SINGAPORE, May 9 — Three years after Myanmar liberalised its economy, a second wave of Singapore companies is flocking to the rapidly-developing South East Asian country — setting up upmarket pre-school centres, swanky bars and eateries, as well as building posh condominiums.
Quaich Bar and the Whisky Store, the Les Amis Group, as well as pre-school operator Modern Montessori were among the Singapore firms that have set up shop in Myanmar in the past 18 months, with the aim of cashing in on a growing middle class and the general population’s rising affluence.
These latest entrants to the Myanmar market are following in the footsteps of big players, including construction and property firms such as Surbana, Soilbuild and Tiong Aik, that moved in to jostle for business deals in the first wave, when the country was looking to build its physical infrastructure.
A distinguishing feature of the second wave of Singapore companies moving into Myanmar is their decidedly lifestyle bent: They offer food and beverage, education and lifestyle services, all of which are attracting the swelling ranks of a growing middle-class that is on the move and in search of places and products to spend their new-found wealth on.
For the Les Amis Group, spokesman Raymond Lim made clear what its target was: “We felt there was very little supply in terms of restaurants, at the high end of the market.”
The group opened a Peperoni Pizzeria restaurant and a House of Singapura outlet in Yangon last May, with plans to open more outlets in Mandalay and Bagon.
Quaich Bar has set up Cask 81 bar in an affluent district in Yangon, targeting locals and expatriates. This is the firm’s first foray into a developing country. “Our whiskies range from those in the very low to very high end. But these days, even locals can afford to buy our high-end products,” said co-owner Chua Khoon Hui.
Also targeting the more well-off is Modern Montessori International (MMI), which gauged that the high-quality early childhood education sector has untapped potential. In March, it opened a 5,000 sq ft preschool in Yangon’s affluent Bahan township. Plans are afoot to open more centres.
Dr T Chandroo, CEO of Modern Montessori International Group, said: “Our recent entry into Myanmar is part of MMI’s strategy to accelerate expansion plans in the region to capitalise on growing demand for high-quality early childhood education in Asia, especially in countries with very large, young, vibrant and upwardly mobile populations such as Myanmar.”
With more than five million people and its status as a commercial centre, Yangon is a popular starting point for companies venturing into Myanmar.
After decades of ostracism and economic decline, Myanmar’s military leaders moved to shed the country’s pariah status in 2011 by lifting restrictions on political opponents, freeing political prisoners and relaxing other rules. In June 2012, Myanmar President Thein Sein announced economic reforms aimed at rolling back decades of state control over the country’s sheltered and dysfunctional economy.
Following the liberalisation of Myanmar’s economy, there has been a surge of direct investments from Singapore, said International Enterprise (IE) Singapore. Between 2012 and 2013, the Republic’s direct investment in Myanmar grew by 41.5 per cent to reach S$311.4 million (RM843 million). In 2013, Singapore became Myanmar’s third-largest trading partner. Bilateral trade increased 6.6 per cent year-on-year to reach S$3.23 billion last year.
IE Singapore’s divisional director (South East Asia Group) Lai Shu Ying said: “Myanmar’s natural strengths lie in its strategic location at the crossroads of India, China and South East Asia, allowing it access to a huge combined market. It also has a young, highly literate population and access to vast land and natural resources.”
She added that the nation has made “impressive strides in reforming its economy and strengthening its financial and legal framework in recent years”. Singapore companies have made good inroads in the areas of urban development, connectivity and finance, she said.
“If reforms continue to stay on track, Myanmar has the potential to realise its aspirations of becoming a middle-income economy,” said Ms Lai.
A growing middle class
Based on a Euromonitor report published last year, the number of middle-class consumers in Myanmar is expected to double by 2020. Real annual gross domestic product grew 6 per cent on average between 2009 and 2013, and this is expected to rise to 8 per cent over the subsequent five years. The country is rich in natural resources such as gas, oil, gems, zinc and copper.
Its growing middle class has bolstered sales of non-essential products, such as beauty and personal care as well as tissue and home-care products. Sales of beauty and personal-care items reached a market value of US$318 million in 2013, after growing at a compound annual growth rate of 14 per cent since 2009.
The report said consumer demand for goods is exceeding supply, with retailers planning to expand in Myanmar’s second-tier cities and develop logistics and distribution networks. The number of potential consumers is expected to rise, while consumer expenditure may triple over the next decade.
Singapore businessmen observed that Myanmar has changed dramatically since it embarked on its political and economic reforms in 2011 after decades of military rule. Daniel Ding, director of business development and investment at Singapore-based property firm Soilbuild Group, said: “There wasn’t any middle class when we first came. A good indication is the malls. Now, they are sprouting up. In the past, people went to malls to eat and drink. But now, you can see people spending money on goods.
“Three years ago, there were not many cars or high-rise buildings. Today, you are bound to get stuck in traffic jams, and you can see a lot of construction of high-rise buildings.”
The expansion of infrastructure presents many business opportunities for foreign firms, Ding noted, adding that his company is eyeing infrastructure projects in its next phase of business development in Myanmar.
Soilbuild started operations in the country in 2012, initially dabbling in project management and has since branched out into real estate development. Currently, it has six project management contracts covering developments across the residential, office and hotel sectors. Later this year, it will launch a 176-unit high-end condominium with a Myanmar partner.
Another Singapore company, property and construction group Tiong Aik, will also be launching a boutique condominium in the second half of the year. The group started in lubricants and property development when it first ventured into Myanmar.
Said its CEO Neo Tiam Boon: “There is oversupply in certain segments of housing, so we have identified very carefully a market that is not being addressed — the middle to upper-middle class. There are also people with significant savings who want to invest in properties.”
The company is also working on a new logistics hub, not only to serve its businesses, but also other firms in the non-perishables sector. The hub will help to fulfil the growing need for supply-chain capabilities in Myanmar, said Neo.
According to Surbana, Myanmar’s construction sector is currently valued at about US$3 billion. It is expected to achieve 46 per cent growth to US$4.2 billion by next year. Surbana started operations there in 2012 and has since taken on more than 20 projects in various parts of the country in the residential and tourism sectors, said Pang Yee Ean, CEO of Surbana International Consultants.
“We have identified the infrastructure sector as a key growth area and there are essential and urgent works needed to serve Myanmar’s larger development needs.”
While the lifestyle niche is getting a lot of attention from Singapore firms, there are some brand-name companies that still have an eye cocked towards Myanmar and the opportunities it presents. In the past fortnight, for instance, two Singapore banks — OCBC and United Overseas Bank — opened a branch each in Yangon. They were among the nine foreign banks that received provisional banking licences in October last year.
While there are abundant opportunities, Singapore companies said there are pitfalls aplenty too. For instance, payment modes are still very traditional, said Lim of Les Amis, with most people paying in cash and not credit cards. As a common practice, landlords there also require tenants to pay a full year’s rent in advance, which would be a challenge for smaller businesses, he added.
Lim noted that the supply chain for perishable food is virtually non-existent, with no logistics service from the airport to the warehouse, for instance. “Our chef has to go to the market to make day-to-day purchases… We can’t just order frozen chicken and have it arrive in a cold truck. And for non-perishables, there aren’t wholesalers or food distributors. We even have to bring in our specialised kitchen equipment from Thailand by land transport, as it is very difficult to find such equipment there,” he said.
Quaich Bar’s Chua said it is tricky for food-and-beverage firms to operate in a country that is largely conservative and religious. “Recently, an operator of a bar there got jailed for putting earphones over a Buddha statue,” he said.
“Licensing is also a problem, with the authorities changing the hours (for licensees to sell alcohol) anytime. When something happens, they clamp down… and then they will randomly relax the restrictions.”
He added that there is a cap on the number of alcohol licences issued. So a new bar, for example, has to pay an existing licensee to take over a licence.
Wait-and-see approach as election nears
While Singapore firms have ventured into Myanmar aggressively, some are now adopting a wait-and-see approach as the nation gears up for what The Economist magazine has described as possibly “the first genuine electoral competition for national power after half a century of military rule”.
Myanmar is expected to hold its general election towards the end of the year. Thein Sein, who took office in 2011, has indicated that he would step aside after the polls.
Soilbuild’s Ding said: “Everyone is waiting for the election to take place to see if there are going to be any spillover effects.” However, he pointed out that it is important that his business has established a footprint in Myanmar. “We have an early mover advantage, more lead time, before the big boys move in after the election with their money,” he said. “It will then become a lot more competitive, as companies will have to compete against much bigger names for the affection of locals. Myanmar is a sleeping dragon that is going to wake up very soon.”
Tiong Aik’s Neo is confident that the country will continue with reforms, regardless of the outcome of the election. “We believe Myanmar will continue to liberalise its economy because the people have tasted the sweetness of an open country,” he said.
The National League for Democracy (NLD), led by democracy icon Aung San Suu Kyi, boycotted the previous general election in 2010. In by-elections held in 2012, the opposition party romped to a landslide victory, winning 43 of the 44 seats it had contested, among a total of 46 seats up for grabs.
However, political analysts felt it is unlikely that the NLD will win a majority in the government for the coming elections and take over the running of the country. Even if the opposition comes to power, the political situation may not change much. Dr Tin Maung Maung Than, a senior research fellow specialising in Myanmar’s politics and development at the Institute of Southeast Asian Studies, said: “People are concerned that if there is a new government, it may (result in) a more protectionist policy. But even if Aung San wins, she can’t do too much because the country has been institutionalised.”
Nevertheless, there is a possibility that the next Myanmar government may be more selective when it comes to foreign investments, as there has been talk about having more socially responsible foreign companies, especially with regard to resource extraction.
Despite the flood of investments, the benefits have yet to trickle down to the man in the street. Dr Tin noted that jobs had been added in sectors such as tourism and hospitality. “But generally, the public has felt that (after) three or four years of reform... the trickle-down effect hasn’t occurred in many places,” he said. “Even in urban areas, growth is still slow, jobs and pay are still low, although the parliament is talking about imposing a minimum wage.”
Ngwe Zaw, 45, who works in Yangon as a general manager, said the people are getting “a little impatient” about change in their lives. “They are… asking why it is so slow. But we understand (change) has to go through step by step,” he said.
He added that while businesses seemed to be worried that a change in government could set economic reforms back, there is a clamour for the opposition to take over the running of the country.
“People still love Aung San and believe she will (lead) the country in the right direction. But business circles think she doesn’t have a strong team yet to help her manage the country. They think we (the voters) should give the (incumbent government) more time to make the country stronger,” he said. — TODAY