Myanmar

Myanmar

Open for agribusiness
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Photo credit: ©Peter Adams / offset.com

Resident Representative in Myanmar, IFC

Once one of the most isolated countries in the world, Myanmar, in the wake of political and economic reform is now fully open for business.

Under the current leadership of former general President Thein Sein, Myanmar’s new government has pledged a democratic transition anchored on economic reform and foreign investment. Critical to that process will be a strong focus on agribusiness investments.

Bordered by dense forests and plateaus and rich in fertile valleys and deltas, Myanmar has long caught the attention of global agribusiness companies who are keen to draw profits from the country’s vast natural resources.

In a country where close to 70% of the population live in rural areas, the agribusiness sector is a critical driver of growth with rural development and agribusiness poised to potentially lift millions of Myanmar citizens out of extreme poverty.

But despite new opportunities for economic growth, both the government and foreign investors recognize that many challenges still stand in the way. As part of the IFC team tasked with unleashing private sector potential in Myanmar, I see firsthand every day the roadblocks to market liberalization and agricultural reform.

Decades of mismanagement have led to crumbling infrastructure, mass poverty and low rates of literacy. Basic infrastructure – roads, airports, communications and electricity – are woefully inadequate and compromise market access, distribution and competitiveness.

The most recent edition of the World Bank’s annual “Doing Business” report rated Myanmar 182 out of 189 economies in relation to the ease of opening and running business ventures. In October 2013, the World Bank projected Myanmar’s economy to grow to 6.8% in 2013/14 but raised concerns about inflation, which hit 7.3% last year.

Living in Myanmar and working closely with my World Bank colleagues, I have identified four central challenges to agribusiness foreign investment:

Despite the government’s renewed focus on agriculture, the issue of land access and land grabbing is of paramount concern. Two recent bills designed to alleviate the problem of land grabbing – the Farmland Law and the Vacant, Fallow and Virgin Lands Management Law – may actually complicate the problem. The Farmland Law passed in March 2012, for example, permits the transfer and mortgaging of tillage rights but also gives the state ultimate ownership and control of all agricultural land.

Access to finance for farmers is severely limited with only one financial institution, the Myanmar Agricultural Development Bank, operating in the rural space. Informal loans to farmers carry monthly interest rates between five to 10%. Myanmar’s strong currency has pushed up the cost of basic inputs such as seeds and fertilizers but reduced the revenue from rice sales. Many of Myanmar’s farmers are now locked in a vicious cycle of debt following drought and flooding.

For foreign companies hoping to invest in Myanmar, finding a reputable Myanmar sponsor is critical. Although Myanmar is now party to several international agreements, including the New York arbitration convention, foreign investment is still challenging. Steps continue to be taken to enhance investor protection, including the implementation of a new foreign investment law in July 2012. Currently IFC is looking to merge this new law with an existing domestic citizen law that would create one central legal investment framework while maintaining a level playing field for both domestic and foreign investors.

For the vast bulk of families who are living below the poverty line, agriculture is their primary source of income. But for many of these farmers a range of market barriers including a lack of knowledge and tools for efficient production, as well as a lack of technology to support agricultural processes, ensures that the quality and quantity of their yields remain low. Many rural youths have left the sector altogether in search for better-paid jobs in urban areas or abroad.

The overall picture may look sobering for foreign agribusiness companies looking to invest in Myanmar but there is potential given the country’s resources and favorable geographic location.

In 2013 Coca-Cola Co. and Unilever both pledged investments of nearly $1 billion in Myanmar for the next decade, becoming the first prominent companies to start manufacturing in the country and making the biggest commitments yet by Western multinational corporations.

In March of this year, Singapore-listed Yoma Strategic Holdings (YSH), announced plans to expand into Myanmar, investing a total of $130 million into education, coffee, dairy products, cold storage and logistics. YSH is looking to secure a financing package for this venture from IFC, subject to IFC’s detailed due diligence including an environmental and social impact assessment.

To create capacity for local agribusiness companies in Myanmar, IFC is also trying to link them with international players who have the right technical experience and are willing to invest risk capital in the country. Opportunities are tremendous across the entire value chain, particularly in providing quality agri inputs.

And despite communications challenges, there is also an opportunity to use digital technology to get real time information about weather and commodity pricing to farmers — an innovation that could potentially revolutionize productivity while maximizing rural incomes for years to come.

For agribusinesses seeking to invest in Myanmar there is a delicate path to tread – ensuring that they access this once isolated market in an ethical and inclusive ways while maximizing the positive benefits for a population mired in poverty. With parliamentary elections looming in 2015, all eyes will be on Myanmar’s commitment to the democratic process. Foreign investment will undoubtedly go hand-in-hand with the country’s tenuous political process.

Fast Facts

- According to the Myanmar government, the agricultural sector constitutes 41% of the country’s total GDP and 11% of foreign exchange earnings.

- Myanmar is resource-rich with a strong agriculture base in rice, pulses, beans, maize, sesame, rubber, sugarcane, jute, wheat and hardwood and is backed by a strong agricultural processing industry.

- Growth areas in the agricultural sector include rice, horticulture, pulses, animal protein, dairy and coffee. As pesticides and fertilizers are not in widespread use, there is a potential niche production area for organic goods.

- According to the United Nations, over 80% of Myanmar’s population are subsistence farmers and live on $2 or less per day.

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