Newly opened, complicated Myanmar braces for investment
Newly opened, complicated Myanmar braces for investment
25 JANUARY 2017 8:50 AM

Myanmar, formerly Burma, is a hotel industry and tourism market on the rise, but falling short of its full potential due to political uncertainty, bureaucracy, infrastructure problems and a lack of transparency. 

YANGON, Myanmar—Larry F. Wright Jr., president and CEO of Memphis-based hotel management and development company Wright Investments, has traveled to Myanmar on three occasions. But his company is unlikely, he said, to own hotel real estate there any time soon.

On trips to the Southeast Asian nation in 2012, 2013 and 2015 to meet potential collaborators, Wright said, he was struck by the bureaucracy of doing business.

“The red tape is tremendous, massive,” he said.

He can, though, appreciate the country’s potential.

“Its large land mass between India and China has untapped potential, but when you get there you realize it is difficult to do business,” Wright said. “Everything is amplified, but (Myanmar does) I feel need that second or third friend to counter the weight of influence from China.”

Myanmar’s main markets are the former capital of Yangon, current capital Nay Pyi Taw, Mandalay, Bagan, Mrauk-u, Taunggyi and Nyaung Shwe/Inle Lake.

Areas expected to grow in terms of tourism are Ngapali, Ngwe Saung, Loikaw, Golden Rock, Mogok, Kengtung, Thai border regions and the Chin Hills, according to sources.

Former U.S. President Barack Obama visited Myanmar twice—Yangon in November 2012, then Nay Pyi Taw two years later. Obama lifted sanctions, in place since 1990, against the former dictatorship on 2 December 2016.

Wright said he has seen investment capital enter the market, which has resulted in rapid change.

“The most dramatic was that in January 2012, I saw holes in the floors of cars,” said Wright, who added that infrastructure improvements and pollution control were major concerns. “Three years later, every car is basically new.”

AccorHotels has five hotels in Myanmar: The Lake Garden Nay Pyi Taw - MGallery, Novotel Inle Lake Myat Min, Novotel Yangon Max, Ibis Styles Yangon Stadium and MiCasa Hotel Apartments.

Gaurav Bhushan, AccorHotels’ global chief development officer, said the French firm’s plan is to at least double that number the next three years, including a Mgallery property in Inle Lake, a Pullman in Yangon and another Pullman in Mandalay.

“Myanmar is growing very quickly and while the development started in Yangon, we are now seeing growth in other areas, including Nay Pyi Taw (and) Inle Lake,” Bhushan said. “Growing brand awareness and strong investments in infrastructure are driving development in Myanmar’s tourism industry, with record inbound traffic forecast for 2016.”

Bhushan said AccorHotels is buoyed by reports from the Asian Development Bank that tourism revenues increased 19% to $2.1 billion in the last year.

“Supply in Yangon has grown by 8.5% in the last year, so rates are starting to drop in that city until demand catches up, which is why we believe that we need to develop into new destinations,” Bhushan said. “We continue to look for an opportunity in Bagan as we see this as an attractive destination for visitors.”

Burmese government officials hope that the Foreign Investment Law, drafted by the Myanmar Investment Commission and due to become law in April, will appease worries and encourage increased foreign investment.

Increased supply might offset complaints from visitors of price hiking in Western winter months, the country’s only period of noticeable demand.

Recently, according to one source, authorities have started limiting permits and licenses to build new hotels in some areas, such as Inle Lake.

A hotel development in Yangon by The Hongkong & Shanghai Hotels Limited is the latest to be accepted by the government’s Myanmar Investment Commission. The lease agreement, approved 13 January, is with Burmese owner Meeyahta International Hotel Limited.

Increased supply, according to analysts at STR, parent company of Hotel News Now, has dented Myanmar’s recent hotel performance numbers. STR’s sample is weighted towards the Luxury and Upper Upscale segments and shows approximately 3,600 rooms in construction in those categories.

However, the Burmese kyat’s current decline against the U.S. dollar likely will make traveling to the country cheaper.

STR data for Myanmar from November 2015 to January 2016 shows an increase in average daily rate of 9.4%, while revenue per available room declined 13.6%. Occupancy for that period dropped 21% to 56.9%

In Yangon, Myanmar’s largest market, ADR increased 5.6% during the same period, while RevPAR decreased 12.1% and occupancy fell 16.8% to 48.1%.

Increased supply might be faulted for full-year performance decline. Myanmar hotel occupancy fell 27.6% to 43.8% in 2015, but declined by only 0.7% in year-to-date November 2016 numbers, perhaps underlining increased tourism demand.

STR analysts added that Myanmar has traditionally not been cheap because of an undersupply of quality international accommodations. Change in Myanmar is occurring very rapidly, the analysts said, with a challenge to now develop infrastructure and ensure adequate staff training and development to meet growing demand.

Burmese business barriers
Many in Myanmar want the hotel and tourism industry to move slower, sources said. But for Wright, the main concern is a lack of transparency.

“People are not motivated to share information,” he said.

Bhushan is hopeful, too, but realizes any transition will take time.

“A lot is expected from the new law, but I believe it is too soon to make a reliable prediction. My best guess is that it won’t have any impact on the Myanmar hotel business model in the near future as things will take a while to change,” Bhushan said. “Myanmar presents a unique opportunity to be part of large-scale development in a country that has huge potential in terms of tourism and provides a rare opportunity to be a part of one of the last frontier markets.”

Myanmar has 1,279 hotels, motels and guest houses with 49,946 keys, according to tourism statistics from the Myanmar Ministry of Hotels & Tourism. But standards vary greatly, sources said.

STR analysts agreed that Myanmar’s development potential could be hindered by several factors, including:

  • The political situation being unpredictable, despite the country’s claims it is newly democratized;
  • the inability of the business environment to support the full development of tourism as the quality of infrastructure and investment lag behind neighboring countries such as Vietnam and Cambodia;
  • average tourist expenditure is high, equally in 2015, approximately $171 per day; and
  • the requirement for all citizens of Western nations to have a visa, at a cost of $50 per visitor, to enter the country.

English-language Burmese newspaper The Global New Light of Myanmar on 9 December published that the “Ministry of Hotels & Tourism predicts that the tourist arrivals in the country are likely to reach around 7.5 million by 2020, with plans to spend about $500 million funds on tourism development until the target period.”

The article added tourism earnings between 2010 and 2014 were as follows: $254 million (2010); $319 million (2011); $534 million (2012); $926 million (2013) and $1.8 billion (2014).

“Myanmar has gone through one of the darkest periods any country could go through,” Wright said. “It has been an amazing transformation, so it needs to work intelligently, acting together with friends on its infrastructure, perhaps limiting the number of people to each area to obtain the same receipts but at higher prices.”

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