Executive Summary of Monthly Economic Development & Outlook Discussions
Tuesday, December 4th, 2018
As a continuation of the “Update: Trade & Investment” segment into our monthly Discussions we were provided with a critical trade dimension and investment outlook during this December discussion.
Additionally, there was an engaging discussion on the “Changing Landscape for Foreign Banks” operating in Myanmar.
A brief overview of all the subject matters discussed.
Update: “Japanese Trade & Investment into Myanmar”
With the expressed permission of disclosure granted by the Economic and ODA counsellor at the Embassy of Japan, Yangon we reproduce some of the salient points discussed:
- The Economic and ODA Section at the Japanese Embassy follows the development in Myanmar’s economy and promotes Japan-Myanmar economic relations.
- For a recent historical context post 2011 member companies of Japan Chamber of Commerce in Myanmar increased from 53 member companies in 2011 to more than 380 companies in 2018 a majority representing the construction, service and the manufacturing sectors.
- Encouraged by the opening of the country during the post 2011 timeframe Myanmar was regarded as a promising country and was called “Asia’s Last Frontier”. Such perception still exists in Japan even though growth rates have not reached earlier projected expectations.
- The State Counselor visited Tokyo this past October during the recently held Myanmar Investment Forum which attracted the attention of many Japanese business leaders. It was reported that at this moment, the crisis in Rakhine does not seem to have affected the activities by Japanese companies.
- An important data point shared in reference to Foreign Direct Investment (FDI) from Japan: Statistics by the Myanmar Investment Committee (MIC) make the Japanese FDI amount appear to be lower that its actual amounts. This discrepancy can be attributed to a large portion of Japanese investment comes to Myanmar through regional HQs in Singapore, Hong Kong or Thailand which is counted as those countries’ investment within MIC’s statistics. Additionally, it was reported that many Japanese companies that have invested in Thilawa SEZ are not counted by MIC within its country by country investment ranking.
- Adjusting for these externalities the actual investment into Myanmar by Japan was approximately $1,478 million in Fiscal Year 2017, which would rank Japan as the single largest foreign investor in Myanmar.
- Bilateral trade between Japan and Myanmar has been seen as encouraging. Japanese exports to Myanmar which has been traditionally higher than imports over the years has seen a marked improvement towards a more balanced trade in recent years with 2017 fiscal year’s trade being reported at about $900 million respectively. Japan exports mainly automotive and machineries to Myanmar and Japan imports consist of primarily textile products from Myanmar.
- An important dimension to the enhancement of Trade and Investment between the two countries, was the importance attached to economic policy dialogue, termed as the Myanmar-Japan Joint Initiative (MJJI) which was established in March 2013.
- MJJI has been co-chaired by the Ambassador of Japan to Myanmar and the Minister of Planning and Finance of Myanmar and has been periodically held. The 6th General meeting was held in November and high on the discussion agenda were: 1. Smooth Customs Clearance, 2. Development of Robust Domestic Industries, especially in the Automobile Industry, 3. introduction of Modernized Tax System and Appropriate Implementation and 4. Revitalization of the Finance Market.
- The Embassy of Japan has a close working relationship with the Japanese Private Sector and jointly works with Myanmar government to improve investment environment. Examples of this support can be seen to include automated customs clearing facilities, tax and revenue collection systems and the SEZ expansion at Thilawa.
- In addition, and most notably, Japan has remained a steadfast supporter for enhancement of DICA’s administration, one recently completed initiative is MyCO-Myanmar Companies Online, which allows for streamlined company registration process with minimal material documentation.
In conclusion the message emanating from this morning’s presentation and discussion was that although the overall FDI in Myanmar has slowed, Japanese FDI is at its highest level and Japan remains committed to supporting Myanmar’s economic development regardless of the political environment.
Recent Banking Reforms: Changing Landscape for Foreign Banks
The following update of the changing landscape was provided by some of the larger Foreign Banks that have current banking operations in Myanmar followed by a spirited and candid exchange of outlook and perspectives by both Foreign and Local Bank stakeholders.
Currently foreign banks are restricted to one branch, but they cite that the Central Bank of Myanmar (CBM) has indicated that by 2019 they will allow foreign banks to expand their branch network.
Until recently, foreign banks were only allowed to lend to foreign enterprises in foreign currency, but the recently passed CBM Directive No. (6/2018, November 8) permits foreign banks to lend to domestic businesses in Kyat and foreign currency. Interest rates for Kyat loans by foreign banks must abide by the maximum bank lending rate of 13%, however foreign currency loans may be priced at market rates. However other restrictions on foreign banks remain in force, such as not being allowed to accept immovable property such as land and buildings as collateral.
Furthermore, Foreign Banks are to date, not allowed to offer retail banking services such as personal savings accounts, money transfers and card services. Foreign banks are still not allowed to offer Kyat fixed deposit accounts but they may accept foreign currency deposits. Additionally, there remains no clarity on directives by the CBM on whether or not interest may be paid on foreign deposit accounts.
There was dis-agreement amongst the foreign and local bank stakeholders as to how the additional changes sought by foreign banks might adversely affect the local banks. Foreign bankers insist that due to their relatively conservative credit risk rating methodologies, most local businesses would not qualify for their credit products yet, however local bankers were concerned that they may lose Tier-1 customers to foreign banks as a result of these regulatory changes.
In conclusion all stakeholders agreed that the regulatory changes should in theory lower financing costs for the customer, however customers still face a burdensome collateral and interest rate environment, and thus further reforms are needed to realize the benefits of liberalization.
The Discussions thereafter adjourned, with much appreciation for this 2018 initiative and an expressed interest to look for resources to continue this initiative for 2019.