aviation has invited bids to build and operate international airports in Yangon and Mandalay. Four companies or groups were selected last week to make final bids for the new Yangon airport, which will be about 50 miles (80 kilometers) northeast of the city, according to the authority’s website. Seven groups have also qualified for the next round of bidding for the Mandalay International Airport expansion project.

Hotel chains are also planning to expand in the nation. Best Western will open its first Myanmar property in 2013 to take advantage of a shortage of rooms. The Phoenix-based group is considering locations including Yangon and Mandalay, the nation’s two largest cities, Glenn de Souza, Bangkok-based vice president of international operations for Asia and the Middle East, said in January.

Mobile Reach

Mobile phones have been out of reach for most Myanmar consumers since limited services were first introduced in 2001. The cost of activating a phone using the global system for mobile communications standard, or GSM, was initially about 4.5 million kyat ($4,790).

The government has invited bids for two telecom licenses, for which it shortlisted 12 groups in April. The country plans to boost telecommunications coverage to as much as 80 percent by 2016 and to make services affordable, the government said in January. There were 5.44 million mobile-phone subscribers as of December, or 9 percent of the population.

Final winners of the licenses will be announced June 27, according to the Ministry of Communications and Information Technology. Singapore Telecommunications Ltd. (ST), which is bidding together with KBZ Group and Myanmar Telephone Co., said yesterday it submitted its final bid for a license.

“Our in-country partners, KBZ and MTel, have insights and extensive presence in various sectors of the Myanmar economy,” Mark Chong, head of SingTel’s international consumer division, said in an e-mailed statement yesterday.

4G Network

A group led by Kingston, Jamaica-based Digicel Group Ltd., billionaire George Soros and Myanmar property developer YSH Finance Ltd. pledged to invest $9 billion in Myanmar’s mobile-phone network if it’s granted a license. The group will roll out a fourth-generation mobile network across the country by Dec. 1, and its wireless service will reach 96 percent of Myanmar’s population by 2016, it said yesterday.

The Myanmar government said in April it would lower the price of SIM cards to 1,500 kyat from 200,000 kyat and sell about 350,000 of them each month.

The telecom and financial services industries may each grow at a compound annual rate of 23 percent from 2010 to 2030, McKinsey said. That compares with 17 percent for tourism, 10 percent for manufacturing and 8 percent for infrastructure.

Visa and MasterCard are seeking to expand their presence in Myanmar, where most transactions are done in cash. MasterCard became the first payments network to issue a license to a local bank last September when it signed an accord with Co-Operative Bank Ltd.

Only a handful of hotels in Yangon, the commercial capital, accept credit cards. Adding to the difficulty of paying for goods and services in Myanmar, business owners typically won’t accept worn U.S. dollar bills, the preferred currency.

“Even as tourists if you want to buy local products, a lot of businesses don’t have credit card facilities,” Zarni said. “If you pull out your wallet and give them cash they will say ‘I’m sorry I can’t take your cash because it’s creased.’”

To contact the reporters on this story: Kyunghee Park in Singapore at kpark3@bloomberg.net; Kyaw Thu in Bangkok at kthu1@bloomberg.net

To contact the editor responsible for this story: Anand Krishnamoorthy at anandk@bloomberg.net


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