Myanmar is a frontier market. Frontiers come with risk but also with what has always drawn people to them: significant growth potential.
"Frontiers come with risk, but also what has always drawn people to them: significant growth potential."
Rajesh Ahuja, Chief representative, ANZ Myanmar
Every sector in Myanmar is in need of development. It is now a well-known fact Myanmar has rich hydrocarbons, significant arable land and water resources. And vast mineral resources.
For the Asian century, there are not many more strategic locations than Myanmar’s between India and China. Its population both has scale and favourable demographics. Thailand, India and China account for about 80 per cent of exports. For ANZ, it is another important country in the region which links closely to our Greater Mekong strategy.
Myanmar needs significant investment in new infrastructure, especially in areas of natural resources, utilities, infrastructure and agribusiness, sectors in which ANZ is already strong.
It is an important market for multinationals as there are opportunities to set up manufacturing plants in Myanmar. New foreign telco operators also recently launched nationwide mobile services.
Despite challenges such as poor physical infrastructure, inadequate skilled capacity and legal infrastructure, foreign direct investment is growing rapidly. Last year approved FDI was at $US4.1 billion, this year it is expected to exceed $US5billion.
For ANZ, the opportunity is no different to the opportunity more broadly in ASEAN and the region: Asia is the region for the 21st century and, as Caged Tiger: The Transformation of the Asian Financial System, argued, growth in the region requires significant deepening of the financial system.
Myanmar, as a frontier economy, is coming from a much-shallower base and the project will take longer, but it requires the same deepening: equity markets, debt capital market, infrastructure financing, payments.
The reform process and foreign investment
Of course, none of this would have been possible without Myanmar’s decision to open itself to the global economy, a massive undertaking in reform both economically and politically
I’m often asked if this reform appetite might reverse. I am confident it won’t. We have now had several years of wide ranging reform, of consistency.
The reform agenda is now substancially embedded and the Government is genuinely committed: we don’t expect them to step back from it.
The very attractive foreign investment regime was introduced in 2012. Telco licences have been issued to wholly foreign-owned countries in 2013 in a much lauded, transparent process.
This year the government gave licences to foreign banks and again ran a transparent, efficient and timely process. Thilawa SEZ has shaped up well with a number of multinationals having signed long term lease agreements for installing plant and machinery.
Moreover, Myanmar is chairing ASEAN and that is a good signal which has provided additional momentum to the reform agenda of the government. And this will also lead to a faster integration with the rest of ASEAN economies.
The economy and financial services
Last year, Myanmar’s economy grew at 8.25 per cent (2013-14) and this year the IMF has forecast real GDP growth will be 8.5 per cent (albeit from a lower base of GDP).
Now that is one of the fastest growing countries globally. For some decades to come, growth in that order will be driven by both increasing production of resources like gas and the building of infrastructure to support that.
Today, less than 30 per cent of the population has access to electricity and mobile penetration is less than 10 per cent.
So there is a good growth story here, financing infrastructure is very important in the country to achieve these levels of economic growth.
This growth will need significant support from financial services. However the current support mechanism for that growth in terms of the banking sector is still hugely under-developed.
It has a long way to go which means there is considerable demand for higher quality banking support.
For ANZ, that means a significant opportunity to service our multinational sector clients and provide products such as term and export credit debt, funded and non-funded trade finance, payment and cash services, advisory and FX and other market products.
Local banks have limited capacity to lend as they currently rely only on local deposits as their source of funding. Their capital bases are also low. They will not be able to service such massive FDI and trade flows on their own.
The country needs to be supported by the entire financial eco-system including local and foreign banks, debt capital markets, pension funds, infrastructure funds, equity capital markets etc. Hence the award of foreign bank licences last week is a milestone step in the right direction.
A financial and social role for foreign companies and institutions
I definitely get the sense there is a strong commitment and resolve by the Myanmar Government and Central Bank of Myanmar to develop the financial sector in the near to medium term.
I think there is a very strong realisation at the government level that Myanmar’s growth and the opportunity for its sizeable population is better enhanced by bringing in foreign capital and expertise alongside local operations.
We see our role as not just being a commercial enterprise but sharing in the growing wealth of the country by contributing to social capital as well.
Monetary and central banking experts from neighbours like Singapore and Thailand are working closely with the government, as are institutions like the IMF and World Bank. The Central Bank of Myanmar and the government are cooperating well with these agencies.
MoneyMinded and financial literacy
Indeed, the highly regarded MoneyMinded program in Myanmar was a way for ANZ to practically display its CSR credentials early in the process of licence application.
This financial literacy program has been rolled out across the Pacific and in south east Asia but the Myanmar pilot was the biggest and most successful to date.
Participants included civil servants, local NGOs, members of the Chamber of Commerce and central bank staff. I cannot over emphasise how valuable it is for us to be able to offer such knowledge to such influential groups.
This was not just a translation of an existing program, it was completely redone for Myanmar, with passionate local staff.
The materials needed to be culturally appropriate – for example one case study was moved from saving for a funeral (important in some Western markets but sensitive in Myanmar) to saving for a wedding.
The entire training spread over three weeks in three cities, Yangon, NayPyiTaw and Mandalay and run by a passionate Myanmar trainer in local language. 735 participants benefitted from the program, which was the biggest pilot to date for the bank.
Even though we have no intention of being a retail bank in Myanmar, introducing MoneyMinded demonstrated how committed we were to the country.
What are the challenges for ANZ In Myanmar?
This country was “off the map” for the last five decades. There is no corporate culture to speak of, the local banking sector is underdeveloped and there is shortage of talent in that sector.
We will have to undertake significant training for local staff and bring them up to our standard. That will take time and effort.
The new banking law is expected to be passed in the parliament in the next six to12 months, seeking approvals for specific product and services will take time.
There is also a significant capacity gap in the government and administration. Hence we will not be able to provide all our best products and services at the time of launch of operations - but will be able to gradually introduce them over a period of time.
The entire legal framework is under review and established international law firms such as Allen & Overy and Baker & McKenzie are assisting the government in revising some key laws such as the companies act.
A lot of clarifications are needed in relation to security creation and security enforcement for foreign lenders to be comfortable with financing.
Sanctions and governance
The other most common “risk” I hear when I talk about the country is around international sanctions. Happily, in the last couple of years I have seen considerable lifting of sanctions as a result of the massive political, economic and social reforms introduced by the government.
For instance outside of arms embargoes, both Australia and the EU have entirely lifted sanctions including the blocked person list.
The US has lifted economic trade sanctions allowing the import of Myanmar goods to the US (except for rubies/jade). This is significant.
The only residual US sanction is something called the “specially designated national” or SDN list that contains the names of some Burmese individuals/companies with whom US persons are prohibited from dealing.
Even some of my colleagues have a fear Myanmar is a “sanctioned” country but we have internal policies that lay down the process for supporting our clients in relation to Myanmar related remittance or trade transactions.
In fact, since opening our representative office last year, we already have done remittances on behalf of our clients from the ANZ network to local Myanmar banks and we have recently done outward remittance from a local bank to ANZ network.
The time involved in remittance process sometimes take longer due to difficulty in conducting diligence on Myanmar counterparties that is complicated by the commonality of names in Myanmar and also the step of going through other correspondent banks/clearing agents.
However, after becoming operational – which we expect sometime during the 3rdquarter of next year - we would be further streamlining our internal policies to better support our clients.
With the operational licence, now we will be better able to facilitate knowledge transfer in the local banking sector introducing best practices and management experience in corporate governance, risk management, asset and liability management, regulatory compliance, accounting standards and reporting requirements, etc
We may be on the frontier in Myanmar but it is a very exciting frontier and one I am very optimistic about our newest franchise’s growth potential.
Rajesh Ahuja is chief representative at ANZ Myanmar.