US moves get cautious welcome

Writer: 
ACHARA DEBOONME, KHINE KYAW, PETCHANET PRATRUANGKRAI THE NATION BANGKOK/YANGON

THE Myanmar business sector is upbeat on the potential economic benefits following the promise by the United States to make significant policy changes towards the country, including the lifting of remaining sanctions and reinstatement of the generalised system of preferences (GSP).

It is anticipated that the changes, pending approval by the US Congress, will take effect in a matter of months.

Maung Aung, senior adviser to Myanmar's Commerce Ministry, said the absence of sanctions would boost both trade and investment.

On commerce, Myanmar businesses will be able to trade with other countries with letters of credit, instead of relying on telegraphic transfers, while dollar- denominated transactions will also entail a lower cost, as local businesses will no longer need to use banking services in Singapore, he said. The adviser is convinced that bilateral trade will sharply increase and that this will create a large number of jobs, particularly in the garment industry.

"FDI [foreign direct investment] is really important for our country to grow further. But we have not received a large amount of investment from US companies as yet. Sanctions seem to be one of the main reasons for that. But in my view, trade is more important than FDI. Without any improvement in trading, we will not receive any large-scale investment," he explained.

According to US Department of Commerce data, trade with Myanmar amounted to US$238 million (Bt8.31 billion) in the first seven months of this year. Exports to the US were valued at $122.9 million. Bilateral trade has been on the rise since 2012, when some sanctions were lifted.

Myanmar exports agricultural produce, marine products and industrial finished goods to the US, and imports personal goods, investment materials, and raw materials for household goods from the trade partner.

Clothing exports are expected to reap the biggest windfall from the further removal of sanctions.

According to the Myanmar Garment Entrepreneurs Association, the US used to be the biggest market for the nation&'s garment industry, with export value to the destination in 2001 reaching $500 million - or about 60 per cent of a total of $817 million. In 2004, when sanctions were imposed, the overall export value dropped to $700 million and Japan became the biggest market.

The industry was resurrected after the European Union offered GSP to Myanmar in July 2013, which helped boost the overall export value for the sector to $1.65 billion last year.

Khine Khine Nwe, joint secretary-general of the Union of Myanmar Federation of Chamber of Commerce and Industry and secretary-general of the Myanmar Garment Manufacturers Association, warmly welcomed the US decision, saying it offered an opportunity for Myanmar garment exporters to re-enter the US market and companies to initiate or strengthen ties with American businesses and those who want to be a part of the global supply chain.

However, local manufacturers should realise that under the EU's GSP system, Myanmar can export all kinds of goods to the bloc, with "duty and quota free" trade preferences. Under the US's system, it remains to be seen what items would be allowed to enter the US market with trade preferences.

According to the US-Asean Business Council, the GSP programme should remove duties on more than 5,000 product lines.

Alexander Feldman, president and chief executive officer of the council, said the lifting of sanctions would increase US private-sector participation in the Myanmar economy, which would substantially benefit the people of Myanmar, especially around CSR (corporate social responsibility) programmes.

"US companies have been interested in Myanmar since sanctions were eased in 2012, but have been constrained in engaging in Myanmar by the challenges of conducting due diligence and compliance with regulations around the Specially- Designated Nationals [SDN] list," he said.

"This action would remove the single biggest obstacle to US companies engaging in Myanmar and allow US companies to compete on a level playing field with competitors from Europe, Asia and elsewhere."

Caution advised

Alison Stafford Powell, Baker & McKenzie sanctions expert and US partner, said that this level of sanctions relief could indeed lead to more investment, but US and non-US companies still needed to be cautious.

Non-US investors should also find it easier to procure financing from major international banks which, as a result of suffering huge fines for US sanctions violations, are extremely risk- averse to touching even lawful dealings with anyone who remains an SDN.

"KYC [know your customer] due diligence is still important though, as several SDNs remain and the prohibitions extend down to even unlisted entities that are 50 per cent or more owned by one or more SDN," she said.

Thai businessmen in the garment and fishery industries, meanwhile, foresee brighter opportunities for investment from Thailand.

Vallop Vitanakorn, adviser to the Thai Garment Manufacturers Association, said cheap labour in Myanmar and GSP privileges for exports to the US were attractive.

However, he noted that most Thai companies still hesitated to move facilities to Myanmar as the new government had not yet provided clear rules and laws for promoting foreign investment.

Another concern lies with the country's poor infrastructure, particularly electricity supply, he said.

"In the medium and long term, Myanmar will be the most attractive country to draw investment from Thailand, due mainly to its huge and cheap workforce, while Laos offers no labour supply and labour and utility costs in Cambodia are rising," he added.

Panisuan Jamnarnvej, former president of the Thai Frozen Foods Association, said some upstream Thai companies may be enticed to move to Myanmar to take advantage of abundant raw-material supplies, but not large operators, which were still waiting for improvements in the nation's road infrastructure and utilities systems.

Myanmar companies will also need to embrace new rules if they want to reap benefits from the US policy changes, according to Khine Khine Nwe.

"We should not forget that we are streamlining into the global market and that is not easy. The requirements of the US companies, the demand of the customers, consumers, all are to be very well taken care of. We need to follow global standards, product quality and safeness, responsible business conduct, CSR, labour standards, occupational health and safety, environment, there are many. The door is open, the market is out there. But whether we can reach the market depends on our supply side effort to fulfill those requirements and the effort from the buyer side to assist us to come up to that level," she stressed.

Professor Aung Tun Thet, senior adviser at United Nations Resident Coordinator’s Office, shared a similar view.

“We now have to prepare a lot to take all the opportunities that have been offered to us. Our business people need to devote enough time to learn about the descriptions of US GSP so that they can find the best ways to penetrate into the US market. We need to make sure we do not miss such a great opportunity,” he said.

Despite some cautions, the economist believes that the lifting of US sanctions and the reinstatement of GSP will improve the economic landscape of the country as a whole.

“It is a good signal that Myanmar is on the right track. It is also a benefit of practising democracy in our country. We have done all the required things. So we strongly deserve this kind of award,” he said.

Vikram Kumar, IFC Country Manager for Myanmar, said that the US move would help Myanmar get access to many other markets and smooth trade flows to other countries.

“One of the biggest constraints that Myanmar has faced because of the US sanctions is that the concern of financial institutions has affected Myanmar businesses. Most of Myanmar companies have to operate through Singapore… Here, traders and investors have the risks and nobody wants to export a very significant business volume,” he said.