Major upgrades to transportation infrastructure will be required to meet growing demand

A sudden boost in Myanmar’s commercial and tourist activity over the past three years has stretched some of the country’s outdated transport infrastructure to its limit, and growth in activity is showing no signs of slowing down. Building a modern transport network will be necessary if the government is to accomplish its ambitious development plans, with a host of air, rail and shipping upgrades planned for the coming years. The state aims to become a major logistics player in the region, and given Myanmar’s strategic geographical position within the region, many believe this vision can be realised with sufficient injection of capital and international cooperation.

However, in 2014 Myanmar ranked 145th out of 160 countries on the World Bank’s Logistics Performance Indicator (LPI), just ahead of The Gambia and Mozambique, and a significant drop from 2012 when the country ranked 129th. The LPI takes into consideration Customs, infrastructure, international shipments, tracking, timeliness and competence, providing a standardised indicator for the ease of conducting business across the world. Myanmar is ranked the lowest in the ASEAN region behind Laos (131st) and Cambodia (83rd).

Logistics Hub

In March 2014 Minister of Transport U Nyan Htun Aung said the government has “set a vision that aims at making Myanmar the major logistics hub in Asia” by taking advantage of its strategic geographical location. “To fulfil this vision, we have defined a mission that will drive us to develop and strengthen the safe, secure, efficient, sustainable and environmentally friendly aviation industry in the country,” he added. A total of 2m tourists came to Myanmar in 2013, and the country is expecting 3m visitors by 2015 and 7.5m by 2020, a high rate of growth that will add tension to the country’s limited transportation network.

Airport Expansion

To accommodate this growth, the country’s airports will need to expand. Myanmar’s main air traffic hub, Yangon International Airport, has a current capacity of 2.7m people per year, but given current forecasts for incoming passenger growth, the terminal will soon exceed capacity. The government has called for the construction of a new airport and is finalising international investors and partners to have it up and running by 2018. From the 2m tourists that came to Myanmar in 2013, 1.2m people flew through Yangon’s international airport, 0.5m of them foreigners. If the ratio of air passengers coming through Yangon’s hub to the total number of tourists coming to Myanmar stays constant, the airport will be overflowing once the total number of Myanmar-bound tourists hits 4.5m. The country was anticipating exceeding 3m visitors by the end of 2014 and analysts expect 5m in 2015, meaning Yangon’s airport will be at capacity by 2015. The government is keen to push through a new and larger airport to avoid the long queues and delays at peak times that this bottleneck will cause.

Hanthawaddy

To meet this demand, the proposed $1.1bn Hanthawaddy International Airport project will be able to accommodate 12m passengers with a plan to increase numbers to 30m per year – over 10 times the country’s current capacity. It will be located around 80 km from the centre of Yangon with connecting highways to the city. While the Hanthawaddy project was initially launched in 1994, progress was slow and construction had stalled completely by 2003. In 2012 it was re-launched with the backing of the Korean Incheon Airport Consortium, but these negotiations broke down at the beginning of 2014, opening the tender once again to interested bidders. Half the financing is expected to be raised through a $750m loan, potentially from development partners, with the rest coming from private companies. Bidders hoping to take Incheon’s place include a group comprising Singapore’s Changi Airport Planners, Yongnam Holdings and Japan’s JGC Corporation, as well as a consortium made up of Taisei Corp of Japan and Vinci Airport of France.

Alongside the Hanthawaddy project, Myanmar also needs to upgrade the country’s other airports, its existing international airports in Yangon and Mandalay, as well as 30 other domestic terminals including Bagan, Nyaung Oo, Heho, Dawei, Putao, Mongsat, Kawthaung, Myitkyina, Pathein, Myeik, Bahmo, Lashio, Bopyin, Kalay, Magwe, Mawlamyaing, Khandi, Pakoukku, Hpa-an, Homalin, Kyaukhtu, Ange Sakan, Loikaw, Ann, Ko Ko Island, Monywa, Sittwe, Thadwe, Tarchilek, Kyaing-Tong and Kyaukphyu. Yangon’s existing hub will be expanded by Pioneer Aerodrome Services, a subsidiary of the Myanmar firm Asia World Group, to a passenger capacity of 6m by 2019. Mandalay International Airport meanwhille will be upgraded by Japan’s Mitsubishu and Jalux.

However, the original completion date of 2016 for Hanthawaddy is now unlikely to be met, and so the pressure is on for existing upgrades to be completed to avoid heightened congestion. Myanmar’s commitment to cooperating with international business and sustaining its tourism boom will rely heavily on the timely completion of these projects.

Rail

Myanmar operates a 4800-km metre-gauge network, carrying around 63m passengers and 3.5m tonnes of freight per year. Once an impressive feat of engineering, the rail network is now in dire need of repair. With the help of development agencies, upgrading this network may be one of the most feasible solutions to closing Myanmar’s internal infrastructure gap in the short to medium term.

Myanmar’s railroads are built and operated through Myanmar Railways – formerly Burma Railways – the state-owned agency that had been established under British rule when rail transport was first introduced to the region in 1877. The first Yangon-Prome (now Pyay) line was then expanded to include Mandalay, and these cities remain at the heart of the system through their Mandalay Central and Yangon Central lines. A number of other cities were added to the central line until the Second World War, after which expansion and maintenance slowed.

However, following the attainment of independence in 1948 the network was rebuilt through a succession of military-led expansions to create the routes that exist today. Although the network has been expanded, maintenance remains low and journeys are often uncomfortable and slow as a result. Locomotives travel at 40 km per hour on a good day, with speeds dropping to half this figure during the wet season due to warped or offset tracks and potential flooding. There were 118 accidents between Yangon and Mandalay in 2011 and fewer than 60% of the trains arrived on time.

Infrastructure Upgrades

Upgrades to infrastructure will be necessary for the continued success of the government’s reform programme. “The lack of infrastructure is the most significant challenge when it comes to promoting foreign investment in Myanmar,” U Minn Thu Aung, managing director of Helio International, told OBG. “The land price and limited power supply are two areas that the government is working to improve.” As such, the Japanese International Cooperation Agency (JICA) has committed to a host of rail upgrades as part of a wider infrastructure development master plan, beginning with the core Yangon and Mandalay lines. In January 2014, JICA pledged a $200m loan for the 595-km Yangon-Mandalay line. This will later increase to a $500m loan so as to reduce travel time between the two cities by three hours, as well as improving the journey’s safety and comfort. Track maintenance between Yangon and Bago, as well as technology transfer from Japan to Myanmar, is expected to lay the path for further upgrades over the course of this plan, which is due to end in 2020.

Road Congestion

Although upgrades are needed across Myanmar’s major cities, congestion is becoming an increasingly pressing issue for the country’s largest city and commercial hub, Yangon. With an estimated population of 5.2m residents that continues to grow, the problem is expected to get worse before it gets better. The increase in road congestion has become increasingly noticeable over the last few years in Myanmar, especially in Yangon. Since the launch of economic reforms in 2011, a surge in car imports has led to an influx of new as well as second-hand vehicles that now crowd the overwhelmed streets. A lack of traffic regulation enforcement, ageing road infrastructure, a continued ban on motorcycles and severe flooding in the monsoon season have all exacerbated the problem.

Circular

One solution would be to upgrade and modernise the existing 45-km, 39-station loop rail line surrounding the centre of Yangon. The low-cost circular sells 100,000 to 150,000 tickets per day at an affordable MMK100 ($0.10) per ticket, making it popular for low-income commuters. The line connects many of the surrounding towns and suburban areas of Yangon that will become increasingly more developed as urbanisation brings in more residents from the rest of the country. Moreover, JICA has plans to build a new system on this loop with faster and more frequent trains and boost passenger numbers to 3m by 2040. The line will be extended to cover 350 km, or seven times the current length, with at least eight main lines including an extension to the Thilawa Special Economic Zone. Given the sprawling nature of Yangon’s expansion this circular may well become a key to preventing dense city congestion and alleviating some of the road traffic.

Commercial

In addition, a number of developments should free up some tarmac in the coming months, and new construction across the country is set to smooth trade routes to support rising economic activity. Indeed, Myanmar’s main highways between its major cities are crucial to the transport of goods. The ports in the south and around Yangon link up to the country’s second-largest city, Mandalay, and then on up through Muse to the Chinese border to create a solid north/south backbone.

A route east leads through Monywa to Mae Sot on the border with Thailand, Myanmar’s second-largest trading partner. However, rising trade and domestic demand over the past few years has stretched these centuries-old routes to their limit, and modern methods of transport will be required to support the surge. Part of the problem lies in a fractured freight forwarding industry, making it more difficult for large importers and companies to ship their goods across the country. The Myanmar Trucks Association has over 2000 members, and the biggest fleet does not exceed 100 vehicles. The small scale of these companies leads to lower standards and tougher quality control for the higher-end importers that need to transport large quantities of goods reliably, and many of these have created their own in-house fleets. A network of brokers negotiates with importers and exporters looking to transport their goods, driving up costs, and this entrenched informal system requires modernisation if standards are to improve. Companies such as Coca-Cola, which established bottling plants in Myanmar in 2013, are leading the demand for modern standards, but more are looking to follow their lead, and the fragmented nature of Myanmar’s trucking fleets must consolidate to support these new clients.

Investment

The government has thus far been the primary investor in road upgrades and expansions. However, the focus has remained on new projects rather than the maintenance of existing routes. Moreover, Myanmar’s dramatic monsoon season tends to cause widespread flooding and can easily damage older roads, calling for high maintenance expenditures that the government cannot afford. As such, public-private partnerships have been encouraged, and a number of plans are under way to expand and upgrade Myanmar’s roads.

A trilateral highway to link Thailand, India, and Myanmar has been in the works for 15 years but has been held up by delays on the Myanmar side. The Indian government put $30m to work on 160 km of new road to the India-Myanmar border at the Moreh-Tamu crossing in 2001, but the highway ends abruptly in Myanmar. Hopes for continuing the project were reignited following Myanmar’s chairing of the ASEAN summit in 2014, and Thailand now points towards 2016 to complete the project.

The highway will stretch from Guwahati, India’s Assam State’s largest city, through Mandalay in the centre of Myanmar and across to Thailand at Mae Sot. In line with its “Look East” policy India has already committed another $100m for the next phase of construction which will include repairing 71 bridges along the road’s path. Further to this, the World Bank has also committed $107m for another project that promises to link India’s north-eastern state of Mizoram with south-east Asia.

Ports

Myanmar’s location has traditionally granted it prime access to some of the world’s largest markets through the Bay of Bengal, and in the 1950s its access to the sea was a great source of wealth, making the country one of Asia’s biggest hubs, until trade sanctions over the past few decades eroded this legacy. However, Yangon’s ports remain one of the most prominent features in the city and lie at the core of the country’s trade routes, handling approximately 90% of the country’s international trade. There are three main ports in downtown Yangon: Asia World Port Terminal (AWPT), Myanmar Industrial Port (MIP), and the Myanmar Port Authority’s own port. Alongside these three are also the Myanmar International Terminal Thilawa Port 25 km from the city’s centre, in addition to a smaller Myanmar Integrated Port. The AWPT is run by the Asia World Group, one of the largest conglomerates in Myanmar. Asia World had dominated the freight market in Myanmar for a long time, averaging 60% of shipping cargo over the past three years. However, Myanmar Industrial Port has more recently taken the dominant position on the back of significant upgrades in 2012 and 2013. MIP now accounts for 60% of the cargo freight through Yangon.

Products

Despite a long history as an exporter, Myanmar now exports relatively little, while importing a great deal to meet demand resulting from its recent economic expansion. In the late 1950s Myanmar was among the largest exporters of rice and teak in the world, and yet today the country’s port infrastructure is mainly used for imports of all manner of electronic and bulk goods from across Asia. Rice is still the largest exported good, but given the quality of rice in Myanmar it is now sold in smaller amounts to African countries rather than to more quality-conscious markets in Asia. Moreover, exports of timber, another of Myanmar’s key resources, have recently been prohibited. Many tonnes of high-quality teak logs have been warehoused in some of the country’s ports waiting for a local buyer or for the laws to change. Exports are expected to shift towards garments and factory-produced goods in the coming years as companies such as Gap, the clothing chain, have already set up operations within the country’s borders. A number of these producers have been eyeing the south-east Asian market, and plots near Yangon’s ports remain in high demand.

Thilawa

Even so, Yangon’s downtown ports are limited by their shallow waters, leaving the only access point for larger vessels further upriver near the town of Thilawa. The government has pushed for the development of this area into a larger industrial zone, including major improvements to port infrastructure. The Thilawa area promises to be a core element in the government’s push to re-engage international partners, and will host the region’s first state-of-the-art deepwater port. The project has already issued shares to the public and been widely publicised as evidence of the government’s commitment to economic reform, in partnership with Japanese conglomerates who will help fund the zone.

As part of a wider Thilawa project there are now 37 land plots on the river bank being divided amongst a number of different companies vying to be a part of this new development. Five are being retained by the Myanmar Port Authority, five for the larger Japanese-led Thilawa Special Economic Zone project; four are specifically for Japanese funding and construction partners; three for the military, and two for Myanmar Agribusiness Public Corporation, which has recently issued shares to the public.

Another four are being used as a ship-breaking yard, while the remainder were being auctioned as of October 2014. Indeed, the Thilawa project is one of the largest infrastructure developments in Myanmar, and is being used as an example of what can be achieved through cooperation and economic liberalisation. Engaging the public through share issuances, the government hopes to demonstrate the success of its reform agenda to voters.

Outlook

There much that remains to be done for the country’s transport infrastructure. The existing network threatens to limit growth if air, rail and port facilities are not successfully upgraded in the coming years. The capital needed for improvements is significant. However, with little access to foreign debt and few alternative options for financing, Myanmar has an extra incentive to push economic reforms, including changes to its public revenue system, and further engage private parties and international development agencies. The country has now set a trajectory that will be hard to derail, provided the government stays committed to economic reforms.