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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 Burma, also known as Myanmar.
The Myanmar Brewery partners of nearly two decades began feuding after the takeover of the Singapore conglomerate Fraser & Neave (F&N) this year by companies controlled by Thailand’s richest man, Charoen Sirivadhanabhakdi.
Although information about the confidential arbitration is scarce, analysts say the case is centred on an assertion by Union of Myanmar Economic Holdings (UMEHL), the military’s investment arm, that it should have been given an option to buy F&N’s 55 percent stake in Myanmar Brewery before the deal with Mr Charoen’s Thai Beverage Plc went ahead.
F&N released a statement shortly after receiving the arbitration notice in August that it would “vigorously resist” claims that it broke the terms of the joint-venture agreement.
While 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 Southeast Asia’s last frontier market, where joint ventures with a local partner are compulsory across many sectors.
“Partnering up with a military investment vehicle such as 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,” said an analyst who spoke to on condition of anonymity.
However, the analyst said that the heavy attention the case has attracted internationally could be a game changer in a country where lack of transparency and impunity have been the norm for decades.
“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 [its opponent] through their will as they would have in the past.”
Not every joint venture in Burma is fated to end acrimoniously; however a high degree of caution is necessary, particularly as Burmese 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.
In any case, Myanmar Brewery has other concerns at the moment, including increased competition.
Mr Charoen’s former business partner, Carlsberg of Denmark, held an opening ceremony for its second largest expansion programme in Asia on Oct 21, when it opened a factory in Pegu [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 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 Rangoon [Yangon]. Pegu 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 consumption rates in Asia, with only four litres per person in a country with a population of more than 60 million,” said Thant Zin Tun, a board director of Myanmar Carlsberg.
But the consumption of beer is still limited and people in Burma are more accustomed to drinking cheaper whiskey than beer, which ends up costing more.
“Most people prefer whiskey, because it’s much cheaper than beer. However we would expect to see beer consumption increase as incomes rise in the next few years,” Marita Schimpl, head of marketing research at Myanmar Survey Research told the Bangkok Post.
Burma has a host of low-end, low-cost rums and whiskeys 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 whiskey 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, Burma’s beer market has also seemingly overcome another major stumbling block for investors: illegal imports.
According to Thailand’s Tak Chamber of Commerce, monthly imports from Thailand to Burma through Mae Sot were estimated at 3 billion baht (US$100 million). Others said this figure was conservative.
A transport network used to bring beer from Thai border points to a warehouse in Rangoon. 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 for local beers such as Myanmar Beer.
“When I reached Myawaddy I’d make a call to Myanmar nationals living in Mae Sot, and 30 minutes later the beer would arrive,” says driver Phoe Nge.
Phoe Nge usually transported 700 cases 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.
One gate is manned by the Democratic Karen Buddhist Army (DKBA), who Phoe Nge said do not ask for tax. However the Shan rebels 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.
Jessica Mudditt is a freelance reporter based in Rangoon.
Read more from her at: www.jessicamudditt.com
This article was first published in the Bangkok Post on 11 November 2013.