Industry & Retail

Recording steady growth in recent years, Myanmars industrial and retail sectors have been buoyed by
solid macroeconomic fundamentals, economic liberalisation and regulatory reforms encouraging
investment and expansion. The new administration has set a bold industrialisation target, with
manufacturing expected to become one of the most significant economic growth drivers in the coming
years. Job creation and infrastructure investment are priorities, with ongoing development at three special
economic zones also expected to attract new industrial and manufacturing investment. Low labour costs
provide an additional incentive, despite a shortage of skilled labour, which has driven the government to
target significant new investment in vocational training.

Articles from this chapter

This chapter includes the following articles.
Manufacturing to serve as key growth driver in Myanmar's economy

Manufacturing to serve as key growth driver in Myanmar's economy

Recording steady growth in recent years, Myanmars industrial and retail sectors have been buoyed by
solid macroeconomic fundamentals, economic liberalisation and regulatory reforms encouraging
investment and expansion. In industry, the new administration of the National League for Democracy
(NLD) has set a bold industrialisation target, with manufacturing expected to become one of the countrys
most significant economic growth drivers in the coming years. Job creation and infrastructure investment
are priorities, with ongoing development at three special economic zones (SEZs) also expected to attract
new industrial and manufacturing investment. The countrys low labour costs provide an additional
incentive, despite a shortage of skilled labour, which has driven the government to target significant new
investment in vocational training (see Education chapter).

The retail sectors outlook is equally promising, as new international brands rush to capitalise on a
growing consumer class and a relatively untapped market. The automotive, food and beverage (F&B),
and fast-moving consumer goods (FMCG) segments in particular are poised for growth, as evidenced by
rising foreign investment bolstered by the lifting of US sanctions and domestic trade liberalisation
policies (see Trade & Investment chapter).

On A Growth Path

Myanmars industrial sector has witnessed dramatic growth over the past five years, with manufacturing
largely concentrated in garment and textiles, agricultural processing, automotive parts manufacturing, and
canning and bottling. According to the latest data by Myanmars Central Statistical Organisation,
industry, including energy, mining, processing and manufacturing, electrical power and construction,
contributed 30% to GDP in 2014, with processing and manufacturing alone comprising 21% of the
economy that year. World Bank data shows that the share of GDP made up by industrial value-added
stood at 9% as of 1999.
The Ministry of Industry (MoI) oversees industrial development in the country through a vast portfolio of
offices and directorates, most notably its Union Ministerial Office, responsible for consumer products
including pharmaceuticals and foodstuffs, textiles, ceramics, paper and chemicals products, and
construction materials, as well as heavy industrial products. These industries have been the focal point of
recent government policy. The Directorate of Industrial Collaboration, meanwhile, coordinates industrial
enterprise activity in accordance with MoI guidelines, and negotiates with foreign and local investors.

Investment

The authorities have been working to enhance the attractiveness of the industrial sector. The foreign
investment and SEZ laws include incentives such as corporate income tax relief, import duty relief, long-
term land leasing and expropriation protection mechanisms. The country also offers an ideal geographic
position and is set to become a transportation hub on the back of new land and sea infrastructure
investment (see Transportation chapter). Its 54m-strong population and low labour costs also present
potential benefits, with Verisk Maplecroft, a UK-based risk analysis consultancy, reporting in February
2015 that Myanmars labour costs are the second-lowest out of 172 countries surveyed, with only
Djibouti ranking lower. This has been a major growth driver for the garment and textiles industry, which
employs 350,000 people at nearly 400 factories.

Foreign investment in manufacturing has soared in recent years. The Directorate of Investment and
Company Administration (DICA) reports that the value of approved foreign investments in manufacturing
stood at just $1.6bn between FY 1988/89 and FY 2003/04, and remained subdued between 2004/05 and
2008/09, with investments totalling $22m during the period, although it began to rise in 2009/10, when
DICA recorded $33.2m of approved foreign investments, before hitting $66.3m in 2010/11, sky-rocketing
to $400.7m in 2012/13 and $1.8bn in 2013/14. Although the numbers have moderated in the years since,
coming in at $1.5bn in 2014/15 and $1.1bn in 2015/16, manufacturing was the third-most-popular sector
for foreign investment in 2015/16 after oil and gas and transportation and communication. The number of
permitted manufacturing investment projects stood at 648 as of August 2016, worth $6.9bn, comprising
10.8% of foreign investment. Although approved investments in the sector stood at just $336.4m during
the first five months of the 2016/17 fiscal year, recent policy announcements could see this number rise.

Industrial Law

The government is moving to update the laws pertaining to industrial development, and in July 2016 the
MoI announced plans to introduce new industrial legislation which will support and promote sector
development. U Myo Zarni Win, assistant secretary at the MoI, told the Myanmar Times in July 2016 that
existing laws which specify permissible investment levels, the size of the labour force and electricity
supply are not appropriate under current economic conditions, with the new industrial policy expected to
give priority to labour-intensive industries including basic food production and low-level manufacturing,
which could become competitive in a relatively short period of time, given Myanmars large workforce
and relatively low labour costs.

The MoI also announced plans to form an Industrial Support Committee, which will be tasked with
detailing registration procedures, tax incentives and technological uptake, as well as support mechanisms
for small, medium and heavy industries through revisions to legislation governing public investment and
labour laws. Authorities hope the new legislation will be enacted prior to the countrys integration into the
ASEAN Economic Community, planned for 2018.
Policy Priorities

The NLD administration is also intensifying its efforts to promote industrialisation through a new
industrial strategy. In July 2016 the MoI became the first ministry to issue an official policy document,
when it published an industrial plan running from 2016 to 2022 in the National Gazette. The plan, which
was drafted under the previous administration and originally published in March 2016, outlines the
countrys near-, mid- and long-term industrial strategies, and targets increasing manufacturings share of
GDP to 37% by FY 2030/31 (see analysis). Calling for targeted industrial development in central and
southern Myanmar, the plan also highlights 11 challenges, including availability of electricity, poor
transportation infrastructure, high land prices and, critically, a lack of available skilled labour.

Vocational Training

Although the government is moving to address these challenges through investment in hard infrastructure,
including new highway and road links, airports and deepwater ports (see Transport chapter), investment
in soft infrastructure, particularly vocational training facilities, is also heavily emphasised, with Asia
Sentinel reporting in August 2016 that the country is in critically short supply of vocational training
centres for engineers and craftsmen, including electricians, carpenters and plumbers, as well as hospitality
training facilities.

Indeed, both the Myanmar Investment Commission and the MoIs industrial plan have called for the
creation of new vocational training facilities in each of the countrys 19 industrial zones, six of which are
under development. An emphasis on human resource development and job creation also form part of the
NLDs 12-point economic strategy unveiled in August 2016. Critically for the industrial sector, it
includes a commitment to develop a skilled workforce to fill new manufacturing and service jobs, with
investment in vocational training highlighted as a critical element of any long-term job creation strategies.
Job creation features heavily in the 12-point plan, as part of efforts to encourage thousands of migrant
workers based in Thailand to return home, in addition to bolstering foreign investment at the three SEZs
currently under development. These zones are expected to become major manufacturing centres over the
long term, benefitting from close proximity to major sea transport routes and spanning a broad range of
high-potential manufacturing segments. The 12 point plan itself is headed in the right direction, but
serious questions remain about implementation and financing, Christoph Steinwehe, CEO of Loi Hein, a
Myanmar-based consumer goods firm, told OBG.

Thilawa SEZ

The Thilawa SEZ was the first to be launched in the country, after the government of Myanmar partnered
with the Japanese government to launch a joint venture, Myanmar Japan Thilawa Development (MJTD)
in October 2013. Each government holds a 10% stake in the company, while a consortium of nine local
companies known as Myanmar Thilawa SEZ Holdings has a 41% stake, and a consortium of private
Japanese companies the remaining 39%.

The zone, which is being developed in phases, is located next to two port terminals, the Myanmar
International Terminal Thilawa and Myanmar Integrated Port, to facilitate growth in export-oriented
industries. Zone A, which spans a 396-ha plot south of Yangon, launched partial operations in September
2015, and was 90% complete as of August 2016, with authorities announcing in the previous month that it
had attracted $760m in foreign investment since it began operations. MJTD reported that 73 local and
foreign investors had signed on to build factories that will create 15,000 new jobs, with the majority of
new investments coming from manufacturers of garments, bottles, construction materials, food, steel,
fertiliser, auto parts, agricultural machines, medicine and medical equipment. Of these, 12 have already
begun operations, 25 were due to open by the end of 2016 and 30 will be built in 2017.

Manufacturing Impact

Operations at Thilawa will provide a major boost to manufacturing output, with MJTD reporting that at
current levels of investment, the zones manufacturing capacity is set to rise to $241m annually, while an
anticipated $1bn in new foreign investment will see output grow to $350m per year. Investment into
Thilawa SEZ comprised 12.5% of total foreign direct investment inflows in Myanmar during the 2014/15
fiscal year, with the SEZs output making up 3% of the countrys total exports over the same period.
According to officials, construction of Thilawa SEZ B will begin by the end of 2016 on a 700-ha plot of
land, with the projects size set to reach 2400 ha once completed.

Dawei SEZ

Promisingly for the long-delayed Dawei SEZ, the Japanese government signed on as a third equal partner
to the project in 2015 after Myanmar and Thailand inked a memorandum of understanding to develop the
project jointly in 2008. This followed the April 2015 announcement that the projects $1.7bn first phase
was set to move forward after Italian-Thai Development (ITD) signed a $500m deal with the government
of Myanmar to build a $500m natural gas import terminal in the SEZ. With plans also under way to
construct a $500m power plant, Dawei SEZ will be one of the largest industrial parks in South-east Asia
on completion, rivalling facilities in Singapore and opening a new gateway to the Malacca Strait from the
countrys western seaboard.

The 196-sq-km park is set to be home to a deep-water port, manufacturing facilities for canneries,
electronics, pharmaceuticals, automotive parts and built-up infrastructure including a vital road link
connecting it to Kachanaburi in Thailand, with Bangkok just 350 km away from the SEZ, compared to
678 km from Yangon. The first phase will include a 27-sq-km industrial estate, with ITD given the rights
to develop 8 sq km of industrial land, of which it will sell 20% to generate $284m in revenue. However,
construction on the 138-km Thai-Myanmar highway was suspended after Japan voiced concerns about
highway safety, with new design plans expected to include tunnel construction, raising the possibility of
further construction delays. Local opposition to the Dawei project could also serve to hamper its
development.

Kyaukphyu SEZ

Development of the Kyaukphyu SEZ also moved forward in December 2015, when an international
consortium led by CITIC, one of Chinas largest conglomerates, was awarded a contract to develop the
project. The 1000-ha industrial park, located in Rakhine State on the western coast, will include textile
and garment factories, facilities for the construction materials and food-processing industries, and marine
supply and maintenance facilities. Significantly, the SEZ will also be home to a deepwater port, which
will be built in four phases, with construction spanning a 20-year period and including the Made and
Yanbye island terminals, each of which will contain 10 shipping berth alongside road and bridge
connections, enabling annual handling capacity up to 7.8m tonnes of bulk cargo and 4.9m containers.

The project will be developed in three phases under a build-operate-transfer public-private partnership,
with the CITICs consortium also comprising four Chinese industrial and investment groups, as well as
Charoen Pokphand, a major Thai conglomerate. Work on the industrial park began in January 2016, with
the project expected to generate 100,000 jobs and contribute $10bn to annual GDP on completion. CITIC
told media that during the 20-year concession period the country would earn $15bn in tax revenues from
the port and industrial park, after which the project will be handed over to the government.

SME Support

SEZ growth dovetails with government efforts to improve credit access and support for small and
medium-sized enterprises (SMEs), an important consideration for industry as the MoI reports that
Myanmars industrial sector is composed of more than 45,000 large, medium and small enterprises and
over 19,000 cottage industries.

Myanmar ranked 174th out of 189 in the getting credit category on the 2016 Ease of Doing Business
report published by the World Bank, with access to credit cited as one of the most common challenges for
industrial producers, construction contractors and property developers. In the 2017 report the country
ranked 175th out of 190 in the same category, with the bank commenting that Myanmar had improved its
credit information system by enacting a law that allows the establishment of a new credit bureau. Lending
rates remain high, loan tenors short, and many small businesses lack the necessary collateral to qualify for
a loan, although banks have moved to ameliorate the challenges facing SMEs in recent years (see
Banking chapter).

The state-owned Small and Medium Industrial Development Bank reported in July 2016 that it had
provided MMK5bn ($4.1m) in SME loans to 11 companies during the 2016/17 fiscal year, and
MMK20bn ($16.3m) during the 2015/16 fiscal year, although it also noted that 300 SMEs had
outstanding repayments in the latter period. Also in July, the MoI announced that the state-owned
Myanma Economic Bank was partnering with six private lenders to launch a MMK30bn ($24.4m)
lending scheme. Participating banks include Myanma Oriental Bank, Ayeyawady Bank under the Co-
operative Bank, Myanmar Citizens Bank, Kanbawza Bank and the Small and Medium Industrial
Development Bank, under its credit guarantee system. Loan amounts vary between MMK15m ($12,200)
and a MMK500m ($406,000), with interest rates set at 8.5%, considerably lower than the prevailing
market rate of 13%, and a five-year tenor.

Retail

Like the manufacturing sector, retail is also benefitting from ongoing liberalisation. The US governments
move to lift sanctions and support trade growth have improved investor confidence, bolstered by rapid
recent expansion in the automotive, F&B and FMCG segments, and driving growth of new formal retail
space in the commercial capital of Yangon.

The sector offers significant investment potential to foreign retailers, and retail sales are expected to
expand in the coming years on the back of positive macroeconomic indicators, including forecast GDP
growth of 7.8% during FY 2016/17, following 8.5% and 7% growth in FY 2014/15 and 2015/16,
respectively, according to the World Bank.

A population of more than 50m offers an attractive future domestic market. Myanmars middle class will
likely support strong long-term growth, even if GDP per capita remains low, at $1200 in 2015, according
to World Bank statistics. In 2013 Euromonitor estimated the countrys consumer class would double by
2020. This is in turn driving development of new formal retail space, and Colliers International reported
that Yangons total retail stock reached 220,000 sq metres of leasable space at the end of 2015, almost
twice as much as in 2014 (see Real Estate chapter).
Food & Beverage

Although middle-class purchasing power remains limited at present, F&B retailers are already
capitalising on consumer preferences which favour F&B purchases over merchandise in formal retail
developments (see analysis). The beverage market, particularly the beer market, is also heating up after
the entrance of two major international players hoping to access the markets relatively untapped potential
and low levels of competition. In 2014 Standard Chartered Bank reported average annual domestic beer
consumption per capita in Myanmar is just four litres, compared to 40 litres in Vietnam, 38 litres in
Thailand and 22 litres in the Philippines, while Euromonitor forecast the countrys $375m domestic beer
market could grow to reach $675m in 2018.

On Tap

Sales are presently dominated by Myanmar Beer, a legacy brand in which Japans Kirin now holds a 55%
stake after making a $560m acquisition from Singapores Fraser and Neave in 2015. Although Myanmar
Beers market share is estimated to be as high as 80%, Reuters reported in December 2015 that the
company is facing stiff competition with the entrance of Heineken and Carlsberg in that year. Heineken in
particular is making inroads, after opening a $60m brewery with capacity for 330,000 hectolitres
annually, in July 2015. According to Reuters, demand for Heinekens economy brand, Regal 7, has been
so strong that the company is now accelerating expansion plans which will see it double capacity at its
Yangon facility. Carlsberg was the first to enter the market, opening its $75m Bago brewery in May 2015,
after forming a joint venture with local firm Golden Star Group. Similar trends have been witnessed in the
non-alcoholic beverage sector, with local producers including Loi Hein, a bottled water and soft drink
manufacturer, is facing increased competition after the re-entrance of Coca-Cola in June 2013. In 2014
Loi Hein partnered with Japans Asahi group to form a new soft drinks company in Myanmar. Initially,
Loi Hein which holds a 49% stake in the venture will continue producing its Blue Mountain brand of
carbonated soft drinks, although there are plans to add Asahis brand Calpis as well as tea and coffee later
on.

FMCG

The broader FMCG segment also holds growth potential, with US-based market research firm Nielsen
reporting in May 2015 that Myanmars FMCG sector had expanded 15% since 2011, noting that food,
groceries, household products and personal care products account for 47% of average monthly consumer
expenditure in the country.

According to Nielsen, a number of global and Asian brands are keen to enter the market, noting the
importance of brand building through word-of-mouth advertising and, increasingly, mobile advertising
channels, with 75% of consumers reporting being open to receiving ads on their phones, and mobile
penetration rising to reach 44% by 2015. This has not gone unnoticed by foreign investors, most recently
when Singapore Myanmar Investco (SMI), announced in June 2016 that it plans to expand into the retail
and F&B segments over the next three years, after signing an agreement with Royal Golden Sky to open a
retail facility in Yangon International Airport (YIA) in 2015. The group is in discussions with Junction
City, a $300m mixed-use development, to identify retail and F&B opportunities, with plans to introduce
10 international brands to the retail market, and 30 brands to its YIA operations before 2017. SMI is
targeting the downtown business district near Kandawgyi Lake, as well as Myanmars second city,
Mandalay, for new retail opportunities. It also plans to bring in Chinas Crystal Jade restaurant franchise,
as well as the Coffee Bean and Tea Leaf chain, scheduled to open in YIA.
Automotive

The automotive market, while still in its nascent stages and dominated by used imports, is also projected
to record rapid mid-term growth, despite a challenging regulatory environment. At present the retail auto
market largely consists of used imports from Japan, all of which are right-hand-drive vehicles despite
Myanmar having switched to driving on the right side of the road in 1970. New vehicle sales remain low,
at just 5000 units in 2015, although they have recorded tremendous growth in recent years, with the Road
Transport and Administration Department reporting that the share of new vehicles in total sales rose to
3% as of mid-2016, compared to less than 1% two years before. Research firm Frost & Sullivan projects
the countrys auto market will increase by an average of 7.8% annually through to 2019.

Automotive manufacturing activities have also been on the rise. WardsAuto reports that 800 Suzuki
vehicles are assembled annually in Yangon, and in May 2015 Suzuki announced plans to build a new
manufacturing facility in Thilawa SEZ. The new facility will be located on a 20-ha plot and employ 300
people. It will assemble imported parts and initial outputs, with a capacity for 10,000 vehicles annually.
The firm announced the new facility will come on-line in 2018.

Other car makers are also coming into the market. In February 2016 Nissan announced plans for a new
10,000-unit-per-year assembly plant in Bago. Despite positive recent growth, WardsAuto reported in July
2016 that market maturation remains limited by unsupportive government policies in Yangon, which
accounts for 80% of the vehicle sales market.

Import Permits

Rising congestion in Yangon prompted the government to roll out import permit requirements in January
2015, which included a requirement that buyers prove they have a parking space. Yoma Strategic
Holdings, which imports and distributes Volkswagen vehicles, and distributes Bridgestone tyres and
Mitsubishi vehicles, reported it expects its sales to fall by 20% in 2016 as the industry continues to
grapple with these challenges.

Outlook

The outlook for industrial, manufacturing and retail growth in Myanmar remains positive, as accelerating
economic liberalisation, supportive public policy and attractive market fundamentals continue to attract
new foreign investment. Industrialisation will maintain momentum on the back of SEZ developments,
with investors set to benefit from incentive reforms, low labour costs and large untapped potential.
Opportunities for expansion will also drive retail growth, particularly in the F&B and FMCG segments,
with the countrys fast-expanding consumer class set to bolster automotive sales.

U Ko Ko Gyi, Group Managing Director, Capital Diamond Star Group, on facilitating trade and
investment: Interview

U Ko Ko Gyi, Group Managing Director, Capital Diamond Star Group, on facilitating trade and
investment: Interview
Interview: U Ko Ko Gyi

In your opinion, what steps could the government take to encourage greater foreign direct
investment (FDI) in manufacturing?

U KO KO GYI: The new investment law is a step in the right direction. We have one of the most liberal
investment policies in place, but it is more a matter of implementation, particularly given that our
government has capacity constraints. Institutional changes need to take place with, for example, the
Myanmar Investment Commission (MIC), as it still does not function as a single window.

Often you submit a proposal, then you have to go around different sectors to get a no-objection letter, then
you have to go through the regional governments to get the no-objection letter. The proposal process is
quite lengthy and inefficient. I see no issues with the policy it is more the implementation than anything
else.

There needs to be a streamlining of MIC approval in order to avoid delays on the FDI front. In terms of
manufacturing, there have been some delays, as you have to get a registration certificate, which often
causes a significant delay to production. These nuts and bolts need to be taken care of.

Aside from those, we need to close the infrastructure gap. Currently, Myanmar has extremely high
logistics costs, partly due to the quality of roads, lack of electricity and limited soft infrastructure, such as
the banking industry.

Logistics costs take the biggest bite when you move around commodities. For example, in terms of
freight charges, we spend roughly $20-30 per tonne on shipping wheat from Australia to Yangon, and
then another $35-40 shipping from Yangon to Mandalay, only 350 miles away.

So when moving these low-value commodity items it is possible to realise how bad the logistics
infrastructure is. It is not quite as noticeable for high-value products, but these are serious areas that need
to be addressed to improve the trade capabilities of the country.

What are the growth prospects of the fast- moving consumer goods (FMCG) industry now that the
period of economic isolation has ended?

KO KO GYI: Before 2010 the FMCG segment faced numerous challenges, one of which was the highly
restrictive trade policy. As a result, if you wanted to trade and distribute, you had to rely on illegal trade.
Another issue was caused by sanctions and a lack of confidence, which hindered FDI.

After sanctions began to ease during 2011 the government began to liberalise the trade policy and
previously illegally imported items began to be traded legally, which caused an uptick in trade flows.
Similarly, on the investment side, there was an upsurge in FDI activity.

A few notable players include the firms Coca-Cola and Pepsi, as well as a number of well-known beer
companies from around the world. Likewise, local FMCG players signed joint-venture agreements with
international brands.

Those are the major changes that have been caused by the liberalisation of trade policy and the easing of
sanctions, which have resulted in increased imports and trading opportunities, and have given the
consumer more variety.
In addition, a lot of investment in interesting areas, such as food manufacturing, health care products, and
personal care or home care products, is helping take the FMCG segment to the next level. A lot of
investment has not only been in brand building, but also in manufacturing itself.

In our case, we are currently investing heavily in establishing new manufacturing facilities, and I am sure
that is also the case with other brands.

This trend started in 2011, and I am certain that it will continue under the new government.

Sector plan in Malaysia foresees development of industrial clusters and legislative reform

Sector plan in Malaysia foresees development of industrial clusters and legislative reform

The new administration of the National League for Democracy (NLD) has highlighted industrial
development as a top priority, evidenced by the recent release of a long-term industrial strategy expected
to boost the sectors GDP contribution to nearly 40% over the next 13 years. Under the plan, new
investment in key economic corridors will be underpinned by development of industrial clusters,
including a host of planned zones for agro-industry, as well as reforms aimed at improving the ease of
doing business.

The Ministry of Industrys industrial strategy calls for expansive, broad-reaching industrial development,
with the goal of boosting the industrial sectors contribution to GDP to 37% by FY 2030/31.

Economic Corridors

The policy identified two geographic areas in which the government will intensify its industrialisation
efforts: the southern cities of Yangon and Bago, selected because of their proximity to key road and ocean
transport links, as well as relatively developed infrastructure, and the central cities of Mandalay and
Sagaing, which have easy access to economic corridors such as the ASEAN Highway Network, a
proposed road network which would link Vietnam, Cambodia, Laos, Thailand and Myanmar.

Proposed industrial developments will be further connected to Myanmars four economic corridors:
north-south, east-west, north-east-south-west and Yangon-Myawaddy, which account for the majority of
economic production. The north-south corridor stands as particularly critical, running from Thilawa in
Yangon to Myitkyina, via Bago, capital city Nyapyidaw, Meiktila and Mandalay, and encompassing 55%
of the countrys GDP and 48% of the population, as well as a special economic zone in Thilawa, 24
industrial zones and seven sub-industrial zones.

Priority Segments

In the near term, the plan focuses on development of labour-intensive industries, including garments and
footwear, packaging, wooden furniture, agricultural and fisheries products, and livestock, with an
emphasis on adding value. Development of value-added industrial production and a skilled workforce will
support mid-term industrial strategies, with the plan emphasising textile dyeing and painting, shipbuilding
and manufacturing larger components for automobiles, as well as a long-term goal of establishing
advanced industries including semiconductor manufacturing, pharmaceuticals and heavy industry such as
metal refining, cement production and petrochemicals.
Promisingly for potential investors, the policy also mentions the possibility of privatising state-owned
industrial businesses, as well as the creation of new special agriculture industrial zones. The agricultural
zones will focus on value-added processing at sites in Sagaing, Bago, Magwe, Ayeyarwady and
Tanintharyi, each specialising on activities tailored to its geography and local strengths (see Agriculture
chapter).

Challenges & Reforms

The plan identified 11 main challenges to industrial development, most notably poor transportation
infrastructure, inadequate electricity and energy supply, a shortage of skilled labour and high land prices.
It calls for the establishment of one-stop shop service centres in each region to facilitate investment, with
the centres expected to provide assistance with market research, starting a business and accessing finance.

Perhaps most significantly for potential investors, the policy also includes provisions for the government
to confiscate any land in industrial zones that has not been developed for three years or more. According
to a July 2016 analysis published by Frontier Myanmar, 7194 plots out of 37,076 in Myanmars industrial
zones are empty, including 2345 in Yangon, 1464 in Shan State, as well as 1381 in Mandalay.

Electricity concerns, meanwhile, will be mitigated by plans to increase the countrys total installed
capacity from its current level of around 2700 MW to 22,720 MW by FY 2030/31 (see Energy chapter).

Rising foreign investment in Myanmar's food and beverage segment

Rising foreign investment in Myanmar's food and beverage segment

International retail investors have flocked to Myanmars food and beverage (F&B) segment in recent
years, drawn by a rising middle class with disposable incomes for F&B purchases, though not yet more
expensive internationally branded fashion and consumer goods. Recognising the growth potential, a host
of US fast-food chains have moved to enter the market or expand their offerings in recent months, joining
a handful of Asian franchises already in operation. Although supply chain difficulties have driven up
production costs, the long-term growth potential of the F&B segment is considerable, while rising foreign
direct investment (FDI) in the grocery segment indicates further opportunities outside of fast food.

New Entrants

Although international fast-food chains are not yet ubiquitous in Myanmar, a host of Asian F&B outlets
have popped up in recent years, most notably fried chicken restaurants. Thailands Charoen Pokphand
Group operates a network of mini street-side chicken stalls, while South Koreas Lotteria burger chain
launched its first location in 2013, expanding its portfolio to more than 20 by mid-2016. Malaysias
Marrybrown and South Koreas BBQ Chicken also entered the market in 2013; the former operates in
both Yangon and Mandalay.
The lifting of US sanctions has had a major impact on investor sentiment. The US government has also
eased restrictions on trade shipments to ports and airports in the country, which has enabled new
investment in the F&B segment.

Five well-known US fast food chains are now operating in the country KFC, Burger King, Pizza Hut,
Swensens and Pizza Company. KFC entered the market in July 2015, when its inaugural restaurant
opened in downtown Yangon. The franchise, operated by local conglomerate Yoma Strategic Holdings,
has since expanded its portfolio to five locations in the business capital, including one at the Yangon
International Airport (YIA), which launched in April 2016.

Recent Expansion

Pizza Hut is operated by YUM! Brands, Hong Kongs Jardine CM Restaurant Group Company, a
subsidiary of Jardine Matheson, and Myanmars City Mart Holding Company. The groups first franchise
opened for business in Yangons Bahan Township in October 2015. The group now plans to expand to 20
locations by 2021. Burger King also opened in YIAs Terminal 1 in July 2016. Like Pizza Hut, Burger
King is owned by YUM! Brands, although its Myanmar operations are led by Thailands Minor Food
Group, a company with a fast-expanding portfolio of F&B outlets in Yangon. Minor Food Group operates
the US-based Swensens ice cream franchise, which also opened a new location in YIA in July, as well as
at the new Myanmar Plaza shopping centre. The company launched its first Swensens in Myanmar in
2013.

Investment in supermarkets is also expected to soar as new brands clamour to capture rising consumer
demand. In August 2016, for example, Japans retail giant Aeon announced plans to expand its
supermarket business into Myanmar through a joint venture company created in partnership with local
firm Creation Myanmar Group of Companies (CMGC). The new company, Aeon Orange, plans to
acquire 14 supermarkets currently owned by CMGC affiliate Hypermarket Asia, in addition to opening an
unspecified number of new stores before 2017.

Challenges

Retail investors have encountered challenges as they launch operations. KFC Myanmar, for example,
reports that supply chain difficulties have posed a problem. The restaurant sources its chicken locally, but
outdated infrastructure networks and an undeveloped cold supply chain have driven up operating costs.
Limited consumer purchasing power also remains an issue, meaning that fashion and retail brands may
struggle to gain a foothold in the market, with F&B purchases standing as the preferred choice for lower-
middle-class consumers, making the segment the most attractive to foreign investors.