The need for a vibrant SME sector

A wide range of products were on display at the function hall of Mt. Zwegabin Hotel in Hpa-an, Kayin State last September 3. The Institute for Small and Medium Enterprise Development (ISMED) of the Thailand Ministry of Industry organized the Border Trade Road Show to promote products from small

and medium enterprises (SME). The exhib- it featured food and beverages, textile and clothing, souvenir items, furniture and oth- er products made in Thailand. On the Myanmar side, products on display included raw agricultural products like rubber, beans and grains, and handicrafts, with the traditional Kayin dress as the bestseller.

The Thais are dynamic in promoting their products, organizing three border trade ex- hibits for the year – two in Myanmar (Maw- lamyine in Mon State and Hpa-an, Kayin State) and one in Thailand at Mae Sot in Tak province. Consistent promotions contributed to the increase in trade between the two countries totalling $349 million for the first

five months of the year, $259 million of the amount represent Myanmar’s import from Thailand. The difference can be explained by the sophistication of products from Thailand and the raw agricultural products from Myanmar which brings us to the subject of the need for more support to improve products from Myanmar entrepreneurs.

It is estimated that the SMEs make up more than 90% of the total business entities in the country. The Directorate of Investment and Company Administration (DICA) placed the number of registered companies since 1988 at 71,000, with the unregistered enterprises estimated to be within the same number. The inherent instability of informal enterprises and even most registered SMEs, make it risky for financial service providers. Small enterprises play a vital role in the economic development of a country, creat- ing employment and income opportunities for other people, thus contributing to lower poverty rate.

However, the increase in the number of small, informal and unregistered enter- prises is a growing concern because they are beyond supervision and support. They  cannot avail of services from financial institutions, trade facilitation agencies and capacity-building activities provided by the government and business development agencies, all of which are necessary for stability and growth. Without support, informal enterprises would either die a natural death or be knocked out by bigger and more efficient enterprises. With consistent sup- port, these same enterprises can grow to become large enterprises or conglomerates. It is in this context that the government should be serious in making existing SMEs strong and develop start-up enterprises. SMEs and large enterprises complement each other.

The country’s development strategy is an- chored on large industries in special eco- nomic zones (SEZ), supported by industries along three growth corridors: Yangon-Ka- yin corridor, Mandalay-Muse corridor and Mandalay to India corridor. The corridors reflect the approach to maximize rela- tionships with bigger and more developed neighbours Thailand, China and India. This strategy is biased towards large enterprises but depends also on foreign investment. Developing SME should not be viewed as competition to or at the expense of large enterprises. SMEs primarily address the needs of domestic consumers, but it can also be developed as part of the supply chain for large enterprises providing intermediate products and services. The government’s efforts to develop special economic zones should also be matched with support for the development and strengthening of SMEs. Institutional support for upgrading At present, a big number of enterprises are micro-enterprises, a notch lower than the regular SME. Most of these microenterprises started as family businesses and will continue to be small and informal without institutional support. What is needed is to move from informal to more formal opera- tionsandtomaketheenterprisesmoreeffi- cient and profitable.

Government can help by streamlining regis- tration and licensing process and improving or installing business management. This means setting up of a legal personality for the enterprise distinct from that of its owners. The distinct legal personality will enable the enterprise to link with formal financial institutions to develop its track record and sustained financial access. Formulation of tax policies that facilitate easy payments in- stead of burdening the entrepreneurs will be a boon for the government as it will widen its tax base.

Another area where government help is needed is product development. A research and development initiative for product improvement, packaging and improving quality standards is a must to make world-class products. This can also be augmented by vocational technical training programs to enhance the skills of people working with SMEs. Out of these efforts we can expect world-class products and services.

For the more advanced enterprises, support should be forward looking actions specifically developing new businesses and sup- port for export and overseas operations. Promotion and marketing activities at the local and overseas markets are activities that could be done at regular intervals. The ASEAN Economic Community (AEC) cre- ated an opportunity for SMEs to promote business ventures outside the country. Towards a more accessible finance Access to capital is crucial. Current laws and policies does not favour enterprises because of stringent polices which includes 5 years ownership for the real estate used as collateral, tax payment for the past 3 years and the cumbersome licensing process. The restrictive policies push SMEs to deal with informal sectors with higher interest rates but who provide capital or bridge financing to manage cashflow when it is needed.

For the record, the government allocated 20 billion Kyats for lending to SMEs but only 40% has been released to date, no thanks to the restrictive lending policies. The new Microfinance Law may be boon to microenterprises, but the amount that an individual borrower can avail is also limited especially for expanding enterprises. Pawnshops like microfinance institutions can only provide limited amount, not enough for bigger and medium-term needs.

Development finance agencies are promot- ing guarantee funds and other facilities that will make it easier for SMEs to access funds from alternative sources. Finding other ways and means to make more funds flow to the SMEs is a priority and the government should take a lead in it.

Infrastructure development contributes to SME development

Good transportation infrastructure sup- ports the smooth movement of goods in the domestic market and across borders. Government priority in constructing roads should include areas other than the three main growth corridors but also in selected key areas to promote SME development. This is where government borrowings can be put to good use. With more liberal funds from international lenders like Asian Development Bank (ABD), World Bank (WB) and the recently formed, Chinese-led Asian Infrastructure Investment Bank (AIIB), upgrading the transportation infrastructure is an investment that will have great impact in the development of rural enterprises.

A mix of various forms of transportation like marine ports, airports and railways in strategic areas of the country will ensure that other than the three growth corridors, the rest of the country will be connected commercially.

Opportunities and survival will always be the motivating factor for entrepreneurs to set-up businesses. Upgrading and growth however, will need a little push from the government and business development promoters. In Myanmar, the issues and challenges faced by the SME sector can be addressed. It is but a matter of changing mindset and setting the right priorities.

On 29th August, 2015, nearly one and a half years since its inception, the Overseas Agro Traders’ Association of Myanmar (OATAM), celebrated its success with members and suppliers of Myanmar’s beans and pulses. Inaugurated by the Indian Ambassador, Mr Gautam Mukhopadhyay, the event displayed the rapidly changing trading business, in this case, of two major agro products, beans and pulses. The systems and processes being put in place can be- come benchmark practices for other trades as well, introducing a high level of profes- sionalism and accountability in the hitherto unorganized sector.

OATAM was formally launched in March 2014, and its inception is attributed to Mr. Sunil Seth, Country Head of Tata International, who along with other trading companies, decided to seriously take up the suggestion of His Excellency U Win Myint, and approach all the significant beans and pulses traders operating in Myanmar. It is now being registered with the DICA (Direc- torate of Investment and Company Admin- istration), and in the course of one year, has emerged as a credible platform to interact with concerned ministries and Chambers of Commerce.

Some of the members of OATAM besides Tata International include, Swiss Singapore Overseas Enterprises, Agro Corp International, Sudoma Inernational, Sun Impex Fze, Singtrade Global, and others. With an existing 23 of the top traders, OATAM traders control 75% of the total export of pulses from the country. A total of 1,420,000 tons of black matpe, green mung bean, toor whole, chick pea, cow pea etc are annually exported to countries like India, Singapore, China, Pakistan, Malaysia, Indonesia etc. India is by far the biggest market for Myanmar’s beans and pulses, with its vast lentil-eating population, and also because raw beans are processed and finished in India before being sold locally and internationally. India thus, accounts for 80% of the total beans and pulses export.

Myanmar’s Beans and Pulses

Beans are the second richest source of protein in the human diet. ‘Pulses’ is a term used for all edible seeds that grow in a pod, thus including lentils, beans and peas. The general reference to beans and pulses in- cludes the dried form of peas, chick pea,

cow pea, black matpe, green mung bean and another 13,000 grown worldwide. These can be raw whole, split, de-husked, polished and processed in numerous other ways. Over 68 million tons of beans are produced globally. Myanmar is one of the world’s leading producers of rice, and known lesser for its beans and pulses, the latter never quite enjoying the same preferential treatment with incentives as rice. In fact, beans and pulses have been cultivated in rice fields once the mon- soon paddy has been harvested, the sowing time starting in November, and the crop be- ing ready for harvest before February. Crops sown a bit later are ready before March. Instead of leaving the land idle, pulses and beans are grown without any great effort or investment, since they neither require additional manure or fertilizers, nor ample amounts of water to grow-the left over mois- ture in the land from the paddy is sufficient. The crop is ready in 3 months and quick sale of this nutritious staple is impetus enough for farmers to grow these, and statistics reveal a steady increase in land area being al- located for growing beans and pulses. Highly motivated farmers, less cumbersome cultivation cycle, ideal climatic conditions, and ample yield that brings quicker returns as compared to other crops, are some of the big advantages of cultivating beans and pulses. Two thickly populated neighbors, namely India and China, present a ready market for the crops, thus reducing the need to find sales channels internationally. Myanmar’s Beans and Pulses Trade Myanmar as a developing country, exports more of low-margin, unprocessed, raw goods to other countries without any val- ue addition due to lack of resources for the same.

The beans and pulses crops are exported to 52 countries since domestic consumption is not very high. The single largest export is to India, the biggest market for beans and pulses, which are an essential part of the common man’s diet in the country. Even though India is the world’s largest producer of beans and pulses, it is unable to cater to domestic demand, and imports 1.1 million tons from Myanmar alone, besides specific varieties from Canada, Australia and Tanza- nia. Quantities exported to other countries are in much smaller quantities.

The OATAM impact

OATAM is playing a very useful role in Myanmar’s beans and pulses trade, and the initiatives of the organization will have far-reaching effects, benefitting the traders and the economy. Its members, led by Sunil Seth, include some of the best, highly experienced traders in the beans and pulses business, with offices in Singapore and India, who have multiple marketing channels to supply products to markets in ASEAN, Middle East, Europe and USA. Their ex- pertise and experience is ensuring that the best practices of the trade get introduced in a country that has recently opened its doors to the world.

At the outset, OATAM is helping elevate beans and pulses to the same level of importance as rice, to ensure that this trade gets similar incentives and sops that will push returns higher.

It is offering a united platform and present- ing a common ground for improved inter- action between buyers and sellers, creating space and place for small and big traders. Standardizing of trade practices has been long overdue in this hitherto unorganized sector. This will ensure uniformity, security and prevent arbitrary actions. With regu- lar meetings and workshops, members are getting more exposure and interacting with officials from the Ministry of Commerce, the banking sector, suppliers and inspection agencies. Interaction with the Indian Puls- es and Grains Association has helped them gain insights into the needs of their biggest market.

Proximity to India, good relations and a huge amount of trade continuing, gives Myanmar an advantage to seek technical ex- pertise and training to improve agricultural produce. India has numerous agricultural research institutes with all the technical knowhow needed here. OATAM can be the channel for this purpose as well.

OATAM pitches in to resolve problems and quality issues for all its members and its unified stand prevents defaults in both pay- ments and supplies. This helps protect the interests of the small traders. Standardized contracts, payment security and weighing facilities at the ports are some of the big issues being addressed by the organization. It has been coordinating with shipping com- panies to resolve logistics issues.

As a single, strong unified body, OATAM is gradually attempting to improve product quality, improve available varieties, and try to provide benefits to farmers like help them procure better seeds, introduce latest technologies in agriculture.

OATAM is looking improvements and in- novations both upstream and downstream. The former includes exploring ways of pro- viding improved fertilizer quality, better pesticides to prevent crop damage due to pests, and so on. Downstream innovations being explored are finding ways to exporting value-added products of beans and pulses, which will have higher margins and create employment opportunities for the locals. This however, requires large investments in setting up factories for the same.

OATAM and the Future of Beans and Pulses Trade Sunil Seth envisions OATAM to be a catalyst in creating a ‘brand Myanmar’ for beans and pulses which is recognized globally and will be able to compete with countries like Canada, Australia, Africa and USA. He wants to decommoditize the market so that pulses and beans can be processed, packaged, branded and sold in retail markets. Adding value, he says, is much better than just trad- ing in raw produce. He is working towards upgrading of specifications of products to have them better suited for the vast Indian market. The current system of cash advances needs to change and payment securities ensured somehow, he feels. It is here that changes in the banking sector are required

so that eventually traders can operate on Letters of Credit (referred to as LCs) of local banks, rather than having to be routed via Singapore based banks.

Having started from scratch over two years ago, to set up Tata International’s Myanmar office, to make the company one of the top beans and pulses traders, Sunil Seth is optimistic about helping this trading business grow from a current USD 800-900 million business to cross USD 1.5 billion in the com- ing years.

He is also enthusiastic about having OAT- AM push for processing centers in Myanmar for more value added products, which will increase revenue and create jobs. At present less than 10% of the beans and pulses ex- ports include value added products.

Though agriculture is the main contributor to GDP in Myanmar, it requires a lot of in- vestment for improving quality, output and earnings. At present, farmers do not have access to top quality seeds or technology

to mechanize processes, or understand the nuances of pest management. Insufficient storage facilities and infrastructure needed further reduces agricultural returns. The dependence on low value exports which include raw pulses needs to change. The banking sector is playing a minimal role in agriculture, and farmers do not have access to bank financing.

The global population is growing, awareness for eating healthy increasing, a drift towards vegetarianism is creating increased demand for the highly nutritious beans and pulses. The focus on environmentally friendly crops, adds to the case for protein rich beans, especially since its by-products can be used as animal feed in fisheries, dairy and poultry farms. With organizations like OA- TAM, agriculture and trade, both stand to benefit, since they are able to take combined initiatives, stay united on issues which will provide long term benefits to producers and consumers alike.

After 50 years of isolation and sanctions, the opening up of Myanmar has been one of the hottest stories and getting lots of intention from international Business Sector.

We witnessed many changes in Myanmar in recent years, one of them being upcoming launch of Yangon stock exchange in first week of December. The original launch schedule has been pushed back on account of November 8t h election. This is a second time for exchange stock share in Myanmar. From the 1930s to 1941 and from the late 1950s to the early 1960s, there was a Rangoon Stock Exchange that operated in Rangoon (old name of Yangon).

The fledgling exchange, operated by seven European firms, was a secondary OTC market with most of the quotes sourced from Calcutta and Bombay exchanges. It closed down at the outbreak of World War II. The RSE was revived in the late 1950s to trade shares of nine public-private joint-venture corporations. But this OTC market too died in the 1960s when all the firms were nationalized by the military government that seized power in 1962. On 23 December 214, two Japanese firms, the Daiwa Institute of Research, the research arm of the Daiwa Securities Group, and the Japan Exchange Group, established a 50- 50 joint venture with the state-owned Myanmar Economic Bank to establish the Stock Exchange.

The Yangon Stock Exchange-Joint Venture Limited will have initial capital of Kyats32 billion (~USD 25 million@ current exchange rate) with Myanmar holding a 51 per cent stake and Japan 49 per cent. The Myanmar Securities Exchange Centre (MSEC) is the country’s only stock exchange, the renovated 80 years old former Central Bank Building, located on Sule Pagoda Road, in the center of Yangon . Listing criteria that laid out 17 points for public companies to meet had been published on August 23th .

One of the criteria to meet is that companies must have at least Kyats 500 million ( US$ 400,000 ) in paid-up capital and companies have also been asked to prove they have paid their taxes for the past five years. The minimum capital requirements for Yangon Stock Exchange participant licens- es are Kyats 15 billion for underwriters, Kyats 10 billion for dealers, Kyats 7 billion for brokers and Kyats 30 million for consultants.

Several companies eye to list on stock share exchange in- cluding Asia Green Development (AGD) Bank under Htoo Group of Companies and First Myanmar Investment, the sister company of Singapore listed Yoma Strategic Holidays. There was a however warning against illegal share sales. Dr. Maung Maung Thein, chair of the Securities Exchange Commission of Myanmar as well as the Deputy Minister of Finance said, “We will issue a warning against the illegal sale of shares when the stock exchange goes online. Under the Stock Exchange Law, an offender can be sentenced to five years in prison. Action will be taken against those who sell their stakes illegally.”

In June 2015, Future Foreign Currency trading over internet Company, Global Growth allegedly cheated US$1.48 million (Kyats 1.65 billion) and fled with customer investor’s fund according to local newspaper 7day Daily. The company reportedly told its clients that it is a branch of Standard Bullion, a member of the Chinese Gold and Silver Exchange Society. Company had operated at Sakura Tower, one of more expensive office buildings in downtown Yangon. Its founder, Mr NG Kwok Fai also allegedly scamed and fled at Vietnam in 2008 and claimed that its parent company was the Canada-headquartered Richmark International Group.

It has opened two separate offices on different floors of Sakura Tower.

Global Growth dealt in contracts for commodities such as gold and foreign currencies and a Special Program called Global Group Investment Program –GGIP. Clients were asked to deposit money to open an account and traded by expert who is supposedly well-versed in Stock Share exchange from foreign. Upon earns profits, experts will get 40 percent and Global Growth clients to the Company’s promotional materials will get 60 percent according. To lure in investors, Global Growth paid commission fees on investments at amazing, rate of up to Kyats 9 laks if customers invest 100 laks and 2 laks for 5 million Kyats of initial investments. Current local banks saving interest rate is 8.25 percent per year.

Global Growth had allegedly cheated around US$1.48 million from customers from Myanmar are short on knowledge and reliable investment opportunities allegedly. At present, about 6 or 7 companies offer free training in foreign exchange and commodities trading. They educated prospective customers about their business models in the offices of the largest business federation in the country and use facebook to advertise their business. Most of them have 3 or 4 package starting from US$ 10,000 for basic investment package. They pitch weekly using of 2 % and 8 % for monthly. Investors must sign a minimum of one year contract. According to current rules by the finance ministry and the Central Bank of Myanmar, business in the deposit taking businesses need to have licensed to do that. Investors, before parting their money, must look for that as a bare minimum due diligence.