Reset capital market, allow foreign competition to unleash growth: leaders

Foreign investor interest in Myanmar appears to be waning at a time when the global economy is losing momentum, if recent data is anything go by. As such, a hard reset of the local capital market is needed to ensure the business environment remains friendly to existing firms and entrepreneurs, as their survival and growth is now crucial to supporting the economy.

But even though the authorities have long promised a freer and more flexible landscape for businesses to expand in Myanmar, much of the forthcoming reforms have failed to take shape. For actual reforms to take place, business leaders say the authorities need to loosen up by allowing foreign competition into the economy and arming businesses with options to compete instead.

“There will always be risks. Our regulators need to realise that they cannot run the economy and eliminate the risks at the same time. [Instead], they need to create the right environment for local businesses to stand on their own,” said Azeem Azimuddin, CFO and adviser to the chairman at AYA Bank, during a panel at the UK Capital Market and Insurance Conference Yangon earlier this month.

Capital restricted

One of the largest barriers to growth in Myanmar is the lack of avenues through which businesses can tap capital markets for funds to explore new ventures or execute ideas.

At its current stage of development, funding options in Myanmar are limited to local bank loans and a small pool of venture capital. Even then the number of firms that qualify to borrow from the banks is typically restricted to larger and more established organisations, since most small and medium enterprises do not have the track record, documents and collateral banks demand from their borrowers.

And while promising local startups like CarsDB and Flexible Pass have enjoyed seed funding from venture capitalists and international funds, such firms, too, will eventually require better access to the capital markets for further expansion. In Myanmar, that access is still unavailable simply because the bond and equity markets lack transparency and liquidity.

“There are many good companies with good products and ideas that have huge potential in Myanmar and their biggest problem is the lack of avenues to funds – whether through bank loans, venture capital, equities or bonds – that will help them execute their ideas,” said Neville Daw, head of the Yangon Stock Exchange (YSX) special task force.

Still on paper

The authorities have not been idle in efforts to remedy the situation. Notably, qualified foreign insurance providers will receive licences to operate in Myanmar by April next year, said U Thant Sin, Director of the Financial Regulatory Department under the Ministry of Planning and Finance, during the conference.

“If we allow foreign players in the market, we will be able to get the funds we need to develop the government bond market. We will be asking for a large amount of capital from insurance companies to buy government bonds. Once an insurance company is given a licence, 30pc of their required capital should be for buying government bonds,” U Thant Sin said.

Meanwhile, a credit bureau to mine and distribute data on borrowers will be up and running by next year, after which updates on the liberalisation of the country’s interest rates are also on the cards, central bank officials said.

The problem with those promises is that they are not new and have thus far remained on paper. The authorities are reluctant to open up the market to foreign investors because they want to protect local companies against competition. As such, they are planning to allow foreign insurance providers to operate in the country only very gradually, U Zaw Naing, secretary of the Insurance Business Regulatory Board, told Myanmar Times recently.

In the meantime, business leaders are getting impatient. “The regulators, ministry and central bank need to create an enabling environment so that private sector players like stock market investors and insurance providers that need long term investments can work with the banks to create channels for liquidity to find investment opportunities,” Mr Azimuddin said.

But even before that, the bond market needs to develop further first. “The bond market should have started out by now but the simple act of transferring government bonds issued is not transparent or we could have created a K5 trillion market overnight,” said Mr Azimuddin

The lack of transparency is also one of the reasons why trading on the YSX has not taken off. “There is no transparency on how buy and sell orders are matched on the YSX,” he said. This does not create an environment investors can be confident investing in, he added.

Mr Daw agreed there’s an urgent need to improve corporate governance and set minimum transparency standards in the local capital market. “This will raise interest from foreign investors such as the insurance companies, thus creating liquidity in the capital markets,” he said.

“In understanding what investors want, we looked at frontier funds and their appetite for investing in Myanmar. Most of them have some lines of credit for Myanmar but have so far been unable to use it because the stock market is not liquid and there is no demand,” said Mr Daw.


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