Myanmar’s economic reform process has opened it to the world and in 2012, the country saw most international sanctions dropped and the beginning of a wave of international investment that has accelerated year over year. In the 2014 – 2015 financial year, the country’s Directorate of Investment and Company Administration (DICA) reported the approval of US$8.1 billion of Foreign Direct Investment (FDI) into the country compared to just US$4.6 billion in 2011.

Thriving international investment however, has also led to skyrocketing real estate prices. While skyrocketing prices in commercial and residential prices have been well reported by international and local press, industrial real estate costs have also ballooned growing at a Compound Annual Growth Rate (CAGR) of 23% since 2008.

Website - Blogs Project Land - 2015-04-21
Source: Tractus Research and Analysis

Prices for the sale of long-term land usage rights for industrial land in Yangon mostly between US$60 and US$100 put Yangon’s industrial zones about on par with Ayutthaya or Samut Sakorn in Thailand, Serang in Indonesia and Penang in Malaysia.

At these prices however, Yangon’s industrial zones provide none of the international standard industrial zone infrastructure of their regional peers and little or no professional zone management.

Website - Blogs Project Land 2 - 2015-04-21
Source: Tractus Research and Analysis

Outside of Yangon’s metropolitan area there are four major industrial zone developments within seven hours by truck playing host to a mix of international and local manufacturing investments.

While these zones provide similar access and quality industrial infrastructure as industrial zones in Yangon, their costs are dramatically lower than those in Yangon.

In Pathein, which has the lowest industrial real estate costs of the group, prices per square meter for the sale of long-term land usage rights are just 12% of those in Yangon while Tier-2 zones taken as a group offer, on average, industrial real estate costs that are as little as 23% of the those in Yangon.

Website - Blogs Project Land 4 - 2015-04-21
Source: Tractus Research and Analysis

 

However, higher operating costs – in particular the costs of in-bound and out-bound shipped cargo – work to reduce the real estate cost advantage of Tier 2 zones.

In one Tractus case study of a factory employing a little more than 2,000 workers and shipping eight Twenty-foot Equivalent Unit (TEU) containers in-bound and out-bound per month, the difference between five year operating costs in Yangon and Tier 2 zones was reduced significantly. In the case of Pathein, the lowest industrial real estate cost location in the analysis, five-year operating costs reduced the location cost advantage over Yangon to 35% and to 24% in Tier 2 zones taken as a group on average. However, as the number of TEUs continues to escalate, the Tier 2 zone cost advantage presented by the case study begins to erode.

Every investment is different and should be treated that way. Tier 2 industrial zones in Pathein, Mawlamyine, Bago and Myaung Dagor – or even further afield – all present unique challenges and opportunities for manufacturing companies. Just as Myanmar may not be an ideal manufacturing location for some companies, Tier 2 zones – despite their lower real estate costs – are not suitable locations for all types of manufacturing nor all types of companies.

Myanmar suffers from a dearth of reliable, accurate and up to date information. Historical industrial real estate transaction data for this report was collected through a series of focus groups with 15 local industrial real estate brokerages and in-person visits were required to ascertain the quality and availability of industrial land in each of the zones surveyed.

While Myanmar presents one of the lowest costs destinations in Asia for manufacturing, it is also one of the most difficult places in the world to do business.

Tractus takes a methodological, process-oriented approach to identifying the critical and ideal site location factors for our clients individually and applies that process to screening the universe of potential locations to identify the optimal site. We spend the time up front to thoroughly understand the factor’s driving the performance of our clients’ investments and to providing the research and analysis need to identify the optimal sites and implementation.

To learn more about the work Tractus does in Myanmar and across Asia contact us here.

About the author

Joshua is Tractus’ lead manager for the company’s Myanmar office and was Tractus’ first full time employee dedicated to the country. Since 2012, Joshua has led Tractus’ engagements in Myanmar including advising on more than US$31.5 million in direct investment decisions in the mining, porcelain, animal feed, garment and pharmaceutical sectors. Recent projects have included investment cash flow modeling, risk probability analysis, industrial site selection, supply chain analysis and government advocacy on licensing and approvals among others. Joshua sits on the Executive Committee of the American Chamber of Commerce Myanmar Chapter and is an active member of both the American Chamber of Commerce in Thailand and Thai-Canadian Chamber of Commerce as well as the Canada Asean Business Council. Joshua has spoken extensively on the topic of Myanmar including at forums in Toronto and New York as well as in Hong Kong, Vietnam and Singapore. As one of the earliest business advisors on the ground following the suspensions of US sanctions, Joshua’s opinions are regularly sought after and have been printed in regional media as well as the Washington Post and Christian Science Monitor.

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