Myanmar: Open for business

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A new foreign investment law that offers investors broader access to Myanmar’s economy, as well as useful tax breaks, is expected to add new impetus to the country’s development and is a landmark in its ongoing liberalisation. On November 2, President Thein Sein approved the much-anticipated law after several months in which the government and economic stakeholders debated and honed the legislation. Government newspapers reported that the legislation would allow joint ventures between foreign investors and local individuals and organisations, including the state, with the stake ratio determined between the partners.

The law also confirms regulations enacted in 1988 allowing foreigners to own 100% of enterprises without a local partner. While it is likely that restrictions will be imposed on some sectors deemed strategically important, such as agriculture, these may be waived in special cases by the government. Officials have said that those looking to take 100% stakes in Burmese enterprises would be subjected to particular “scrutiny”.

Perhaps most significant are the articles concerning land ownership and taxation. Foreign entities will now be able to lease land from Burmese owners, including the government, for up to 50 years, extendable by two periods of 10 years, depending on the type of investment. This should increase the appeal of Myanmar for long-term investments, as most contracts awarded in the past were on the basis of 30-year leases, extendable for two five-year periods.

Foreign investors are now also eligible for five-year tax holidays, and further tax incentives may be available if deemed in the national interest. Foreign-owned manufacturers can apply for tax relief of up to 50% on export profits, provided that they are re-invested in the company within one year. The law has been tweaked from an earlier draft to say that foreign enterprises would not be privatised during their contract term, providing a greater degree of security for investors.

The new law is part of Myanmar’s process of liberalisation over the past few years, and its effort to undertake political and economic reforms to create a more democratic society and administration, as well as a more open, deregulated economy with a greater role for the private sector and foreign investors.

President Sein, who was Prime Minister between 2007 and 2011, was one of the initiators of the process, supported by the international community and particularly the US, which started to re-engage with Myanmar in 2009. In 2010, democracy campaigner Aung San Suu Kyi was released from prison, and in March 2011 the former military government was dissolved and replaced by a civilian administration with Sein as president.

This year has seen an acceleration of Myanmar’s opening: the EU and Australia have both suspended sanctions on the country, and the US also eased sanctions and investment restrictions. It has also been marked by competitive elections in April, which were swept by Suu Kyi’s National League for Democracy; and a visit from US President Barack Obama in November.

The liberalisation has seen a surge in investor interest in Myanmar, which is rich in resources including oil; gas; timber; metals, such as copper; and potential in hydroelectric power. Myanmar also borders both India and China, two of the world’s largest emerging economies. Myanmar and its existing and prospective investment partners have strong mutual interests: the country has underexplored resources and access to markets that appeal to investors, while it needs the capital, expertise and economic stimulus that those investors bring.

Recent reports have thus been encouraging, suggesting that firms such as Coca-Cola, Chevron and MasterCard are looking into Myanmar, while officials are working on big-ticket deals with Thailand, Italy and Japan.

But for all its appeal to investors, and its progress in opening up over the past few years, Myanmar still has some way to go. The country has long been hampered by over-regulation and official interference in the economy. Some resistance to liberalisation has come from influential incumbents used to closed markets and low levels of foreign competition.

Some news reports have taken a sceptical view of the new investment law, saying that the law’s wording suggests the government will be able to block full foreign ownership of enterprises if it sees fit. As the IMF noted in a May report, the country is also affected by a complex multi-tier foreign exchange system, which might be of concern to some investors, and is in need of reform.

On the other hand, the IMF’s annual assessment of the economy the same month, the first made public by the government, was titled, “Myanmar Set for Economic Take-off With Right Policies”. These are early days yet, but as the report suggested, the government has a unique opportunity to jump-start economic development.

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