US embassy cable - 05RANGOON1179

C O N F I D E N T I A L SECTION 01 OF 02 RANGOON 001179 
 
SIPDIS 
 
STATE FOR EAP/MLS, EB/TPP, INR/TNC 
TREASURY FOR OASIA: AJEWELL 
 
E.O. 12958: DECL: 10/11/2015 
TAGS: ECON, ETRD, PGOV, BM, Economy 
SUBJECT: BURMA: BAD YEAR FOR MANDALAY BUSINESSES 
 
REF: A. RANGOON 1139 
     B. RANGOON 1073 
     C. RANGOON 0542 
 
Classified By: Econoff TLManlowe for Reasons 1.4 (B) AND (D) 
 
1.(C)  Summary: Arbitrary governmental controls on trade, 
information, and access to the outside world, combined with 
the depreciating kyat, conspire to make business decisions in 
Mandalay, such as where to invest, how to price, and what 
industries to develop, very difficult.  Business owners are 
coping with tighter controls, focusing on the short term, and 
hoping that the situation will change, but they can't predict 
how.  End summary. 
 
Mandalay Businesses Facing Hard Times 
------------------------------------- 
2. (C) During a September visit to Mandalay, Econoff and Econ 
Specialist heard from members of the business community that 
governmental interference and currency depreciation has 
created uncertainty about the future, forcing business owners 
to restrict their planning to the short term.  Examples 
include: 
 
-- One importer said he used to go to the China border two or 
three times a month to bring in electronic goods.  Since 
business has declined 50% this year, he doesn't need to 
travel and makes his greatly reduced orders to brokers by 
phone.  High exchange rates (kyat to the yuan and to the 
dollar) and reduced local purchasing power have severely 
affected his business.  He must pay customs duties in 
advance, and his costs for rent and for his generator are 
almost $3000/month. 
 
-- A businessman who distributes consumer products to central 
Burma and northern border areas said higher prices that 
reduced demand had made this a difficult year.  Production 
costs in Burma of items such as health and beauty products 
and detergent had risen 30%, he said.  The firm had raised 
prices only 20%, which had still driven customers away. 
Competition from cheaper Chinese goods also hurt sales. 
 
-- A trader in beans and pulses for domestic and export 
markets said that business had declined 25-30% this year 
because higher prices reduced local demand. 
 
-- The owner of an IT firm bemoaned the overall lack of 
Information and Computer Technology (ICT) and IPR knowledge. 
The networking software his firm developed for Burmese banks, 
hospitals and universities cannot be utilized, he said, 
because users lack basic skills and funds for training, 
service, and repairs.  His business also suffers because the 
best programmers leave the country for better jobs.  His 
efforts to develop skills and awareness about IT have been 
stymied by the government's ban (since the April bombing -- 
ref C) on seminars and conferences open to the public. 
 
-- Local officials told manufacturing and wholesale trade 
businesses to move into one of Mandalay's 'industrial zones'. 
 These zones are, in reality, groupings of wholesale, retail, 
manufacturing, commercial and some residential buildings. 
They appear to be an attempt to collect the industrial 
activities in a few places, not an effort to create synergies 
or provide reliable infrastructure.  Each business must use 
their own generators during the daily power cuts. 
 
-- A relatively successful manufacturer of trucks and 
generators seeks new business options, because, he said, he 
expects problems in the future and he must be ready to change 
his line of work. 
 
-- Occupancy rates at the two top hotels in Mandalay were at 
10-30%, and managers hoped the end of the rainy season would 
bring in enough tourists to make operations less financially 
draining. 
 
-- All business representatives who trade across the borders 
commented on the tightened controls instituted in August (ref 
B), and complained that they further delayed transactions. 
These delays resulted in additional lost revenue because of 
recent rapid kyat depreciations (ref A) that occurred between 
the time of ordering and the time of payment or sale. 
-- In the city, most open air markets we observed were busy, 
but stores had few customers. From all our conversations with 
business owners, it was clear that Mandalay consumers were 
purchasing less. 
 
The Jobs To Have 
---------------- 
3. (C)  Though the majority of Mandalay businessmen we met 
described difficulties, two specialty areas appear to be 
thriving: border brokering and tuition schools. 
 
-- Business representatives involved in border trade 
highlighted the important (and still lucrative) work of 
border brokers.  Brokers provide many services on and across 
the Thai and Chinese borders, including acquiring goods, 
paying foreign currency transactions, transporting goods, and 
relaying orders and other communications.  Their fees and 
commissions move up and down with the currency values, and 
small traders rely on their expertise, experience and 
networks. 
 
-- The owner of a school in nearby Pyin U Lwin (formerly 
Maymyo) that boards and teaches children outside of their 
public school hours (known in Burma as "tuition schools") was 
the only interlocutor who expressed plans for expansion and 
improvements.  His school, known for strict controls and long 
hours, helps students excel on graduation exams, improving 
their chances of getting a coveted spot in one of the few 
prestigious Burmese universities. 
 
Comment: Adapt, Adjust, Survive 
------------------------------- 
4.  (C) Although almost every businessman we met reported 
difficulties and declining profits during the past year, they 
all planned to continue their work.  They are sticking to 
what they know, and have no plans to expand or diversify. 
Though frustrated by the difficult environment, no one with 
whom we spoke expressed the belief that business 
representatives had a role in making changes.  Adapting and 
adjusting to changing GOB regulations and practices, they 
concentrate on surviving and providing for their families and 
employees.  Their focus is on the present, and their plans 
extend only to the near term.  End comment. 
Villarosa