Myanmar latest to join list of frontier markets in South East Asia
Leading trade credit insurer, Atradius (www.atradius.co.uk), has identified Myanmar as the latest in a list of frontier markets offering foreign investors promising opportunities for future long-term growth in South East Asia.
The second largest country in the sub region, Myanmar has been experiencing drastic economic and political reforms since the country’s military relinquished power over the government in March 2011. Its economy grew 6.3% in the fiscal year that ended in March 2013, compared with 5% the previous year, and is forecasted to grow 6.7% in the coming year.
In the period from April to December 2012, the government granted investment approvals to 62 foreign projects, which is more than the total number granted during the previous three years.
Myanmar is an attractive prospect for foreign investors because of its abundance of natural resources, which include oil, natural gas, minerals and precious stones, its cheap labour costs and location. After the completion of the Dawei Seaport Project Myanmar is expected to be at the hub of trade connecting Southeast Asia and the South China Sea, via the Andaman Sea, to the Indian Ocean, receiving goods from countries in the Middle East, Europe and Africa.
Bart Poublon, Head of Risk Asia Pacific said: “In the last couple of years Myanmar has embarked upon major reforms in areas including opening of trade, ease of foreign investment laws, anti-corruption, currency exchange rate and taxation. The United States and European Union also eased their sanctions against Myanmar in 2013 which was a significant milestone. As a result of these factors we have seen a number of foreign multinational companies entering the market quickly, keen to maximise on the opportunities presented by its favourable economic outlook.”
Atradius has recently conducted an extensive market visit in Myanmar and met with various parties there.
Petr Racek, Head of Underwriting for South East Asia & Japan, commented: “There is certainly a lot of long-term potential and opportunities for British companies to do business in Myanmar. Currently just 5% of country’s population is considered middle to higher class, which represents only 10% of total trade in Myanmar, and as this continues to grow so will opportunities for trade.
“In addition, the country has potential to become a major tourist destination in South East Asia given its rich history and natural beauty but there is a big need for infrastructure, construction and other sectors to develop which will require foreign investments.
“On the other hand, foreign companies will be confronted with a very challenging operating environment and many hurdles such as widespread corruption, an underdeveloped banking system, poor infrastructure including frequent blackouts, and lack of transparency to name a few. Our view is that many investors are still hesitating to invest and will likely be waiting for the outcome of the 2015 elections before making a decision.
There are also changes afoot in other key countries in Asia. Although China’s situation is relatively stable Atradius believes the West should no longer expect double growth figures in Chinese GDP, as the country’s government looks to promote a move from an investment and export model to a domestic consumption model. Growth has slowed as both industrial output and retail sales decline and China’s sovereign credit rating has dropped from AA minus to A plus with concern about high level debts at corporate and local government level.
After more than a decade of deflation Japan has re-entered the game thanks to Prime Minister Shinzo Abe, who came to office in 2012. Abe hopes to create 2% inflation through a combination of monetary easing policy, increased government spending and a structural reform of the Japanese economy. With the Bank of Japan previously unable to achieve 1% inflation over a sustainable period of time, critics say there is doubt about whether this goal is achievable on a long-term basis.
Meanwhile the largest country in South East Asia, Indonesia, continues to grow as the number of people that can be labelled as middle class is predicted to double by 2020. Domestic consumption currently accounts for about 65% of the country’s economic growth, and this will rise as more and more people can afford high end products and become more selective in their choices.
Bart Poublon, Head of Risk Asia Pacific continued: “South East Asia regularly presents new opportunities for British investors, with existing markets developing further and emerging markets stepping up. It is an area that we will continue to monitor closely over the next few years.”