Scania Eyes Construction And Tourism Opportunities
Swedish commercial vehicle manufacturer Scania has appointed a local distributor for its vehicles in Myanmar, as it looks to capitalise in growth in the country ' s construction and tourism industries. This supports BMI ' s view that Myanmar will be one of the leading autos sectors for growth as it continues to open up, although there are risks to operating in such a frontier market.
Scania will sell its trucks and buses through Octagon International Services , which will also provide servicing for the vehicles. Octagon already has a relationship with the country ' s construction industry and expects to sell 200-300 units in the first year of operation.
According to Henrik Hernriksson, Scania ' s executive vice president for franchise and factory sales, there is already demand in Myanmar for heavy trucks used in infrastructure and dam building projects and this will increase as improved roads create better conditions for long-haul transportation of goods. BMI ' s Infrastructure team points out that around 50% of Myanmar ' s freight is currently transported by river barge, which is disrupted by seasonal weather conditions. Therefore, roads offer the greatest potential for green field projects among the various transport infrastructure sub-sectors.
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Indeed, data for total vehicle registrations in the country show that the number of trucks registered has grown 15% between 2008 and 2011. However, there is a need to update this fleet, which was recognised in May 2012, when the government introduced de-regulated imports of vehicles from 2007 or newer, for holders of foreign exchange accounts.
There are moves to introduce brand new vehicles, as the Oriental Transportation Company, a joint venture between the Myanmar Road Transport Department and the Japan Oriental Transportation Company, was awarded a contract to import 3,000 buses from Japan to replace existing buses in Yangon.
Octagon is looking to sell 100 Scania buses in its first year, as increased tourism to Myanmar creates demand for more and newer buses and coaches. According to the Myanmar Tourism Board, tourist numbers reached a record 816,369 in 2011 and were already 36% higher year-on-year in the first four months of 2012. This is creating a shortage of related services such as hotels, and also transportation.
Scania will also face stiff competition in the truck department, however. India's Tata Motors is already assembling trucks at a plant in Magwe, Central Myanmar, and has signed a distribution agreement with Apex Greatest Industrial. The plant has an initial annual production capacity of 1,000 vehicles, which is expected to reach 5,000 units eventually. There are also plans under consideration to import around 60,000 one-tonne pickup trucks a year from Thailand.
There are risks to relying on infrastructure projects and other sectors for growth, however, and that is a mix of both practical limitations, such as an underdeveloped power supply, and business environment concerns. Although there is much to be optimistic about in the country's new Foreign Investment Law, passed on November 2, BMI's business environment ratings for the country show that there is still much progress to be made, particularly in terms of its legal and financial institutions ( see our online service, November 6, 'Investment Law A Boon, But Caution Still The Word').