Home MMBIZ News Germany-Myanmar Ties: Sixty Years on

Germany-Myanmar Ties: Sixty Years on

Following World War II, Germany became Myanmar’s second largest trading partner and maintained a trade mission in the country’s former capital Yangon since 1954, when the two countries established diplomatic ties. Even a coup by General Ne Win didn’t perturb the ties between the two countries and Germany’s substantial development assistance became a key element in its relations with the Southeast Asian nation. Particularly in the 1970s and ’80s, support was provided to a large number of businesses and institutions, some of which are still operating today. However, Myanmar’s former military junta’s bloody crackdown on a nationwide pro-democracy movement in 1988 severely scathed the German-Myanmar diplomatic ties and trade ground to a halt.

Relations swung back to normal in 2011 as Myanmar started to shed its rather inglorious title of “a hermit country” by undertaking a raft of political and economic reforms.

Despite the 23-year lull in relations, Germany was “always here,” said Christian-Ludwig Weber-Lortsch, who was assigned as the German Ambassador to Myanmar in 2011. “There were sanctions, yes. But, we had our diplomatic presence and we had our business,” he told Myanmar Business Today at the German Embassy in Yangon.

At the time of his appointment, Southeast Asia wasn’t an unknown territory for Weber-Lortsch as his previous two posts as a German Ambassador were in ASEAN member countries – Vietnam and the Philippines. Weber-Lortsch thinks he was “lucky enough” to arrive at the right time – “2011 was the breakthrough, it was the crossroads,” he said.

German reengagement

Since Myanmar opened up Germany started to get involved extensively in the reform process. “From the very beginning we tried to support the government acknowledging the courageous opening, especially because we ourselves had a long transition period after the [Berlin] wall crumbled. We know very well that it can’t be fixed overnight,” Weber-Lortsch said.

With the economy and infrastructure in shambles Myanmar called on its foreign friends from around the world to rebuild the nation, and the Ambassador said Germany “played the card very early,” earlier than maybe some others. “We were very much in favour at an early stage for the removal of sanctions,” he said.

The European Union (EU) sanctions were permanently lifted in April 2013, with the exception of the arms embargo, however, some critics say the EU’s move was premature, given the still rampant human right abuses in Myanmar. Weber-Lortsch resoundingly differs. “You have to engage. What we have seen as a negative side effect of sanctions is that poor people suffer more than the rich. I think it was absolutely right and certainly not too early.”

Germany also signed an agreement in February to slash more than half a billion euro in debt owed by Myanmar, in line with a debt forgiveness agreement Myanmar made with the Paris Club, a group of creditor countries.

Forging trade ties, growing investments

The German Ambassador said during the first year of reforms, German companies mostly wanted to know if they were allowed to do business. They asked, “What about politics?”

Since the last two years, he said he has to answer more questions about business and investment. “The main concern nowadays is business proper. Talk money, prices.”

Economic relations between Myanmar and Germany stagnated at a meagre level from the 1990s onwards but there has been a marked upsurge in trade recently. In 2013, German exports to Myanmar stood at €126.5 million ($162.8 million), compared with €105 million in 2012 and €61 million in 2011, according to German Federal Foreign Office.

In 2013, German imports from Myanmar were worth about €56 million, compared with €45 million in 2012. Despite the small volume of trade, Germany is Myanmar’s principal trading partner in the EU, according to the German Federal Statistical Office (Destatis).

Germany’s main imports from Myanmar are garments, worth €47 million in 2013, and its principal exports to Myanmar are machinery (€29 million), data-processing equipment, electrical and optical goods, chemical products, motor vehicles and vehicle parts and pharmaceutical products.

The Association of German Chambers of Commerce and Industry has had a Representative of German Industry and Trade (RGIT) in Yangon since November last year.

Major German brands such as carmakers Mercedes-Benz and BMW, sanitary fitting manufacturer Grohe and Hansgrohe SE, engineering and electronics conglomerates Siemens and Bosch have already established presence in Myanmar.

Despite a growing number of companies knocking at the door, the Ambassador said the number is not as high as everyone might think. “They are coming in, but not as many as we wish. [Myanmar] is not such as an easy sell.”

Weber-Lortsch said German companies are interested in investing in textile and garments, mostly to utilise the country’s cost advantage. As the EU has reinstated Myanmar’s Generalised System of Preferences (GSP), a tariff privilege bestowed to least developed countries, manufacturers have been eyeing to take advantage of the lower tariff against the goods produced here. There has been some interest in downstream oil and gas sector too, he said.

German consumer goods manufacturer Henkel AG, which started producing detergent here since late 2013, is following a model that Weber-Lortsch finds “quite interesting.” Under a system billed as “contract manufacturing,” The Forbes 500-listed German firm, which garnered revenues of $21.7 billion in 2013, has a local partner who owns the company here and produces the goods, while Henkel brings in technology. German pharmaceuticals manufacturer Stada Arzneimittel AG is also expected to build a pharmaceuticals production facility in Myanmar that is due to commence operation next year.

Even after all that, as of July, Germany’s approved investment in Myanmar stands at $17.5 million, or 0.04 percent of the total foreign direct investment in the country. Also, there is so far no investment protection agreement or double taxation agreement between the two countries.

Besides its traditional manufacturing powerhouses, Weber-Lortsch said Germany has its “hidden champions,” which produce inside components and parts for industries ranging from automotive and electronics to home appliance and power station, at play in Myanmar.

“The inside components of a lot of things are from us, and sometimes you don’t even know it. Even when the Chinese build a pipeline, there might be some German technical parts in the pipeline to support it. You’ll be surprised to know that most of the Gold colour for the pagodas here comes from a German company.

“So even when you don’t see us at the forefront, we are somehow involved.”

Business prospects

The German Ambassador said some of the framework conditions for business in Myanmar are difficult and there lie numerous restrictions for foreigners to do business – starting from the price of land, getting licences and in terms of infrastructure. Myanmar came out 182nd out of 189 countries in the World Bank’s Ease of Doing Business index this year, behind impoverished Laos and Cambodia and ahead of only seven African countries, most of whom are war-ravaged.

“First, they need to fix the infrastructure. Without infrastructure, there would be nothing. The most obvious is power.”

He said everything related to property “is a problem,” and the land price here both for buying and renting is “beyond imagination.” Yangon comes on top in terms of the German government’s overseas housing and property expenditure, at par with Tokyo and New York, he added.

However, Weber-Lortsch said companies should come with an open mind and not compare this country with Germany, the potentials have to be weighed against the neighbouring countries such as Thailand or Vietnam. “You have to look at the future. Think about what would [this country] be in let’s say five or ten years.”

He said so far Myanmar has been very much a resource-based country, but the existing fundamentals give reasons to be hopeful. “Some things need fixing, but it takes time.”

He pointed out that compared to other revolutions in the world the fundamental changes in Myanmar are non-violent. “It’s still quite peaceful, which is good for business. Peace is not everything. But without peace, everything is nothing.”

The Ambassador said the Myanmar government is willing to cooperate with foreign partners but the best anyone from outside can do is only to advice. “We should never forget [the government] is the one who has to decide. You are in a comfortable position, you can pick and choose from the best development practices.”

Development cooperation and SMEs

In the mid 1970s, Germany initiated a number of development projects in Myanmar under the auspices of the Company for Technical Cooperation (GTZ), which is now called GIZ. According to the German Federal Foreign Office, priority areas of bilateral development cooperation are sustainable economic development that involves provision of funding to small and medium-sized businesses, vocational training and the general promotion of trade and industry. Germany is the second largest foreign donor to Myanmar, after Japan.

The German development family, comprising GIZ, and KfW, a German development bank, are getting increasingly involved in Myanmar by providing financial support and technical assistance to build capacity of the local SMEs. The organisations are also advising the Central Bank of Myanmar on its crucial financial reform process.

“Helping SMEs is Germany’s mark of distinction. SMEs create most jobs and that’s very important, especially in this transition period. We had the same experience after the unification of East and West Germany.”

Germany recently provided a grant of €4 million for upgrading the vocational training institute in Sinde, Bago to allay the dearth of skilled human resources in Myanmar. The Industrial Training Center in Bago was one of the first vocational training institutes in Myanmar and had already received assistance from the German government more than 35 years ago.

“Dysfunctional” legal framework & corruption

Weber-Lortsch, who was a lawyer by profession, termed Myanmar’s basic legal framework as “dysfunctional,” and an obstacle for foreign firms to do business in the country. “It’s a mix of different systems due to history, while some laws simply don’t fit into the modern world such as the Myanmar Companies Act, which was enacted 100 years ago.”

Although new laws and legislations are getting enacted, he said there are still many discriminatory regulations in the traditional set up – many from the colonial times, many from the days of the military.“Often it’s blurred. You don’t know exactly what the rules are.”

In Myanmar, until August foreigners were not allowed to sign contracts for mobile phones, while it still holds true for getting internet connections. Foreigners can’t also legally rent properties over a period of one year. “This isn’t even logical and is a major business impediment. Certain things have to change,” the Ambassador said.

He also cited the example of the authorities not allowing foreigners to stay in Myanmar homes. “I don’t know what’s wrong with that. This can create business for many people. They can rent out their small rooms and earn some money.”

According to Transparency International’s Corruption Perceptions Index (2013), Myanmar ranks 157 out of 177 countries, but Weber-Lortsch said rampant corruption or shady business practices is not a unique case for Myanmar.“I’ve seen it in almost all of my stations where I worked,” but “it’s not acceptable.”

He also said not all players here “play by the same rules,” which makes it difficult for businesses from countries like Germany that comply with the rules. “But I tell companies that in the long run it would be better and they wouldn’t have to risk running into any compliance issues. It’s better to play by the fair international rules. If you cheat, sooner or later you’ll get caught.”

He said corruption is related to social development and getting rid of it is a gradual process that “can’t be changed overnight.” “If you have civil servants who earn not enough to support a family, what do you expect them to do?

The population saga

The provisional results of Myanmar’s 2014 census, released on August 30, show that Myanmar has a population of 51.4 million, nearly 9 million fewer than the government’s long-standing estimate of 60 million. However, Weber-Lortsch doesn’t see this frightening away investors.

“I think having a relatively small population is an advantage. Most Asian countries are overpopulated. You are almost twice the size of Germany with a much smaller population.” Germany’s population is 80.2 million, according to its 2011 census.

“You still don’t have the mega cities. I lived in Manila and it’s unmanageable. You still have a lot of farmland. Even China has relatively limited farmland. For someone exporting rice and other food commodities that’s an advantage.”

He also cited Myanmar’s neighbouring Bangladesh as an example, where there are 160 million people in an area that is more than 4.5 times smaller than Myanmar.

2015 election and the bottom line

Weber-Lortsch said Germany will keep supporting and encouraging the reform process but it expects Myanmar to go on with the democratic process, while Germany’s bottom line to remain engaged will be a “fair and free election” that is expected to take place next year.

“We don’t say or advise people who they should elect or not. It’s none of our business. Just play by the rules.”

He said a backsliding on reforms or even a return of military rule is probably not on the cards. “I don’t think it will go back to the difficult days. This would affect business certainly. But the election would be the litmus test.”

The Ambassador said the problems will remain the same for whoever will become the president of the country. “You will still need electricity, you’ll still need to fix the financial sector. There are huge challenges and nobody has a magic wand. It’s hard work.”

Words of advice

Given everything, the German Ambassador thinks Myanmar is on the right track but a “lot still has to be done.”

“The last year or so the reforms have slowed down a bit. You still have to explain why you are better than other places if you want people to do business, rather than saying that you are catching up,” he said.

He said it would be difficult for the Myanmar government to do everything at once to make it easier for businesses but he was “quite optimistic.”

“We are looking for better years ahead and we want to be an active partner in this modernisation process.”

Weber-Lortsch also had some words of advice for German businesses: “Think long-term and bring your calculator.”

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