PwC

Belt and Road country –MyanmarSeptember 2017

Jovi Seet

Senior Executive Director, PwC Myanmar

PwC

Agenda

Introduction to Myanmar1

Nascent Myanmar e-commerce2

Emerging players3

Key challenges4

Conclusion5

2

PwC

Key messages

Source: IMF

3

Myanmar is one of Southeast Asia’s largest

nations, with an estimated population of

53mn (in 2016); its a young country with c.70% of its population

below the age of 40

Despite some remaining challenges (e.g. cost of

high speed internet, power shortage), Myanmar is one the last frontier

markets in the world

The country began its telecom journey only 3 years back but is leapfrogging in

its on-line journey, including becoming one of world’s first smart phone only

countries

With economic liberalisation, Myanmar has also emerged as Southeast

Asia’s fastest growing nation, and witnessing one

of the fastest growth in GDP per capita

PwC

Section 1Introduction to Myanmar

4

PwC

Myanmar is one of the recent frontier markets and has the potential to become Asia’s next rising star

Source: IMF, World Bank

5

GDP growth forecast of 7.5%

in 2020

Rich in natural resources including oil, natural gas, industrial minerals and gems

Population of 53 million

Major cities include Yangon, Mandalay

and Nay Pyi Taw

Special Economic Zones in Thilawa, Dawei, Kyaukpyu

Strategically located between Bangladesh, India, China and Thailand

PwC

Despite the late start, Myanmar’s integration with the global economy is already visible on the ground

Yangon today....

6

PwC

3.6

5.1 5.3 5.6

7.3

8.4 8.0

7.3

6.3

7.5 7.6 7.5 7.5

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017F 2018F 2019F 2020F

Myanmar — Annual Real GDP Growth Rate (%)

Myanmar's growth trajectory has been relatively steady over the years under the Thein Sein Govt. or under the newly elected NLD Govt.

Source: IMF

Uncertainties

surrounding

the electionImpact of initial set of reforms brought about by Thein Sein

Potential for greater upside with

the NLD in charge?

7

PwC

In the ASEAN region, Myanmar is expected to be the fastest growing economy in terms of real GDP growth outlook

Source: IMF WEO, PwC Analysis

5.3%4.6% 4.4% 4.2% 3.9%

3.4%

2.2% 1.8%

Myanmar Cambodia Vietnam China Indonesia Malaysia Thailand Singapore

Real GDP growth, 2017-22

4.8%

3.8% 3.7% 3.5%2.9%

2.2% 2.2%1.2%

Myanmar China Vietnam Cambodia Indonesia Malaysia Thailand Singapore

Real GDP per capita growth, 2017-22

8

PwC

Source: BBC World News, World Bank, IE Singapore

Mar: Signed

ceasefire

agreements with 16

rebel groups.

Nov: Parliamentary

elections held. Won

by the

opposing NLD

Apr/May: Thein Sein visited

the White House.

EU lifted sanctions.

US and Canada suspended

sanctions.

Mar: Thein Sein sworn in

as President.

Oct: New union labour

laws passed.

Late 2011: Signed

ceasefire deals with Karen

ethnic group rebels.

Early: Signed ceasefire deal

with Shan ethnic

group rebels.

Apr: EU suspended all non-

military sanctions for 1 year.

Apr: NLD swept 2012

by-elections.

Aug: US allowed

sanctions to lapse,

but maintains ban on

gems and

weapons trade.

Mar: Htin Kyaw

becomes President

of Myanmar

Oct: US economic

sanctions lifted

Military Junta Rule

Political Reforms

Economic Reforms

The road to liberalisation Change of government

Jan: New Special

Economic Zone

(SEZ) Law.

Apr: Unified currency

exchange.

Established Myanmar

tax system.

Jan: Passing of New

Foreign Investment Law.

Jan: Grant of 2 telecom

licenses to private

operators (Telenor and

Ooredoo)

Jul: Central Bank revised

as independent entity,

with a target to reduce

inflationary

Apr: Myanmar

Special Economic

Zone (SEZ) Law

introduced

Oct: Licences

granted to 9

overseas banks to

facilitate FDI

inflow.

Oct: Opening of

Yangon Stock

Exchange.

Mar: Granted another

4 foreign bank licenses

Apr: FDI crosses US

$8 bn for FY 16

Jul: long-awaited 12

point economic policy

revealed

Jan: Draft

Companies Act

submitted to

Parliament for

approval

Jan: New

Investment Law

has been passed

by Parliament

1962 2011 2012 201520142013 2016 2017

Myanmar’s growth is attributable to its efforts in boosting political stability and in establishing supportive domestic economic policy

9

PwC

Foreign Investments have also trended upward since liberalisation; Chinese companies have been the most active investors in Myanmar

No. Country/

Territory

No. of enterprises Approved amount

(USD mil)

% of total

amount

1Mainland

China191 19,092 26.0%

2 Singapore 253 17,937 24.5%

3 Thailand 110 11,003 15.0%

4 Hong Kong 156 7,754 10.6%

5 UK 88 4,218 5.8%

6 South Korea 143 3,775 5.1%

7 Vietnam 15 2,093 2.9%

8 Malaysia 61 1,952 2.7%

9 Netherlands 19 1,513 2.1%

10 India 25 741 1.0%

11 Japan 93 694 0.9%

12 Others 185 2,569 3.5%

Total 1,339 73,341 100.0%

Foreign Investment of Permitted Enterprises as of 31 July 2017, by

Country/Territory(1)

6,066

281 1915 48

8,285

4,377

1,065

3,940

4,3604,373

6,322

2,202

2005-0

6

2006-0

7

2007-0

8

2008-0

9

2009-1

0

2010-1

1

2011-1

2

2012-1

3

2013-1

4

2014-1

5

2015-1

6

2016-1

7

2017-1

8*

Transport & Communication ManufacturingPower Real EstateHotel and Tourism Oil and GasOthers

*July 2017 (1) Based on domicile of investing entity

Source: DICA Myanmar

Foreign Investment by Sector as of 31 July 2017 (USD mn.)

The New Investment Law, to

be passed in 2017 is expected

to drive foreign investment and

open more economic sectors to

private investment

Power, Oil & Gas have

been the most attractive

sectors for foreign

investors; Oil & Gas

investments have been

subdued since FY11,

recovering temporarily in

FY15/FY16; Telecom has

been a popular sector

over last 2-3 years

10

PwC

Forecast

Myanmar is one of the few countries with a double digit growth in middle income population

Myanmar's middle class population(1), mn

+10%

p.a.

As a result of the economic growth, Myanmar’s middle class population is growing in double digits

and there is strong optimism around this growth outlook

“In July 2015 the World Bank reclassified Myanmar as a lower-middle income country, whereas previously it was a low-income nation. This upgrade is linked to Myanmar’s steadily improving economic performance over the past two years, and specifically to growing income levels across the population”

Oxford Business Group

“The size of the urban middle class is expected to double over the next decade, with annual double-digit growth in middle class incomes over the next five years”

Asia-Pacific chief economist at IHS

“Euromonitor International identifies Myanmar as one of the 20 Markets of the Future that will offer the most opportunities for consumer goods companies globally. The country is one of the fastest growing and most promising economies in Asia Pacific”

Euromonitor(1): Population with monthly income of more than $120

Source: BCG, Oxford economics, IMF

11

5.3

7.3

10.3

2012 2016 2020F

PwC

1.0

1.7

2.7

3.6

4.2

4.5

5.1

4.8

0.7

1.4

2.4

3.3

4.1

4.4

5.2

4.88.2%2.2%

2016

Myanmar population by cities

Others

Myeik

Meiktila

Sittwe

Monywa

Pathein

Bago

Mawlamyine

Nay Pyi Taw

Mandalay

Yangon

Myanmar population age pyramid, 2015

c.70% of

Myanmar’s

population are

below 40 years

of age

28%

72%

2016

Rural vs. urban, %

Urban Rural

One of the key drivers for Myanmar’s strong e-commerce outlook is its young population and increasing urbanisation

Myanmar is a ‘young country’

Source: Oxford economics, IMF, world population review

60-69

>70

20-29

30-39

40-49

50-59

0-9

10-19

Male Female

Its urbanization has a long runway for growth

He

ad

roo

m f

or

gro

wth

53 mn 53 mn

12

PwC

Beauty products

The young Burmese population is fundamentally traditional but becoming increasingly modernised and more demanding

• Women used traditional skin care product Thanaka

• Now are more fashion conscious and switching to imported beauty products and cosmetic enhancements

• Used to maintain a preference for local cuisine

• Now are changing food preferences to include coffee shops and fast food chains

• Retail dominated by mom and pop stores

• New shopping malls, supermarkets, hypermarkets and department stores are opening in large urban centres

• Used to have very traditional fashion tastes

• Now opt for modern and more westernised clothing

Food choices

Subscribe to latest trends

Modern vs.

traditional outlets

The young Burmese are increasingly aware of global brands but continues to be rooted in traditional aspects

Typical Burmese Consumer Profile

• Buddhist (89%)

• Aged 28 (median age)

• Life expectancy of 66 years

• Male/female ratio among

youths 1:1

• Lives in top 4 cities Yangon,

• Spent at least 9 years in school

• Median HH income US$225 -

325

Source: World Health Organisation, Research study by Khon Kaen University, Thailand, CIA Factbook, Nielsen Research

13

PwC

Section 2Nascent Myanmar e-commerce

14

PwC

Despite making a (relatively) late start, Myanmar is leapfrogging in its online journey

Digital Myanmar in numbers

(1) Feb-Jul, 2017

Source: BMI, Wearesocial, similarweb.com

48.6 mn mobile phone users+100% growth over last 5 years

17-19 mn Internet users in 2016

+100% growth over FY16

65% smartphone penetration; driving 70% of web traffic

3 years old online retail website shop.com.mm reports c.260-300K monthly(1) visits

15

PwC

Myanmar is one of the only countries in the world that went straight to smartphone, without going through the features phone stage

Smartphone penetration has been enabled by low-cost handsets and decreasing cost of

3G/4G connections

making Myanmar’s smartphone penetration comparable to the developed world

Source: GSMA Global, 2016

Forecast

2%

65%

73%

2013 2015 2020

65%60%

68%

Myanmar Europe China

Smartphone penetration in Myanmar, % Smartphone penetration 2015, %

16

PwC

The overall e-commerce market is nascent, but has significant headroom for growth, in line with trends observed across Southeast Asia

E-commerce as percent of total retail sales in Myanmar

Source: PwC Analysis, UBS, The Wall Street Journal

0% <1%

Forecast

In 2013, SE Asia’s overall

online retail penetration was

<1%: Indonesia (0.1%),

Philippines (1%),

Thailand (0.2%)

In 2016, SE Asia’s overall

online retail penetration

was c.1.6% 2-4%??

By 2020 SE Asia’s overall online

retail expected to reach 2%:

Vietnam (3.8%), Thailand (3.2%)

High penetration of Facebook

account for retailers; entry of

some international players; ride-

hailing apps dominate investment

Potentially a competitive

market with local players,

leading international players

and some consolidation/JV

between local and

international players

High cost of internet and

phone connection, almost

negligible penetration

E-commerce players landscape

2013 2016 2020

17

2013 2016 2020

PwC

Section 3Emerging players

18

PwC

The prevailing model of e-commerce players is a hybrid of ‘brick and mortar’ and digital models

Key trends

• Myanmar online shoppers continue to hold dear to their cultural attachment by preferring to pay on delivery through cash

• The entry of international payment companies and reforms in Myanmar’s financial sector will help change this trend

• High level of Facebook penetration (nearly 100% of internet users in Myanmar have Facebook account)

• E-commerce companies set up a Facebook page as their first online channel and majority of their transactions are through Facebook channel

• Majority of Burmese consumers prefer a personal touch while shopping online

• E-commerce companies typically employ telesales personnel — to communicate with customers through phones and chat applications including Facebook Messenger and Viber

Cash on delivery

1

Facebook as a platform

2

Personal touch

3

19

PwC

Section 4Key challenges

20

PwC

Issues such as instability of power supply and high costs of high-speed internet remain key challenges in Myanmar

Frequent blackouts make operating a e-commerce business in Myanmar more

challenging and costly

• High cots of power: typical rate at a commercial property is $ 0.06 – 0.08 per kWh

• Power outages are frequent and back-up generators are mandatory for regular operations

• Commercial establishments provide generators to ensure power supply with an additional charge of $0.21 - 0.33 per kWh

Access to high-speed Internet is expensive

• Enterprise internet costs on average $450 for installation with a monthly charge of approximately $224

• Last-mile fibre connectivity, specially for smaller enterprises, start-ups is challenging and expensive

• Less automation and manual intervention increase operating costs

Source: PwC research

21

PwC

Rising inflation and currency depreciation is another risk to monitor, especially for international investors

Inflation rate, average consumer prices (Annual percent change)

Source: IMF, XE

11%

26%

31%

12%

2%

8%

3% 3%

6% 5%

10%

7% 7% 7% 7% 6% 6% 6%

0%

5%

10%

15%

20%

25%

30%

35%

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

Forecast

Several factors have led to high inflation

including natural-disaster-related

shocks, election related spending, trade

deficits, and Myanmar’s inability to access

external financing

Government talking several

steps to curb inflation,

including issuing Treasury

bills to finance the deficit;

sound public finance will

be key

1.15 1.03 0.97 0.78 0.80 0.741000 MMK in $USD

22

PwC

Section 5Conclusion

23

PwC

Despite challenges, Myanmar is one of the last remaining frontier markets with a high potential e-commerce sector

Although there are difficulties with investing in Myanmar, it is one of the last frontier markets in the world. A rapidly growing economy, a new government and young demographics make Myanmar an attractive playing ground for e-commerce players

Growing ease of internet access — penetration of smart phone, affordable of 3G/4G access

Growth in income levels expected to drive propensity to shop online

Increasing urbanization and growing middle class, spending more time online

Evolving industry landscape, early mover advantage for new entrants

Improving ecommerce ecosystem — online payment, online marketplaces@

24

Thank you!