Final project unlocking investment opportunities in myanmar

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  • Unlocking investment

    opportunities in Myanmar

    The IDA Private Sector Window Approach

    Final Project (Development Specialist Track)

    March 2017

  • Background

    First civilian government (led by National League

    for Democracy) since April 2016 leads new

    economic policies and accelerated peace efforts

    after decades of armed conflict.

    Largest country in mainland Southeast Asia with one of the lowest population densities in the region.

    Fertile lands for raising production, yields and profits in agriculture, with a rich endowment of natural resources.

    Geographic location at the intersection of China and India, with a traditional role as a regional trading hub and a

    key supplier of minerals, natural gas and agricultural produce.

    Economic growth in Myanmar eased to 7% in 2015/16 due to a supply shock from heavy flooding (causing

    inflationary pressure), a slowdown in new investment flows and a more challenging external environment.

    Medium-term growth is currently projected to average 8.2% p.a.

    Source: worldbank.org/en/country/myanmar

    http://www.worldbank.org/en/country/myanmar

  • Problem Statement

    At least 70% of Myanmars poor live in

    rural areas, where poor people rely on

    agricultural and casual employment for

    their livelihoods. Many live near the

    poverty line and are sensitive to

    economy-wide shocks.

    The lowest life expectancy in ASEAN and the second-highest rate of infant and child mortality.

    Just one-third of the population has access to the electricity grid and road density remains low at 219.8 km per

    1,000 square km of land area.

    Reducing poverty and boosting shared prosperity will entail increasing access to essential services, economic

    opportunities and markets.

    Source: worldbank.org/en/country/myanmar

    http://www.worldbank.org/en/country/myanmar

  • Some Challenges

    Struggles over land have defined conflicts in the countrys history.

    Past government acquired lands for extracting natural resources, commercial farming, and

    ambitious infrastructure projects, such as building of the new capital city of Nay Pyi Taw.

    Claims over land acquisition injustices dominate public discourse and the new

    governments agenda. In parallel, infrastructure and institutions for land administration and

    property markets are grossly outdated and weak.

    Issues in access, security, and transactability of land are likely to continue taking a

    prominent role as the demand for land increases in step with growing private investment

    and economic prosperity.

    Reaching agreement on land claims, building a robust land tenure system, and land markets

    will be crucial to the countrys future.

  • Latest Situation

    Measures to institute strong and effective land administration.

    In January 2016, the outgoing government endorsed the National Land Use Policy and the current government

    continues to use it as the starting point for its land-related work in a multi-stakeholder consultation process

    involving the civil society.

    NLUP sets principles for the future Land Information Management in Myanmar, including land records and

    geospatial information.

    Myanmar has already started working on a One Map approach for establishing a unified base for all location-

    based planning, decision-making, and monitoring in the country. Maps and data may seem small steps in resolving

    such complex issues. Yet, robust and accessible information on boundaries, ownership, and land use are

    important tools. They help citizens and businesses exercise land rights and buy and sell land, while enabling the

    government to enforce land laws and regulations in a fair and transparent manner.

  • Goal and Objective

    Reducing rural poverty.

    Increasing rural access to essential services,

    economic opportunities and markets.

    Providing support to help increase agricultural

    incomes and productivity, rural electrification,

    community-driven investments in local

    infrastructure and services, improve Ayeyarwady

    River navigation and flood control, and reduce

    vulnerability to shocks.

  • Strategy and Approach

    Create an enabling environment.

    Make complementary investments.

    Provide guarantees.

    Directly invest in the private sector.

  • Six Possible Facilities for Pilot

    A risk mitigation facility to unlock transformative infrastructure and Public-

    Private Partnership (PPP) investments.

    A local currency hedging facility to tackle the lack of options for coping

    with local currency risks.

    An SME guarantee facility to further expand access to finance for SMEs.

    A co-investment facility to enable investments in SME equity, agribusiness,

    technology and social services.

    A first loss facility to expand access to political risk insurance guarantees in

    the most challenging environments.

    A reinsurance arrangement to enable increased deployment of guarantees

    where private options are currently limited.

  • (1) Risk Mitigation Facility

    To provide guarantees in order to supplement existing instruments

    covering key non-commercial counterpart risk (e.g. breach of contract

    pertaining to SOE payments under power purchase agreements, water

    purchase agreements or road use minimum revenue guarantees).

    Such coverage enhances project viability to facilitate private sector

    participation.

    The facility will be deployed without sovereign indemnity and guarantees,

    thus de-linking Myanmars government capital expenditures for a project

    from any additional guarantee obligation required to de-risk the project.

    A key consideration is to assess when, given the nature of the risks

    covered, a sovereign counter-guarantee is an effective mitigation strategy.

  • (2) Local Currency Hedging Facility

    To hedge market risk (interest rate, exchange rate) of kyat (Myanmars

    currency) financing for projects in Myanmar.

    Cross currency/ interest rate swaps and/ or forwards to facilitate local

    currency financing solutions for project loans.

    Once experience is gained and a diverse pool of currency exposures is

    built up, the facility will provide clear additionality vis--vis existing

    solutions which cannot be used due to a lack of sufficient deep/ liquid

    bond markets (essential for pricing hedges), creditworthy counterparts,

    and a local skill base trained in prudent employment of hedging products.

    Two challenges: development of a pricing model (since market prices

    usually used for this are largely absent); and whether such arrangement can

    have a sustainable impact beyond facilitating one transaction.

  • (3) SME Guarantee Facility

    To support a portfolio of SME finance projects requiring credit risk

    mitigation.

    Instruments will primarily include risk sharing facilities, partial credit

    guarantees, loans and small equity investments.

    Complementary advisory services will be needed for banks to support

    prudent growth of SME portfolio with appropriate risk management

    Two key challenges: pricing, and ability to generate a sustainable impact

    beyond the time horizon of the guarantee itself.

  • (4) Co-investment Facility

    To facilitate pioneering private investments in sectors such as agribusiness,

    entrepreneurship, technology and social inclusion by de-risking them

    To be deployed through existing and new blended finance investment

    platforms.

    Complementary engagements and advisory services will be needed to

    support project development and build client capacity.

  • (5) Shared First Loss Facility

    The facility will include risk sharing or allocation of losses to a first loss

    position.

    To act as a risk mitigant and provide an added layer of reassurance to

    insurance.

    To guarantee providers covering investments against non-commercial risks

    Designed to support multiple investments through a revolving feature as

    guarantees mature or are cancelled, the capacity released will be used to

    support additional investment.

  • (6) Reinsurance Arrangement

    Risk sharing arrangement where the International Development

    Association shares Multilateral Investment Guarantee Agencys risk

    exposure and receive a share of the premium income paid by the private

    sector participant for a guarantee.

    Coverage to protect against key political risks of expropriation, breach of

    contract, transfer restrictions and inconvertibility, and war and civil

    disturbance.

  • Conclusion

    Private sector will be a critical partner in helping Myanmar create good

    jobs, drive economic transformations, and reduce poverty.

    The facilities will address gaps or capacity limitations in current settings of

    Myanmars economy.

    They will ramp up private infrastructure, expand SME finance (including to

    underserved sectors), expand agribusiness supply chains, and help pioneer

    new technologies.

  • Thank You

    Thank you