Huge steps have been taken to pro­vide a le­gal frame­work for for­eign in­vest­ments in Myan­mar.

Norway-Asia Business Review - - Contents - LARRY JAGAN

On the sur­face lit­tle seems to have been achieved, but the re­al­ity is that huge steps have been taken to pro­vide the nec­es­sary le­gal frame­work for for­eign in­vest­ment to pros­per in the fu­ture.

“Im­proved le­gal and reg­u­la­tory frame­works will cre­ate a more favourable in­vest­ment cli­mate in Myan­mar,” the fi­nance min­is­ter, Kyaw Win told NABR late last year. And gov­ern­ment of­fi­cials speak pri­vately about the boost they ex­pect af­ter April when all the leg­is­la­tion is in place.

The most im­por­tant step in that di­rec­tion is the new In­vest­ment Law, which was passed by par­lia­ment last Novem­ber, but is yet to im­ple­mented. This new act com­bined the two ex­ist­ing sep­a­rate laws on for­eign in­vest­ment and do­mes­tic in­vest­ment, which were passed by the pre­vi­ous ad­min­is­tra­tion of Pres­i­dent Thein Sein. Now work is be­ing done to re­fined it – make sure it is based on a lib­eral ap­proach to eco­nomic devel­op­ment – and en­act the rules and reg­u­la­tions, which will give the law some sub­stance.

“Eco­nomic lib­er­al­i­sa­tion is the cor­ner stone of the gov­ern­ment’s eco­nomic poli­cies,” Sean Tur­nell, an Aus­tralian aca­demic, an ex­pert on the Myan­mar econ­omy, and spe­cial ad­vi­sor to the gov­ern­ment, cur­rently based in Naypyi­daw, told NABR re­cently. “Free mar­ket, open trade and good gov­er­nance: ev­ery­thing else cas­cades down from those prin­ci­ples.” In­vest­ment, tax­a­tion, in­fras­truc­ture and agri­cul­ture are the gov­ern­ment’s key con­cerns at present, he added.

So there is no doubt that the in­vest­ment law is cru­cial to the gov­ern­ment’s plans to boost for­eign in­vest­ment as well as main­tain op­por­tu­ni­ties for lo­cal busi­nesses to flour­ish. “The key prin­ci­ple of the In­vest­ment Law is to guar­an­tee a lev­elplay­ing field for both do­mes­tic and in­ter­na­tional in­vestors,” Aung Naing Oo, head of the De­part­ment of In­vest­ment and Ad­min­is­tra­tion (DICA) told NABR last month. But the rules and reg­u­la­tions – which are the nuts and bolts of the law – are still be­ing drawn up.

These will be com­pleted by the mid­dle of March and tabled in par­lia­ment for ap­proval be­fore the start of the new fi­nan­cial year in April. “The law will only be fully op­er­a­tional af­ter then,” said Aung Naing Oo. “Af­ter which time we ex­pected a rise in for­eign in­vest­ment.” The gov­ern­ment’s key con­cern is to make sure that bu­reau­cratic red tape is re­duced and stream­lined, and that an ef­fec­tive dis­putes mech­a­nism is put into place, ac­cord­ing to of­fi­cials work­ing on the law.

One of the most con­tentious is­sues is the al­lo­ca­tion of tax con­ces­sions for new busi­nesses, ac­cord­ing to Aung Naing Oo. In the past it was ad hoc, ac­cord­ing to many lo­cal busi­ness­men. There were no guide­lines for the Myan­mar In­vest­ment Com­mis­sion (MIC) to fol­low. So some of the rules and reg­u­la­tions will ad­dress

this. The MIC just an­nounced the ba­sis for tax breaks at the be­gin­ning of March. “In a bid to at­tract more in­vest­ment and en­cour­age its lo­ca­tion in the most needed ar­eas, the MIC has de­vised three zones, where en­trepreneurs will en­joy the ben­e­fits of tax ex­emp­tion for a pe­riod of three to seven years,” said the DICA chief.

The zones are lo­cated in places the gov­ern­ment re­gards as in need of im­prove­ment and pri­ori­tised. Those ar­eas deemed to be un­der-de­vel­oped, are char­ac­terised as Zone 1. These in­clude many eth­nic ar­eas in Kachin, Kayin, Chin, Mon, Shan and Rakhine state, as well as Saigang and Man­dalay. Com­pa­nies in­vest­ing in these des­ig­nated ar­eas will be granted a tax holiday for seven con­sec­u­tive years. In the other two zones – fairly de­vel­oped and de­vel­oped ar­eas – will be given 5 years and 3 years tax breaks re­spec­tively.

The Spe­cial Eco­nomic Zones and ex­port pro­cess­ing ar­eas will be treated dif­fer­ently. For man­u­fac­tur­ers who set up plants that will ex­port a hun­dred per­cent of their pro­duc­tion, any im­ported raw ma­te­ri­als and ma­chin­ery will be ex­empt from cus­toms du­ties, said Aung Naing Oo. also have an im­pact on the for­ma­tion of joint ven­tures. At present the draft bill has set a max­i­mum of 35% for for­eign own­er­ship. This is what Myan­mar busi­ness­men be­lieve to the ap­pro­pri­ate ra­tio, ac­cord­ing to the DICA head. It was what the Union of Myan­mar Fed­er­a­tion of Chambers of Com­merce and In­dus­try (UMFCCI) in­sisted on, ac­cord­ing to gov­ern­ment of­fi­cials closely in­volved in the draft­ing the bill. The hope is that par­lia­ment, dur­ing their de­bate and dis­cus­sion, will raise the pro­por­tion – per­haps to 40%, or even 49%, said a se­nior gov­ern­ment of­fi­cial but in­sisted on strict con­fi­den­tial­ity.

Ac­cord­ing to the In­vest­ment Law, for­eign in­vestors do not need to form a joint ven­ture to fi­nance a busi­ness op­er­a­tion in Myan­mar – and they do not need MIC ap­proval, sim­ply reg­is­tra­tion. While there are un­doubted ben­e­fits to for­eign in­vestors to have a lo­cal part­ner, some may be dis­cour­aged to opt for a joint ven­ture if the cap­i­tal share of the new com­pany is too low. This could also be self-de­feat­ing for Myan­mar busi­ness­men, many of whom be­lieve all for­eign in­vest­ment should be in the form a joint ven­ture – with the Myan­mar side hold­ing the ma­jor­ity share­hold­ing.

Re­cently the an­nounce­ment of new draft im­mi­gra­tion laws sent the in­ter­na­tional com­mu­nity into a panic. At the be­gin­ning of De­cem­ber the Min­istry of Labour, Im­mi­gra­tion and Pop­u­la­tion tabled a draft Law Con­cern­ing For­eign­ers and the For­eign Worker Law – cov­er­ing the is­su­ing of For­eign Reg­is­tra­tion Cer­tifi­cates (FRC) tem­po­rary travel and re­lo­ca­tion, and the use of res­i­den­tial premises by for­eign­ers. Amongst other things, the bills would re­quire for­eign­ers liv­ing and work­ing in Myan­mar to ob­tain a slew of doc­u­men­ta­tion, un­dergo a med­i­cal ex­am­i­na­tion within seven days of ar­riv­ing in the coun­try, and im­pose re­stric­tions on trav­el­ling or re­lo­cat­ing.

The re­ac­tion from for­eign busi­ness or­gan­i­sa­tions in Myan­mar was quick and un­equiv­o­cal. This would be detri­men­tal to for­eign in­vest­ment. The as­so­ci­a­tions warned that re­quire­ments and penal­ties in the newly pro­posed laws would dis­cour­age over­seas com­pa­nies from in­vest­ing in Myan­mar. All the as­so­ci­a­tions of­fered to help the gov­ern­ment im­prove the cri­te­ria and sys­tem for is­su­ing visas and work per­mits for for­eign­ers, which they ac­knowl­edged was des­per­ately in need of stream­lin­ing.

“The draft def­i­nitely does not [im­prove the work­ing con­di­tion of for­eign­ers]. It could, with ap­pro­pri­ate amend­ments, and if there was proper un­der­stand­ing of the needs of, and con­sul­ta­tion with Chambers of Com­merce, on the needs of for­eign in­vestors,” said AustCham Myan­mar ex­ec­u­tive di­rec­tor Vicky Thant Thitsa Aung.

Since then the State Coun­selor, Aung San Suu Kyi said there would def­i­nitely be changes to the draft bills be­fore they were signed into law. Gov­ern­ment in­sid­ers say they had been blind­sided by the Im­mi­gra­tion Min­istry and caught off-guard. They as­sured for­eign busi­ness­men that these reg­u­la­tions would never be im­ple­mented – and that there were ac­tu­ally in­tended to only be ap­plied to the Chi­nese and South Asians. But what is needed is a co­her­ent and trans­par­ent sys­tem – and the hope is that is ac­tu­ally what will emerge later his month be­fore the par­lia­ment passed the bills.

Last year, the World Bank ranked Myan­mar 170 out of 190 economies on the ease of do­ing busi­ness. A long list of pro­ce­dures, low-qual­ity ju­di­ciary and slow bu­reau­cratic pro­cesses iden­ti­fied as ma­jor stum­bling blocks. This is ex­actly what the gov­ern­ment is try­ing to rec­tify, ac­cord­ing to the gov­ern­ment’s chief eco­nomic ad­vi­sor, Sean Tur­nell.

Af­ter April the out­look for for­eign in­vestors in Myan­mar is ex­pected to look up, af­ter the le­gal and reg­u­la­tory frame­work is put into prac­tice. Whether the eco­nomic boom, fi­nance min­is­ter Kyaw Win ex­pects, will even­tu­ate is an­other thing. But do­ing busi­ness in Myan­mar in the next fi­nan­cial year will be a lot bet­ter than it was in Aung San Suu Kyi’s first year in power. Above left: Yan­gon Air­port's new in­ter­na­tional ter­mi­nal opened in 2016 is a show­case of mod­ern devel­op­ment reach­ing Myan­mar.

A year since tak­ing of­fice, Aung San Suu Kyi’s record on the econ­omy is sober­ing to say the least.


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