FIVE BASIC REFORMS NEEDED TO DRAW FOREIGN INVESTMENTS

Source: The Myanmar Times, October 26, 2018

The Directorate of Investment and Company Administration (DICA) on October 4 released the Myanmar Investment Promotion Plan (MIPP) promoting investments in four growth areas of the economy for the 20-year period between 2016 and 2036. These include export-oriented, market-oriented, resource-based and knowledge-based industries. The plan is to focus on attracting foreign direct investments (FDI) from Japan, South Korea and Greater China. In fact, the EU is reported to be mulling economic sanctions against the country, a move likely to dampen growth, if implemented. Yet, some of the most basic requirements to encourage foreign investors to bring their funds into the country have not been met. Based on The Myanmar Times’ interviews with government officials and the business community, there are five areas that need to be improved before the country can expect a meaningful boost in FDI.

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RESEARCH VIEW

Colliers thinks that reforms to develop a market-based economy targeting inclusive growth should be accelerated under a comprehensive and coherent policy framework. Pressing ahead with structural reforms in Myanmar—including hard and soft infrastructure, and the regulatory and legal environment—is critical for sustainable and inclusive economic growth. This, in turn, will accelerate private sector development and create further business opportunities. Upgrading the key infrastructure including electricity and logistics is essential in providing an attractive environment for investment and trade. In addition, the education system must be upgraded with an emphasis on vocational training to provide the necessary skill sets and talents to meet the needs of the economy. Business interests and investor confidence could strengthen with the welcome enactment of the New Investment Law and Myanmar Companies Law.

CHINA, MYANMAR: RAIL COMPANIES REVIVING BELT AND ROAD INITIATIVE PROJECT

Source: Stratfor Worldview, October 24, 2018

China's Railway Eryuan Engineering Group and Myanmar Railways have signed an agreement to begin feasibility studies on restarting the Muse-Mandalay railway link, which was suspended by Myanmar in 2014 after public objections.

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RESEARCH VIEW

Muse – a town in Myanmar’s northeastern Shan state that borders Yunnan province in southwest China – is the biggest land route for trade between the two nations, while railway service to central Mandalay could create a transport lifeline for the country’s north. The north of the country between Muse and Mandalay is seen crucial to improving the connectivity of the countries in Southeast Asia. In fact, it is part of the China-Myanmar Economic Corridor – linking Yunnan with key commercial centres in Myanmar – under Beijing’s vast trade and infrastructure push of the Belt and Road Initiative. The economic corridor spans 1,700km – from Kunming to Mandalay, then east to Yangon and west to the Kyaukphyu special economic zone, where China wants to build a deep water port and where it already has a cross-border oil pipeline. Colliers believes that there needs to be rigorous assessments done on railway building. The challenges include conflicts over land ownership, and also the ultimate contractor who will take over the project. Overall, the concrete implementation of One Belt, One Road projects has raised the stakes for China in Myanmar, translating into multi-level engagement, including infrastructure and industrial cooperation, support for the government’s peace process and, recently, crisis resolution efforts in some areas of the country. For Myanmar, OBOR holds the promise of much needed connectivity and real estate development — a goal realizable only if the ongoing reform agenda continues.

RISING DEMAND FOR HOME LOANS COULD STABILISE PROPERTY MARKET

Source: The Myanmar Times, October 26, 2018

Housing loans and repayments of those loans in monthly installments have begun to flourish in Myanmar’s real estate market since the beginning of this year, as more construction companies and real estate developers collaborate with banks to make home ownership more accessible. These days, banks are offering home loans at a specified interest rate and tenures of 15 years for ordinary apartments and 25 years for condominiums. In the past, payments were mostly made in cash. The government has been building low-cost or affordable housing, but the homes can sometimes still be beyond the reach of those who need them the most, said U Nay Min Thu, managing director of property website iMyanmarHouse.com.“ The people who actually want to purchase low-cost housing are not able to do so and instead [the property] falls into the hands of speculators. And incidents where these speculators then rent out the units or resell them for a profit are seen in the market,” said U Nay Min Thu.

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RESEARCH VIEW

The Department of Urban and Housing Development (DUHD) and Yangon City Development Committee (YCDC) have been building low-cost housing projects since 2013. These are allocated on a lottery basis, which means that they do not always go to the low paid, but to lucky winners who promptly resell the apartments at a higher price. Hence, the pressure to find ways of bringing down housing costs. Meanwhile, housing from the private sector have similarly remained unaffordable due to high land acquisition costs, construction costs, lack of financial tools, and the onerous parking regulations which hamper developers from creating smaller sized units which would likewise lower the total contract price. With most upcoming projects targeted towards the high income population, it leaves an untapped market for lower to medium income individuals. Collies strongly believes that conducting due diligence on what “low-cost” actually mean will continue to play a pertinent role in the country’s real estate sector. Proliferation of flexible payment concepts such as low down-payments and staggered monthly payments would strongly facilitate affordability. Bank partnerships allowing reasonable mortgage terms are also strategic reinforcements. The loan offerings should however trickle down towards lower-tier developments, and not just be limited to high-end projects. Mainly, it is important that these projects are offered at the optimal price point joined with the appropriate and sustainable payment terms fit for the growing number of low-income earners.