A girl empties a sack of paddy at a private rice mill in Ayeyarwady Division. The government will privatise three rice mills in the same division, which industry experts say could be good buys for investors. Pic: Aye Zaw Myo

AS bidding closed on the government’s latest wave of privatisations last Monday, Myanmar business leaders said they welcomed the initiative but warned risks as well as rewards awaited investors.

“We could enjoy some benefits by taking over the state’s privatised factories, but there might also be challenges along the way,” U Zaw Min Oo, joint secretary of the Myanmar Garment Association, told The Myanmar Times, citing a difficult business climate in Myanmar at present.

Point in case: a thread factory in Yankin township, Yangon, being run by the Ministry of Industry (1) and up for sale with a base asking price K43.63 million.

Seeking to supply a domestic garment industry struggling to find its feet after losing important Western markets in 2003, the factory is yet to succeed in producing high-quality thread required for clothing that is destined for picky consumer markets, such as Japan’s, said U Zaw Min Oo, a director at Crocodile Trading Co., Ltd, which owns garment factories in Myanmar producing for export.

He noted that most raw materials used by the Myanmar garment industry were imported from neighbouring countries.

Furthermore, succeeding in turning out high-quality thread would likely require additional investment to upgrade machinery, U Zaw Min Oo said, adding that a shortage of skilled labour would also have to be addressed.

“There are only 150 garment factories in Myanmar while Bangladesh has 4000 such factories. So there is less potential in Myanmar to make money by investing in a factory like a thread mill,” he said.

The Yankin plant is one of six state-run enterprises the Privatisation Commission announced on October 20 were to be sold under a competitive bidding system.

The others include an ice factory and cold storage facility being run by the Ministry of Livestock and Fisheries in the Thai border town of Kaw Thaung, Taninthayi Division. With a base asking price of K712.529 million it is the most expensive of the privatisations.

In Ayeyarwady Division, three rice mills – two in Lapputa township (K123.34 million and K328.31 million) and one in Einme (K100.44 million) – as well as a bran mill in Mawlimyinegyun (K208.05 million) are to be transferred out of the care of the Ministry of Commerce.

But while U Zaw Min Oo said it would be tough for investors to get a greater share of the local thread market and garment-sector industrialists were too occupied with their current operations to consider taking on the thread factory, the mill sales generated more positive responses.

“The privatisation of rice mills is good for the government as well as for the private sector,” said U Win Aye Pe, joint secretary of the Myanmar Rice Millers Association.

He claimed the government’s mills were superior to Myanmar’s private-sector mills in both capacity and brand-acceptance in the market.

“Even though state-owned rice mills are outdated, they still function better than privately-operated ones,” he said.

There are 70 state-owned rice mills across Myanmar, most of which use machinery imported from Japan, he said. “As far as I know, all of them are in good running order.”

He added that private rice millers tended to opt for cheaper Chinese machinery that was generally recognised to be of poorer quality than Japanese equipment.

The government’s mills were also often built on large plots of land, U Win Aye Pe said.

“All in all, the mills will be of good use to private businesspeople,” he said.
As for the cold storage facility in Kaw Thaung, Dr Aung Lwin, managing director of marine exporter Pyi Phyo Tun Co. Ltd, said it would be a challenge for investors to control labour mobility.

“That’s because the facility is located in a town on the Thai border, which means there is a high tendency for labour to move into the neighbouring country in search of better job opportunities and more attractive wages,” he said.

However, another seafood exporter, U Thet Aung, pointed out that the cold storage facility was well-positioned to facilitate the quick delivery of marine products to Thailand, whose market consistently showed high demand for seafood.

The six factories now on offer comprise the third state sell-off by the Privatisation Commission this year, following the announcement of the sale of 12 state-run enterprises in April and another 11 in June.