Monika Staerk, delegate of the Association of German Chambers of Commerce and Industry in Yangon, discusses international investors’ appetite and obstacles for a presence in the country
Q: To what extent are German companies interested in entering Myanmar?
A: As in many other Western markets, the interest of German companies after the opening up and reconnection of Myanmar has been huge. As usual, many of the visiting or inquiring companies are interested in a more general overview on market potentials and developments. One should not and cannot expect that a comparably big number of effective activities will arise from these visits in the short term. Still, we see a significant number of substantial market explorations going on.
They are mostly undertaken with a long-term perspective, as this is typical for a German approach to new, especially developing, markets. Early movers who were active in the country before are now benefiting from the position they have gained. Patience and the willingness to invest in human capital despite some negative returns are now being rewarded.
Q: Are German companies only interested in being represented and finding a new market, or are they looking at investment and production?
A: For most of the German companies, exports and distribution will be the first step to becoming engaged in the country. This helps to explore market potentials, test framework conditions and lays groundwork for investment in production facilities at a later stage.
Currently, regarding German investment, I do not expect many huge projects to make headlines in the near future. However, this is not due to a hesitant, prudent approach from German companies, nor a distrust in political stability and the legal framework. It is due to a very simple reason: The German corporate structure has weaknesses too, concerning the same sectors in which most of the FDI currently flowing into Myanmar takes place – we do not have big players in oil and gas or mineral resource exploration.
There are no investors in energy production and distribution, no big tourism companies investing in hotels, no international real estate developers on a large scale, and no big players in food production, soft drinks or beer. Still, we will see investment in light industries and in supply to these big players or in the pharmaceutical industry, with German pharma firm Stada already being active.
Q: Which are the country’s most interesting sectors?
A: The current drivers of economic development are resources, real estate and infrastructure, along with all of their related industries. The power sector will be a driver as well. I see good opportunities for German supplies and technical services in these areas.
I sincerely hope that Myanmar will be able to avoid a quick and dirty development like we have seen in neighbouring countries before. We have to explain again and again why it matters to invest in more expensive equipment and technologies and what the return on this investment will be from a business and a social perspective.
Q: What about the skill level of Myanmar’s workforce? Is it a pro or rather a con for foreign investments?
A: While the country has a number of experts with an impressive technological background and high management expertise, it is obvious that general skill levels need to improve significantly. Even for most of the investment in light industries, besides unskilled workers who can be trained on the job, there will be a need for skilled workers such as mechanics to maintain equipment and organise production processes. Every foreign investor should be aware that he needs to invest in qualifications as well. A new labour contract law even foresees payments into a national qualification fund.
Q: To what extent will Myanmar’s pretty poor infrastructure limit interest in the country?
A: The deficits in infrastructure are a hindrance for production and distribution, no doubt. But they are being dealt with and this offers tremendous business opportunities as well. Infrastructure development will be key for a more balanced development in the country beyond the Yangon region as the industrial centre of the country. Improvements will come. Power cuts and brownouts are not only a problem in Myanmar.
Q: Are European enterprises lagging behind companies from other regions?
A: It is obvious that Europe lags behind the Asian corporate players, which have been around during the past decade, including Japan, which started activities back in 2008. This is also an effect of the sanctions, and we should not dream of catching up too quickly.
Q: What is the amount of EU foreign direct investments and what is the outlook?
A: EU investments are at $3.9 billion as of July 2013, a rather tiny part of the overall volume of more than $40 billion. Investments have come mainly from the UK, France, the Netherlands, Austria, Germany, Denmark and Cyprus. We may see big investments in oil, gas and tourism coming from France rather than Germany.
Q: What is your take on the investment climate?
A: It needs improvement, no doubt. But for a country that has so recently opened up, it is quite impressive. Lawyers assess the Foreign Investment Law as one of the more advanced in the region in terms of providing a level playing field – and the recommendations of foreign investors and consultants are being taken into account.
We will see the result with the forthcoming revision of the Foreign Investment Law, where we can expect further liberalisation in a number of sectors. Furthermore, the harmonisation of laws for local and foreign investment is planned to take place.
In terms of transparency, many foreign observers point out that the very bad image of the country is not entirely justified. Problems exist and they are bad enough, but only on a par with some neighbouring countries.
Q: What are the most pressing concerns for foreign companies interested in investing?
A: Infrastructure and access to energy, availability of skilled labour and finding a reliable and competent partner – but we know this list from other countries in the region. Companies that become active in Myanmar will most likely have experience in other developing countries and will be able to assess risks and tackle these challenges.
Q: Prices in Myanmar’s real estate sector jumped last year. Do you think soaring property prices and high office rental costs will scare off investors?
A: Cost is a major problem, especially when it comes to office and housing rents. The current cost level in Yangon, certainly among the highest in the region, is not sustainable, even if it may reflect short-term market conditions with a significant undersupply.
The government seems to be aware that high rent costs may deter foreign companies – and once they have decided to put Myanmar on hold for cost reasons, it may be difficult to arouse their interest again. Regulations that limit lease periods for foreign companies to one year are counter-productive in that respect as they open the door for landlords’ excessive speculation and bereave incoming companies of a minimum level of planning security.
Q: Is the huge interest of foreign enterprises in Myanmar justified?
A: Regarding corporate interest in the country, no one can deny that Myanmar is a latecomer with tremendous potential, located at a strategic corner of Asia-Pacific. One should not overlook the challenges, but it makes sense to get involved now, assess current options and future perspectives, and to be prepared for a long and sometimes rocky process.