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Myanmar: retail's new gold rush

Just 12 months ago, talk of giant Asian and western corporates opening up shop in Myanmar would have drawn laughter.

The visit of a US president to the pariah state would have been unthinkable.

But in the last four weeks Myanmar’s president has signed a less protectionist version of long-awaited and much-revised laws opening the way for unprecedented levels of foreign investment. And President Barack Obama made a lightning six hour stop over to meet leading political figures.

While many observers have greeted news of foreign investment rule relaxation cautiously, everyone agrees it is a significant step forward for business and the Myanmar economy: big capital injections from outside its borders are considered an essential step in boosting an economy long under-nurtured during decades of military rule, and sparking a long-overdue climb up the global economy ladder.

The nation’s part military, part civilian government passed a version of the bill earlier this year but President Thein Sein rejected 10 of its 11 core principles. The new version is considered more foreigner-friendly - especially the removal of any cap on the shareholding that can be held by the foreign investor. It’s vastly more liberal by all appearances than India’s latest version of its ever-changing rules on direct foreign investment in retail.

Companies like Japanese convenience store chain 7-Eleven, mall developer Aeon (which owns the Jusco hypermarket chain amongst other retail brands) and Singapore-based department store giant Parkson had all announced plans to set foot in the market prior to the new rules being passed.

Other retail brands doing well in challenging markets like Vietnam are almost certain to follow - Yum! will surely already be calculating how many KFC and Pizza Hut outlets the market can sustain, following its successful roll-out and resulting market dominance in nearby Vietnam.

“Businesses will see the (law) as a positive sign that will help influence their decision to invest,” said Nomita Nair of UK-based law firm Berwin Leighton Paisner. “Some businesses who have already started their due diligence may feel the (law) will allow them to have greater certainty around the mechanics of their investment.”

But he warns many businesses will remain cautious as other factors which will impact the success of their investment have still to be addressed. Other commentators warn that fishhooks may lie in the detail.

There is also the question of just how big the market potentially is. Myanmar’s population numbers around 54 million, but its GDP per capita remains a meagre $1300 a person, placing it 200th in the rankings of the world’s economies, and well below the $3300 of Vietnam, with 90 million inhabitants.

But retailers like Yum, Aeon and 7-Eleven are used to the long game and will be more concerned about establishing a beachhead in the market so it can take advantage of the significant economic recovery which clearly lies ahead when all this foreign investment hits the nation.

Parkson will open just one department store, looking after the nation’s wealthier citizens, together with the expected influx of expatriates who will be needed to help overhaul the nation’s crumbling infrastructure and amenities. It will hold 70 per cent of a joint venture with local partner Yoma Strategic Holdings in a deal struck before Thien’s investment reform was signed off last week.

“Consumer spending is on the rise in Myanmar given the increasing level of economic activity and the increased level of confidence for the future,” said Andrew Rickards, Yoma’s CEO.

7-Eleven has chosen Zaygabar Company as a franchise partner for its entry, who will roll out convenience stores all over the nation.

Western companies have largely been prevented from establishing operations in Myanmar due to strict investment restrictions enforced by overseas nation’s aiming to force political and social reforms. These have largely been lifted since Thein Sein took control last year and now companies like Coca-Cola are planning a return after an absence of 60 years. Rival Pepsi already has a partnership plan inked and fast food giant Yum! Brands is staying mute on its ambitions.

But one leading Asian franchise expert told Inside Retail KFC would “for sure” be doing the numbers on Myanmar by now.

(Source: Insideretail.asia)

 

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