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Burma Rising: Mandalay Opportunity
Myanmar, a medium-sized ASEAN nation with a good labour pool, has become increasingly important as one of the alternatives to ASEAN. The International Monetary Fund (IMF) recently predicted that Myanmar 8. Whilst all our sights are set on Yangon, the commercial center and the biggest town in the state, we also went to Mandalay, the second biggest town in the state, to get a solid grasp of the local commercial and investing milieu.
While Yangon remains the FDI's priority, FDI is becoming more and more focused on other localities, especially the region's key towns such as Mandalay - another of Myanmar's poles of expansion that has been selected in Myanmar's National Comprehensive Development Plan 2010-2030. Mandalay, the capitol of the Mandalay region, is an important business center in the north and the south.
The Mandalay region accounted for 11th place in the financial year ending March 2015. In the Yangon region, 22% of the country's GNP, followed by 11.6% in the Sagaing region. Both in Mandalay and Yangon, governments and individual businesses have always been optimistic about the country's outlook, despite a slowing of growth  in the context of the November 2015 parliamentary elections, which were generally anticipated before the elections and had proven to be transitory.
Corporate investments in Myanmar, particularly in the infrastructural sectors, have slowly picked up speed again after the seamless policy changeover in April 2016, signaling to Myanmar's supporters that the current agendas of ongoing reforms are continuing. Thanks to its geographic centre in Myanmar, Mandalay is a flourishing trading centre with an important motorway from the Chinese frontier through the area and on to Yangon.
Alongside this itinerary, which is one of the main trading routes of the land, exports of farm produce, as well as Jad and gems, are made to neighbouring lands, while production is imported to Myanmar, mainly from China. Mandalay is located on the eastern shore of the Ayeyarwady River, Myanmar's main trading lane that runs through the land from the north to the southward, and is well linked to other large towns such as Yangon and Bagan via a dense web of channels that transport passenger and cargo by small ships, making it an important hub for distributing goods to indigenous market.
In order to improve the outlook for its trading and logistical centre, Mandalay has envisaged further industrialization and the development of its business conurbation along the four main corridors of the Mekong Greater Region (the Northern Corridor, the Western Corridor, the East-West Corridor and the Southern Corridor, see below) which will allow the development of outside links between Myanmar and the ASEAN states on the Indochina Peninsula which include Thailand, Laos, Cambodia and Vietnam as well as domestic links within the state.
In addition to working with other ASEAN colleagues along the GMS business lanes, Myanmar plays an important part for Mandalay in developing the Bangladesh-China-India-Myanmar (BCIM) business lane, a landmark of the Chinese Belt and Road Initiative (BRI) that connects India's Kolkata with China's Kunming (K2K), Myanmar's Mandalay and Bangladesh's Dhaka among the most important points along the K2K highways.
Mandalay will therefore profit from the upgrading of infrastructures and the establishment of industry areas along the BCIM business cycle. Currently, most of Mandalay's infrastructural and logistical businesses are focused on the local markets and face the challenges of offering solutions that comply with global standard. The BCIM business lane, which will include not only road and electricity cables but also developed towns along the way, will provide foreign contractors with engineering and professional know-how in areas such as infrastructural building and MYANMA.
When the time comes, this will help in facilitating the exchange of know-how and technology transfers through partnership between domestic and multinational enterprises and help to improve Mandalay's overall trade and logistical capacity in the longer run. The majority of Mandalay region's producers in the field of manufacturing are active in agricultural and grocery products, mechanical engineering and the manufacture of a restricted palette of consumables.
In addition to the development of the trade and logistic sectors, there are also possibilities for businesses in Mandalay, where the country is less expensive than in Yangon, to operate lightweight construction. A recent Myanmar Investmentcommission (MIC) report  found the Mandalay region's investing environment encouraging. 56% of those surveyed rated the outlook for their industry in Mandalay as good for the next three years, leading to increased consumer demands, better infrastructures and better public service provision.
The MIC study highlights the area' s capabilities and acknowledges that Mandalay faces constraints on institutions and infrastructures that could hamper its further growth. In order to improve Mandalay's competitive position, particularly in the midterm, the MIC reports proposes certain measures, such as modernising the current ailing traffic infrastructures and improving the accessibility of power and useable area.
The new NLD administration under President Htin Kyaw has also pledged to further liberalise Myanmar to draw in FDI following the considerable effort made in the framework of the reform process launched by former President Thein Sein. It will, however, be some considerable amount of work before Mandalay has progressively built up its commercial clout.
In the meantime, those who want to take full benefit of the many possibilities offered by an early start at Mandalay must balance the advantages and the challenge well. Infrastructur Capacity Building Mandalay's favorable geographic position offers a once-in-a-lifetime chance to become an important transportation crossroad.
On the whole, however, the country's traffic structure needs to be considerably expanded. Myanmar was 113th out of 160 nations in the World Bank's Logistics Performance Index (LPI) in 2016, behind the other ASEAN states. With regard to infrastructural qualitiy, one of the LPI elements refers to trade and traffic-related infrastructures (e.g. port, railway and information technology):
Burma came 105th. According to our study of the traffic and transport situation in both towns, Yangon is obviously better than Mandalay, where there seem to be proportionately fewer asphalted streets, a lot of unsealed and even unsealed paths, making it difficult to see on a typically arid and windy outing.
FDI inflows to Myanmar in 2014-2015 exceeded USD 8 billion (MIC authorised basis), with the Yangon region representing 47% of FDI. The Mandalay region accounted for slightly more than 8% of the FDI population. Granted, most international investment is concentrated for the moment in Yangon and the surrounding areas, where the country's infrastructures are relatively well developed, partly a reflection of their concerns about Mandalay's transportation infrastructures and other deficits.
However, the Mandalay administration also recognises the need to modernize its under-developed transportation system in order to keep up with the country's underdevelopment. With more and more new government agencies launching more and more contracts, there are many commercial possibilities for international investment in the areas of infrastructures and logistic. This section looks at some of the latest trends in Mandalay and gives prospective buyers a better picture of the region's outlook.
As Myanmar's expanding economies, there has been an increase in street traffic demands, with the number of cars licensed increasing from less than one million in 2004 to over five million in 2014. But only 40% of Myanmar's highway system is asphalted and at least 60% of the motorways must be maintained, according to the ADB in its Asian Development Outlook 2016.
In order to enhance rural accessibility and promote domestic and interregional development, important motorways in Myanmar are being developed or expanded. The Mandalay-Muse Hwy, for example, is the primary channel for Myanmar's Shan State to China frontier-trading. In order to reduce transport and enhance security, it was declared in early 2016 that the Oriental Motorway Company, a former affiliate of the Asia World Group, which operates the motorway under a Build Operational Transfer (BOT) contract with the German authorities, will convert the dual carriageway into a four-lane tarmac motorway.
In the Mandalay region, two 16-kilometer stretches of the Yangon-Mandalay Highway are being rehabilitated together with the rehabilitation of streets and viaducts as part of a 100-day RTAD road authority development program. Burma has an extended railway system with some 6,000 kilometers of track linking the country's major towns.
Yangon-Mandalay is one of the heaviest trafficked routes in Myanmar and many goods from China are shipped to Mandalay goods terminals and shipped to Yangon by railway. For example, a 622 kilometre trip from Yangon to Mandalay could take up to 16h. TRANSFER INFRASTRucture - Porto Anticipating container-port transport to construct over the years, a new riverbank named Semeikhon Porto (SMP), along the Ayeyarwady Rivers about 70 kilometers from the town of Mandalay, is operated by Mandalay Myotha Industrial Development Public Co.
which is also in charge of the 4,400 hectare Myotha Industrial Park which is also underway. According to MMID, the fundamental harbour structure was ready by March 2016. The Mandalay region has two major airport locations, one of the only three in Myanmar besides Yangon and Naypyidaw, the city.
There are currently many local and foreign carriers in Mandalay. Burma has the most dense flight system in the nation. There have been non-stop services from Yangon to Hong Kong since December 2015, but no connection from Mandalay to Hong Kong yet.
In order to respond to increased demands through the acceleration of its operations, the MIA will implement an $13.5 million armament package using the city's current roads and inland waterway network to ease trading connections. In addition to the traffic and transportation infrastructures, the absence of availability of reliable power is seen as another big disadvantage for investments in Mandalay.
To improve energy supplies, Sembcorp Industries and the Myanmar authorities in 2015 agreed to erect a 225-megawatt natural gas facility in Mandalay. In 2014, the Myanmar authorities entered into a $480 million contract with the US ACO Investment Group to develop two hydroelectric installations in the Mandalay region to help ease the country's hydroelectric-dependency.
This will contribute to a more sustainable power generation in the Mandalay region. In addition to taking into consideration the evolution of the infrastucture, the simple search for a site will be essential for the establishment of manufacturing facilities for producers wishing to invest in Mandalay, as will the provision of people. The second largest town in the state, Mandalay is a central protected area and is able to draw labor from the neighbouring counties, which ensures a good labor pool in the near to midterm.
Whereas the costs of real estate are generally lower in comparison to the biggest trading center in Yangon, Mandalay has only a small number of industry areas. The Mandalay region currently has three industry zones: the Mandalay Industry Zone, the Myingyan Industry Zone and the Meiktila Area. Mandalay is situated in the municipality of Mandalay and is expected to have more than 1,200 plants in service by the end of 2015, focusing on the manufacture of food and non-food products, agriculture and machines.
The majority of the Mandalay Industrial Zones plants are either local or operated as joints with South East Asian operations such as Singapore or Thailand. The Mandalay Industrial Area Management Committee states that the aim is to improve grassroots infrastructures and develop direct foreign investment.
The Mandalay Myotha Commercial Estate (MIP), 58 km from the town of Mandalay and 45 km from Mandalay International Airport, is being built in conjunction with the three current industry parks as part of a collaborative project between Mandalay Municipality and MMID. MMID says that this new industry site will be built in three phases:
It will cover areas of industial and logistical developments, warehousing and logistical developments, housing developments, traffic developments and the creation of business establishments, highlighting five main groups, as outlined below. MIP is to build a new centre for manufacturing and distribution in Oberburma and improve Mandalay's overall competitive position.
With Myanmar regaining momentum, Mandalay is projected to flourish as an industrial centre in key and north parts of the nation under Myanmar's new administration under President Htin Kyaw, providing trade, production and logistical capabilities. In the meantime, there is an urgent need to develop the bad infrastructures, with the authorities taking hands-on action to address the issue of involvement of the privatector, thereby providing an opportunity for related service providers.
However, Hong Kong based companies wishing to go beyond Yangon to take advantage of Mandalay's capabilities should consider the advantages and the challenge of entering the market early. According to the IMF, Myanmar's actual gross domestic product grew more slowly from 8.7% in 2014 to 7.0% in 2015.