Sherpa Hossainy's Blog

Myanmar-Bangladesh bilateral trade: Mired in lack of connectivity

Posted in Bangladesh, Banking, Business, Dhaka, Economy, Export and Import, Finance, Interviews, Investment, Myanmar, Yangon by Sherpa Hossainy on July 9, 2013

Bangladesh is keen to resolve all the barriers to trade and tap the huge potential of Myanmar, which it sees as a key regional partner and gateway to Southeast Asia, says Bangladesh Commerce Minister

Published in Myanmar Business Today (Vol 1, Issue 11) on April 4, 2013

PDF

A dearth of basic land, air and sea connectivity is daunting the prospects of boosting the bilateral trade between Myanmar and Bangladesh, the Minister for Commerce of Bangladesh said.

“The transport and communication infrastructure is very poor between Myanmar and Bangladesh despite being neighbours. We still haven’t been able to resume the air linkage and we don’t even have land links with Myanmar’s major cities. This is gravely hurting the prospects of a better trade,” GM Quader told Myanmar Business Today.

GM Quader, Minister for Commerce of Bangladesh, speaks to Myanmar Business Today during his visit to Myanmar at the Bangladesh Embassy in Yangon. Sherpa Hossainy

GM Quader, Minister for Commerce of Bangladesh, speaks to Myanmar Business Today during his visit to Myanmar at the Bangladesh Embassy in Yangon. Sherpa Hossainy

Myanmar and Bangladesh have been working to re-establish direct air link to connect Yangon and Dhaka after Biman Bangladesh Airlines, the national flag carrier of Bangladesh, suspended its flight between Dhaka and Yangon in 2007 against the backdrop of economic losses.

Bangladeshi cabinet in June last year approved a proposal for inking a deal with its Southeastern neighbour to resume direct flight service, which will allow seven passenger and four cargo flights to fly between Dhaka and Yangon every week.

“The agreement has been finalised and signed. However, Biman is not in a position financially to start a route which will take some time to become profitable, and airlines from Myanmar are also hesitant about getting into a financially risky venture,” Quader said.

During Bangladeshi Prime Minsiter Sheikh Hasina’s visit to Myanmar in 2011, the two countries agreed to develop their land, sea and air connectivity.

“These three are the biggest barriers for us. India, China and Thailand have a good connectivity structure with Myanmar in place via air, sea and land. We have to improve our connectivity if we have to improve the trade,” the Bangladeshi Commerce Minister said while visiting Myanmar last month.

When asked why Bangladesh have reacted slower than other Myanmar neighbours such as India, China and Thailand to the recent economic reform process the minister said they were “well-ahead than anyone even before the reforms began.”

“China and Thailand have basic advantages. Their manufacturing and production base is much stronger and they are way ahead than us in terms of investing in other countries.”

China is Myanmar’s biggest trading partner, followed by Thailand. Bilateral trade between China and Myanmar was worth about $3.6 billion in the fiscal year 2011-12, according to Myanmar’s Ministry of Commerce, while bilateral trade between Myanmar and Thailand stood at $4.576 billion in 2012. Myanmar-India bilateral trade reached $1.19 billion in 2009-10, making it Myanmar’s fourth largest trading partner after Thailand, China and Singapore.

Besides air linkage, Bangladesh and Myanmar also haven’t been able to develop any reliable road network in the bordering areas. However, the minister hoped that the proposed Asian Highway will hugely boost the road connectivity.

The Asian Highway project, also known as the Great Asian Highway, is a cooperative project among countries in Asia and Europe and the United Nations Economic and Social Commission for Asia and the Pacific (ESCAP), to improve the highway systems in Asia.

A sub-regional organisation of Asian nations called the Bangladesh-China-India-Myanmar Forum for Regional Cooperation (BCIM), established in 1999 for greater integration of trade and investment between the four countries, organises a car rally, widely known as Kolkata to Kunming (K2K) car rally, to explore the potentials of expanding trade, investment and tourism, and enhance connectivity in the region along the Kolkata-Kunming route.

“We have to establish major road links with Myanmar to get access to Southeast Asia. Myanmar is our gateway to get into the markets of Thailand, Laos and Cambodia,” Quader said. Talks are also underway to allow Myanmar water vessels into Bangladesh’s inland waterways and vice versa to strengthen the sea connectivity, he added.

Asian Highway mapThe Bangladeshi minister also pointed out banking as “one of the biggest barriers” to Myanmar Bangladesh bilateral trade as there is a cap on transaction amount in place. Both countries are trying to increase border trade, which was hit hard by the recent sectarian violence in Myanmar’s Rakhine state.

“We are planning to set up wholesale markets and warehouses along the border. Bank draft margin has also been increased from $30,000 to $50,000 to facilitate trade. These issues were not stressed that much before as the trade volume was low and there were sanctions against Myanmar banks, but now we are developing mechanisms to remove the existing obstacles,” he said.

The border trade between the two countries is still low (125 commodities) compared to the existing potential and overseas trade. About 10,000 commodities are traded along the Myanmar-China border, while about 3,000 commodities are traded in Myanmar-Thailand border trade.

During the 6th Joint Trade Commission (JTC) meeting between Myanmar and Bangladesh held in Dhaka in November last year, both countries agreed to enhance the volume of bilateral trade to $500 million from around $100 million annually.

The bilateral trade between the two neighbours amounted to only about $79 million in 2011-12 fiscal year, while it stood at $170 million in fiscal 2010-11. Bangladesh exported goods to Myanmar worth $13.45 million during the fiscal year 2011-12.

However, the volume of unofficial trade between the two countries is about $300 million per year, Border Guards of Bangladesh (BGB) sources were quoted as saying in Bangladeshi media.

Bangladesh exports steel products, light engineering machinery, cement, dry foods, medicines and cosmetics to Myanmar and imports fish, timber, spices, synthetic foot-wears, among others. Besides the formal trade, a large quantity of petroleum products, fertilisers, agricultural inputs, and automobile parts are also smuggled into Myanmar.

The minister agreed that illegal border trade has been a problem as there were no formal banking channels in place. “Businesspeople don’t want to do illegal trade. But the payment system was complicated and they had to do transactions through hundis. But we are trying to clear the restrictions now so that all businesses can be done legally.”

During the Bangladesh Prime Minister’s visit Myanmar and Bangladesh signed memorandum of understandings to establish a Joint Commission for bilateral cooperation and a Joint Business Council (JBC) between the Republic of the Union of Myanmar Federation of Chambers of Commerce and Industry (UMFCCI) and the Federation of Bangladesh Chambers of Commerce and Industry (FBCCI).

Bangladesh is also interested in importing power from Myanmar as a power-starved country, the Minister said. “Not only power, we have to develop all kinds of infrastructures to facilitate business. Now people do business via Singapore or Bangkok and it takes a lot of time and money for businesspeople.”

“However, we have identified the barriers and efforts are being made from both sides to overcome those,” he said.

The Bangladeshi Commerce Minister said the trade volume between Myanmar and Bangladesh hasn’t reached a satisfactory level because of former Western sanctions and economic isolation of Myanmar, but the doors for business seem to have opened again.

“The opportunities are huge in Myanmar as it’s a very resourceful country. They have abundant agricultural products such as rice, pulse and beans. They have timber, oil and gas and jade, and most of the resources are mostly untapped here,” he said.

“The biggest advantage for Bangladesh is its geographical location. Many of our products are globally well-known for their quality such as readymade garments, leather and pharmaceuticals. Even Bangladesh’s shipbuilding industry, a sector where Bangladesh is recently registering remarkable export growth, has a great potential here.”

Bangladesh is the world’s second largest readymade garment exporter behind China with annual exports of about $20 billion and its leather industry is set to cross $1-billion mark in export earnings this fiscal year. The pharmaceutical industry in Bangladesh is one of the most developed hi-tech sectors within the country’s economy, with an export amount of over $50 million.

“If we can further the ties between the businesspeople of the two countries, and from the government’s part if we can ease the existing barriers then we can definitely develop our bilateral trade at a very faster rate,” he said.

“We both have goods that we need and can provide. So, the possibilities are endless.”

However, the Minister said it would take some time for Bangladeshi investors to come and invest in Myanmar because of Bangladesh government’s “rather strict” policy towards its businesspeople investing in other countries. “Only three to four months ago we started allowing foreign investments from Bangladesh in a case-by-case basis. Investment policy from our side to outside is still too restricted.”

“However, we are interested to invest in the cement industry in Myanmar as they have available raw materials. If Bangladeshi entrepreneurs are interested and Myanmar agrees to supply the raw materials we can go ahead and set up cement factories here,” Quader said. We also welcome any Myanmar investors who are interested to invest in Bangladesh, he added.

“We are very hopeful that there will be positive development. The Bangladeshi businesspeople who came here said they received overwhelming response from the Myanmar side.

“There is a huge trade prospect for both countries. The whole world is trying to establish their presence in Myanmar now. As a next door neighbour we shouldn’t just sit idly and let the opportunities fly past,” the Minister said.

IFC estimates Myanmar’s microcredit demand at $1b

Posted in Banking, Finance, Microfinance, Myanmar, Yangon by Sherpa Hossainy on July 9, 2013

Published in Myanmar Business Today (Vol 1, Issue 4) on February 14, 2013

PDF

Demand for microfinance in Myanmar exceeds supply four times as the country’s economy expands following decades of isolation, highlighting the need to build up sustainable microfinance institutions, a study finds.

The study estimates that the total of outstanding loans in Myanmar currently stands at around $283 million whereas demand for microcredit is estimated at $1 billion.

The report, entitled “Microfinance in Myanmar – Sector Assessment,” released on January 29 by IFC, a member of the World Bank Group, and CGAP, a policy and research, said the demand is particularly high among farmers in Myanmar’s rural areas where more than two-thirds of the population lives.

“Myanmar’s microfinance law of November 2011 allowed the development of a nascent microfinance industry. Now there is an opportunity to support existing institutions and bring in new organisations to build a commercially sustainable microfinance network that improves access to finance for small and medium entrepreneurs and rural clients,” said Paul Luchtenburg, IFC’s Microfinance Program Manager in East Asia Pacific and one of the report’s co-authors.

The joint IFC/CGAP report is the first comprehensive publicly available assessment of the microfinance landscape in Myanmar since the enactment of country’s microfinance law in late 2011.

It highlights that the financial sector is underdeveloped compared to the rest of the East Asia Pacific region. Myanmar is one of the poorest countries in the region and increased access to financial services would greatly benefit its population and help the nascent small and medium enterprises, which form the backbone of Myanmar’s economy, grow and create jobs.

The report finds that Myanmar’s banking sector so far has found it commercially challenging to extend financial access to the poor. As a result, fewer than 20 people out of 100 have access to formal financial services, with most people relying on family savings or costly alternatives such as informal money lenders. At the same time, the market among Myanmar’s total population of around 60 million is large enough to attract domestic and international banks that could significantly improve outreach and contribute to innovation in the sector.

“With Myanmar’s breathtaking speed of change, government authorities and regulators are faced with the challenge of quickly bringing policies and regulations in line with the growing economic activity in the country,” said Eric Duflos, CGAP’s Regional Representative for East Asia Pacific and one of the report’s co-authors.

“The current microfinance law clearly signals government commitment to financial inclusion. We recommend that Myanmar’s financial regulators and supervisors adopt international good practices for microfinance as quickly as possible.”

The IFC last month announced that it had ventured into the microfinance sector by lending $2 million to Cambodia-based Acleda Bank for its microfinance project in Myanmar.

Myanmar gets total debt relief of $6b

Posted in Banking, Finance, Myanmar, Yangon by Sherpa Hossainy on July 9, 2013

World Bank and ADB writes off debt; aid flows set to rise

Published in Myanmar Business Today (Vol 1, Issue 3) on February 7, 2013

PDF

Myanmar has cleared its arrears to the World Bank and Asian Development Bank and secured a huge debt write-off by creditor countries grouped in the Paris Club, clearing the way for aid donors to step up work to support the government’s reforms.

On January 28, the Asian Development Bank (ADB) said the arrears owed to it had been cleared with the help of Japan, so it could resume operations in Myanmar. It offered a $512 million loan for social and economic projects.

The World Bank said Myanmar had also paid the money owed to it, again with the help of Japan, and it had responded with a $440 million credit.

The government said in a statement it had met creditors grouped in the Paris Club on January 25 and they had agreed to cancel half of the arrears Myanmar owed them in two stages, rescheduling the rest over 15 years, with seven years’ grace.

Norway had cancelled all the $534 million owed to it, while Japan was cancelling more than $3 billion, it said. “These agreements result in total debt relief of around $6 billion, more than 60 per cent of total debt,” the government said.

Myanmar stopped payments on its old loans about 1987, making it ineligible for new development lending.

Finance Minister Win Shein said in the statement this marked “an era of new relationships in which Myanmar is committed to fully cooperate with all members of the Paris Club”. He promised that resources freed up by the debt relief would be used for development projects and poverty reduction.

The Manila-based ADB said bridge financing provided to Myanmar by the Japan Bank for International Cooperation (JBIC) this month allowed the government to pay off arrears to the ADB of about $500 million.

The World Bank, in its statement from Washington on January 27, said its new loan would be used in part to “help the government meet its foreign exchange needs”, which included repaying a JBIC bridge loan used to clear arrears. The World Bank arrears had been put at about $400 million.

The World Bank said its credit would support reforms to strengthen macroeconomic stability and to improve public financial management and the investment climate.

“Myanmar has come a long way in its economic transformation, undertaking unprecedented reforms to improve people’s lives, especially the poor and vulnerable,” the statement quoted the World Bank’s Myanmar Country Director Annette Dixon as saying.

“The Bank’s engagement, together with the ADB, the Government of Japan and other partners, will help attract investment, spur growth and create jobs,” Dixon said.

The ADB, which reopened an office in Yangon, Myanmar’s commercial capital, in April 2012, said the clearing of arrears allowed it to provide its first loan to the country in more than 30 years.

U Thein Sein’s government has had to start practically from scratch in developing a modern economy. Reflecting that, the ADB said it would focus on “the building blocks for stability and sustainability”. Among other things, it would look at improving public finances and developing the finance sector.

The loan would be used to “finalise arrears clearance and sustain government efforts to revamp the national budget process and modernise tax administration,” the ADB said.

“In rural areas, where development has been hindered by lack of infrastructure, restrictions on land usage, poorly developed support services and limited access to financial services for farmers, ADB funding will help develop a strategy to make banking services more widely available,” it said.

The government outlined a detailed programme at a big aid donors’ conference in the capital, Nay Pyi Taw, on January 19-20.

The World Bank said it had already provided an $80 million grant for improvements to rural infrastructure, including schools, health clinics, roads and irrigation schemes in about 640 villages across Myanmar over six years.

The International Monetary Fund said on January 17 the government had asked for its help to pursue reforms and craft economic policies so that Myanmar could become part of the global economy.

Myanmar had run up $8.4 billion in debt during the socialist regime of the late Gen. Ne Win between 1962 and 1988, and $2.61 billion of debt after a new military junta took over in 1988, making for a total of just more than $11 billion.

The largest creditor before 1988 was Japan, with loans of $6.39 billion, and the biggest post-1988 creditor was China, with $2.13 billion.

State-run banks losing shine in export financing

Posted in Bangladesh, Banking, Business, Dhaka, Export and Import, Finance by Sherpa Hossainy on January 4, 2012

Published in The Independent on 4 January 2012

Read the article on Independent website

Digital print version

The state-run banks are becoming a lacklustre option for export financing despite the fact that they offer lower interest rates and have better access to funds, exporters say.

Exporters nowadays are rather opting for private commercial banks, which provide fast and well-organised service, while the government banks are fraught with inept and complex procedures, bureaucratic red tapes and sluggish service. However, exporters still rely on state-run banks when it comes to big volume financing as arranging vast amount of cash is often hard for private banks.

“The processing of simple loan applications in state-run banks is very lengthy and it’s difficult to go through all the voluminous paperwork,” said Abdus Salam Murshedy, president of the Exporters Association of Bangladesh (EAB).

The EAB chief said the state-owned banks played an extraordinary role in industrialisation and export financing during the 80s and 90s but couldn’t keep up with the changing needs of exporters and struggled to provide efficient service.

“The private banks slowly took over the financing of export-oriented sectors because of their superior services. They also maintain better customer relations,” Murshedy told The Independent. The state-run banks are performing poorly in industrial loan recovery, he added.

The private banks’ top-notch service and hassle-free financing had made an increasing number of exporters move away from state-run banks.

Anowarul Islam, a garment exporter, said, “Private banks have state-of-the-art facilities and they are proactive in communication. Opening letters of credit and availing loans are much easier in private banks.”

The state-run banks, on the other hand, claim that they are providing better facilities such as lower lending rates and easy access to loans.

Md Abdur Razzaque, assistant general manager of Foreign Trade Department of Janata Bank, said, “State-run banks’ interest rate for exporters is 7 per cent, while the private banks charge 18 per cent. We have no extra fees and ‘hidden charges’ like private banks.”

Razzaque said private banks are reluctant to help small clients and state banks are still the solution to  them. He said the regular collateral ratio is 1:1.5, but for exporters it is either 1:1 or collateral-free.

He said the state banks are serving a big customer base and that could sometime lead to slow service. “If a private bank serves 10 clients, we serve 110. They have a selective customer base, we serve everyone,” Razzaque said.

Razzaque said state-run banks are working in line with the government’s export policy and give highest priority to the export sector. The state banks arranged quick cash during Eid for the garment exporters to pay their workers which helped avert labour unrest, he added.

Financing exports at a subsidised rate also makes it hard for the state-run banks to make any profit. “Sometimes we even make losses, but we are following government policy to help exports,” Razzaque said.

However, private banks defended their high interest rates, citing rising inflation and monetary policy pressures. “On top of the inflationary growth and tight fiscal policy, we have to think about availability of funds and the costs of running an operation. If you consider these things I’d say we are not charging high interest rates,” said Muhammad A (Rumee) Ali, chairman of BRAC Bank.

Murshedy said state banks can afford lending at a lower rate because they face much less liquidity crisis and get big funds from the government. “The private banks collect money from the public and they have a much higher risk factor,” he said.

He, however, said, “When it comes to big loans, there is little to do but to go to the government banks. Private banks have to form consortiums to put together such big amounts.”

At present, the government under the Export Credit Guarantee Scheme provides Export Credit Guarantee (Pre-shipment), Export Credit Guarantee (Post-shipment), Export Payment Risk Policy (Comprehensive Guarantee) and Whole Turnover Pre-shipment Finance Guarantee, covering risks on export credit as well as probable commercial and political risks occurring abroad.

The government also provides loans and venture capital on easy terms and low interest rates from the Export Promotion Fund (EPF) for the exporters. The Export Policy 1997-2002 also ensured incentives such as rebate on insurance premium, income tax rebate on export earnings, duty drawbacks, tax holiday and cash subsidies.

%d bloggers like this: