Myanmar's tourism industry seeks to build on recent successes

When Myanmar recently began opening its doors to the outside world, tourists rushed at the chance to see a country that had not only been closed to them for decades, but that also boasted a rich culture and heritage. The country continues to attract a steady stream of overseas visitors to established sites from Yangon to Bagan and Inle Lake, and a growing economy provides Myanmar citizens with new means to travel in their own country. The next phase of growth will demand better marketing, improved data collection (from arrivals to visitor profiles) and a tourism industry that is able to offer visitors not only sights, but compelling experiences. Change has already begun, and improvements to ageing infrastructure continue, but with hotel rates dropping to historic lows, the coming years could provide the sector with a difficult but necessary reckoning.

Growth Steadying

U Ohn Maung, the new minister of hotels and tourism, takes responsibility for an industry that the previous government considered one of five pillars of economic growth. The Myanmar Tourism Master Plan (MTMP) 2013-20 laid down an ambitious framework for development, stressing the country’s commitment to sustainable growth, protecting the environment and ensuring that local communities benefit from tourism.

U Ohn Maung once ran the only guesthouses at Inle Lake, but after joining the National League for Democracy (NLD) and standing for election in the 1990 polls, he was jailed by the military government. Released under an amnesty in 1992, he returned to tourism, operating a number of successful hotels including the Inle Princess Resort.

The first minister of hotels and tourism to have worked in the industry, U Ohn Maung takes the portfolio when the industry is perhaps facing its biggest challenge since the democratisation process began and tourists began to arrive in larger numbers. “A lot of the tourism growth in the past five years was likely organic, with limited impact from planning,” Achim Munz, resident representative of the Germany-based Hanns Seidel Foundation, which promotes democracy, peace and development, told OBG. “The door was opened and the tourists came because it was a new country on the travel list. During this time, the government identified tourism as priority as well as an important economic growth sector for the future of Myanmar.” The Ministry of Hotels and Tourism (MoHT) projected 6m tourists would visit Myanmar in 2016, up from 4.7m in 2015 but below the official target of 5m. The number of tourists is forecast to increase to more than 7m by 2020.

These numbers should be treated with caution, however, because they include millions of day-trippers from neighbouring countries who may only spend a couple of hours in the country and do not meet UN World Tourism Organisation (UNWTO) standards on data collection. In a frank editorial in 2016, the local business magazine Frontier described the numbers as “a fiction”. “We need to have valid data,” U Phyoe Wai Yar Zar, joint secretary-general of the Myanmar Tourism Federation, told OBG. “I have the number of arrivals but it is not accurate enough to make business decisions. How many leisure (visitors), day-trippers, business people? Otherwise, it’s just the broad picture. How can we position our products properly?”

Spending Habits

The ministry does remove the day-trippers from the data when it analyses spending. Data shows that in 2015, tourists spent $2.12bn for an average of $171 per person per day, compared with $1.79bn and a daily average of $170 in 2014. The average length of stay remained at nine days.

Yangon International Airport continued to be the major entry point with 1.18m arrivals (up from 1.02m in 2014), followed by Mandalay-Bagan with 107,066 (up from 90,011 in 2014) and Naypyidaw with 13,835 (up from 19,261 in 2014). In contrast, more than 3.38m people arrived through overland border posts, a surge of 73% on 2014 (1.95m people). Arrivals through the border crossings have continued to accelerate sharply, even as the growth in airport arrivals has moderated. Most visitors to Myanmar continue to arrive from elsewhere in Asia – the region makes up 72.1% of all arrivals, the top source markets being Thailand (15.7%), China (11.4%) and Japan (6.9%), while domestic tourists numbered 2.46m.

Sector Size

The World Travel and Tourism Council (WTTC) estimates the industry’s direct contribution to Myanmar’s GDP was MMK1.96trn ($1.6bn), or 2.6% of GDP in 2015, with growth expected to rise by 7.6% from 2016 to 2026. However, figures from the Asian Development Bank (ADB) put tourism revenues at $2.1bn and 4% of GDP that year. In a decade’s time, the WTTC calculates tourism will directly contribute 2.9% of GDP. It put the sector’s total contribution to GDP at MMK4.4trn ($3.6bn) or 5.9% of GDP in 2015, and expected this figure to increase by 7.8% a year to MMK9.8trn ($8bn) or 6.5% of GDP by 2026. As the industry expands more jobs are likely to be created. Tourism was responsible for 1.43m jobs or 5% of total employment in 2015, with the workforce rising to 2.12m jobs or 6.5% of all employment in 2016.

In terms of tourism’s expected contribution to growth over the next 10 years, Myanmar ranks second in the world, according to the WTTC. An indication of the sector’s growth potential is that Myanmar’s tourism industry currently contributes far less to GDP than any of its Asian neighbours, with the exception of Laos and Brunei Darussalam.

It is not only the quality of its data where the tourism industry faces hurdles, however. The World Economic Forum ranked Myanmar 134th out of the 141 countries it surveyed in its Travel and Tourism Competitiveness Index 2015, just behind Haiti and ahead of Burundi. Among South-east Asian nations, Myanmar was the worst performer, with Singapore coming in at 11, Malaysia at 25 and Thailand at 35.

Myanmar ranked below the Asia-Pacific average across nearly all measures of the index, and particularly poorly in terms of infrastructure including airports, ground transportation including ports, and tourist service infrastructure.

Improving Infrastructure

Myanmar is the largest country in mainland South-east Asia, covering 676,578 sq km and with an incredible diversity of terrain, from mountainous forests along the borders with China and India to the plains of the centre and the deltas and beaches further south.

Improvements to transport infrastructure are seen as crucial to Myanmar’s future development, ensuring rural communities benefit from economic growth, improving cross-border connectivity, and reducing logistics costs for business. Such initiatives will inevitably benefit tourism.

In its 2016 Transport Policy Note, the ADB reported that after years of underinvestment, Myanmar had made some progress by adding more than 10,000 km of new trunk roads and nearly doubling the size of the railway network. However, it estimates the country needs at least $45bn for transport projects over the next decade and a half, and is promising to provide at least $100m a year over the next five years.

The generally poor state of the country’s roads and railways, which add hours to journey times, means travellers who are spending less than two weeks in the country mostly rely on air transport to get around, even though an airline ticket for a foreigner is double the price that it is for a local.

The government has been working to improve aviation infrastructure, which also suffered from decades of underinvestment. The new terminal at Yangon International Airport, which opened in March 2016, is the first phase of a modernisation programme that will eventually allow the airport to handle upwards of 20m passengers per year.

The new building currently has an annual capacity of 6m passengers, and will be designated for handling international traffic. Domestic flights are being moved to a new domestic terminal, which has a capacity of 2.7m passengers a year, and the old domestic terminal will be demolished.

Singapore’s CPG and Surbana provided design and planning support to Asia World Group, a Myanmar-based conglomerate, to develop the new terminal. Asia World manages the airport through its unit Yangon Aerodrome Company, but secured the $660m contract in controversial circumstances in 2013, when it was awarded the contract despite not receiving the highest mark in the tender exercise.

Companies from Singapore and Japan are also involved in the construction of the long-delayed $1.4bn Hanthawaddy International Airport, which is being funded by an official development assistance loan from the Japanese government and is expected to become the country’s main international gateway once it opens in 2022. Japan’s JGC owns a 55% stake in the project, while Yongham Holdings holds 25% and Changi Airports International the remaining 20%.

While most tourists continue to arrive in Yangon via alternative South-east Asian aviation hubs – mostly Bangkok, but also Kuala Lumpur and Singapore – Yangon is now slowly appearing on the radar of the world’s major long-haul carriers.

Aviation activity continues to increase, with 15,344 flights in 2015 compared with 14,759 in 2014, according to the MoHT. The country is served by 24 foreign airlines, with three more expected to start services by the end of 2016. The UAE’s Emirates, for example, is taking advantage of fifth freedom rights to offer a Dubai-Yangon-Hanoi service. The ASEAN Open Skies policy has also given regional airlines the chance to offer direct flights to secondary cities including Mandalay. Four years ago there were only 13 international airlines in Myanmar. Flights between Yangon and the regional capitals of Bangkok, Singapore and Kuala Lumpur offered the most seats, and the three cities remain the transit hubs for many long-haul travellers. The average load factor across all international routes improved to just over 66% in 2015 compared with 63.5% the year before. However, while some routes recorded load factors in excess of 75% ( Mandalay-Bangkok, Yangon-Beijing and Yangon-Hong Kong), on other routes (Kunming-Naypyidaw), airlines were barely able to sufficiently fill the plane.

Domestic aviation continues to be a competitive arena, with 10 operators catering to a market of just 3m passengers, according to the Centre for Aviation (CAPA). Few fly point-to-point, instead flying to a number of places and often operating turbo-props rather than jets. CAPA expects that some current sector players will need to merger or close if the industry is to stand any chance of profitability.

Tourism Projects

The quasi-civilian government that led Myanmar until the NLD took power in 2016 also sought to encourage private companies and foreign governments to look beyond large transport projects and see key elements of tourism infrastructure as good investment vehicles.

The 2012 Foreign Investment Law made tourism a “priority” area for investment, allowing foreigners to own as much as 100% of hotel projects rated three stars or more, but the government is in the process of revising investment-related legislation into a single act, and it is not yet clear how tourism will be affected. Officials have indicated the new Myanmar Investment Law, which was passed by the lower house in September 2016, will simplify the investment process, and ensure only investments in industries the government considers crucial to economic growth will be eligible for tax breaks.

The MTMP identified 38 priority tourism infrastructure projects, such as the Bagan River Pier Improvements programme, which aims to “improve the safety and appearance of the main boarding point for river cruises in Bagan”, and the Tada Oo Hotel Zone Development in Mandalay, which is a plan to develop hotel infrastructure in Mandalay. As the government looks to create jobs and reduce poverty, officials have stressed the need to involve local communities in the process of tourism development.

Daw Kyi Kyi Aye, senior advisor at Myanmar Tourism Federation, told OBG, “There are major infrastructure projects taking place that will promote tourism. These projects are a step in the right direction, but they need to be prioritised towards rural development and livelihoods first, then tourist attraction. There needs to be a stronger linkage.”

The WTTC notes that globally the total contribution of travel and tourism to GDP is three times more than its direct contribution. However, in Myanmar, capital investment in travel and tourism was just $100m in 2015, far behind the Asia Pacific average of $9.3bn and the world average of $4.3bn. Travel and tourism investment was just 0.7% of total capital investment, compared with 15% in Cambodia.

Nevertheless, policy initiatives to boost investment are expected to pay dividends. The WTTC estimates the contribution of travel and tourism investment to total capital investment will rise 9.8% a year in the decade to 2026, the fastest in the world. Growth was estimated at an above-average 6.8% in 2016.

Foreign Investment

Foreign investment in the industry rose to $2.9bn through August 2016, compared with $2.7bn for all of 2015, according to the MoHT. Singapore overtook Thailand to become the biggest foreign investor in the hotel sector, spending $1.6bn on 22 tourism-related projects. Thailand invested $445m in 11 projects and Vietnam $440m in one project (the HAGL Myanmar Centre, which includes the Spanish-owned Melia hotel). China, South Korea, Japan and Malaysia also made significant investment commitments.

Hotel construction has attracted a considerable amount of investment, despite restrictions on foreign ownership of land. Yangon accounts for about a third of all hotel accommodation in the country. Many planned properties are now opening, but as the number of arrivals plateaus occupancy rates have declined, pushing room rates ever lower.

At the end of June 2016 Colliers estimated that Yangon had more than 4300 rooms in upper-scale hotels. The TRYP by Wyndham Yangon opened in 2016, while the Daewoo Amara and the Sheraton Yangon are expected to open in early 2017. Over the next four years, the city is expected to see close to 900 new keys becoming available every year.

With more high-quality, mid-range properties also opening, the result has been a decline in average room rates at the top end, a bonus for potential visitors. According to Colliers, in the second quarter of 2016, the average daily rate across the city dropped by 22% from a year earlier to $119, with occupancy also declining – to just over 40%. For mid-scale hotels, rates moderated to $70, but the occupancy rate remained at 77% at the end of June 2016, compared with 78% at the end of June 2015.

The increasing competition, while concerning to hotel owners, is a welcome development for visitors who have long had to contend with paying high prices for old-fashioned and sometimes shoddy accommodation. Some owners are investing in improvements. The iconic Strand Hotel, which was opened by the Sarkies brothers in 1901, reopened in November 2016 after a six-month renovation.

Hong Kong-based GCP Hospitality, which runs the hotel in a joint venture with the MoHT, declined to reveal the cost of the renovation, which is designed to modernise the hotel without sacrificing the charm of the property, or undermining its history. Work to the rear annexe of the hotel will also see new rooms added, as well as a swimming pool.

GCP, which has 22 properties with 5000 keys from China to the US, is also updating and re-branding its mid-range Thamada Hotel in Yangon into the Hotel G, but is holding off on any renovations to its faded 1980s-era Inya Lake Hotel, rated four stars under Myanmar’s classification system.

Even before the government announced the repeal of a regulation that made it illegal for locals to let visitors stay overnight in their homes, Airbnb offered more than 300 properties on its site in Yangon, popular among visiting foreigners and with expats keen to rent out spare rooms in expensive apartments. The expansion of this grey area in the accommodation segment also reflects efforts to get around a regulatory regime that the military often used to clamp down on opponents and dissent.

Streamlining Bureaucracy

While continued investment in infrastructure improvements is a long-term commitment, the Myanmar government has found that cutting red tape and moving the application process for both visas and licences online can yield more immediate dividends.

The e-visa for tourists introduced in 2014 is available to the citizens of more than 100 countries as well as for business visitors from 51 nations. Pending final approval from the government, foreign tourists will be eligible to apply for a multiple-entry tourist visa valid for between three and 12 months, the Ministry of Labour, Immigration and Population announced to local press in September 2016.

Further reforms will see fees reduced to bring Myanmar into line with other countries in the region and the application process simplified. Officials say the changes reflect the diversity of visitors to the country as well as the expansion in the number of entry points, now including not only the major airports, but also seaports and overland entry points.

Myanmar is also likely to benefit from ASEAN initiatives to develop a more coordinated policy towards tourism. Governments have long discussed the possibility of allowing visa-holders for one ASEAN country to travel freely throughout the 10 member countries of the bloc. The UNWTO estimates such recognition would boost visitor arrivals to the region by 10m. Administrative charges for sector operators have also been reduced, sometimes by as much as half, which will come as welcome news to sector stakeholders. Reductions that took effect in October 2016 cover a host of regulatory requirements including licence renewals handled by the MoHT. In a related move to encourage investment in the sector, businesses have been able to apply for licences through an online portal since July 2016.

However, despite these efforts to ease entry to both foreign visitors and investment, there are currently no plans to tackle the tiered pricing for airline tickets and hotel room rates for international and local travellers that industry veterans say are an impediment to industry growth.

New Products

Once favoured by older, wealthier travellers, Myanmar is beginning to attract a more diverse group of visitors including budget tourists and backpackers, helped by the recognition of the e-visa at border crossings. Many of these visitors use buses to travel around the country because they are not as expensive as planes, and are quicker and more reliable than the trains. The removal of the regulation requiring all overnight stays to be registered, which had previously inhibited the development of homestay accommodation and guesthouses, might give more local people the opportunity to open smaller hotels as well as bed and breakfast accommodation for the budget traveller.

Off Road

Visitors – and not only wallet-watching backpackers – are also beginning to go off the beaten path. Jochen Meissner, an Austrian who once ran beach resorts in Ngapali, started his own company, Uncharted Horizons, in October 2015, offering cycling tours near Yangon and guided treks in remote Chin state. “Myanmar has a reputation that it is an expensive destination, but you can do it cheap,” Meissner told OBG. “Backpackers are starting to come in, and there are cheap guesthouses and if you eat local food you can live on less than $30 a day.”

Meissner notes that Myanmar needs to work harder on creating experiences that can be found nowhere else and encourage travellers to stay longer, and return. His cycling tours fill a niche because they provide tourists to Yangon with something to do beyond taking the well-trodden path of visiting the Shwedagon Pagoda and taking the circular railway.

He has joined forces with a handful of other adventure travel companies to establish the Myanmar Adventure Alliance to promote each other’s products and support community projects in education and health care. “You need to explore and have an experience (products) to sell.” Munz told OBG. “This is what makes money; only sightseeing does not make money.” At the more expensive end of the market, the Strand started its upmarket cruises on the Ayerwaddy in 2016, in direct competition with Belmond, which manages the Governor’s Residence in Yangon, and a host of slightly less luxurious options. Trinquand describes the boat – with 27 suites to accommodate a maximum of 54 guests – as a “luxury hotel on the river”, and while not every sailing is fully booked, he has been encouraged by the feedback received from the cruise’s first season.

The Yangon Heritage Trust, meanwhile, is aiming to further develop its walking tour offerings. Its walks have primarily proved popular with visitors from the UK (30%) and the US (40%), most of them older, independent travellers rather than visitors on a package tour. The trust completed a master plan for sustainable heritage tourism in September 2016, urging the government to do more to protect cultural heritage, nurture local artisans and improve destination planning for Yangon and other areas.

There are rising hopes that the 2000 Buddhist monuments of Bagan may be inscribed as a UNESCO World Heritage site, after the 2016 earthquake destroyed the sub-standard renovations that were made during military rule and led to earlier listing attempts being rejected. There has also been talk of getting Yangon onto the list, although the Yangon Heritage Trust believes this would take many years to achieve. The Bagan initiative is likely to begin in 2017 with a listing as early as two years after that.

Marketing Myanmar

Yet another UNESCO listing would undoubtedly help put Myanmar on the map, in a country where destination marketing has tended to be constrained by meagre budgets.

While 2016 was officially designated “Visit Myanmar Year” travel and tourism operators say promotional activity was virtually non-existent in comparison with Myanmar’s neighbours. Branding has been crucial to the success of countries in South-east Asia that have developed thriving tourism industries, yet Myanmar has as of yet been unable to develop a singular marketing plan. The country’s failure to create a marketable brand is reflected in the fact that, even now, some tour operators still refer to the country as Burma, because it is more easily recognised and because it has connotations with a nostalgic colonial heritage, which has commercial value for some travellers.

“A competitive advantage can’t be sustained by ‘honeymoon’ growth alone,” the Business Innovation Facility wrote in a 2016 market analysis. “There will be a need for a more sophisticated approach to understanding the attributes that differentiate ‘brand Myanmar’ from its competitive set. This incorporates the development and presentation of niche tourism products and the strategic marketing messages (the destination promise or ‘brand’) that are transmitted to strategically targeted markets.”

U Phyoe Wai Yar Zar of the Tourism Federation believes Myanmar needs to set up a central agency like the Tourism Authority of Thailand – an initiative part of the Draft Tourism Law that is still to be tabled in Parliament. “We still have our unique appeal,” he told OBG. “Myanmar is captivating but we must be able to show ourselves to the world in an attractive way. We need the funds and the skill to do that.”

Region Level

The individual regions have also been slow to develop a tourism strategy, but the new government has stressed the need for building more community-based projects. In May 2016 it introduced six pilot projects in states including Kachin and Shan to open village guesthouses and offer tourists activities from trekking to bird-watching. In March 2016 the International Trade Centre, which has been working on a tourism development project in Kayah state since 2014, joined the UNWTO to promote the state at ITB Berlin, the world’s biggest travel show.

The Inclusive Tourism project, which is funded by the Dutch government and is due to end in 2017, aims to cover all aspects of tourism to ensure that it is local communities who benefit most from the industry’s development. This concept may be extended to other parts of the country in the future. “It is crucial to ensure that, at the outset, tourism development is done with the full engagement of local communities,” the UNWTO’s secretary-general, Taleb Rifai, said in the introduction speech of one of the organisation’s events in Berlin, thus “empowering them to manage their destination, their traditions and cultural values”.

Outlook

After five years of heady growth, the current slowdown provides an opportunity for Myanmar’s government and the industry itself to consider how tourism has developed since the boom started in 2012, and how it can ensure the industry benefits the country’s poorer people.

An ADB promise of $45m for tourism after 2018 has already triggered some reflection among members of government. With so many areas that would benefit from an injection of funds, Myanmar needs to decide where that money will have the greatest impact. It could also look to some of its neighbours to ensure it makes the most of their experience. “Myanmar has the chance to get things right because it is the last,” Meissner told OBG. “They have lots of places to look, such as Thailand, Cambodia and Vietnam. Myanmar can look at what happened when tourism started in those places, what went wrong and what went right. They can avoid the same mistakes.”