Ola Borge: Myanmar on the Move
Awealth of natural resources, its strategic location and the potential strength of the labour force, tourism and local consumption make Myanmar very attractive to foreign investment despite some lingering infrastructural and legal shortcomings, says Ola Nicolai Borge KPMG’s executive director in Myanmar, Ola Nicolai Borge, spoke at the Norway-Asia Business Summit in April on some of the business challenges investors may face in the country. KPMG provides advisory and compliance services in Myanmar, including tax and legal, corporate finance and general business advisory. Mr Borge said his first project in the country was 12 years ago, and business fundamentals were very difficult at the time. The majority of clients now are Thai and Japanese, but things are changing as more investors move in. “The advantages of doing business are potentially plentiful despite the difficulties,” Mr Borge said. “You need patience. But GDP will grow, and the local market will grow.” While somewhat overplayed, Myanmar’s ASEAN membership is one potential advantage, especially once the ASEAN Economic Community (AEC) takes effect late next year. The AEC will provide regional trade benefits, linking the economies of Southeast Asia and removing some of the barriers and restrictions of doing business across borders. “It won’t take that much effect for a while,” Mr Borge added. “Those companies that are waiting for 2015 and the AEC are wasting their time.” The country’s location between India and China, the world’s two most populous countries – and among the most dynamic, makes it potentially a prime manufacturing base. Trade to the north and west will only increase.
There is also a rich supply of natural resources, such as timber, minerals, natural gas, gems and jade, and agricultural and marine resources.
The potential for tourism is very high, not only from ASEAN member countries but the West and Asia, especially China. “Three hundred million Chinese will travel by 2030,” Mr Borge pointed out. Myanmar has an extraordinary wealth of cultural and historical sites that will appeal to Asian and international visitors. “The demographic profile of the labour force is also attractive,” he said. There is a large, young population and high potential in domestic consumption. Many challenges remain, however. With greater demand than supply in the skilled labour force, there is a battle for bright minds; foreign companies often steal brainpower from local ones, making it difficult for a local to set up a manufacturing operation. Real estate prices have risen to Manhattan levels. Roads, internet and electricity are among the country’s infrastructural weaknesses. And laws and regulations are in transition. Rule of law is nascent. Many changes have taken place recently and many more are expected in the near future. “There seems to be more law firms than experienced lawyers here,” Mr Borge pointed out. It remains difficult to find competent legal counsel, and some laws simply don’t exist yet. In the Doing Business 2014 pamphlet, Myanmar ranks 182 out of 189 countries – just above the Democratic Republic of the Congo – in terms of ease of doing business. “It was their first time of being involved in the survey, and they were happy to be involved - despite the low ranking”, he said. Myanmar also ranks 172 out of 175 in Transparency International’s 2012 corruption perceptions index ( between Uzbekistan and Sudan), but this is expected to improve quickly. (It has risen to 157 in the current index.) “Corruption is actually better than what you might expect,” Mr Borge said. “Don’t bring gifts for officials in Nay Pyi Taw. The gifts won’t help you and might even hurt you.”
There are several ways to run a company here. It is possible to have 100 per cent foreign- owned subsidiaries, joint
venture companies with Myanmar citizens, or to have a local branch or representative offices of a foreign company. It is possible to register a foreign company under the Foreign Investment Law or the Myanmar Companies Act. “The Foreign Investment Law has lifted some of the restrictions for foreign investors,” Mr Borge said. The law prohibits damage to the environment or certain extraction of natural resources. Some activities are only allowed in a joint venture arrangement, such as production of a range of consumer goods, and certain construction activities and transportation services. Some activities require approval from ministries and an environmental impact assessment, and some activities are unrestricted. “The Myanmar Investment Commission has wide discretionary power,” he added. Foreigners cannot own land in Myanmar, but leases are possible. “A lease is one year, with some exceptions,” he said. It is 30 years in a special economic zone (SEZ) and can be 50+10+10, with renewals, under the Foreign Investment Law. There are also considerable trade restrictions. Foreigners are generally not allowed to import and distribute products. A typically allowed structure would involve a foreign owned marketing company with the logistics handled by locals. The banking sector is likewise in transition. “It is much easier now to transfer funds into the country,” Mr Borge said, “but there is still some uncertainty regarding repatriation of funds.” On acquisitions, due diligence is essential. “Who owns the company, what does the company own, are the books reliable?” are questions that should be asked. “As general practice, most companies seems to have two or three sets of books,” Mr Borge added, for tax authorities, investors and shareholders, or owners. Also - it is not always clear if foreigners can buy the shares or assets in question. A typical structure involves forming a joint venture, with a local partner contributing assets, and the foreign investor contributing capital. “The so-called nominee structure is not recommended,” he added. Taxation also throws up numerous questions and concerns. Is Myanmar moving from low to high compliance? Can we rely on “established practice”? Does the Myanmar Internal Revenue Department have enough resources? Tax practice remain complex but there are also numerous breaks and incentives for investors; it makes sense to have good financial and legal counsel when embarking on business activities. While trading, land lease, banking, tax and structural issues remain challenging, Mr Borge summarised, the situation is improving and the rewards are potentially lucrative.
Mr Borge has since the Summit in April moved on and is now a Senior Partner with Grant Thornton in Myanmar.
Ola Borge guides the summit participants through the complexity of doing business in Myanmar.