Ola Borge: Myan­mar on the Move

Norway-Asia Business Review - - Contents - By Ezra Kyrill Erker

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.

Photo: TNCC

Ola Borge guides the sum­mit par­tic­i­pants through the com­plex­ity of do­ing business in Myan­mar.

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