A legal dispute between a Thai-owned conglomerate and its military-linked local partner over Myanmar Brewery Ltd. is shaping up as a crucial test for foreign investment in Myanmar.
The dispute between the Myanmar Brewery partners of nearly two decades arose following the takeover of Fraser and Neave this year by companies controlled by Thailand’s richest man, Charoen Sirivadhanabhakdi.
Although information about the confidential arbitration is scarce, analysts claim the case is centred on Myanmar Economic Holdings’ assertion that it should have been given an option to buy Fraser and Neave’s 55 per cent stake in Myanmar Brewery before ThaiBev’s Mr Charoen.
Fraser and Neave released a statement shortly after receiving the arbitration notice in August that it will “vigorously resist” claims that it broke the terms of the joint venture agreement.
Whilst Myanmar Brewery does not publish separate financial results, The Internal Revenue Department listed it as the country’s largest commercial taxpayer for the 2012-13 financial year.
Foreign investors will be keeping a close eye on the dispute: if the arbitration is seen to be handled unfairly, many will likely reconsider investing in South East Asia’s last frontier market, where joint ventures with a local partner are compulsory across many sectors.
According to an analyst who spoke to The Bangkok Post on condition of anonymity, “Partnering up with a military investment vehicle like UMEHL is a double-edged sword. Of course, having UMEHL on your side means having easier access to permits, land and so forth – but it also leaves [a foreign company] vulnerable in case of disputes.”
However the analyst said that the large amount of attention the case has already garnered internationally could be a game changer in a country that formerly operated with impunity in its business deals and human rights records.
“Suddenly there is more international attention on the case than I think UMEHL would have wanted,” the analyst said.
“It is shaping up to become a litmus test of the regime’s commitment to the rule of law, so perhaps UMEHL won’t be able to trump through their will as they would have in the past.”
Meanwhile, Mr Charoen’s former business partner, Carlsberg of Denmark, held an opening ceremony for its second largest expansion programme in Asia on October 21, when it opened a factory in Bago.
Myanmar Carlsberg Co., Ltd. is a joint venture between the Carlsberg Group and the country’s top selling beverage company, Myanmar Golden Star (MGS).
According to pundits, not every joint venture in Myanmar will end acrimoniously, however a high degree of caution is necessary, particularly as Myanmar’s waters are largely untested.
“I wouldn’t say that you shouldn’t do joint ventures in Myanmar, but this case highlights the need to do your homework properly and know who you are going to bed with,” the analyst said.
According to Myanmar Carlsberg managing director Daniel Sjogren, the factory will create more than 500 jobs on the 54-acre site that is less than 90 minutes away from the commercial capital of Yangon. Bago will also become home to a major new international airport in 2016.
“The potential for growth in the beer market in Myanmar is promising. It has one of the lowest beer per capita consumptions in Asia, with only 4 litres per person in a country with a population of over 60 million,” Thant Zin Tun, Board Director of Myanmar Carlsberg, said in a press release dated October 11.
Marita Schimpl, Head of Marketing Research at Myanmar Survey Research told The Bangkok Post that, “Most people prefer whisky, because it’s much cheaper than beer. However we would expect to see beer consumption increase as incomes rise in the next few years.”
Myanmar has a host of low-end, low cost rums and whiskys available on the market. According to May Lwin Oo deputy general manager of Victory Myanmar Group, which owns Mandalay Rum, a product that boasts a 75 percent market share of rums and whisky and sells more than 15 million litres a year, “Sales figures [of Mandalay Rum] have not been affected by any increase in beer consumption.”
In addition to the lifting of most sanctions imposed by the US and EU, Myanmar’s beer market has also seemingly overcome another major stumbling block for investors: illegal imports of beers.
According to Thailand’s Tak Chamber of Commerce, monthly imports from Thailand to Myanmar through Mae Sot were estimated at three billion baht (US $100 million). Others said this figure was conservative.
For 12 years, 32-year-old “Phoe Nge” (a nickname he uses) made a living by transporting imported beers such as Singha and Chang to a warehouse in Yangon from Myawaddy, Myanmar’s border town.
The warehouse, which employs four workers on a commission basis, then sold the beer to outdoor pubs and shops, often at a lower price than local beers such as Myanmar Brewery’s Myanmar Beer fetch.
“When I reached Myawaddy I’d make a call to Myanmar nationals living in Mae Sot, and 30 minutes later the beer would arrive,” he said.
Phoe Nge usually transported 700 boxes of beer during the four day round trips.
“I never paid tax on beer during the military government’s regime – I just paid a bit of money under the table. It wasn’t problem,” he shrugged.
“But this new government says ‘You can bring in beer, but you have to pay tax on it.’ The government is bringing in containers of beer and it’s cheaper than I can get it for now.” In September 2012, Phoe Nge made his last trip ferrying beer as his warehouse boss switched to the electronics trade.
“It’s still possible to make a decent profit on rice cookers and so forth after paying tax,” Phoe Nge said.
He said there are still a handful of people importing tax free beer from Mae Sot: these black market traders avoid the Myawaddy Industrial Zone by taking one of two roads on either side that were built by Shan rebels.
One gate is manned by the Democratic Karen Buddhist Army (DKBA), who Phoe Nge said do not ask for tax to be paid. However the Shan rebels, a different ethnic group, demand a payment of half the government’s rate of tax.
“But it’s very dangerous to go along these side roads – I could get shot,” he said.