Japan's Oji kicking Myanmar output into gear
MOTOKAZU MATSUI, Nikkei staff writer
YANGON --
Oji Holdings on Monday marked the completion of its first production base in Myanmar as the Japanese paper company set its sights on expansion in the Southeast Asian country.
The roughly $15 million facility sits in the Mingaladon Industrial Park in northern Yangon, the nation's largest city. Its annual cardboard output capacity of 30,000 tons is the equivalent of 20% of Myanmar's demand.
The plant has been in partial operation since May, processing base materials imported from Japan, Malaysia and elsewhere. An Oji affiliate in Malaysia, GS Paper & Packaging, runs the factory, built on a lot totaling some 25,000 sq. meters.
Oji became the first of the world's big papermakers to establish a major production base in Myanmar.
Chairman Kiyotaka Shindo, who attended a completion ceremony here Monday, unveiled plans to open a second Myanmar factory next summer in Thilawa, near Yangon, to produce labels and thermal paper.
Oji is rapidly expanding operations in the country, having secured a site for the second plant. It will launch a lumber business in the southeastern state of Mon this October with a
Sumitomo Forestry affiliate and a local partner.
"We will bring together our group's resources for Myanmar operations," Shindo said.
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Is a wave of US investment on its way?
MOTOKAZU MATSUI, Nikkei staff writer
A woman walks by Coca-Cola trucks on a rainy day in Yangon in June 2013. The company opened a bottling plant in Myanmar that month, but many U.S. businesses have hesitated to invest in the country. © Reuters
YANGON -- Myanmar's labor minister on Aug. 24 received a letter that bodes well for investment in the country.
Five U.S. and Canadian apparel industry groups, including the American Apparel & Footwear Association and the United States Fashion Industry Association, told the minister they welcome Myanmar's recent introduction of a legal minimum wage. The policy, the groups wrote, will encourage companies to put down roots in the Southeast Asian nation, spurring further economic development.
Labor and management in Myanmar had long been at loggerheads over the minimum wage issue. Running out of patience, the government in June proposed a daily rate of 3,600 kyat ($2.81). Emboldened by the letter from the U.S. groups, the administration on Aug. 28 decided to apply that minimum wage to all industrial sectors.
The U.S. was once the biggest buyer of clothes made in Myanmar. But relations between Washington and the former junta were tense. And after pro-democracy icon Aung San Suu Kyi was placed under house arrest for the third time in 2003, the U.S. banned imports from Myanmar as part of a package of sanctions.
The U.S. in 2012 lifted some of the sanctions, including the import ban. Americans, however, remained sympathetic to Suu Kyi and many U.S. companies balked at doing business in Myanmar.
Despite U.S. caution, Coca-Cola opened a bottling plant in mid-2013. KFC this year became the first U.S. fast-food chain to open a restaurant in the country.
The letter, which arrived as Myanmar prepares to go to the polls in November, can be taken as a sign that U.S. reluctance is easing. Although Suu Kyi is constitutionally barred from becoming president, speculation that she will play a prominent role in the next government is reducing the "reputational risk" that comes with investing in Myanmar, according to an executive with an international law firm.
Some non-U.S. companies have avoided Myanmar out of deference to Washington, but they are starting to move ahead with investments. The U.S. is widely expected to further ease restrictions on business dealings with Myanmar -- provided the elections are deemed sufficiently free and fair.
Shrinking blacklist
Even given U.S. caution, foreign investment in Myanmar has surged.
Since taking power after the previous general elections in November 2010, President Thein Sein has carried out a series of reforms to court investors and spur the economy. In the four years through fiscal 2014 ended in this March, foreign direct investment totaled $18.1 billion. In the 22 years to 2010, when the country was under military rule, it brought in only $36 billion or so.
In the days of the junta, most investment came from Chinese companies, which built power plants and dams among other large projects in Myanmar. In recent years, businesses from Europe and elsewhere in Asia have stepped up. Japanese companies are playing prominent roles, developing Myanmar's first special economic zone in Thilawa, southeast of Yangon, and helping to manage state-owned telecommunications company MPT.
Still, greater U.S. involvement would make a big difference. The letter from the apparel organizations is but one sign that the U.S.-Myanmar thaw continues.
The U.S. government maintains sanctions on certain Myanmar individuals and companies regarded as close to the former junta. But in April, Washington scrubbed two companies in the Dagon Group -- a construction conglomerate -- from the blacklist. The group's chairman, Win Aung, was also removed.
"I was surprised," Win Aung told the Nikkei Asian Review. The move "enables us to further cooperate with foreign companies looking to invest in Myanmar."
Many expect the U.S. to clear more names off the list soon, as long as the November elections are seen by the West as credible. So far, things look promising: Suu Kyi's National League for Democracy, which boycotted the 2010 vote, intends to take part, as do other opposition parties. International observers are likely to be sent to Myanmar to monitor the process.
Hanging in the balance
Smooth elections, of course, could still result in complications. If the nation ends up with a weaker government, economic reforms could lose momentum.
The Thein Sein administration has made bold moves to modernize the economy. It abolished a murky dual exchange rate system in spring 2012, opened up the banking sector to foreign companies in fall 2014 and did the same for the insurance market in 2015.
The opening of the banking sector, in particular, faced strong opposition from local financial institutions and politicians. The government's strong power base -- the ruling party and other pro-administration lawmakers hold three-quarters of parliamentary seats -- made it possible. If opposition parties gain ground, it could result in more fractious politics.
Key legislation, including a corporate law revision that would ease restrictions on foreign ownership of domestic companies, has been left for the next parliamentary session. There are concerns that a standoff between ruling and opposition parties could stall these bills.
If the NLD wins the largest number of seats, its ability to govern will be put to the test. Democracy activists close to Suu Kyi form the core of the party; some observers question the group's economic policy expertise and whether it would do enough to lure foreign investment.
Maung Maung Thein, Myanmar's deputy finance minister, downplayed concerns that the elections could hinder reform.
"Whoever wins, the direction of economic policy will not change," said the deputy minister, who is overseeing the creation of the Yangon Stock Exchange, the country's first full-fledged bourse. This project, too, will require politicians to do their part, since regulations related to stock trading have yet to be set.
Is a new wave of foreign investment -- including hefty sums from the U.S. -- about to propel Myanmar to the next stage of economic growth? The November elections are likely to determine the answer.
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