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