Sherpa Hossainy's Blog

The MIC Permit Quandary: Top Five Mistakes When Applying

Posted in Myanmar, Uncategorized, Yangon by Sherpa Hossainy on August 23, 2014

Published in Myanmar Business Today (Vol 2, Issue 9) on Feb 21, 2014

Soe Zeya Tun/Reuters

Despite Myanmar being the “final frontier” for investments there are some sombre obstacles that foreign investors are bound to face as they prepare to pour in their money in the formerly-shunned Southeast Asian nation. The first hurdle comes when they apply to get an MIC Permit, an investment licence issued by the Myanmar Investment Commission that can command a significant amount of resources from the investors.

“The whole process of evaluation by the MIC is frontloaded. Everything is checked at the beginning of the process, such as land use, approvals from other ministries, environmental issues, capitalisation and the coherency of the financial projections. That makes for slow progress,” Edwin Vanderbruggen, a partner at VDB Loi, one of Myanmar’s leading law and advisory firms, told Myanmar Business Today.

“Some investors are poorly prepared. They underestimate the process.”

VDB Loi, in a recent client briefing note, elaborated some common mistakes investors make, which in turn leads to spending a lot of time and wasting valuable resources.

Not checking land use rights

“The MIC will verify at an early stage whether an investor has the right to use the land they plan to use. Whether it’s a plot of land they plan to build something on, a warehouse they sublease, or a terrain they will use as a plantation, the MIC will verify the legal merits of their use, which includes the lease agreement, the master lease (if any) and the land rights holder’s title (for lack of a better word) documentation,” Edwin wrote in the briefing note.

He said that for the investor to check everything in advance sounds straightforward enough, but it isn’t.

“Land due diligence is one of the toughest things to do in Myanmar, for various reasons. First of all, the land law is (mostly) quite dated, it is scattered across many different laws and regulations, and there are massive gaps between theory and       practice. Secondly, land owners are often, for one reason or another, reluctant to produce copies of their documents for inspection,” Edwin wrote.

Finally, in some cases, misunderstandings of laws and regulations by local land owners surface when the MIC gets involved, he added.

Financial projections do not meet MIC

“MIC have no time to familiarise themselves with each individual applicant’s way of presenting   the cash flow statement, capital expenditures, or loan repayment schedule. Our firm learned early on that to save time, you need to follow the structure the MIC likes to see,” Edwin said.

If the financial projections are prepared by the people that directly liaise with the MIC and who have experience in doing so, investors again save precious time and costs, he added.

Insufficient capital

Edwin said MIC keeps an increasingly close watch on the financing of investment projects, particularly to make sure that sufficient capital (equity) is used.

Although the 2012 Foreign Investment Law does not impose any minimum capital or debt-to­ equity restrictions, the MIC can set the policy by requiring applicants for an MIC Permit to increase the proposed capital of a project before granting its approval.

“Until now, our experience has been that the ratio the MIC agrees to will depend on the nature or business sector of the project and its particular financial planning.”

Other ministry approval

Edwin said many investors think that the MIC is “a kind of one­stop service.”

“In reality, investors almost always need to secure approvals from other relevant ministries before the MIC process can proceed, or sometimes even before it can be started. A thorough understanding of the internal workings of the government is a prerequisite to complete the MIC process swiftly.”

Running out of time

The problem of running out of time is more a miscalculation than a mistake as such, but it “is a potential deal killer,” Edwin said.

“Very often, investors have had to take on commitments to local partners, customers or the government based on overly optimistic timeframes to get operational.

“The best way to speed up the process is to use a highly responsive team resident in Nay Pyi Taw to keep in contact with the relevant Ministries on a daily basis. Depending on the situation, clients should also consider setting up the company before completing the MIC process so that some essential preparations, such as opening bank accounts and applying for an Importer/Exporter Card can already be completed.”


Travel and Luxury River Cruise Companies Scamper to Myanmar

Posted in Myanmar, Uncategorized, Yangon by Sherpa Hossainy on August 23, 2014

Published in Myanmar Business Today (Vol 2, Issue 2) on Jan 6, 2014

Backyard Travel

The unprecedented changes over the last couple of years in Myanmar have successfully grabbed the world’s attention, suddenly making the once-shunned, despot-ruled country into the “It” place to be – for tourists, conglomerates and investors alike.

Myanmar came out as the “Top Emerging Destination” in British travel magazine Wanderlust’s Readers’ Travel Awards survey; Lonely Planet has put Myanmar in its list of “top ten destinations” to visit, Forbes and CNN also dubbed Myanmar as one of the “hottest destinations” in the world.

In 2011, over 800,000 tourists visited Myanmar, an increase of 30 percent from the previous year. In 2012, more than 1 million foreign tourists visited the country and that figure is expected to rise to around 1.5 million in 2013.

The government, alongside the Asian Development Bank (ADB) and Norway, in June unveiled a half-a-billion dollar Tourism Master Plan. ADB predicted international visitor arrivals to rise as high as 7.5 million in 2020 with corresponding tourism receipts worth $10.1 billion.

Global tour and travel companies and luxury river cruise operators are also looking to bank on the surge of tourists. Many have beefed up their operations, announced new custom-designed tour packages and have offered lucrative discounts to grab a piece of the pie.

British adventure travel company Tucan Travel in December released 14 new adventure tours which combine travel in Myanmar with the rest of Southeast Asia.

The new combined tours range from 23 days to 64 days, one of the longest of Tucan’s adventure tours.

“With Burma being such an up and coming destination, we are delighted to do more to develop the links between this country and the rest of the region,” Matt Gannan, CEO of Tucan Travel, said. “We now have a wide variety of tours for those people who want to extend their stay in Southeast Asia for up to 64 days.”

Depending on the number of countries visited and length of the tour, prices for Tucan’s new “Burma and Southeast Asia visits” vary from $3,409 to $6,659, according to its website.

Tucan Travel launched their first tour in Myanmar in 2012. The company said the release of these new tours reflects its confidence in the growth of demand for authentic travel experiences in the region.

California-based AmaWaterways said in November 2013 that it will launch a new ship and new river cruise program onMyanmar’sAyeyarwady river in November this year. AmaWaterways started accepting bookings for its Myanmar cruises (November 2014 through April 2016) last year.

“We have so many exciting developments in the works, especially our new program and new ship in Myanmar,” said Kristin Karst, AmaWaterways Executive Vice President and Co-Owner.

“My own experiences in Myanmar have been absolutely amazing. Our new cruises there will immerse our guests in a place that has long been shut off from the rest of the world, and that’s an opportunity no world traveller will want to pass up.”

An optional 4-night post-cruise land extension is available on both itineraries, featuring three nights in Inle Lake and one night in Yangon. AmaWaterways’ river cruises are crafted to hit  Bagan, Mandalay, Moutn Popa, Inwa, Amarapura, Sagaing and Mingun.

Guests will cruise the Ayeyarwaddy aboard the newly built all-suite AmaPura, a 56-passenger vessel furnished with a combination of modern and traditional motifs. All 28 suites feature a balcony, an en suite bathroom and other deluxe amenities. The ship’s public areas include a restaurant, main lounge and bar, gift shop, spa, refreshing pool and a sun deck.

AmaWaterways’ Australian partner, Australian Pacific Touring (APT), also announced in November that it will launch a new river cruise program.

APT said it will offer guests the choice of two exclusive APT-only sailings in February and April 2015 aboard AmaPura as well as joint sailings. Full details of itineraries and pricing are expected to be announced this month.

Debra Fox, APT’s General Manager Marketing, said, “These are exciting times for APT, especially with the launch of our new ship in Myanmar. It’s a unique and spellbinding destination and one that has previously been out of reach to the Australian travelling public.”

Another travel company Backyard Travel, a Bangkok-based Asia travel specialist, in November announced discounted promotions for three of their Myanmar tours to lure more clients.

The company’s “A Tale of Two Cities: Mandalay to Bagan” and “Mruak U: The Hidden City” tours were available with a 10 percent discount until December, while the “Family Fun in Myanmar” was available with a 15-percent price cut.

“Myanmar is a country that inspires much intrigue and fascination,” said Backyard Travel’s General Manager Maeve Nolan.

“Demand for vacations in Myanmar has never been higher and we hope to inspire more travellers to visit with these great value promotions.”

Myanmar Economy to Grow 6.8pc; Inflation Poses Risk

Posted in Myanmar, Uncategorized, Yangon by Sherpa Hossainy on August 23, 2014

World Bank releases first Myanmar Economic Monitor

Published in Myanmar Business Today (Vol 1, Issue 41) on Nov 10, 2013

Labourers work at a construction site in downtown Yangon. Myanmar registered an impressive 6.5 percent growth in 2012-13, thanks to a strong performance in construction, services and gas production, the World Bank said in a report last week. Soe Zeya Tun/Reuters

Myanmar’s economy is set to grow 6.8 percent in 2013-14 fiscal year and rise further to 6.9 percent in the medium-term, banking on rising gas production, increased trade and stronger performance in agriculture, the World Bank (WB) said in a report last week.

The recently-opened Southeast Asian country registered a strong growth of 6.5 percent in 2012-13, driven mainly by strong performance in gas production, services, construction, foreign direct investment and commodity exports, the WB said.

“The stronger growth is not a surprise,” Tina Singhsacha, chief representative, Myanmar, Standard Chartered Bank, told Myanmar Business Today.

“The country is currently enjoying its reform dividend. Investments, infrastructure projects and increased trade will help to boost growth,” Tina said.

Although the outlook in the short to medium term remains positive, there are risks – both on the domestic as well as external fronts, the bank said.

Internal risks to the outlook include the challenge of maintaining the reform momentum, while externally, a slowdown in Chinese domestic investment and a decline in global commodity prices would hurt Myanmar, the WB said in its Myanmar Economic Monitor (MEM) report.

Soaring inflation could also dash the hopes of this impressive growth, which surpasses the average annual expansion of 5.1 percent expected in the ASEAN region. Inflation has been on the rise in recent months, reaching 7.3 percent in August, on account of increasing food and housing rental costs, the bank said.

“Inflation is currently low, but there are inflationary risks. External inflation has been contained amid lacklustre commodity prices, but accelerating growth could be inflationary considering limited supply-side factors such as rental housing. In addition, the authorities will need to develop more monetary tools to help manage money supply growth to complement the development of the financial system,” Tina said.

May Thet Zin, the World Bank’s Country Economist for Myanmar, said: “Rising inflation is always a cause for concern since it hurts the poor disproportionately, but economies do sometimes experience rising inflation, especially when in transition as is the case in Myanmar.”

However, there is no cause for alarm yet because inflation remains in single digits in Myanmar, May Thet Zin said.

“Nonetheless, it will be important for the authorities to keep a close eye on the situation so that it does not get out of hand.”

The WB said the various reforms recently undertaken by the government and planned reforms appropriately focus on improving the environment for business in the country. These include the removal of import and export licensing requirements on some 600 products, the approval of new regulations on foreign investment, the granting of licences to private insurance companies for the first time in 50 years and the enactment of the anti-corruption law, among others.

The MEM said in recent months the nominal and real effective exchange rates have been depreciating, reaching K975 to one US dollar in July, which helps to make Myanmar’s exports more competitive. Although these indicators appear to have started appreciating in August and September, which could erode Myanmar’s export competitiveness, it added.

The current account deficit increased to 4.4 percent of GDP in 2012-13, up from 2.4 percent in 2011-12, due to import liberalisation and lifting of some exchange restrictions, the WB said.

The report said the budget deficit decreased to 3.7 percent of GDP in 2012-13, from 4.6 percent in 2011-12. The 2013-14 budget provides for increased spending on social sectors, although the defence budget remains high.

Gross international reserves reached $4.6 billion at the end of 2012-13, equivalent to 3.7 months of imports, up from $4 billion in 2011-12.

Foreign direct investment in Myanmar had risen to $2.7 billion in 2012-13 from $1.9 billion in 2011-12, the WB said, in its first report since resuming operations in Myanmar in January. Most of that investment went into energy, garment, information technology and food and beverages sectors, it added.

The Myanmar Investment Commission’s (MIC) data shows an investment flow of $54 million in September, majority of them coming to manufacturing, agriculture, mining, and hotels and tourism sectors.

The World Bank’s Myanmar Economic Monitor looks at recent macroeconomic developments, recently implemented and planned policy reforms, and includes a special feature article.

“We believe by periodically bringing most recent economic data and analysis on development issues to government policy makers, think-tanks, civil society and citizens, the World Bank can contribute to informed debates and decision making on development policy within a rapidly changing Myanmar,” said Kanthan Shankar, World Bank Country Manager for Myanmar.

“By producing the Myanmar Economic Monitor, we hope to contribute towards providing data and information on recent economic and policy developments in the country as well as outlook going forward that various groups will find useful,” Khwima Nthara, WB’s senior country economist for Myanmar, said.

Ayeyarwady Bank to Introduce Internet Banking, Eyes Major Expansion

Posted in Myanmar, Uncategorized, Yangon by Sherpa Hossainy on August 23, 2014

Published in Myanmar Business Today (Vol 2, Issue 4) on Jan 14, 2014

Thura Maung (Colin), assistant general manager, Strategic Planning Department, Ayeyarwady Bank, poses for a photo following an interview with Myanmar Business Today. Sherpa Hossainy

When Colin came back to Myanmar from Singapore five months ago he found it “a very challenging environment” to work in. “When I was overseas, everything was in place. But when you work here, in terms of human capacity and productivity, it’s not the same at all. It’s also hard to communicate messages through sometimes,” said Colin (whose Myanmar name is Thura Maung), assistant general manager of Ayeyarwady Bank’s Strategic Planning Department, the brain behind the bank’s products and services, future plans and expansion strategies.

But now he is facing up to the challenges. “Sometimes it’s not about how much you know, but about how well you know how people work. There are challenges – not only domestic but also foreign banks are facing them.”

Ayeyarwady Bank, owned by tycoon U Zaw Zaw, started its operations in August 2010 after it received the Central Bank of Myanmar’s approval. Since then it has established 54 branches and expanded its customer base to about 150,000. The bank’s assets jumped from $95 million in 2011 to $536 million in June 2013, and revenues increased by a staggering 5,630 percent to $17.6 million over the same period.

The US Treasury in February last year lifted its sanctions on Ayeyarwady Bank, along with three other Myanmar banks, allowing them to engage in financial transactions with US institutions. All four banks remain on the SDN list, which allows the US government to respond quickly should the Myanmar government backslide on reforms.

Massive expansion planned

Ayeyarwady Bank, or Aya Bank, has a lot of upcoming developments in 2014, Colin said. “Our focus is to expand as much as possible and launch some new products and services to enhance customer experience. IT and technology based improvement will be our main focus.”

He said Ayeyarwady is looking to expand its branch numbers to 100 by this year “to make the bank’s services more accessible.”

However, he said the bank is daunted by the infrastructural challenges and human resources shortage. “It’s hard to find competent people for the new branches. There’s problem with electricity, transportation, telecommunications and internet.

“Sometimes you can risk having bad customer experiences in some places if you can’t take care of the infrastructural bottlenecks. As a bank we cannot afford this.”

Currently, Aya Bank has over 70 ATMs and the bank also has plans for a massive ATM network expansion, Colin said, without providing further details.

The big unveiling, however, from Ayeyarwady’s part is going to be the introduction of a complete internet banking solution in Myanmar for the first time. “Our launch of internet banking will be a breakthrough in Myanmar’s banking sector. Now some banks offer bill pay and other small services via online but we are going to provide fully-fledged internet banking which is not available [in Myanmar] right now.”

Aya Bank aims to accomplish that through a unique feature that already exists in the bank – Core Banking System.

CORE banking system and internet banking

Aya was the first and yet the only bank in Myanmar to implement a fully centralised CORE Banking System for all its branches. In CORE Banking System, or centralised online real-time electronic banking, all the branches of a bank access applications from centralised datacenters. This means that the deposits made are reflected immediately on the bank’s servers and the customer can withdraw the deposited money from any of the bank’s branches. Other banks in Myanmar use a distributed core banking system, where there are several databases around the country.

Colin said core banking has a lot of setback and a lot of advantages. “You can take out money anywhere, you can transfer money from one city to another, and you can also transfer money to other banks. But, the drawback is the infrastructural problems we face. The infrastructure is not strong enough to support the network – there are line drops, slow and disrupted connection and so on,” he said, adding that the bank had to spend a lot of money to tackle those problems using advanced equipment.

However, he thinks taking care of the problem should not be on the banks’ side. “Every bank is facing this issue. I think that’s why many haven’t been able to properly implement core banking. It very much depends on how the government builds up the infrastructure,” Colin said, adding that the entry of two telecom players – Telenor and Ooredoo – will help improve the communication infrastructure problems.

Colin said Aya’s IT department is still working on the internet banking system to improve its security features, and taking its time so that the solution meets international standard. “We are still in the testing phase and no fixed time for the launch has been set. But we are definitely going to launch it by the end of this year – it might not even take that long.”

Payment networks

Ayeyarwady has agreements with most payment networks that operate in Myanmar. It struck deals with Visa in December last year, MasterCard and China Union Pay in November, and with Western Union in July 2013.

The bank also has remittance service set up with Singapore’s DBS Bank. There are plans to expand Aya’s remittance services to Thailand but nothing have been set out yet. Aya has formed strategic alliance with some Japanese banks regarding remittance, Colin said.

Ayeyarwady is also planning to launch tap and go Visa Prepaid cards in Myanmar, he said. Tap and go system uses contactless ATMs that allow customers to withdraw money [up to a certain limit] without putting a card into a cash machine. The user swipes their card across a machine’s reader and transaction is done using a touch-screen and data entry pad. The new technology is believed to be a faster way to access cash and able to reduce the likelihood of customers leaving their cards at machines by mistake.

Trust and reforms

Colin said Myanmar’s traditional cash-based economy will take some time to move from one era to another. “Trust is a thing that you need to build over time. I understand that we had a financial crisis and a lot of people lost their faith in banks. But the era from the last time and now is very much different.”

He said the central bank has taken a lot of measures and is now standing behind the banks. “I’m sure the financial crisis will not happen again.”

Colin said there are a lot of pros and cons of the breakneck speed of reforms. “Opening up the country is good but that represents some risk as well. Myanmar was an unknown place that turned into the hottest destination in the world. Everybody is coming in, investments are pouring in – it’s all good. The risk is whether we would be able to sustain these reforms.”

Colin is apprehensive about the entry of foreign banks in Myanmar as he thinks local banks are not ready to compete in an open market with international banks having years of expertise, better technology and human resources.

“Either a foreign bank is wholly owned or forms joint venture with local bank, both arrangements have their pros and cons. Even if the wholly owned subsidiaries are allowed, we should have some control measures so that we don’t hurt our local banks. End of the day, this is our country, and we need local banking industry to develop,” he said.


Colin said despite the tremendous changes over the last two years there are still question marks ahead in terms of political risks, and that “2015 will be the tipping point.”

“If Central Bank of Myanmar’s financial reforms go according to the plan our banking standard should be at least up to Thai standard if not international standard. We can achieve that in five years,” Colin said.

“Opening up is a lot of challenge. We are playing catch up and trying to do it very fast with low capacity and human resources, and bad infrastructure – the challenge is quite big. People have been waiting for 50 years, so they can wait for two more.”

%d bloggers like this: