Fang Shihan – Economy Watch

Guarded Optimism At The Gates Of Myanmar

Fang Shihan — Mon, 04 Feb 2013 08:07:32 +0000

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The opening of the once-reclusive country has been met with a flood of interest from the international community. Downtown Yangon is teeming with foreigners keen to get a piece of the rapidly expanding economic pie. But teething problems are visible as Myanmar still lacks a strong regulatory framework to manage its transition.

YANGON – The air was thick with excitement at the People’s Park, Yangon, where Myanmar’s first international marathon was due to flag off. More than a thousand runners, of which half were foreigners, stretched their legs in anticipation of being part of the once-reclusive country’s first major sporting event. For many of these runners, this was truly a moment in history.

“The marathon is a representation that Myanmar is opening up. Two or three years ago, it would have been impossible to organise an actual marathon in Myanmar,” said David Shin, Director of Sporting Republic, the organiser of the marathon held on Jan 27. “We didn’t expect to have such a great response overseas.”

As the race flagged off from the foot of the majestic Shwedagon Pagoda, one could scarcely believe that only five years ago, Yangon’s main tourist attraction bore witness to a brutal clampdown inby the military junta on unarmed Buddhist monks leading protests against rising prices. The 2007 Saffron Revolution, as it was widely termed by the international media, left at least 31 dead, hundreds wounded and thousands of others jailed.

Such instances of human rights abuses by the Burmese armed forces, known as the Tatmadaw, which took over the country in a 1962 coup, have been widely documented in decades, and in turn, have been responded to by the international community with economic sanctions and diplomatic isolation.

Fast forward to 2013. Myanmar, known to its political dissidents as Burma, is currently undergoing massive reform: since it took over two years ago, the civilian government under President Thein Sein has freed more than a thousand political prisoners, repealed laws aimed at political criticism, expanded media freedom and signed an agreement with the International Monetary Fund (IMF) to pursue economic reforms and to clear its international debt.

Most significantly, Nobel laureate Aung San Suu Kyi, who was detained under house arrest for more than 20 years until her release in 2010, is currently serving as an opposition politician in parliament. The national icon’s entry into government remains symbolic of the current regime’s transition away from military rule.

The Gold Rush

Traffic jams are a new, annoying occurrence in the crowded downtown area around the Sule Pagoda. The cars are in relatively good shape despite being second-hand imports from Japan and, according to local sources, prices are on a decline due to a glut in supply. Hotel prices too have doubled from the year before due to the surge in demand for accommodation.

Traffic jam in downtown Yangon near the Sule Pagoda – photo credit: Fang Shihan

This is hardly surprising considering the number of conferences held in Yangon, and the number of emerging market specialists exploring business opportunities in the resource-rich country. From hedge fund manager George Soros and one of Southeast Asia’s largest law firms Rajah & Tann, to smaller players in the burgeoning tourism industry, there is a sense of a “gold rush” in Myanmar.

According to the IMF, the pace of economic growth is likely to hit 7 percent over the next couple of years, from around 6.3 percent this year. Though it cautioned that Myanmar’s transition to an open market economy will take time, the IMF rated Myanmar’s short-term outlook “favourable” and the medium-term “promising”.

“This is the chance for Myanmar’s middle class to grow,” said Zaw Win Khaing, General Manager at Allsum Myanmar Trading & Construction. A retired military officer, he is currently studying for a Masters in Business Administration (MBA) while managing a growing number of projects in downtown Yangon.

Like many other Burmese, he smells opportunity in the real estate sector and invited me on a trip to the Shwe Nat That Orchid Special Zone 50 miles outside of central Yangon. In a largely undeveloped area zoned for industrial use surrounded by a tobacco factory and brewery, more than 200 plots of land measuring an average of 1.5 acres each were up for grabs.

Also on the outskirts of Yangon is the Muditar Condominium, a low-cost housing complex catering to low-income earners who are increasingly being squeezed out from downtown Yangon. The city of more than five million residents (and growing) is beginning to get cramped, leaving many low-income earners with two choices — to endure a long journey to work daily or to sacrifice a large chunk of their income just to live close to town.

The Muditar Condominium: a low-cost housing complex on the outskirts of Yangon – photo credit: Fang Shihan

Khin Saw Myint, who works as a car showroom salesperson, has just bought a two-room apartment for 13,500,000 kyat (US$15,200) and reckons that she can sell it off for 20,000,000 kyat, a healthy 48 per cent profit.

Foreigners are currently not allowed to purchase property though there is talk that laws might change in the future. If it does, property prices, which are already rising rapidly, are likely to go through the roof.

Reality Check

“The Burmese government has many challenges — including inherent structural obstacles — but it is also being held up to unfair standards,” said Kyaw San Wai, a former Research Analyst with the External Programmes at the Singapore’s Rajaratnam School of International Studies (RSIS).

[quote]“The Burmese government is expected to pursue liberalisation at the pace and direction of developed first world countries, and to achieve what others took decades or centuries to do so in a matter of months or a handful of years,” he warned.[/quote]

While most Burmese are optimistic about the changes, they are also realistic about the limitations of the reforms after decades of kleptocracy.

The new Foreign Investment Code that was released in November last year, for example, was lauded by international businesses seeking to enter Myanmar. One key clause states that an enterprise formed under the new law will not be nationalised during its contract term or its extension, and that joint-venture partners can determine the share of ownership in the enterprise among themselves.

But the devil lies in the details, which have yet to be published; and on the ground, setting up a small business in Yangon can prove to be a frustrating experience.

Foreign citizens are not allowed to set up personal bank accounts, nor business accounts without an existing business license, which must be registered with the relevant ministry in Naypyidaw. Even then, rules for bringing in capital appear to differ from bank to bank; though according to at least one bank, only foreign currencies transferred through OCBC Bank or the United Overseas Bank (UOB) in Singapore are accepted, with a minimum sum set at US$100.

The practice of “paying respects to the elderly”, an euphemism for bribing government officials, remains rampant according to local sources, corroborating Transparency International’s ranking of Myanmar as one of the worst offenders in the world in terms of public sector corruption.

There is also apprehension that economic development would leave Myanmar’s new riches in the hands of a few, instead of among the wider public and especially those in poverty.

“The reforms we’re seeing now could lead to an increase in the overall pie, though Myanmar has structural and institutional impediments which could mean those who could be made worse off by reforms do not receive any compensation,” said Elliott Prasse-Freeman, an Associate Research Fellow at Harvard University.

[quote]”The state is making a lot of promises, both explicit and implicit, the question is whether they will be able to deliver on these promises.”[/quote]

The international business community has also responded to this uncertain regulatory environment, as well as the government’s limited capacity to fully implement economic social reforms in the short term, with an equal amount of reservation.

“I am definitely an enthusiast about the reform process, but I am also realistic about its limits. There has been a rush of visitors, including businessmen and tourists, but not yet a rush of capital committed to projects on the ground,” said Romain Caillaud, Managing Director, Myanmar, at Vriens & Partners.

Increased Militarisation?

Vacant government buildings in Yangon mark the conspicuous absence of the Tatmadaw, which has since moved to Naypyidaw. The military, together with the accompanying culture of fear, is notably absent from day-to-day life in the city where public discussion of politics — something that could get one thrown in jail before 2011 — is now commonplace.

It is only by reading news reports of the clampdown on protesters at the Monywa copper mine, or by haggling with the local jade dealer who lets on that the civil unrest in the resource-rich Kachin state has let to a temporary halt in jade mining, that one remembers that Myanmar is still very much dominated by the military, sans fatigues, via the ruling Union Solidarity and Development Party.

Last year, the military budget increased by 60 percent in absolute terms to 1.9 trillion kyat (US$2.3 billion) due to an overall increase in the total budget. In comparison, the severely under-funded healthcare sector, where public doctors still make a paltry US$150 a month, was earmarked to receive 368 billion kyat (US$400 million) even after a four-fold increase from the year before.

[quote]This disparity is despite the military’s share of the national budget decreasing to 14.4 percent from 23.6 percent the year before. Flush with newfound wealth and power, it appears that despite its civilian facade, the military has never been more enriched.[/quote]

Indeed, the balance of power stands in a precarious equilibrium between the military’s hardliners and the reformists, brokered by the shared wealth in Myanmar’s growing economy.

Yet the military’s firing tear gas and smoke bombs on protestors at the Monywa copper mine, who were demonstrating againstt unjust land appropriation, is an indication that this balance between political opening and the protection of military interests — the mine is a joint venture between a military-owned holding company and a Chinese arms manufacturer — may be a rather awkward one.

“President Thein Sein is facing a two-sided policy in Kachin: on one hand he’s anxious to make peace through talks, but on the other hand he is also reinforcing the attacks,” said political observer Aung Aung Hliang, an independent political analyst in Myanmar whom I met at the Khayar Kyi (Big Kettle) tea house on 37th Street downtown, a regular meeting place for Yangon’s intellectual circle.

Of Changes To Come

“People have been waiting for these reforms for a long time,” said Aung Than Toe, medical graduate working as a brand manager for a sportswear firm. Like many other Burmese though, he wishes that the reforms could be pursued to a larger extent.

Changes are already visible in Yangon, where even Aung San Suu Kyi’s house gets blocked by traffic and dust during peak hour. According to a local real estate firm, Japanese and Chinese businessmen have already begun scouting for places to build KTV lounges and massage parlours.

Without strong institutions and regulatory frameworks in place, one imagines that Yangon, once developed, could look much like Bangkok, where sleaze and success exist in equal parts, surrounded by a sea of urban poverty.

[quote]“Now that Burma is opening to the world, you should see it before its natural beauty is disrupted by development and commercial activity,” said Shin.[/quote]

By Fang Shihan

Fang Shihan is a freelance journalist based in Singapore, covering business and sports.

Got something to say about the economy? We want to hear from you. Contribute your article and be part of the the world’s largest independent online economics community today!

The post Guarded Optimism At The Gates Of Myanmar appeared first on Economy Watch.

China Hesitant to Intervene in Syria: Kofi Annan

Fang Shihan — Thu, 01 Nov 2012 07:20:38 +0000

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China and Russia believe they were “duped” to allow for military intervention in Libya, said former United Nations Secretary General Kofi Annan on Wednesday, and they are now “very hesitant” to intervene in Syria.

“[China and Russia] did not veto the Libyan intervention. They abstained so that the process could go forward. But they were shocked by the way the mandate was transformed into regime change,” said the 2001 Nobel Peace Prize winner, adding that the two countries saw intervention, even through an arms embargo, as a “slippery slope”.

Clashes in Libya and Syria erupted in the wake of the Arab Spring revolution last year, with rebel forces fighting against the regimes of Muammar Gaddafi and President Bashar al-Assad respectively.

Air raids to protect Libyan civilians against atrocities committed by Gaddafi’s security forces, was sanctioned by a fragile consensus in the UN security council when Russia and China abstained from their veto. Both countries later expressed outrage at the disproportionate use of force by the US, British and French military, which they say extended beyond the UN resolution to impose a defensive no-fly zone.

China and Russia have since used their veto in the UN Security Council to block resolutions aimed at pressuring Syria’s Assad. The opposition says that more than 32,000 people have been killed in the clashes between the Assad regime and the rebels. Activists reported more than 160 fatalities on Tuesday’s air raids and clashes in Idlib and Damascus.

“They do not want to see Libya repeated in Syria […] But the fact that one cannot intervene in every situation, does not mean that one should not intervene when one can,” said Annan who served as the UN-Arab League special envoy on Syria until he resigned from the post in August this year due to a lack of international cohesion among leaders and diplomats.

His comments came as his successor, Lakhdar Brahimi, urged China to “play an active role in solving the events in Syria” in a meeting with China’s foreign minister Yang Jiechi in Beijing, earlier in the day.

Speaking at Singapore’s Lee Kuan Yew School of Public Policy, Annan said national sovereignty could not be used as a shield for governments to reject intervention any longer, and that the international community had the responsibility to protect innocent civilians from crimes against humanity.

He said:

[quote] We cannot use sovereignty as a reason not to intervene. That some crimes are so shameful that we cannot sit back […] let me hasten to add that by intervention, I’m not referring to military intervention. Military intervention is the last resort. It has to be political, diplomatic, economic and all sorts of pressure to get them to change their ways and protect their people. [/quote]

Calling for more consensus to solve the Syrian crisis, Annan urged the international community to cooperate with Iran, given the country’s influence in Syria.

“I know some countries have difficulties with Iran. But you don’t make peace with your friends, you make peace and reach out to countries that make a difference,” he said.

The post China Hesitant to Intervene in Syria: Kofi Annan appeared first on Economy Watch.

Asia Moving Beyond Manufacturing, to Innovation

Fang Shihan — Fri, 19 Oct 2012 06:33:41 +0000

Please note that we are not authorised to provide any investment advice. The content on this page is for information purposes only.

Gone are the days of cheap labour in Asia. Asia is moving beyond being a manufacturing hub of the world to its next stage of growth driven by innovation. But can Asia, as a whole, successfully navigate a shift away from localising products to wealth creation via innovation, invention and intellectual property?

Asia is moving beyond being a manufacturing hub of the world to its next stage of growth driven by innovation, said attendees and speakers at the Techventure 2012 conference in Singapore.

While the previous wave of innovation in Asia saw the number of R&D centers from multinational corporations in China and India grow nearly four times from 557 in 2001, to 2,009 in 2010, according to research from India-based consulting firm Zinnov, this was largely due to companies seeking to hire pools of cheap engineers, and to situate their R&D centers in growth areas in the emerging markets.

But rising costs of skilled labour in Asia in the past three to four years, have forced companies with R&D centers in Asia to move up the value chain, shifting their focus away from localizing products created in the West, to local product development and the creation of intellectual property.

John Wu, , the former Chief Technology Officer of e-commerce website Alibaba and a co-founder of F&H Fund, said:

[quote] Before in China, you didn’t need much technology or innovation to be successful in business. All you needed was courage and brute force to take advantage of the cheap labour and government subsidized land. But the cost advantage in China is eroding. [/quote]

Challenges for Asian Innovation

Intellectual property litigation between Chinese companies has gone up “hugely” over the past three or four years, said Professor David Llewelyn, Deputy Dean at the School of Law in the Singapore Management University. But it has less to do with a maturing intellectual property system, and more to do with protecting market share.

“It all boils down to self interest,” said Wei Hopeman, Managing Director at Citi Ventures Asia-Pacific, explaining that companies were not willing to protect foreign intellectual property rights, but were keen to protect their locally produced content and technology.

Gaps also remain in the Asian-wide technopreneur ecosystem.

“You need a more collaborative effort on a wider front, in order for innovation to push through,” said Kenny Lew, Founder and CEO of Entreport Asia, a Singapore-based business connector for global technology firms. Pushed by the need to continue driving growth through innovation, he sees firms becoming more willing to adopt open innovation, which is essentially collaboration on R&D with external parties, when they would traditionally develop from within.

“For Southeast Asia, the challenge here has been the ability to access the market. The market here is relatively fragmented. So what we lack is not the hard infrastructure but the soft infrastructure. Soft infrastructure to connect the talent, the market,” said Foo Jixuan, Managing Partner of GGV Capital.

Singapore Inc.

At the forefront of the Asian startup scene is Singapore, a country known for strong government support for its technology industry and its high level of efficiency. S$16 billion (US$13.2 billion) has been set aside for R&D funding between 2011 and 2015 through the economic cycles, underscoring the government’s commitment to innovation, said Singapore’s Deputy Prime Minister Teo Chee Hean in his opening speech.

Efforts by the Singapore government to attract innovations have attracted companies like Rolls-Royce to set up shop in the city-state. The UK-based manufacturing firm rolled out a S$700 million (US$575 million) campus at the Seletar Aerospace Park in February this year, which will manufacture wide core fan blades and its fuel efficient Trent engines for the first time outside the UK. It also announced a collaboration with A*Star, Singapore’s lead government agency for scientific research in June and projected that it would contribute 0.5 per cent to Singapore’s Gross Domestic Product (US$1.4 billion) by 2015.

According to Rolls-Royce’s Chief Scientific Officer Paul Stein, a large part of the company’s decision to site the aerospace park, its biggest facility in Asia, was due to the government’s pro-innovation policies and its focus on technology and technical training.

Stein said that the company, which spent close to US$1.5 billion, or roughly 10 per cent of its revenue in 2011 on R&D spending, was diversifying its R&D into Asia to support its growth in the region, and to tap into the local talent base. But this would not be at the expense of existing R&D centers in the US and Europe.

“We still have an order book about 6 times our annual turnover. The world aerospace market remains very buoyant. Largely because with fuel prices increasing, airlines are very keen to swap their old fleets for more efficient fleets… so far we are largely bucking the trend of a global downturn,” Stein said on the sidelines of the conference.

Another selling point of Singapore Inc is its small size, which forces local startups to move beyond the island’s borders into a pan-Asian market, said Amit Anand, founder and managing partner of Jungle Ventures, a Singapore-based investment firm which launched its S$10 million (US$8.2 million) fund at the conference.

The country also ranked first in terms of intellectual property protection, as well as in the “ease of doing business” indicator in PWC’s Cities of Opportunities report this year.

More Chaos Needed

[quote] Yet Singapore’s reputation for being an ultra-organized and ultra-conservative country that leaves little room for chaotic creativity — a necessary element for entrepreneurship —is persistent. [/quote]

Last week, the government banned local satirical film Sex.Violence.FamilyValues, on the grounds that it contained offensive racial remarks. Earlier this year, police arrested a local street artist nicknamed “Sticker Lady” for vandalism, after she allegedly painted the words “My Grandfather Road” on roads around Singapore, purportedly in a mischievous reference to the city-state’s founding father, Lee Kuan Yew.

Both incidents sparked public outcries. People who attended the film premiere before the ban were shocked at the decision as the “racist” dialogue in the script was meant as satire. The arrest of “Sticker Lady” led to a petition calling for leniency, signed by 14,000 people and even spawned a series of copycat slogans on social networking sites.

“In general, people in tech are not so organized, they’re a lot more casual and it doesn’t require a huge area of space…. I hope to see Singapore more disorganized and laid back,” said Gary Wang, founder of Chinese video-sharing website Tudou when asked what advice he would give Singapore Inc.

By Fang Shihan

Fang Shihan is a freelance journalist based in Singapore, covering business and sports.

Got something to say about the economy? We want to hear from you. Contribute your article and be part of the the world’s largest independent online economics community today!

The post Asia Moving Beyond Manufacturing, to Innovation appeared first on Economy Watch.