Road to Mandalay German Firms Slow to Invest in Myanmar

Myanmar has been open to foreign investment since 2012. Yet German companies are hesitant to tap the economic potential of this virgin market. Will they miss the boat?
Coca-Cola was one of the first big companies to set up in Myamnar last year.

Le Planteur is the most elegant restaurant in Myanmar's economic metropolis, Yangon. It is housed in a palm-fringed villa in the area where the Australian high commissioner lived at the time when the country was under British rule. Nowadays, it hosts the wealthy and beautiful of Myanmar society.

Melvyn Pun, the 36 year-old young tycoon and son of one of the country’s richest families, deliberately chose this restaurant for our meeting. His father's conglomerate just bought the property and plans to turn it into a businessman’s club for the wealthy elite, modeled on the legendary China Club in Hong Kong.

“At the end of the 1950s, Myanmar was one of the most prosperous countries in Asia. We will get there again,” Mr. Pun said.

Mr. Pun junior is a former director of Goldman Sachs in Hong Kong and now chief executive officer of the family company Serge Pun Associates. SPA owns properties and represents foreign companies in Myanmar, such as Volkswagen and soon Kentucky Fried Chicken.

Given the very young population and the rapid urbanization, one simply has to be present in the country now, so as not to miss the boat. Andre De Jong, Bosch CEO, Myanmar

Just a few weeks ago, nine foreign banks, all from Asia, obtained licenses to do business in Myanmar.  No German institutes have yet applied for the permits.

That could be a big mistake. “Currently, Myanmar is perhaps the best investment possibility in the world,” said Star investor Jim Rogers in Singapore.

A booming real estate market, economic growth of 8.5 percent and a wealthy upper class is one side of the story. The other is the country where functioning SIM cards have only been around for a few weeks.

But since Mr. Pun came to Myanmar from Hong Kong in 2012, he has been “carried away” by the extent of reforms. He raves about the “blessed position of Myanmar” between China and India, the most populous markets in the world.

The family is of Chinese descent. Patriarch Serge Pun was an ex-red guard who fled China and in 1972, turned up in the Hong Kong office of Elmar A. Busch, the German real estate developer. Even though Mr. Pun tried to con him into buying an air cleaning machine, Mr. Busch was so impressed, he hired him to sell luxury homes to expats.

 

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Today, Forbes estimates Mr. Pun’s fortune at around $600 million.

Star City, SPA's new housing settlement and model project, underlines how Yangon is booming, but has a long way to go. The development is about 10 kilometers away from Le Planteur, in the Thanlin city district, but it can take up to two hours to get there on the potholed streets, where Peter Francis, a British national, is waiting in a marble-tiled sales pavilion to sell SPA condominiums to local people.

One of the few and most successful German entrepreneurs in the country is Bert Morsbach, a lone wolf. Mr. Morsbach, from Dusseldorf, has built a winery in the northern Shan state and produces 350,000 bottles a year exclusively for the local market.

Of the bigger German brands, Bosch has engaged with Myanmar. It opened in Yangon in April 2013. “Given the very young population and the rapid urbanization, one simply has to be present in the country now, so as not to miss the boat,” said Andre De Jong, Bosch's country CEO.

 

Quelle: Bloomberg
A bustling Yangon market.

 

But other German companies are still hesitating. Siemens, for example, wants to wait and see how the general elections go at the end of 2015.

“At the beginning of the economic reforms, Germany shared a high level of trust with the government,” said Jerzy Wilk, who trains sailors for the German company Uniteam Marine, a ship management company. “But the message that there is a country with 51 million people to build from scratch has not yet reached German CEOs unfortunately,” he said.

The Myanmar government was hoping for Germany to do more to create new jobs in the country. However, even after Joachim Gauck, the German president, visited Myanmar, and President Thein Sein went to Berlin, little happened.

Considering the country’s recent history, caution may not be amiss. The military junta slaughtered more than 3,000 students in 1988, held Aung San Suu Kyi, 69, the icon of the democracy movement in house arrest for 15 years, and in 2007, shot at Buddhist monks during the "saffron revolution."

Kyaw Zwa Moe, the editor in chief of the English edition of Irrawaddy magazine, said that “in the past, the army robbed the country and distributed the profits to their cronies. None of this is easily forgotten."

The military could someday end President Thein Sein's democratic experiment. Kyaw Zwa Moe, Editor in chief, Irrawaddy Magazine

Since the ex-general and now-president Thein Sein announced democratic reforms in March 2011, the right to strike and right of assembly have been introduced. Investment laws governing foreign company involvement were laid down in 2012. But according to Ms. Moe, those reforms may not stick forever. “The military could end president Thein Sein's democratic experiment any day,” she said.

But young Mr. Pun sees it differently; that is, he said, “completely crazy.” Other young entrepreneurs agree, such as Myo Myint Kyaw, 29, the chief executive of a creative digital agency based in Yangon, who believes that the economic dynamic of the country has made a return to military dictatorship impossible. He returned home to Myanmar from Singapore in 2012 to establish his tech start-up. And he is not alone - a good three dozen similarly daring young entrepreneurs and 100 of their employees have also come to Myanmar to start their businesses.

Despite that, many German firms are waiting for the upcoming elections late in 2015 before daring to make further investments. SPA real estate broker Peter Francis said a German construction company that was asked whether they wanted to take on the project had demurred, due to the risks of what he called a "frontier market."

 

Jürgen Kremb is Handelsblatt's senior writer on Asian affairs, based in Singapore. To contact the author: [email protected].