Nearly 300 entrepreneurs gathered in Yangon to attend an event meant to support capacity building of Myanmar’s small and medium sized enterprises (SMEs) in developing partnerships and supply chain integration in preparation for the ASEAN Economic Community (AEC).
The event was organised by the US-ASEAN Business Alliance for Competitive SMEs, which is a partnership between the US-ASEAN Business Council (USABC) and the US Agency for International Development (USAID), and was sponsored by several multinational firms including Proctor & Gamble, UPS, HP, Baker & McKenzie with the support of the Union of Myanmar Federated Chambers of Commerce International, Myanmar Women’s Entrepreneurs Association, Myanmar Industries Association and the Ministry of Industry.
The training event held in Yangon last week, was the largest yet hosted by the Alliance. SME’s that attended this event heard briefings on topics such as marketing, exporting, the legal aspects of cross-border trade, and how to integrate technology into their business operations. Attendees also had the opportunity to meet one-on-one with representatives from multinational companies to build relationships and get advice.
In Myanmar, the development of SMEs is a topic that receives increasing amounts of coverage from government officials, the business community and media outlets alike.
“The Myanmar government is committed to improving the business and legal environment for SMEs, including publishing the SME bill and setting up a dedicated centre for SME development. The government welcomes international collaboration to help Myanmar SMEs better integrate into regional and international markets,” said U Maung Myint, union minister for industry, at the event.
The Alliance’s support for SMEs is a start in Myanmar, and the country looks forward to more engagement with multinational firms to benefit from technical and information transfers.
The Alliance is focused on four pillars that include finance, the transfer of information, introduction of technology and training. Among these pillars, Myanmar is incredibly challenged in the area of finance and its ability to provide the capital SMEs desperately need to survive domestically, let alone internationally. The Alliance will work to address these issues, and effectively advocate on behalf of SMEs with top government officials, but the scale of the problem is beyond the scope of a single project.
“It’s a tough issue, and just this morning we talked to the Minister of Industry about finance, and he’s very focused on bringing different opportunities,” said Alexander Feldman, CEO of the US-ASEAN Business Council.
The country’s high interest rate, which currently stands at 8.5 percent for SMEs, continues to block access to capital.
“Debt financing is only one way that SMEs can raise capital and we are looking at this issue in the program across the board. That not only includes debt financing, but also microfinance, equity, mixtures of debt and equity, and we are trying to get some of our venture capital companies interested in ASEAN, which can also raise the bar for Myanmar,” Feldman said.
However, with decades of economic isolation, along with an extremely limited finance and banking sector, Myanmar SMEs are generally unaware of the various forms of raising capital. Bringing a menu of finance options to Myanmar will continue to be difficult in the near to medium term, especially given the nascent development of the sector and the lack of information on behalf of Myanmar’s small and medium-sized companies.
First, the average SME business owner knows nothing about equity financing or even how micro finance could benefit their operations. While Myanmar has a few public companies, which trade shares on an over the counter market (OTC), it is expected to be replaced by the Yangon Stock Exchange in October of next year. Companies interested in equity financing on the Yangon Stock Exchange are required to demonstrate profits for the previous two years or show K10 billion ($10 million) in market capitalisation, have a minimum capital amount of K500 million ($511,000), and have a minimum of 100 shareholders where the minority must account for at least 10 percent of the total equity – these minimum requirements, while low to accommodate access, will be difficult for most of Myanmar’s SMEs to meet.
An attendee at the conference said, “I plan to ask how SME is defined. While it may have an internationally accepted meaning in terms of the number of employees and annual revenue, in Myanmar the definition of SME will be much different.” By all means the traditional definition for SME must be adjusted for Myanmar if international and domestic programs aimed at supporting SMEs are to be effective.
Second, most business owners in Myanmar believe the only way to raise capital is through debt financing, to which they have a historical aversion. During the British colonial period, domestic discontent rose during the 1930s economic depression when the price of rice plummeted and Indian moneylenders seized native Burmese land. Even though many have the ability to put up their land as collateral on a loan, most would rather not risk losing everything in an uncertain market environment.
Lastly, venture capital is most certainly a viable option for Myanmar; however, its reach remains limited. Venture capitalists, and even angel investors, are willing to take on higher levels of risk, but are investing mostly in the technology and communications sector in Myanmar – which ignores a whole range of opportunity. The reality is that even venture capital firms continue to hover and are waiting to see how political risk models will develop over the next two years – especially with the impending 2015 election.
Training and government advocacy is incredibly important to the development of Myanmar’s SMEs. The Alliance aims to continue to make strides in supporting SMEs throughout the ASEAN region, and within Myanmar as well, by bringing multinationals to the table, assisting in supply chain integration and preparation to competitively enter the AEC. But in the immediate term, the issue of finance must be addressed if any of these offerings are to be effective.