Visa and MasterCard have recently announced the launch of operations in Myanmar, a country that has the potential to become Asia’s next emerging market. Chiara Francavilla looks at the opportunities and the challenges of Myanmar’s opening economy
Myanmar could grow at 7%-8% per year for a decade or more, said the Asian Development Bank in an August 2012 country report. Such a positive prospect makes Myanmar-also known as Burma- stand out in the region considering the slowdown biting the once fast growing surrounding Asia-Pacific economies, whose growth outlook has been recently lowered from 7.6% to 7.2% by the World Bank.
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The emergence of Myanmar in the south Asian economic scene has not passed unnoticed. The world’s two largest card networks have recently advertised plans to land into the country, which is arguably one of the last unexplored territories of the electronic payment landscape.
Visa first announced the launch of operations in the country in August 2012, rolling out training workshops for local banks employees. "These workshops provide a clear path to introducing a reliable and internationally connected gateway to the global economy," said Visa country manager for Thailand and Myanmar Somboon Krobteeranon.
However, MasterCard was the first to announce the launch of something more tangible, the first branded card, in September 2012. Vicky Bindra, MasterCard Asia/Pacific, Middle East and Africa president said: "To be the first international payments network to issue a license in Myanmar is a momentous step for MasterCard."
The two companies have recently advertised plans to enter the market of a country in political and economic transition, and will need to face the challenge of building an electronic payment system from scratch.
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Opening up
For five decades Myanmar has been in a state of isolation, both economically and politically, due to a combination of socialist rule and US imposed sanctions restricting imports and banning investments.
The sanctions began after a violent suppression of popular protests in 1988, and were kept in place until this year on the ground of human rights violations that the US administration accused the Myanmar military government of perpetuating against civilians.
But a year after a quasi-civilian government replaced the military rule, on 17 May 2012 the US suspended the ban on foreign investments. "Today we say to American business: invest in Burma and do it responsibly," stated US Secretary of State Hillary Clinton.
In concurrence with the suspension of the sanctions, Myanmar’s new government started to put forward some reforms aimed at modernising and liberalising the country’s economy.
One of the most significant reforms was the removal of the peg of the local currency Kyat to the dollar in April 2012. The move initiated the process to reform the country’s complex exchange rate system, traditionally characterised by multiple parallel rates. Such as system was a part of a monetary policy aimed at restricting private imports according to the availability of private export earnings. In a recent report, the IMF identified the reform of the exchange rate system as one of the critical issue to be tackled in order to improve the functioning of the financial sector and banking industry. "Establishing an interbank market to determine a market-based exchange rate is a prerequisite for a managed float," the report read.
Another reform underway would allow foreign banks to set up fully owned subsidiaries, instead of representative offices only. According to local media reports, Thai banks, such as BBL, Thailand’s largest bank by assets, have already announced their willingness to expand operations in the country, although the law allowing foreign banks to fully operate is unlikely to be passed before 2015.
First steps in electronic payments
As a result of the limited functionality of the banking system and the scarce exposure to international trade, Myanmar’s economy is almost entirely cash-driven.
The first ATM in the country was rolled out in November 2011 by Co-operative Bank , Myanmar’s second oldest private bank, but there are still fewer than 100 machines in the whole country, mostly located outside bank branches.
In September 2012, the Central Bank announced the creation of the Myanmar Payment Union. The network will allow interconnectivity between ATMs, as well as introducing the possibility of making payment transactions at the point-of-sale. At the moment, the use of debit cards is restricted to 14 places in the country’s commercial capital Yangon, including shopping malls, airline offices, computer shops, one hotel and two restaurants.
In terms of international openness, a significant move was granting to four state-run private banks permission to accept remittances from migrant workers in Thailand, Malaysia and Singapore. The influx of remittances was previously blocked as a result of foreign currencies import control.
Mutual benefits
Such a limited electronic payment space represents both an obstacle for foreign companies’ operations in the country and, at the same time, a fertile ground for card networks to tap in, Sean Turnell, economics professor and Myanmar expert at Australia’s Macquarie University, told Card International. "This is an example of how the fixing of a real constraint becomes an opportunity," he said.
Visa and MasterCard will benefit from an expanding electronic payment system, but also contribute to its expansion. "They will promote the setting up of a data banking system, as banks will need to upgrade their account keeping. The entrance of those cards companies will have some positive spills for the broader banking industry," said Turnell.
Foreign investors such as Visa and MasterCard will also benefit from a particularly favourable regulatory environment. "The parliament has passed a new foreign investment law containing a number of concessions for foreign investors. The main one is in the area of taxation, a five-year tax holiday on any profit," explains Turnell.
However, the law on foreign investments approved by the parliament has recently been delayed by Myanmar president Thein Sein, highlighting the legal instability deriving from an economy in transition.
Despite possible challenges ahead, Turnell said Visa and MasterCard will be able to gain significant profits from the growing tourism business. According to the Pacific Asia Travel Association, the country saw a 53% increase in foreign arrivals in May 2012 comparing to the same period last year, and more tourists are expected to arrive in 2013 as the country hosts the Southeast Asian Games.
"Myanmar could become the next economic frontier in Asia," stated the IMF. Visa and MasterCard are ready to tap into the market’s potential.
