Mandalay firms fight forex their own way

Betting the US dollar will continue to strengthen against the kyat, importers and distributors are raising prices to beat the exchange rate.

“We set the price higher, but then offer promotions for our customers to encourage them to continue buying,” said U Hla Phone Kyaw, director of Rainbow Bridge Distribution Company, which imports high-end brands such as Panasonic and Johnson & Johnson.

The discounts depend on the gap between the sales price and the exchange rate. The smaller the difference, the smaller the promotion, Once the market rate overtakes the sales price, it is time to temporarily halt sales and reset the price higher, said U Hla Phone Kyaw. “This has happened two or three times this year,” he said.

For two years until the end of 2014, the exchange rate was fairly stable, allowing businesses to keep prices steady. However, this year the kyat has depreciated by 24pc versus the US dollar to K1278 yesterday, according to the official rate. At times, the fall has been swift – in July, for example, the kyat dropped 11pc.

Myanmar’s currency, like many others in the region, will continue to be hurt by a strengthening US dollar. Domestic issues such as a widening current-account deficit and hold-ups in foreign direct investment (FDI) inflows will continue to put pressure on the currency. A flight to the US dollar over the election period and the threat of double-digit inflation will add to the kyat’s weakness.

U Hla Phone Kyaw said he is also hedging risk by reducing the duration of credit to customers. In the past, he was able to provide credit for a month, but has recently limited this to just a week. “Now we have narrower margins and the risk is higher,” he said, adding that improved customer relations can also help keep the business alive.

Other traders say the volatility has led them to stop selling altogether. Gold traders, for example, prefer to wait until the currency is stable before parting with their wares.

The weakening kyat and the national flooding disaster have hit the electronics market hard, with the sale of luxury electronic items falling by up to 90pc, said distributors.

U Myo Thein, owner of Myo Thein Electronics, said he has been unable to raise prices to keep up with the forex rate, because sales are already down by 20pc to 50pc.

“We have not increased the price of items imported directly from China, Korea or Thailand, because they are not selling well,” he said. However, other companies selling goods in his shops have raised their prices.

Importers now prefer to receive immediate cash payments from customers, and are offering incentives for upfront payments and discounts for larger orders. However, distributers are limiting purchases to items they are sure they will be able to sell.

U Naing Toe, who imports Chinese fertilizer, said he never stores his goods to wait for a higher price.

Traders have plenty of experience in managing exchange rate volatility. From 2010 to 2011 the kyat appreciated 20pc, spurring inflation. In recent history, traders have navigated hyper-inflation and demonitisation.

However, the kyat has never reached K1300 to the US dollar, said U Hla Phone Kyaw. “The change is much bigger and the rate of change is fast. We didn’t need to think so hard about it in the past,” he said.

Traders and distributers said that besides the currency problems, business in Mandalay has not been impacted by the new minimum wage of K3600 per hour, because most employees in the trade sector already receive at least this amount.

However, the property and jade markets in Mandalay have been hurt by the slowdown in neighboring China, said traders.

Source: Myanmar Times

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