Interview: Omar Shahzad
What measures can be taken to encourage foreign investment in Myanmar’s infrastructure?
OMAR SHAHZAD: All over Asia there is a huge requirement for infrastructure spending. It is said that $8trn needs to be spent over the next 20 years on infrastructure projects in Asia. There is a huge investment gap in Myanmar, where infrastructure spend was only around $2bn in 2015, which is less than the 5% of GDP target rate most countries budget for spending on infrastructure. In roads, ports and power production, it is clear that Myanmar is lagging behind other countries in the region. This cannot be financed by governments alone, and the private sector has to step in.
The way to encourage public-private partnerships is to do a lot of work upfront in terms of preparing properly defined feasibility studies. It means ensuring that the risk and returns are properly allocated between the government and the private sector, so that the risks the private player carries are under its control, such as making sure that a facility is of a certain standard and completed within a certain period. Those are the sort of risks that are associated with their part of the work. The main idea is to make projects bankable. There is a lot of money available for infrastructure, but the reason it does not all get deployed is the lack of properly cultivated projects.
How can the real estate industry in Myanmar sustain high growth rates while adopting environmentally sustainable initiatives?
SHAHZAD: In Singapore almost every real estate project has to be a green development; the question is whether it’s gold, platinum or bronze. In the case of Myanmar there is little progress being made so far in terms of true green development.
I think two or three things need to happen. The first involves government regulation. In Singapore there are incentives to encourage green building, so that is one way of encouraging developers. The second is infrastructure. We do not have good infrastructure supporting developers. As supporting infrastructure improves – particularly in the business centres of Yangon and Mandalay – environmentally sustainable projects will become more viable. The good thing for Myanmar in this regard is the high price of land. In Indonesia or India, for example, it is not so attractive for developers to build green projects, as construction costs are very high relative to the cost of land. Because the price of land is so high in Myanmar, the construction cost is a smaller proportion of the overall development cost. The incremental amount spent to make it a green building does not change the equation a great deal in Myanmar, particularly in Yangon.
What factors should property developers consider prior to entering the market in Myanmar?
SHAHZAD: I would highlight two things. The first relates to changes in regulation, which can cause uncertainty. We’ve seen all over the world that when rules keep changing it breeds uncertainty and deters investors, especially foreign ones. For example, many projects stalled in 2016 because of a review of buildings of a certain height. From an investment perspective this creates a sense of fear. If a project has started and gets halted it can be extremely costly for the developer, as it will have already mobilised teams, hired equipment and appointed engineers.
The second thing is being able to execute projects quickly. This is the case in Singapore and Hong Kong, for example. A special-purpose vehicle to develop a project can be set up fairly easily. It is a transparent process. You know within a few months whether the project has been approved. The guidelines are clear. Skilled engineers and contractors with machinery are easily available, and once the project is completed it is easy to repatriate capital. There is huge opportunity in Myanmar, but these two factors must be considered to reduce risk and improve investor appetite.
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