Reforms to legislation governing investment in Myanmar, including streamlined procedures and strengthened investor rights, aim to reverse a downward trend in foreign direct investment (FDI) seen in the previous fiscal year.
Figures released in early April by the Directorate of Investment and Company Administration (DICA) reveal that Myanmar attracted $6.6bn worth of FDI in FY 2016/17 – which ended on March 31 – marking the first decline in international inflows since FY 2012/13.
While the most recent full-fiscal-year FDI total was higher than the $6bn initially forecast, it was also around 30% lower than the previous 12-month figure.
This decrease took place against a noticeable shift in the sector make up of Myanmar’s FDI portfolio, with the energy industry’s contribution falling from 50% of foreign inflows in FY 2015/16 to 36% in the last fiscal year.
Many other sectors, however, saw their contributions rise, including the transport and communications industry, which achieved $3.08bn of FDI in FY 2016/17, an increase of 60%, bringing its contribution to the total from 20% to 46%.
Streamlining processes, levelling playing fields
To reverse the overall decline in FDI inflows, Myanmar is implementing a series of reforms to foreign and domestic investment legislation. Foremost of these initiatives is the new Myanmar Investment Law (MIL), ratified last October and progressively coming into force.
The MIL serves to bring investment law under one regulatory roof, combining the Myanmar Citizen Investment Law and the Myanmar Foreign Investment Law.
The new law extends automatic investment protection to both citizens and foreign investors, covering a broad swath of asset classes, including shares and property. It also introduces a new investment application scheme, known as the Myanmar Investment Commission (MIC) Endorsement.
The MIC Endorsement is aimed at streamlining the approval processes for investments and providing a speedier recourse to investment benefits that were not available under the previous laws.
These include tax breaks for approved investments, opportunities for subsidies, and Customs duties exemptions for approved imports and re-exports.
MIC Permits will still be required, as under the previous investment law, for businesses seeking to invest in strategic sectors, capital-intensive investments, projects set to have a substantial environmental impact, and those that will use state-owned land or buildings.
According to Charles Schneider, senior operations officer of the International Finance Corporation of the World Bank, the MIL will not only contribute to levelling the playing field for all investors, but will also reinforce aspects that foreign and local investors seek.
“Myanmar is putting in place a clear framework for the protection of investors by incorporating international rules in national law, such as the ASEAN Comprehensive Investment Agreement, as well as other principles of international law, rights to access to land and transfer of funds,” Schneider told OBG.
Foundations laid, more building to be done
Though the main foundations of legislative reform have been laid, it will take time for the supportive structure to be erected, according to a recent report released by consultancy PwC.
While the MIL was approved in October, the by-laws have yet to be issued, PwC said, meaning there will be a transition period when some elements of the old investment regulatory regime will continue to apply.
This measured timeframe was confirmed by U Kyaw Win, minister of planning and finance, in mid-March, when discussing the reforms and the expansion of investment avenues.
“An attractive investment environment has taken shape,” he told a seminar in Yangon. “We assure you that the government will be supporting both domestic and foreign investors in their endeavours: 2018 and 2019 will be when Myanmar will truly sprint ahead economically.”
Some doors ajar, not wide open
While the MIL will open new doors to foreign investors and level the playing field, it will not benefit all investors in the same way, according to some stakeholders.
For example, some investors, while no longer obligated to secure MIC Permits, may still be subject to further permit requirements under policies implemented by other line ministries or agencies. These bodies, unlike the MIC, may not have formalised or streamlined their respective investment approval process and requirements.
Thus, where under the previous investment law approvals were more centralised (through the issuance of an MIC Permit), the MIL may have unintentionally created a situation where investors will be faced with more rather than less licensing requirements, according to Pedro Bernardo, a foreign consultant attorney at law firm Kelvin Chia Yangon.
“In this sense, those companies that seek to operate in certain sectors, including possibly ‘strategic sectors’ or seeking to invest in big projects, such as power, mining and telecommunications, may be presented with more challenges to entry when the MIL is actually implemented on the ground,” Bernardo told OBG
Looking forward, in order for an investor to get their investment licences more quickly, the primary challenge will be to streamline procedures not only at the MIC level but also within line ministries and agencies to which licensing power is granted, he said.
More reforms in the pipeline
Expected to be ratified later this year, Myanmar is also in the process of finalising reforms to the Companies Act, which covers the rules and regulations surrounding business operating environments.
Under the proposed reforms, lawmakers will work to ensure that regulations for companies are brought in line with international standards. In doing so, the aim is to reinforce investor rights, ease restrictions on foreigners buying shares in local companies and allow domestic firms to benefit from FDI.
Once ratified, the new act will put foreign investors on a more level footing with Myanmar citizens, giving them the opportunity to buy into the domestic economy and reinforcing their confidence in their legal rights.