Myanmar’s car market has seen substantial growth since reforms began in 2011, but a lack of clear government policy is leading to headaches for many car importers.
By THOMAS KEAN & HEIN KO SOE | FRONTIER
Photos MARO VERLI
The handover of power to the National League for Democracy was a disaster for car importer Ko Myo Ko Ko. He had 50 used vehicles on the way from Japan to Myanmar but a sudden policy change meant he could no longer sell them in Yangon.
“I had a problem because of the parking permit. The new Yangon government stopped issuing the parking permits, so no one can buy them from me,” he told Frontier.
The ‘parking permit’ is a letter of recommendation from the township administrator confirming that a car’s purchase has a space in which to park it.
The system was introduced in early 2015 in an effort to combat congestion, primarily in downtown Yangon and the city’s inner suburbs. In theory, people living in congested areas should no longer have been able to import a car, because they had nowhere to park it. However, letters of recommendation were soon trading openly on the black market for between K700,000 and K900,000 each.
Then along came the NLD with its anti-corruption stance. After taking office on April 1, Yangon chief minister U Phyo Min Thein ordered township administrators to stop issuing the letters, but crucially didn’t remove the requirement that those importing a car have a parking permit.
This left importers with newly purchased cars on cargo ships bound for Yangon with a major problem.
Of the 50 cars he had ordered, Myo Ko Ko now plans to sell 20 in other states and regions, where the parking permit system does not apply because congestion is less of an issue. However, because nearly all buyers are in Yangon, it will take him much longer to move them.
The rest he will keep in his Yangon showroom – and wait until the government either resumes issuing the permits, or scraps the requirement completely.
“I just want the government to put in place stable policies for all sectors,” Myo Ko Ko said. “If Myanmar has stable policies, local and foreign investment will come.”
The regional government’s decision is just the latest in a series of quickfire changes to import and registration rules that have left many in the industry confused and frustrated.
“It is a huge mess,” one importer requesting anonymity told Frontier. “They keep changing the rules, at least every month … and there are more and more restrictions on imports.”
The importer said this was mostly being driven by a desire to ease congestion in Yangon.
“The obvious problem was the lack of control on used-car imports [under the former government] … They flooded the market with cheap used cars. The government has understood that and has now restricted the amount of vehicles [coming into Yangon].”
Winners and losers
Not everyone has been hurt by the NLD policy. The inability of newly imported used cars to enter the market has sent prices upward in recent months, by an average of 10 to 20 percent.
Two years ago, U Myo Nyunt bought a 2007 Toyota Vitz taxi for K7.3 million. Earlier this month, he sold it for K8.5 million – a tidy 16 percent profit, despite the condition having deteriorated significantly due to heavy use in Yangon’s grinding traffic.
He sold his car privately, through a broker, which meant there was no need for the buyer to have a parking permit.
But even brokers say they are struggling. Ko Aye Min said that higher prices meant fewer buyers overall and therefore less work for brokers, who typically received a two percent commission on the sale price, paid by the seller.
“Before, people could not afford cars, so there weren’t many brokers. But then when they changed the rules, cars became affordable. Many people wanted to buy, so then many people became brokers. Now the prices are coming down, and there are few buyers,” said Ko Aye Min, who entered the industry three years ago.
“The government is always changing its plans, but they never announce the changes far enough in advance,” he said. “For example, the parking permits stopped being issued on April 1, so the car importers faced difficulties because they’d already ordered the cars from overseas. They have to resell them outside Yangon at a lower price, so they face many losses.”
New-car retailers are also feeling the strain. Michael Rudenmark, managing director for automotives at Yoma Strategic Holdings, said his company had no idea how it would sell 100 new Mitsubishis it has imported under a joint venture with the Japanese auto giant that was signed in December 2015.
“We’ve just received our first 100 units – they’re coming out of the port today I think,” Mr Rudenmark told Frontier on May 13. “I don’t really know [how Yoma can sell them]. It doesn’t make sense. You cannot make it possible for a business to operate on the one hand, but then not make it impossible to sell their product.”
While he said the parking permit prohibition “has to be temporary”, it is indicative of the broader problem for businesses in the sector: the constant shifting of the goalposts.
“Yes, you want the short-term fix, but you want at the end of the day a good policy that can stay for at least [the government’s] term, the next five years.”
New government policies are likely to come from the vehicle import supervisory committee. Disbanded at the end of 2015, it was recently re-formed by the new government.
Its first move was to allow into the country 14,000 vehicles, mostly commercial and industrial, that had been stranded at land borders due to a temporary ban on imports, according to The Myanmar Times.
The committee is headed by Minister for Commerce U Than Myint, and also includes representatives from the Ministry of Transport and Communication, the Ministry of Industry, the Internal Revenue Department, the Customs Department, the Ministry for Planning and Finance, the Road Transport Administration Department and the Trade Department.
Than Myint was contacted for comment but did not respond by deadline.
But parliament will also have a role to play. Under the 2016-17 tax law, a fifth layer of taxation was introduced for vehicle imports. It will come into effect on June 1, and also be applied retrospectively to cars already in the market when they are next registered with the Road Transport Administration Department, an Internal Revenue Department director confirmed to Frontier.
The tax will be levied based on the value of the car, but only applies if the owner or importer cannot show the source of their income – that they have enough taxable income to cover the cost of purchasing the vehicle.
It remains to be seen how firmly it will be enforced; in the property market, buyers have found ways around a similar tax levied on property sales.
A plan for the future?
In a nondescript office in Thingangyun’s Malikha Garden Housing, Dr Soe Tun holds out a copy of the Myanmar Automobile Manufacturer and Distributor Association’s proposed policy for the development of the market, published in September 2015.
The 65-page document was drafted by the private sector, with some government input. It outlines three phases of development, beginning with the short-term – when car penetration triples from current levels to 4 percent, or 2 million units, with demand met by used car imports – to the long-term, when penetration reaches 20 percent, the equivalent of Thailand, and most cars are produced locally.
Soe Tun, who chairs the association and runs the Farmer Auto chain of car sales centres, laughs as he hands the policy across the table. “No one is following any of this,” he said, referring to the policies of both the previous and current governments.
The association wants the government to announce its plans for the next five years, and for these to be developed through national workshops involving all stakeholders. It also wants a focus on car assembly, and reform of the complex taxation procedures for importing vehicles.
For now, the importers of both new and used cars are on the same page about what should happen. In the coming years though they are likely to differ on the issue of second-hand imports, which will inhibit the development of a local automotive manufacturing sector. The crucial question is when to let the used car market develop organically, through sales of new cars. That is some way off; fewer than 5,000 new passenger cars were sold nationally last year, and the number is thought to have dropped in 2016 due to the parking permit fiasco.
Mr Rudenmark said that based on experience in other countries new car sales were likely grow at a similar rate to GDP. For Myanmar, that could mean a 10 percent year-on-year increase.
Initially, though, most growth is likely to come from commercial vehicles, said Anna-Marie Baisden, head of auto research at BMI Research. Taxes are much lower in this segment, and demand is being driven by industry activity.
“Most consumers will struggle to afford a new car with income levels still quite low,” she said. “However, with new import policies and moves to renew the fleet, the second-hand sector will certainly provide growth opportunities.”
She cited the Philippines as a cautionary example for Myanmar. There, a lack of industry policy hindered investment, and eventually prompted companies that had been producing locally, such as Ford, to withdraw completely.
“It is difficult when there is no clear roadmap for the industry,” she said.
Soe Tun said he had met three times with Than Myint to explain the automobile policy and issues facing the sector. The minister gave no indication as to his thinking on the sector, he said.
“But I think their idea is that they don’t want cheaper cars because of traffic congestion,” he said.
Soe Tun is clear though on why Myanmar’s car market development has stalled. It is a familiar refrain.
“The government had no clear policy,” he said. “So they made decisions based on emotion.”