Easing of legal restrictions sees influx of used cars and foreign players

Myanmar’s automotive sector is widely tipped for takeoff in the year ahead, with strong growth expected and a range of international giants recently making some of their first, concrete moves into the country.

In late 2013 market researcher Frost & Sullivan predicted compound annual growth of 7.8% for the sector from 2012 to 2019, due in large part to greater ASEAN integration. This figure may be conservative, as Japan’s Nikkei Asian Review stated that there were already around 400,000 passenger cars registered in the country at end-2013 – up 30% year-on-year.

Late 2013 also saw Daimler Group open sales and service facilities in Yangon, while China’s Dongfeng Motor Group and Beijing Automotive Industry Holding launched their respective operations in early 2014. Toyota Motor and General Motors both opened showrooms in early 2014, followed by Jaguar Land Rover and Mazda Motor in June and October, respectively.

Myanmar also reached an agreement for its first assembly plant in 2013, when Nissan and its regional distributor, Tan Chong Group, announced that they had received a licence to commence production of completely knocked down (CKD) vehicles, which are assembled entirely from pre-manufactured, imported kits. A state-of-the-art plant with a 10,000-unit annual capacity is currently being built for an estimated $200m in the Bago Region, on an 80-acre site, providing jobs for around 300 people. The focus of the plant’s operations will be small passenger cars and pickup trucks.

Positive Fundamentals

Much of the sector’s expansion has been facilitated by strong overall economic growth. The Asian Development Bank forecasts 7.8% GDP growth for both FY 2014/15 and FY 2015/16, following the 5.9% seen in FY 2011/12 and 7.3% growth in FY 2012/13, according to the IMF.

This has had a pronounced effect on the Myanmar middle class. While relatively low incomes persist – the World Bank estimated GDP per capita of $1105 for FY 2013/14 – a significantly wealthier group is already emerging, particularly in urban areas. Myanmar’s largest retail chain, City Mart Holding, recently estimated that around 47% of the country’s urban population earned over $325 per month, with proportionately more urbanites earning more than $750 per month in Myanmar than in nearby Cambodia or Vietnam.

Shifting Into Gear

Given this wealth profile, automotive demand stretches across a wide range of transportation types. The major vehicle is the twowheeler, with Frost & Sullivan reporting that mopeds, scooters and bikes had a more than 80% market share as of late 2013. A further 11% was held by passenger cars, with 3% accounted for by trucks and 1% by buses. The passenger car market is split between small cars, which account for the majority and tend to be Japanese models, and a higher-end, elite segment, made up of mainly European and American models.

Myanmar is likely to follow the pattern observed in other emerging markets, with the balance of vehicles shifting towards four-wheelers in line with economic growth. Automotive growth in the country has been further assisted by significant legal changes. In 2011 restrictions on importing used cars were eased, and curbs on new car imports, designed to prevent outflows of foreign currency, were also lifted in October 2013.

The 2011 regulatory easing led to a flood of used-car imports, while the second lifting of restriction allowed local companies to import up to 100 new foreign vehicles at a time, fuelling a rush of new car sales and the establishment of service outlets by foreign manufacturers in 2014. Further easing is expected, creating even greater space for foreign investors.

For now Japanese manufacturers still dominate the new passenger vehicle market. These low-priced, highly reliable vehicles are well suited to Myanmar, as are those produced by Chinese manufacturers, which largely manufacture Japanese and European models under partnership agreements. Local CKD production will likely share this focus, as early entry to this fast-growing market will continue to be a highly attractive value proposition for global players for some time to come. Myanmar’s automotive sector is widely tipped for takeoff in the year ahead, with strong growth expected and a range of international giants recently making some of their first, concrete moves into the country.

In late 2013 market researcher Frost & Sullivan predicted compound annual growth of 7.8% for the sector from 2012 to 2019, due in large part to greater ASEAN integration. This figure may be conservative, as Japan’s Nikkei Asian Review stated that there were already around 400,000 passenger cars registered in the country at end-2013 – up 30% year-on-year.

Late 2013 also saw Daimler Group open sales and service facilities in Yangon, while China’s Dongfeng Motor Group and Beijing Automotive Industry Holding launched their respective operations in early 2014. Toyota Motor and General Motors both opened showrooms in early 2014, followed by Jaguar Land Rover and Mazda Motor in June and October, respectively.

Myanmar also reached an agreement for its first assembly plant in 2013, when Nissan and its regional distributor, Tan Chong Group, announced that they had received a licence to commence production of completely knocked down (CKD) vehicles, which are assembled entirely from pre-manufactured, imported kits. A state-of-the-art plant with a 10,000-unit annual capacity is currently being built for an estimated $200m in the Bago Region, on an 80-acre site, providing jobs for around 300 people. The focus of the plant’s operations will be small passenger cars and pickup trucks.

 

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The Report: Myanmar 2015

Industry & Retail chapter from The Report: Myanmar 2015

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