Over the past few weeks we have met in various ways with the business community in Myanmar (Myanmar is still called Burma in the US and some other countries but we will use the name Myanmar in our blogs as that’s the name accepted by government in The Netherlands) and explored the possibilities to support the local population with business activities. Now that we have left Myanmar and are in Nepal in the meantime, we want to give an overview below of what we have learned in the past period about the possibilities, but definitely also the difficulties, to start a business in Myanmar.
This blog is about Myanmar, we will write a similar blog about Nepal after our Nepal visit.
In summary, we can say that Myanmar is a country that is developing rapidly. Politically there is more stability but there is still a long way to grow towards full democracy. Legislation and regulations are developing strongly, a good example is the foreign investment legislation that has been updated this year. This has greatly expanded the possibilities to do business with and within the country, although still with restrictions, including restrictions on ownership of land and goods. There is a clear need for education and the population is eager to learn, the English language is a first step for many. There are major differences in development in the various regions in the country, with education not equally available to everyone. Although steps are being taken, the country is still struggling under corruption - money or favors are often seen as 'lubricants' for taking steps, difficult for foreigners to deal with and navigate properly. In addition to all business considerations, human rights in the country also play a serious role in the choice of whether you want to start a business in this country. Well, so far the summary, you certainly may not feel obligated to read further, it will not be interesting for everyone.
But if you are interested, please continue…
Several larger commercial organizations and non-commercial aid organizations are active in the country. Now that the country is opening more and more, there are several global companies that are establishing themselves here, although the only Dutch company we have seen here is Heineken (there will probably be more). KFC has a number of branches in the country, but a McDonald's does not exist in Myanmar yet. We hear that Starbucks had received permission to open a branch in Yangon, with possibilities for 20 branches in the country (May 2018), but in the meantime decided again not to open a branch in the country and you will not find a Starbucks yet (decision September 2018). Several larger NGO’s (non-governmental organizations), like Médecins Sans Frontières, Save the Children, Pact and World Vision have been active in Myanmar for quite some time, mostly in education, health services and micro-financing services.
The larger commercial and non-commercial organizations are not directly the target group we will focus on - these organizations and people can take good care of themselves. We are looking for more small-scale opportunities, where the plan is to start a small company that makes a direct impact in the lives of people at the bottom of society; people who have a harder time to survive and grow, how could we make a difference for them?
Through friends we have been in contact with the work of several individuals and organizations, active in the country. The first company we met with, is a business coaching company that supports local entrepreneurs in the north of Yangon, providing business training and establishing relationships (or networking) to help individuals and families with financial management. We also met with a US funded consultancy organization that focuses on enterprise development; this organization mainly focuses on advising and coaching new, small local entrepreneurs, setting up a clear and well-thought-out business plan and providing support in obtaining (micro-) credits through local banks. In addition, they provide training related to proper management of finances and other resources (in Western thinking pretty normal business practices but a very important lesson here is the separation of a company account and your personal account and setting up financial planning for both). The third organization we have come into contact with, and where Albert attended one of the company management meetings, is a language school, an organization that teaches young entrepreneurs English and / or Korean language, opening up a whole new world of opportunities for them.
In Myanmar the middle class consists of small family businesses. There are many, many very small restaurants and the street sales are lively; that everyone sells the same merchandise is apparently not an issue. In addition to the street food carts, you see many small shops where goods are traded, produced or repaired. On almost every road you see endless rows of small shops where the same vegetables, fruit and other foods are traded and dozens of companies where mopeds are repaired, chairs are re-upholstered or building material is traded. We even see a man on the street who has turned his business into giving cigarette lighters a second or third life by replacing the gears and flints and refilling the lighter with gas.
However, two things are missing: knowledge and means. The knowledge is often limited to running a one-man business. If you see the work people do, you often think 'how long can you continue to do this work', or 'what would you do in 5 or 10 years from now'? The planning horizon is extremely short, and objectives are not being made, it is about survival today. The means are also lacking; if there is already a 'dream', it is often unreal to realize the dream because of lack of everything. In one of the coaching sessions Albert could join, he asked the person who was coached what his business dream was. The answer was almost unbelievable: 'I would like to give a few people in the slums, who do not have anything, two chickens so that they can breed them. Half of the income they can keep themselves and the other half is for me then'. It indicates the level of thinking and acting. On the other hand, there was also a conversation with someone who has been very successful with his restaurant and now is considering expansion.
In the conversations with various people, and by traveling in the country, opportunities are visible. But there are also serious barriers. It is not easy to get a visa for a longer period and foreign investments are limited. A business visa is reasonably easy to obtain, limited to 70 days at a time. Although a 1-year business visa is technically possible, it seems to be so expensive and complex that almost all people we have spoken to choose to go abroad for a weekend, every 10 weeks, mostly Thailand, and do some shopping and relaxing there. With the cheap flights that are available now, it is easier and cheaper than an a full year visa.
After all conversations, several thoughts come up to help the local population with business opportunities. What is very interesting is that the Myanmar government has identified a number of sectors where they accept and encourage foreign aid. Especially in the agriculture and tourism sector there are very good possibilities now - a guesthouse or plantation would certainly be possible.
The government has determined tourism as a national priority and has expressed the ambition that by 2020, 4 - 7.5 million tourists will come to visit the country. That is very ambitious as there are currently around 2 million tourists a year. What is visible is that the country is not ready to receive so many tourists and the facilities for this are missing at the moment. There are simply not enough hotel rooms available across the country, many places are unreachable due to the limited infrastructure (especially in the rainy season) and the tourist centers certainly do not have the quality or quality thinking needed to attract more tourists to the country. It is precisely for this reason that the government has determined that tourism is a sector where foreign investors are welcome. This certainly provides opportunities for us, something to think about.
The country is developing strongly, shown by the growth figures of the country where the Gross Domestic Product (GDP) rises by an average of 7% per year. After the country has opened up and sanctions have been lifted, a steady growth of the economy is visible and you see that prosperity is increasing. Unfortunately, the accumulated backlog is such that it will take many years (generations) before the country is up against other countries in the continent.
Although the regulations have been greatly simplified and improved in 2018, it is certainly not an easy matter to establish a business. Foreign investments (and foreign banks) are allowed since this year, but the new regulations may not be fully known in every corner of the country. Because the regulations have changed so much, people often do not know what is allowed and supported by the government. Because of this, the procedures are long and those who have to grant permission are still very hesitant (not to speak about corruption that’s still there) and can drag procedures. It is necessary to connect to and use local partners and local lawyers who know the procedures but also have their network in the government.
Some other findings and remarks:
Myanmar is one of the least developed countries of Southeast Asia and is one of the poorest countries in the region, but growing at a fast rate. The average income per person in Myanmar in 2016 was 1,269 USD (IMF, 2017), which is about 3 euro per person per day. Only since the first of January of this year there is a minimum wage per day installed of 4,800 Kyat per day (which is again 3 USD per day), but many have less. There are richer and poorer regions in the country, in the big cities the income is higher than in the remote regions. According to the World Bank, the average income per capita in Chin Sate (which we visited and you can read about in our previous blog) is about 400,000 Kyat, or 220 Euro per person per year. According to the CIA World Factbook, 26% of the 51 million inhabitants of the country live below the poverty line.
Foreign investment options are limited. It is possible for foreigners to be 100% owner of a company, but government permission is needed and the procedures are costly and long, an expensive and complex route. It is also possible to find a local partner and then have a maximum of 35% foreign ownership, this can be done without further permission. The latter is not insurmountable, we hear that there are quite good and reliable parties that want to help.
Foreigners are not allowed to own land in the country, land can be leased with a maximum lease term of 1 year without permission for foreigners, or 10 years after permission from the government. Under specific conditions longer lease periods are possible (up to 75 years) but no option for personal initiative due to complex procedures and costs.
Start-ups may be granted withdrawal of profits tax of 3, 5 or 7 years, depending on the degree of development of the region in which the company is located.
In case of import of goods, there are options to obtain an exemption from import duties (in particular for machinery and construction materials that are not available locally or for raw materials needed for the production of goods that are re-exported).
Costs for research or development made in Myanmar can be deducted from the tax.
Companies must keep their accounts in accordance with the Myanmar Accounting Standards (which is based on the 2010 version of IFRS). The fiscal year runs in Myanmar from 1 October to 30 September. Companies pay 25% profit tax.
In the World Bank index on simplicity of doing business (Worldbank, "Ease of Doing Business" index), Myanmar is ranked 171 out of 190 countries, confirming that it is complex to do business in the country (for comparison: Netherlands 32/190, USA 6/190, Nepal 105/190; lower is better). The new business legislation, installed this year, is expected to help improve this position dramatically.
Corruption is a thing. In the World Corruption Perception Index, the country is ranked 130 out of the 180 countries compared (for comparison: Netherlands 8/180, USA 16/180, Nepal 122/180). It turns out that bribes are indeed being asked to make transactions (faster). But there is strong improvement visible: in 2012 the country had only 12 points, now 30 points, out of 100 points that can be reached in the index (a country will have 100 points if there is no corruption at all). Government is actively working on pushing back on corruption and has several programs installed.
If you are still reading this blog and made it this far, then you have received a reasonable picture of the country. There is much more to tell, and we could go much deeper into laws and regulations, cultural and religious aspects (which also play a very important role in business context), currency fluctuations and other influences on the economy or trade interests (and restrictions) from the West. But for us, the purpose of our visit to the country was to investigate whether we can contribute to the country, improving the conditions of people at the bottom of society and help the country develop and stabilize. That there is a lot of work to do is clear. Whether we can really make a start with business in this country is still a question we need to think about.
On the one hand, it is a complex country that still has a long way to go and we have learned it is still very complex to start a business here. The advice from all sides is to find a good local partner who understands the regulations and has a large network. On the other hand, it is also a country with extremely friendly people who want to grow and would like to receive (and probably need) foreign assistance.
In the next few weeks and months, after our visit and similar evaluation of Nepal, we will have to determine whether Myanmar is the place where we can help, where we want to live, where we want to (and are able to) invest our savings and where impact to the local people can really be realized.
Our thought process will continue…
P.S. We have tried to be honest, open and transparent, but of course it is possible that we have misunderstood something or misrepresented regulations or cultural aspects somewhere. If there are items that are incorrect or are an incorrect reflection of reality, please let us know and send us a direct email with comments. Thank you.
References:
Myanmar Investment Guide 2018, April 2018: https://www.dica.gov.mm/sites/dica.gov.mm/files/news-files/mig_final_2018f.pdf
KPMG, Investing in Myanmar, July 2018: https://assets.kpmg.com/content/dam/kpmg/mm/pdf/2018/07/investing-in-myanmar-july-2018.pdf
Myanmar Investment Application Guidebook, April 2018: https://www.dica.gov.mm/sites/dica.gov.mm/files/news-files/investment_application_guidebook_en_1.pdf
CIA World Factbook: https://www.cia.gov/library/publications/the-world-factbook/geos/print_bm.html
Socio-economic Atlas of Myanmar, April 2017: https://www.themimu.info/sites/themimu.info/files/assessment_file_attachments/Socio-Economic_Atlas_of_Myanmar_-_FSV_2017.pdf
Zaken doen in Myanmar, Nederlandse Overheid: https://www.nederlandwereldwijd.nl/landen/myanmar/zakendoen
Zakendoen in Myanmar, Rijksdienst voor Ondernemend Nederland (RVO) , https://www.rvo.nl/sites/default/files/2016/03/Informatiefolder%20zakendoen%20in%20Myanmar.pdf
Myanmar Economic Monitor, Worldbank, October 2017: http://pubdocs.worldbank.org/en/138051510537368636/MEM-FINAL-Oct-2017.pdf
Tourism Sector Study: https://www.eurocham-myanmar.org/uploads/946c3-tourism-sector-study.pdf
Ease of Doing Business, Worldbank: http://www.doingbusiness.org/en/rankings
Corruption Perception index, 2017: https://www.transparency.org/news/feature/corruption_perceptions_index_2017
Asia Pacific corruption barometer, March 2017: https://www.transparency.org/whatwedo/publication/people_and_corruption_asia_pacific_global_corruption_barometer
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