Myanmar, the modern day El Dorado
Shawn S. Novel[1]
Where is Myanmar heading with the new investment law?
If Sir Walter Raleigh were to set on a conquest today, his ship would have sailed for Myanmar, the modern day El Dorado. All investors interested in the mythical land of gold would have chimed in unison to this sentiment post October, 2016 with one exception; it is not quite so mythical anymore. Ever since the end of the military rule, Myanmar started treading towards being a unique hub for business and unparalleled resources. Initially the steps were slow as the shackles of old practices and bureaucracy remained in place to the point of overrating the hypes of the enthusiasts. However, the lifting of the last trade ban followed by the enactment of the new investment law have finally paved the way for the wheels of progress to gain momentum.
Myanmar Investment Law, 2016 (MIL)
The MIL was enacted on October 18, 2016. The Myanmar Investment Rules, 2017 (MIR) followed the MIL and came into effect on March 30, 2017. The statute laid down the substance of the law and the rules complement it with the adjoining details and procedures.
A lot has changed with the enactment of this particular legislation. Firstly, it has harmonized the previously static laws and their differential treatments of foreign and local investors. Arguably, the legislation has made Myanmar more attractive to investors than most of its counterparts in the region. Secondly, the new legislation sets itself apart from its predecessors in terms of quality drafting, making it easy for investors to comprehend the law without having to turn to references at every point. Thirdly, it embodies the language and more importantly, the principles of international treaties making it homogeneous across borders. Fourthly, as an extension of the harmonization process, all investments are now regulated by this legislation and the investors cannot opt to operate outside this regulatory framework.
Simplification of process
In a broad stroke the MIL has classified investors into two different categories whereupon the bigger investors are required to obtain a “permit” from the Myanmar Investment Commission (MIC) and their smaller counterparts can readily enter the market with an “endorsement”. The permit encompasses submission of a proposal to the MIC in satisfaction of prelisted criteria is a relatively detailed process. The endorsement gives the requisite platform for the other businesses to take off without having to go through a lengthy vetting process. While the businesses obtaining permits would enjoy promotion and enhanced facilitation from the MIC, the endorsed businesses would benefit from being on the fast track and still obtain what they need the most, namely land and tax concessions.
From a policy standpoint, the permits are meant for businesses with large scale capital and operation in areas strategic to the country that would have some degree of impact on the environment and surroundings. Endorsements, on the other hand, are reserved for businesses that could typically operate without facilitation or intervention on part of the Government.
Previously under the Investment Law of 2012 any foreign investment requiring land and tax considerations had to cross the same administrative hurdles regardless of the scale and size of operation. This used to be particularly cumbersome for smaller investors as it served no practical purpose and the draftsmen of the MIL carefully this addressed this issue in the new law.
Reforms
The policymakers took into account of some of the other areas that needed reform. The most notable of those attributed to the MIL are:
- Adoption of international safeguards for foreign investors such as National Treatment, Most Favored Nation and Fair and Equitable Treatment.
- Fast track for smaller businesses.
- Increased tax holidays for promoted sectors.
- Removal of ceiling on employment of foreign personnel.
Thus, Myanmar now has a single piece of legislation governing both foreign and local investors, while taking into account of local SMEs and protecting small sized local businesses. Policy wise, the legislators and draftsmen deserve credit for stringing together a lot of the previously cluttered laws on investments.
Myanmar Companies Law 2017 (MCL)
The policymakers and the draftsmen of Myanmar chose to keep themselves busy even after accomplishing the feat with the MIL. They realized that in order to achieve the desired effect with the new legislation, further changes needed to be made. It thus followed that within a year of enacting the MIL, they replaced the century old company law and replaced it with the new Myanmar Companies Law 2017, filling in a lot of the gaping holes previously left in place by its predecessor.
Aside from fixing a range of the anomalies that stand to be outdated in the modern world of expansion and growth, two striking changes were brought about by the new law:
- The MCL made it possible for the foreign investors to own up to 35% of a Myanmar Company and still be classified as local company.
- Private companies can now be incorporated with a single shareholder and director.
Vestige of administrative hurdles
In spite of the substantive changes introduced from a policy standpoint through the passage of the new laws, the real hurdle remained, namely implementation of these fresh policies in a complex maze of bureaucratic entanglement.
The main obstacle for investors in Myanmar is the red tape encountered at every juncture. The bureaucrats continue to hold the keys and without changing their mindset, fresh laws alone would not suffice to open the closed doors. For example, the endorsed businesses will have to deal with the regional administrative bodies to obtain licenses before seeking endorsement from the MIC. The MIL leaves in place the 50 + 10 + 10 year rule pertaining to the application and extension of land rights authorization (leases) requiring the nod from authorities, which will continue to be a headache for the investors. In spite of the clear drafting of the MIL, repatriation of income and other payments will still involve having to convince the Central Bank of Myanmar (CBM) under the old Foreign Exchange Management Law (FEML). The MIL hints at giving preference to local investors over their foreign counterparts in terms of land leases. There is no guarantee on the standard of equitability that would be exercised by the MIC and the lines may well be blurred in terms of leverage and preferential treatments.
Need for further reform
The administrative hurdles will be compounded by the complementary legislations soon to be outdated. While the enactment of the MCL is step in the right direction, there are other potentially conflicting situations and speed bumps where the outdated legislations will not effectively complement the MIL. The FEML and the current labor laws are in particular need of reform to give MIL the desired momentum. The FEML is archaic and poses significant obstacles for foreign investors in terms of repatriation of profit whereas the labor laws are scattered all over the place with multiple statutes governing different aspects of employment, which should be codified into a homogenous single piece of legislation. Aside from smoother legal conduits, reform of these legislations would also enable policymakers to effectively untangle the bureaucracy further. Through reform, the relevant ministries and administrative bodies can be streamlined to involve a smaller number of red tapes and yield higher efficiency.
Slowly but surely
So, the quest is far from over. But in spite of the continued challenges, Myanmar has taken a giant leap forward with the MIL. The hype originally started with the end of the military rule. It was heightened when the trade ban was lifted and now it has accelerated with the introduction of the MIL. The first step has been achieved with some of the substantive laws i.e. the MIL, MIR and the MCL. The second step of amendment of the FEML and labor laws and most importantly, overcoming bureaucracy with a shift in the mindset of doing business need to take place under the steady watch of policymakers in engaged discussions with the investors.
In today’s world it is not every day that a country with untapped resources and potential opens shop for business. The conglomerates have already started to occupy the field with rise in infrastructural and communication developments, alongside simplification of processes for smaller businesses. Singapore is already reaching the point of saturation in terms of services. The laws of Thailand are still miles away from being investor-friendly except for certain areas like the automotive industry. Cambodia and Vietnam cannot compete with Myanmar in terms of resources. From all aspects Myanmar is on track to becoming the next big destination for investors in SouthEast Asia; the real El Dorado. Provided that the political climate achieves stability, particularly in relation to its foreign counterparts, the growth is likely to be organic. At its current pace, it would not be surprising to see Myanmar occupy a bigger chair in the ASEAN and become a weight-shifter in the region within the next decade.
It is thus no longer a question of where Myanmar is heading with its new investment law, but rather, when it will get there.
[1]Mr. Shawn S. Novel is a Barrister at Law of England and Wales and licensed to practice in the USA as Attorney at Law admitted in the New York State Bar. He is also an Advocate of the Supreme Court of Bangladesh. Additionally, his time at Bangkok, Thailand as an International Consultant has made him a veteran in cross-border transactions. He is currently the Head of Firm at Shawn Novel & Associates.”