10 things to look forward in 2018

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The year 2017 was annus horribilis for Myanmar with the ripple effect of the Rakhine crisis affecting the economy of the country.  Some institutions who granted awards to Daw Aung San Suu Kyi for her efforts in promoting peace and human rights withdrew the awards because of the perceived inadequate response to what happened in Rakhine. There were even efforts at re-imposing sanctions to ‘punish’ the government.   The start of 2018 will be a good time to focus on the issues that will define the rest of the year. Positive results of the recommended ten items will make this year a better time for Myanmar people and those residing in the country.

  1. More optimism and confidence in the local economy

A business survey conducted among UMFCCI members showed a decrease in investors’ confidence in the country.  The dip in the business confidence   were attributed to various factors, with government policies and the Rakhine crisis among the top issues.  With a clear manifestation from the business sector, the government should take a second look at how the issues expressed can be addressed, and respond to them as fast as possible.  Policy-making and promulgation of the needed laws should be prioritized to convince investors the government is serious in addressing their concerns. As for the Rakhine crisis, the government should continue to work with the international community in working out a solution, instead of looking at it as just an ordinary domestic problem.

  1. New telecom company will bring more benefits

Myanmar leapfrogged from analog to digital telecommunications in a short span of time. With three main players, telecom services became affordable allowing even those in the rural areas to have a hand phone. Smart phones are now a common necessary gadget, and with it potentials for online businesses.  The news of a fourth telecom company MyTel, was met with mixed responses. Many people expect the new provider will further make the market more competitive and that would  mean lower fees for services. There were also those who thought that the new player will only result to migration of clients from existing telecom companies to the new player, affecting the bottomline of existing telecom companies. Migration may actually happen if there is a perception that the services of the new player is more efficient, when in fact, it may be due to the initial small number of clients as it open its services in the country. If ever there will be decrease in the bottomline of existing telecom companies, it is hope that the services will not digress and the fees will not increase.

  1. Increased confidence in the stock market

Despite low trading volume, the stock market has consistently attracted companies to list. So far, there are now five listed companies: FMI, Thilawa SEZ, First Private Bank, Myanmar Citizen Bank and the latest company TMH Public Company. It is also noteworthy to consider that the listed companies are from various industries – banking, industry, telecom and a holding company. Opening up the market to foreign investors will not only induce more volume develop more trust to the market.

  1. Real estate to continue on its growth

The real estate sector is continuing to grow as the government focuses on urban development, high end properties and promotion of low cost housing. More laws are also providing impetus for the sector to be more vibrant. With the new Condominium Law, the sector is expected to attract more foreign investors and buyers.

  1. Improved facilities in tourism areas

Tourism is one of the main drivers of the local economy as tourist areas are spread out in various regions and states. People in tourist areas also benefit through the employment they generate and the related industries that supply the facilities in the areas.  As investments in tourist areas consistently flowed, the quantity and the quality of facilities also improved to the benefit of the tourists, resulting to the rise in the number of visitors. Another positive result is the reduction in price, where in some areas the price are closer to the level of neighboring countries like Thailand, Vietnam and Cambodia.  The quality of the facilities and the area makes tourism in Myanmar not only an enjoyable experience but a memorable one.

  1. Reliable urban transportation system

The liberalization of car importation increased the number of cars. Problems related to it also started to manifest, the buildup of traffic congestion. More cars, more idle time as traffic congestion is nearing the level of Thailand and the Philippines. Plans to have more roads and the improvement of existing ones have to be initiated to cope with the demand of the future.  Another concern is the right-hand driving with a left-hand traffic rules. For the commuters, there is a need to fix the operation of taxis – metering and ridesharing units like Uber.  Upgrading of the train system is also necessary to decongest the roads.

  1. More sustainable financing for SMEs

The missing middle becomes evident in Myanmar as banking regulations restrict access to finance of small and medium enterprises (SME).  Small livelihood types of economic activities are provided with financing from hundreds of microfinance institutions (MFI), while large enterprises are able to access from commercial banks. But the more than 90% SMEs in the country has nowhere to go. Policies on collaterals restrict the flow of funds to SMEs, making them prey to informal moneylenders who charge high interest rates. Some banks are pilot-testing guarantee programs and hope it can be mainstreamed in the near future.

  1. Kyats will stabilize in relation to the dollar

The Kyats has been down and continue to go down since the country opened up to the global market. The challenge is for the government to follow an economic program that will strengthen domestic production and focus on importing goods that will enhance the country’s production capacity. Other factors have to be addressed as well to stabilize the kyats.

  1. Reasonable wages for workers

Cheap labor is an advantage of the country, but as inflation eats up the value of the workers’ wages, the clamor for higher wages to cope with the cost of living will be heard. There will be a conflict of interest as workers fight for higher wages while employers will protect their profits and return on investments. There needs to be a balance where people can live with their wages and at the same time corporate income is assured.

  1. Poverty will be reduced

One third of the country is considered poor. As the country progresses, the people should also advance economically. No sector of the population should be left out.  As such, the benefits of development should not only trickle down to the poorest, but it should be sustainable. Government programs are in place and it is hoped that it will prevent people from falling into the pit of poverty. The business sector is also expected to share the burden through their corporate social responsibility (CSR) activities.

Originally published in Myanmar Insider, January 2018

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Improving and promoting development technologies

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Part of the efforts to hone the skills of technical consultants are cross-country  learning activities. Successful technologies developed in various countries are shared to other consultants to appreciate and be included in the array of tools and methodologies to be offered to clients. Among the technologies featured in the ACCESS Advisory annual planning are the following:

  1. Financial product development. Participatory process of designing loan products. This is best suited for financial institutions who would like their products to fit the needs of their clients, ensuring patronage and minimize default. Extensively used in the Philippines and Nepal.
  2. Dream to Reality Financial Literacy Course (D2R). Originally designed as a motivational tool for migrant workers and their families to manage finances, the course has now become a personal finance tool enabling people to maximize their resources to become financially independent. Migrant workers from the Philippines and Nepal working in Malaysia and South Korea benefit from this technology.
  3. Cooperative Formation. Three-stage process in forming sustainable community-based savings and credit cooperatives. It allows development institutions to phase-out in a community leaving behind an institution owned and managed by the people who can continue with their advocacies. Currently used in Myanmar.
  4. Agriculture and Livestock Financial Analysis (ALFA) Agri-Finance Tool. An Excel-based tool for credit and background check to enable financial institutions to assess the risk level of agricultural and livestock producers borrowing working capital for their production activities. Commissioned by the International Finance Corporation (IFC) for Vietnam microfinance institutions (MFIs).
  5. Value Chain Development. Identifying economic activities to be engaged in based on the results of value chain analysis (VCA) of specific commodities. Business planning for start-up activities or expansion of existing enterprises linked with the agricultural or livestock production. Extensively used in Myanmar.

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Completing the Kayin Project

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Monday will be the culmination of a development project in Kayin State, Myanmar. A conference will showcase the results of the three-year project – a registered cooperative with savings and lending service as well as an e-money service, and an enterprise and agri-business enhancement component for the borrowing members.

In 2014, the project started six months late because of some administrative concerns as the government has to cope with the increase of development agencies flooding the country.  But the project team was able to catch up on the activities and reach the finish line on time.

The results of the project affirmed the tools and methods initially employed in other ASEAN countries and now used in Myanmar. These include savings mobilization techniques, cooperative formation, value chain analysis for agri-commodities and enterprise development.  The tools are now being marketed to other development agencies for replication.

Notes on the QSEM

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The Qualitative Social and Economic Monitoring (QSEM) is a study conducted annually by Livelihoods and Food Security Trust Fund (LIFT), a multi-donor platform, to look at the changes resulting from the development interventions in various parts of Myanmar. The Round 4 of the QSEM conducted from March to May 2014 involving 1,474 respondents was recently released by LIFT and World Bank, highlighting the trends and transformation happening in the rural areas of the country. It covered 54 villages from the following states where LIFT has concentration of projects: Ayeyawardy, Chin, Magway, Mandalay, Rakhine and Shan.

Round 4 results have shown positive developments in the rural areas. The main findings were summarized as follows:

1. Villagers experienced better returns on their livelihoods than in previous years, though underlying structural constraints persisted;
2. Non-farm diversification and migration increased;
3. Certain poorer households were not able to benefit equally from such positive trends; there were risks of inequality; and,
4. There were small but important shifts in how people interacted with local government officials.

The results are important in a way that showed the effectiveness of the development efforts in Myanmar and the receptiveness of the people in the development efforts. Among the other noteworthy issues raised in the Round 4 report and discussed during the presentation last February 5, 2015 included the following:

1. Labor migration is increasing. As development is felt in key cities, people from the rural areas are moving to the cities particularly Yangon and Mandalay looking for more opportunities. Migration outside the country is also observed. Because of this, labor for agricultural production may be affected in the future although it is not yet felt at present. It was also observed in some areas that during peak seasons like planting and harvesting, there are no enough farm laborers to hire. Inversely, during non-peak season, there is no work for labourers, pushing them to find work in the cities.

2. Diversification of income source. The increasing number of non-farm activities rural people to move away from agricultural production. This may be an issue for food security if people stay away from agricultural production activities.

3. Increasing influence of village tract leaders. This is an additional layer in the bureaucracy. We not only deal with village heads and township officials but also with the village tract leaders. This may also be an opportunity in area where the village heads are uncooperative, with the village tract leaders may be an alternative source of support.

4. Social capital and institutional development. Most of the people’s organizations were formed for mobilization. There is a need now to transition these organizations to do economic activities and provide them with capacities and skills in managing not only organizations but enterprises as well.

5. Connectivity is promoted by cellphones. The use of cell phones for development initiatives has yet to be maximized. With apps for mobile money, market information and other updates, the community can benefit much from utilizing it as a tool for development work.

Solar Home System: A strategic investment for Cambodian households

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In an article published in Cambodia Business Review (Issue 9, September 2013) titled Cambodia needs $1Billion to expand Electricity Supply, the energy situation in Cambodia was clearly explained.  Currently, the country is not generating enough power and has to source 45% of its energy needs from Laos, Thailand and Vietnam.  As a result, the price of electricity in the country stands at $0.15 – $1.00 per kilowatt-hour (kWh) and is considered one of the highest in Asia.  The country also has low electrification rate as only 26% of the households are connected to the power grid. In the rural areas, most of the people are using car batteries for light and small appliances.

As the article has stated, it needs more than $1B dollars to expand its electricity supply until 2030. The government has adopted the Rural and Renewable Energy Policy as part of the overall energy sector plan which calls for the tapping of all sources from crude oil generators   to hydroelectric dams and even coal plants. It has attracted investments from China, Korea and investors from other Asian countries. Despite massive investments, electrification of the whole country cannot be assured. The economic growth experienced by the country is expected to continue and will require a sizable amount of power. The power generated from the new dams and coal plants will therefore be focused first on the needs of the industries fueling the economic growth than for the household needs. Moreover, the environmental impact of the dams and the coal plants can affect the communities where these projects will be located.

The just concluded CamEnergy13 exhibit in Phnom Penh on September 10-12 was a timely activity. It showcased mainstream energy sources and alternative sources like biogas and solar.  The solar energy exhibitors featured solar energy products for industrial, home and even personal use: solar panels that can support factories, run a water-pumping station for irrigation; solar home systems that can power lights and household appliances; and even small panels that can charge cell phones.  The reality that the power grid cannot cover remote parts of the country can be answered by the availability of solar energy equipment that can provide more efficient and clean energy.

It is in this context that the program Cambodian SUN also becomes relevant. Integrating together institutions that will provide marketing support, technical service and financial service into one program assures seamless operation for the benefit of the clients.  Where previously clients are at the mercy of fly-by-night solar panel sellers, Cambodian SUN offers a full and customer-oriented service: high quality solar home system components, 24-hour call center, and regular visits of technicians and continuing education on renewable energy and other add-on benefits.  The program is spearheaded by PFTAS as the marketing arm, Kamworks as the technical service provider, and microfinance institutions as financial service providers. The latest participant to the program is the Vision Fund (Cambodia) who signed the agreement this month. Several other MFIs are invited to participate in the program to make solar home systems available to their clients as part of their social performance activities.

Cashflow lending: Towards more appropriate micro-enterprise loan products

There are two basic microfinance loan products – group loan and individual loan. Group loan scheme is used for very poor clients for them to have a support group, which also functions as the pressure group for defaulters, and to develop financial discipline necessary for a sustained financial access.  Individual loan scheme most often is provided for the “entrepreneurial poor” who has the capacity to venture into income-generating activities which we can call “livelihood activities”. These are simple buy-and-sell activities where the clients buy in bulk, place a mark-up and sell the products in the neighborhood or in areas with high foot traffic. Most of these activities are done by individuals and sometimes assisted by other members of the family including children.

 At certain point, some of the more enterprising among the clients move up and increase their volume of trading. Some enterprises evolve from livelihood to “micro-enterprises” – economic activities that exhibit growth potentials, that when given the right inputs and resources can become big. To sustain the growth, entrepreneurs have to transform themselves from a jack-of-all-trades to  managers with knowledge and  skills in inventory control, marketing, finance, and the other requisites of an enterprise. As the operation goes more complex, profit also increases that further motivates the entrepreneur to go on further.  Seizing the opportunity is the name of the game as the entrepreneur takes advantage of bulk sales, consignment from suppliers, and other marketing arrangement and balancing these with fast turnover of goods through credit sales, promotions and other schemes that ensures sales.

 At this point, one of the most important factors is cashflow.  Start-up and growing enterprises need cash to cover inventories, operating expenses to pay suppliers, workers and lenders.  The entrepreneur may need big amount at one time, but he can also have big cash inflows in another time which allows him to immediately pay back his loans. Effective cashflow management is one of the marks of an entrepreneur, and to have it, the entrepreneur need a standby source of cash, or credit that he can access every time there are cashflow concerns.

This is where the mismatch happens. Most of the loan products of MFIs are inflexible and still in the context of developing financial discipline as if  entrepreneurs are first-time borrowers. Despite the track record developed by entrepreneurs who are long-time clients of MFIs, they still has to contend with the standard loan features such as fixed amount, payments are in equal installments and made at regular intervals. The worst feature is at certain amount, hard collateral is required, limiting the amount that can be availed by the entrepreneur. The option for the entrepreneur is to borrow small amounts from different lenders to cover for his total cashflow requirement. This I think is a missed opportunity for MFIs.   With minimal skills in assessing enterprises, credit staffs are limited to determining the value of the collateral as the basis for the loan amount.  The danger of falling into the collateral lending trap was emphasized in the previous article.

 A more appropriate loan product would be cashflow-based with the following main features:

  •  credit-line type of loan with a maximum amount based on the historical data of cash requirement;
  • risk covering  is not  limited to hard collateral but a combination of  real estate, chattel, inventory and even collateral substitutes like savings;
  • fast processing of  draw down from the  approved amount;
  • business development services to enhance the skills of the entrepreneur are a must. 

Providing appropriate loan product should also be coupled with business development services to develop the soft skills of the entrepreneur. These skills will enable the entrepreneur to transform the economic activity from a livelihood to growing micro-enterprise and minimize risks as well.

The main skills that should be developed include but are not limited to the following:

  •  Basic management skills which covers how enterprises are systematically run. This involves skills in planning both for the short and long term; organizing different functions and delegating them to hired workers; and coordinating the overall operations.
  • Marketing skills which covers understanding the needs of the clients and aligning the products, doing market research, price setting and promotion.
  • Financial management and accounting to ensure that the funds of the enterprise are separated from the personal funds of the entrepreneur. Record keeping to develop track record for the formal financial institutions specifically for MFIs.

 In the end the assistance is an investment that will be mutually beneficial to both the MFI and the micro-enterprise client.

Moonlight: Lantern powered by the Sun

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As the light of the moon is a reflection from the sun, so is the power of the MoonLight lantern coming from the heat of the sun.  Moonlight is one of the practical and multi-functional solar-powered tools developed by Kamworks.    It can be used as a lantern when farmers go out to their farms early in the morning; it can be fixed in the house as a lamp to provide light at night; and it can even charge cell phones!

Moonlight is a good alternative for kerosene lamp in the rural areas or a battery flashlight that needs new batteries often. It is lightweight, safe and can be carried by children without fear of electric shock, smoke or fire.  It is also convenient since one day exposure of its small panel will provide power that will last for a maximum of 6 hours.

The lifespan of the Moonlight is 5 years and it carries a warranty of 6 months. If it is broken, it has spare parts in Cambodia and repairs are done in the assembly plant of Kamworks in Kandal province. The assembly plant employs young Cambodian technicians as well.

The Cambodian SUN program offers Moonlight as one of its products.    The program is also supporting the development of new solar-powered tools and products and the enhancement of existing products to help in improving the living condition of people in areas where access to electricity is limited.  It is hoped that people even in areas covered by the electric grid will use products like Moonlight and gradually shift to more renewable sources of energy.