There was once a time in Yangon when the city’s arteries were not bursting with vehicles desperately slugging it out over a few inches of tarmac. As the three year anniversary of Thein Sein’s role as President approaches in April, of the raft of economic and political reforms implemented by him and his government, it is the utter surge in the amount of cars on Yangon’s streets that is most obvious to the most casual observer within the city.

While other major cities within the country have not been unaffected by the increase in car imports, those city’s residents have long been able to commute via the much nimbler option of motorbikes, something denied to Yangonians – in 2003, the government banned the use of motorbikes within the city’s limits and, as yet, there are no signs that that ban will be lifted – forcing many to cram into busy, often decrepit buses and trains or rely on uneconomical taxis.

During the country’s military rule, the import tax on automobiles was so high, and import rules so complicated, that vehicles were the domain of only the country’s most elite – in fact, Myanmar’s automobile sector draws many parallels with the telecoms sector, which has been seen as a key indicator that the government is genuine in its plan for reforms. According to some reports, in previous times, second-hand cars could reach $20,000, with that figure dropping to around $5,000 as car imports become more affordable amidst economic reforms.

Since 2011, the government has changed auto import policy on more than half a dozen occasions, the most notable coming in September 2011 with the introduction of the “new for old” policy, whereby cars over 20 years old could easily be replaced by newer models (those less than five years old).

If on an anecdotal level the policy changes have led to an increase in numbers, then the data supports this trend too. According to data from the Road Transportation Administration Department (RTAD), total vehicle registration within Myanmar reached 3.6 million (86 percent of which is motorbikes) as of July 2013, up from 2 million at the end of 2010, before the shift in policy began. Additionally motorbikes, so popular in all major areas outside of central Yangon, continue to see an increase in sales, with a rise of eight to 10 percent per annum according to the data.

Much like the potential offered in practically, all of the industries that have opened up in-line with the “new” Myanmar, multinational giants within the automobile industry have been quick to take advantage in a country that offers huge economic potential in a range of areas due to its large, generally well-educated population and important strategic location between India and China.

One of the most notable early-movers was American giant Ford, which partnered with local RMA Group and Capital Star Group, to hoist its iconic blue, oval symbol above its Yangon showroom, which opened in October. Other American firms now operating within Myanmar include Chevrolet and General Motors, while popular German brands Mercedes-Benz who recently opened a new showroom and Volkswagen have taken notice, the latter of which teamed up with local company Yoma Strategic Holdings, which is operated by Burmese-Chinese behemoth Serge Pun.

However, it is the automakers from East Asia that appear to be best prepared to take advantage of the continued growth in Myanmar’s auto industry. According to the data from RTAD, more than 80 percent of the registered vehicles within Myanmar are from Japanese or Chinese companies, with Nissan recently unveiling plans for a branch to manufacture its Sunny brand in Bago Region, just outside Yangon, with operations planned to begin in 2015. Meanwhile, Toyota recently opened its second service centre in Yangon last year and is planning to open a Mandalay service centre in the near future.

Low-cost Chinese maker Chery – a popular brand in a country where worker salaries are often less than $100 per month – has commenced work on what it estimates to be 3,000 to 5,000 vehicles per year, while India’s Tata opened its first Yangon showroom in 2013.

International players have timed their involvement in Myanmar well, observers say. An industry report by global consulting firm Frost & Sullivan, entitled ‘360 Degree Perspective of the Automotive Market in Myanmar’ estimated that Myanmar’s auto market is likely to grow by 7.8 percent per annum to 2019, fuelled by what it says will be a growing economy, improved infrastructure and improved integration with ASEAN, with particular reference to the ASEAN Economic Community, an EU-style bloc between the member states expected to begin in 2015.

“However, factors such as unpredictable regulatory changes, high car prices, an under-developed auto service market and inadequate road infrastructure might hinder the potential growth,” warned Dushyant Sinha, associate director for Frost & Sullivan’s Asia Pacific office.

The report added that the growth would be dominated by companies from China and Korea who would benefit with their affordable prices and smaller engine sizes when compared with their Japanese rivals. The report also predicted that companies from the US and Europe would struggle to grab too big a market share as spare parts and after sale service support are still limited within the formerly isolated nation

During the ongoing Lower House Parliament session, Deputy Minister of National Planning and Economic Development Dr. Daw Khin San Yi said that the country received a total of $34.2 billion worth of foreign investment during the last 25 years. This amount came from at least 25 countries and different regions, and was used in 381 projects of 11 sectors. With the investment, more than 300,000 job opportunities were provided for Myanmar citizens at the end of 2013. A year after it reopened, Myanmar introduced a foreign investment policy in late 2012 which replaced the 1988 law to help attract more foreign investment. The new law enables foreigners to have full ownership of their businesses in Myanmar, or to facilitate joint venture operations with Myanmar on a mutually-agreed ratio of investment. While these premises are very appealing, local economists say that the continually rising prices of real estate could pose as a problem for interested foreign investors.

As per the International Monetary Fund (IMF)’s Myanmar Economic Indicators, the country’s gross domestic product (GDP) grew by 5.5 percent in 2013 with consumer price rise reaching 7.3 percent. It is projected that Myanmar’s GDP will rise by 6.2 percent in 2014, with 6.6 percent consumer price inflation.

Burma has long been the world’s biggest producer of jade and high quality gemstones. The vast majority coming from the small mining town of Hpakant, in the northern region Kachin Mountains. Chinese dealers buy up much of the jade and locals smuggle it across the border due to the fact that foreigners are not allowed in the town.

Over the past decade Chinese consumer spending has increased considerably and jade prices have kept pace with this trend. However recent fears over a shortage of Burmese jade due to export restrictions are alarming the markets. Also the fear that bigger mining companies who have access to modern mining technology and machinery are expected to replace current labour-intensive forms of mining which could deplete the mines stocks much quicker than the old traditional methods.

The Chinese have always had a great passion for jade and although much of Burma’s raw jade goes into mainland China, a great deal of it eventually ends up in the Hong Kong jewellery stores. A big Hong Kong jade trader commented on an industry website recently that he is having difficulty in sourcing Burmese raw jade.

A report shows that just several years ago a piece of Burmese jade purchased at trade fairs in Guangdong, southern China, for around US$2,700 and then processed into jewellery would then sell for approximately ten times the price of the original raw stone. In Hong Kong and Macau demand is now falling due to the fact that mainland traders are struggling to acquire raw jade and having to charge higher prices.

At one time raw stones that were priced at US$1,600 are now being sold for at least US$2,400.

Myanmar’s Ministry of Commerce (MMOC) trade data provided shows that in 2011/2012 jade was the country’s second-biggest source of revenue and was valued at US$780 million. A 2013 report from Harvard University completely contradicts the MMOC report and puts the value of Burmese jade sales as high as $8 billion in 2011/2012. The huge difference in the figures of the two reports is undoubtedly due to the fact that most of the jade leaving the country into China is unregulated or not documented correctly. Jade mining companies that sell their products through legal channels are subject to high government taxes up to 30 percent of the sale value. Hence the vast amount of illegal smuggling that occurs.

In the United Kingdom, HM Revenue & Customs has beaten its “massively ambitious” target for total revenue collected as a result of its tax investigation work by £2bn in the 2012-13 tax year, hitting a new record, UHY Hacker Young reports. So great was the haul that some might be tempted to question the degree of enforcement effort being focused by HMRC on its tax investigation efforts, a tax partner at the accountancy group noted.

In a statement released in December 2013, UHY Hacker Young reported that a record £20.7bn in additional revenue was collected by HMRC through compliance work focused on tax avoidance and evasion in the 12 months to the end of March 2013. This, it noted, represented an 11% increase from the £18.6bn taken in the previous year.

The year’s target of £18.7bn was already £2bn higher than HMRC’s target for the previous year, the accountancy group pointed out.

The extra revenue extracted by HMRC’s tax investigators came both from small businesses and individuals, the UHY Hacker Young data shows: that from small businesses jumped 30% in the year to 31 March, to £565m, while the share clawed back from investigations into personal tax returns rose by 38% to £609m.

Target ‘smashed’

Roy Maugham, a tax partner at UHYHY, said that even though HMRC’s target for the amount of extra revenue it wanted to “claw back” through its compliance investigations in 2012-13 had been“massively ambitious”, it had “managed to smash through it”.

“This is good news for the Treasury, but you have to ask whether all the extra enforcement activity needed for HMRC to over-shoot its target is a good thing or not,” Maugham added.

“There is a risk that HMRC’s hardline tactics pressurise some into making payments that they might not even owe.

“Not all of the extra tax take is from clear-cut tax evasion – it is often from HMRC imposing its view of how the tax system works on SMEs and individual tax payers, through the use of an army of tax inspectors and lawyers.

“Businesses and taxpayers that can’t afford professional advice to deal with a HMRC investigation don’t stand a very good chance.

“Many feel they have no choice but to just pay up otherwise they risk being dragged into expensive litigation.”

The record HMRC compliance tax take also comes at a time when many businesses and individuals are still struggling with the effects of the recession, Maugham noted, and as budget cuts are putting a strain on HMRC’s resources.

The Revenue’s currently high rate of staff turnover is also reducing the ranks of experienced personnel which, Maugham noted, could increase the risk of mistakes in its tax calculations, while pressure on HMRC to maximise its tax might also be encouraging some staffers to pursue more contentious claims.

HMRC:

‘Outstanding results’ A spokesperson for HMRC responded to the UHY Hacker Young comments by noting that since 2010 the UK government had invested nearly £1bn in HMRC “to catch the cheats”, and now, “that investment is delivering outstanding results”.

“The vast majority of taxpayers play by the rules, and on their behalf we are increasingly employing sophisticated computer systems and risk analysis to catch the minority who don’t,” the spokesperson added.

The construction industry has always been looked upon as the domain of the male of the species. This month, the Myanmar Insider interviews the dynamic Daw Hla Waddy, who took charge of a family building project and developed it into a major construction business.

Name: Daw Hla Waddy

Age: 65

Main Companies: New Step Services Co.

(Distributor of New Chinthe Concrete Brand)

Square Power Group Co. (Cement Factory)

Depawaddy Co. (Construction and Property

Development)

Profession: Businesswoman

Vice President of the Myanmar Women

Entrepreneurs’ Association (MWEA)

MI: When did you start your first business in Myanmar, and is it still operational today? If so, how has the business model changed from when you first started?

DHW: In 1987, I tied up with a contractor to build apartments over the land that I owned in Yangon. After the 1988 student’s demonstrations, the contractor ran off and I was left with a half completed property without a roof over my head. I had no choice but to take charge and complete the construction on my own. I took everyone from labour leaders to painters to engineers as my teachers and tried to learn as much as I could. After the building was completed, people liked the workmanship and I was asked to develop my relative’s and neighbour’s plots. That was how I got into business. It was really boom time for property development from 1990 and 1995 and I managed to develop many properties as I earned the trust of more and more people. The business continues today and still bear the original name “Depawaddy”. In terms of changes to the business model, the ratio of split between land owner and builder has changed somewhat; in the 90s, it was 60:40 in favour of the contractor builder. Nowadays it is more like 50:50.

MI: What made you decide to diversify your business interests?

DHW: In 1987, I tied up with a contractor to build apartments over the land that I owned in Yangon. After the 1988 student’s demonstrations, the contractor ran off and I was left with a half completed property without a roof over my head. I had no choice but to take charge and complete the construction on my own. I took everyone from labour leaders to painters to engineers as my teachers and tried to learn as much as I could. After the building was completed, people liked the workmanship and I was asked to develop my relative’s and neighbour’s plots. That was how I got into business. It was really boom time for property the upgrading of skill sets, knowledge and technology. For example, a Japanese group who want to build a concrete factory in the new Thilawa Industrial Zone want to JV with me. They are asking for ISO certification, which I currently do not have. I am therefore restructuring my companies at present to catch up to international levels and standards.

MI: Hypothetically, if you were entering into business for the first time in Myanmar, what type of business would you consider as having the most growth potential?

DHW: Since I do not know much business outside the construction sector, I do not think I am qualified to answer that. I would of course recommend the construction sector, due to the number of infrastructure projects sponsored by government alone. In terms of margins, construction and property development development from 1990 and 1995 and I managed to develop many properties as I earned the trust of more and more people. The business continues today and still bear the original name “Depawaddy”. In terms of changes to the business model, the ratio of split between land owner and builder has changed somewhat; in the 90s, it was 60:40 in favour of the contractor builder. Nowadays it is more like 50:50.

MI: What made you decide to diversify your business interests?

DHW: In 1998, I was engaged as a contractor to construct most of the FMI City; Yoma Bank neighbourhood centre, sports club and more than 300 bungalows. In around 2000, there was a serious economic crisis in Myanmar, with uncontrollable inflation, as well as a banking crisis. The construction industry was in recession and I was in serious debts, as the prices I agreed with FMI for construction were now falling below the cost of my materials. It’s like a famous Myanmar proverb, “Twat Yay Taw – Sat Tha Htay, Twat Kyi Taw – Sat Ma Shi”, which means “At the time of planning, I was a rich factory owner, by the time of the actual audit, I did not even own the machines”. In 2004, I was offered the position of Managing Director at Chinthe Concrete, a company controlled by SPA (Serge Pun and Associates), a related company of FMI. When the five year investment license was completed for Chinthe Concrete in 2009, the company was voluntarily liquidated. I was offered to buy over the assets of the company at revalued book values. That was how I ended up from being a contractor developer to the owner of New Step Services Co Ltd (New Chinthe Concrete). Eventually, I ended up providing one stop service in the construction industry, from piling concrete to construction. If you had lived in Myanmar during the past 20 years, you would also have learned how to take opportunities as they come along. Government policies at that time were haphazard; I called it “elephant ear government economic policies” – opening and shutting certain things at regular intervals.

MI: Do you see any of your main business interests having to change or adapt to Myanmar’s new trends and its opening up to international markets?

DHW: As Myanmar opens up, we have more foreign investors coming in and we are also subject to more competition. My businesses need international partners to replace and upgrade old machines and capital injections to compete with international players. We directly benefited from the government opening up the country; the market demand for our products and services has increased tremendously and our sales have also grown significantly for the past two years.

MI: With the benefit of hindsight, would you have done anything differently when you started your first business, and if so, why?

DHW: Business wise, I would not have done anything differently. From a personal perspective, I wish I had taken up further studies that would help me run my businesses more effectively. Both my parents are farmers from the Irrawaddy Division and I was the first ever to graduate from our village. I was therefore content with a basic degree at that time.

MI: How do you feel that foreign companies now entering into business here will affect the local workforce, and do you feel that they will bring new opportunities to existing local businesses?

DHW: Yes, entry by international players has pushed up salaries and demand for skilled personnel. Myanmar is already facing a skill shortage, even prior to their entries. At the same time, most of the businesswomen at the MWEA had the foresight to see this coming a couple of years ago. As such, we have discussed and implemented various methods to keep our skilled staff. For myself, my companies set aside ten percent of yearly profits for our staff. We also provide housing benefits, which staff appreciate, as rentals are high and space is a premium in Yangon. In addition, we also paid volume based bonuses depending on our factory production volume. All in all, it’s both good and bad for local businesses; some who have the capacity to serve or tie up with foreigners would benefit, and those who do not will be left worse off. The capacity to tie up, in turn, is dependent on the track record of the companies.

MI: From a business perspective, what do you feel are the biggest challenges facing you in the next one to three years?

DHW: I felt the biggest challenge would be the upgrading of skill sets, knowledge and technology. For example, a Japanese group who want to build a concrete factory in the new Thilawa Industrial Zone want to JV with me. They are asking for ISO certification, which I currently do not have. I am therefore restructuring my companies at present to catch up to international levels and standards.

MI: Hypothetically, if you were entering into business for the first time in Myanmar, what type of business would you consider as having the most growth potential?

DHW: Since I do not know much business outside the construction sector, I do not think I am qualified to answer that. I would of course recommend the construction sector, due to the number of infrastructure projects sponsored by government alone. In terms of margins, construction and property development typically have margins of around 40 percent, whereas concrete production and selling only earns me like 25 percent in a good year.

MI: How do you see Myanmar comparing with its Asian neighbors in the short and long term future?

DHW: The earliest that we can be on par with some of our neighbours is ten years. It depends on the policies of the government. The government has to implement policies that encourage business growth both in the short term and long term. Businesses, in turn, will drive the economic growth. MI: If you could make one major change in the country for any of your business ventures, what would it be?

DHW: The banking system and funding for the SMEs. Currently it’s extremely difficult to raise funds for ventures. All borrowings are based on collaterals. There is no such thing as project financing yet, so I really hope that there will be more funding available for SMEs undertaking projects.

MI: What advice would you give to someone looking to start up a business and invest in Myanmar?

DHW: I believe most foreign investors are adopting a “wait and see” approach to investment in Myanmar. I have met up with many; we meet, we greet, we show them around and they go home. I think they are waiting to ensure that there will be no changes in government policies after 2015. One piece of advice would be, “No risks, no returns”. If you want everything to be ready and stable in Myanmar, you cannot expect to see high returns.

MI: In addition to running your own business, you have also acted as the head of the Myanmar Women’s Entrepreneur Association. How do you ended up being in that position?

DHW: In 1995, Professor Daw Yi Yi Myint, head of the Yangon Institute of Economics then, wanted to start the MWEA. She saw an article about me being the only prominent woman in the construction industry in DANA magazine and invited me to join to be part of an initial gang of 30. I was the MWEA joint secretary for eight years, and secretary for another eight before I assumed the current position of vice president.

MI: Can you briefly explain the activities of the MWEA?

DHW: The MWEA is open for all active businesswomen or women who are involved in business education. Our main objective is to develop female entrepreneurs. We provide extremely useful networking sessions; new members can showcase their wares and market their products through monthly gatherings. We also provide development courses during these events.

MI: How does the MWEA encourage more women to become entrepreneurs?

DHW: We provide monthly talks, we provide guidance to those women in need. We also realise the importance of education for women. We have done a survey which shows that families are generally poorer if the women in the family are uneducated. As such, we sponsor girls for primary education for five years. We started that programme (“Foster Mothers”) in 2004 and more than 400 poor and underprivileged girls have benefited from this. We also provide special loans to fund promising ventures from villages and/or farmers. To support the government’s initiative to lower poverty across the country, we have also began providing micro loans to some female staff of the MWEA members.

MI: As a female entrepreneur running such a big enterprise, how do you manage to balance work and family?

DHW: As women, we have to display many fronts. For husbands, we have to take care of them, sometimes sweet talk to them and put them in front of us. These little efforts will count a lot towards getting their unwavering support. For children, love and affection are a must. There is always a supportive husband behind every single successful female entrepreneur.

MI: What would be your advice for aspiring female entrepreneurs?

DHW: With Myanmar opening up, there are bound to be plenty of opportunities available. As such, I would caution them to be more goal focused and to take on limited challenges. Do not do everything, and everyone has bandwidth!