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

Problem Statement

At least 70% of Myanmar’s 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

Some Challenges

Struggles over land have defined conflicts in the country’s 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

government’s 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property markets are grossly outdated and weak.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 country’s 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 Myanmar’s 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 (Myanmar’s

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-à-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 Agency’s 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

Myanmar’s 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