Myanmar Has Swapped a Military Dictatorship for a Stock Exchange
WHY YOU SHOULD CARE
Myanmar has one of the last untapped economies in the world and a wealth of gas, gems and other resources. A stock market could eventually provide an entry point for investors.
By Joseph Schatz
Thinking of investing in Myanmar? Just maybe it will be possible soon.
The last time Myanmar launched a stock exchange was during its dark days of isolation in the mid-1990s when military intelligence operatives roamed local tea shops and companies like PepsiCo pulled products out of the country. Only two companies ever listed.
Nearly two decades later and three years into a reform effort, the country, also known as Burma, is trying again.
Proponents hope a stock market can be a psychological lift and a job engine, turning small companies into international players.
“A stock market will definitely help,” says Ye Min Aung, managing director of Myanmar Agribusiness Public Corp., which is trying to develop the country’s rice exports. He’s preparing MAPCO to be one of the first companies listed when the exchange opens.
For a former military dictatorship finding its way out of decades of internal strife, isolation and Western sanctions, building a new stock market might seem overly ambitious. But the government is gambling that the new, modern Yangon Stock Exchange, slated to open in October 2015, will help jump-start its backward $53 billion economy and facilitate re-entry into the global marketplace.
Proponents hope a stock market can be a psychological lift and a job engine, turning small companies into international players. That’s what happened with some of the 18 stock exchanges that popped up across sub-Saharan Africa over the 1990s and 2000s. Tanzania’s Dar es Salaam stock market, the best-performing exchange in Africa, is helping to fuel more than 7 percent economic growth in Tanzania.Some Western companies are already setting up shop here, including Big Oil players eyeing Myanmar’s abundant natural gas reserves and telecom giants bringing modern wireless to a country with miniscule mobile penetration. But most companies are moving cautiously. Business leaders believe the exchange will be vital to Myanmar’s economic development by giving companies a better way to raise capital. Getting a cheap loan here is enormously difficult, and foreign investment remains limited, despite plenty of “frontier market” hype.
But for other countries, stock markets can be overrated vanity projects — just ask Cambodia, which has a grand total of two listed companies two years after launching its securities exchange. Or for that matter, the over-the-counter Myanmar Securities Exchange Centre from the 1990s.
It still functions, sort of. It’s tucked in along the weathered colonial-era facades of downtown Yangon’s Merchant Street, just past the golden Sule Pagoda.
“There are so many visitors. You have to make an appointment,” insisted a man monitoring the entrance earlier this month, seemingly ignoring the silent, largely empty office beside him. Most public Myanmar companies bypass the exchange and deal shares directly from their offices.
You need brokerage companies, you need market makers. Many players are just not ready. And some companies are quite reluctant to open their books.
The country has changed plenty since the former junta handed over power to a quasi-civilian government in 2011, prompting a wave of reforms, from a free-floating exchange rate to an abolition of the media censorship office, leading the U.S. and the European Union to ease or drop economic sanctions.
Ye Min Aung, of MAPCO, has visions of restoring his country’s rice industry to its former glory. In the mid-1950s, Myanmar rice exports led the world, thanks to the green, fertile paddies of the Ayeyarwady Delta. Ill-advised policies of the former military government, from export taxes to permits, helped torpedo the industry, which is just now reaching the export levels it had in the mid-1960s.
Still, even local champions of the stock market are cautious about the timeline and the prospects for a quick Myanmar equity boom.
Though the former junta partly opened up the country’s political system, its leaders still have their mitts all over Myanmar’s largely cash-based economy. And while some companies are working to transform themselves, the transparency requirements of a modern stock exchange are off-putting for Myanmar’s insular, crony-dominated business culture.
Nearly half of Myanmar’s 60 biggest companies lack functioning websites, according to the Myanmar Centre for Responsible Business, a European-funded organization.
Companies that want to be listed need to show 500 million Myanmar kyat — roughly $500,000 — in capital and two years of profitability, but also transparency and governance standards that will require serious educational efforts within the country’s boardrooms.
“You need brokerage companies, you need market makers,” says Aung Thura, chief executive of Thura Swiss, an investment research company that would like to be a securities broker or dealer. “Many players are just not ready. And some companies are quite reluctant to open their books.”
For now, only a handful of companies would be able to offer anything approaching a prospectus, the thick booklet of corporate financial information typically given to potential investors.
Daiwa officials expect about five companies to be listed in the first six months.
“A good company will have a pamphlet. A bad company will not even have that,” notes Shine Zaw-Aung, a 2011 Stanford graduate and managing partner at First Rangoon, a local consulting outfit. Like many young Myanmar natives whose families moved overseas — in his case to Singapore — he’s come back to test the waters.
Japan’s Daiwa Securities Group and the Tokyo Stock Exchange are helping the effort, and other foreign companies are eager to participate, even though they won’t be able to buy and sell shares for the first few years.
Daiwa officials expect about five companies to be listed in the first six months. The goal is to “invite more leading companies to come to the stock exchange — that is our mission,” Shinsuke Goto, a Daiwa director, said recently.
Have times changed enough that Myanmar companies will see greater transparency as an acceptable price to pay for a stock exchange — or will they prefer to keep doing business the old-fashioned way?
For Myanmar, the question goes beyond stocks and bonds.
- Joseph Schatz, OZY AuthorContact Joseph Schatz