As it emerges from a half-century of economic isolation, Myanmar is undergoing an extraordinary surge of foreign investment and international trade. Of all foreign direct investment (FDI) accumulated in the country as of the end of 2013, half had entered in the previous three years, while recorded trade volumes more than doubled from 2009 to 2013.

This surge is taking place even as foreign investment continues to be highly restricted, and despite considerable uncertainty surrounding national elections due in the autumn of 2015. Reforms are progressing, however, following important steps taken in 2013-2014 to recruit foreign investment into sectors ranging from offshore gas and mining to banking, mobile telecoms, manufacturing and airport infrastructure. Investment in many forms and sectors, however, remains off-limits, and as of January 2015 every new foreign enterprise still had to undergo a lengthy review and permission process.

Potential investors in Myanmar should be prepared to cope with a country of paradoxes, which is with one hand working to recruit foreign investment and with the other holding it back so as to protect domestic businesses. Although there is growing confidence that Myanmar has set itself on an irreversible course of opening up to the global economy, there is also growing acceptance that some parts of the process are likely to be frustratingly slow.

History Of Isolation

Myanmar’s period of relative isolation began in 1962, when a military coup ushered in one-party socialism and a thorough nationalisation of the economy. Over the next quarter of a century, the country had limited foreign trade and close to zero foreign investment.

After pro-democracy protests in 1988 in Yangon (also known as Rangoon), a reshuffled military leadership dropped socialism, privatised a host of businesses and recruited foreign investors in certain sectors. Foreign investments launched in the early 1990s included two offshore gas fields developed by US and French oil majors Texaco and Total, and a copper mine run by Canada’s Ivanhoe Mines.

The 1990s thaw proved short-lived. A lack of democratic reforms led to growing international criticism and in 1997 to a US ban on new investments by its companies. Canada and European countries followed suit, with similar sanctions that eventually expanded to include a trade embargo, and Myanmar fell back into isolation. Inward flows of FDI rose to a peak of $879m in 1997, then dropped back to $200m-300m a year in 1999-2006, according to the UN Conference on Trade and Development (UNCTAD).

Most Western investors withdrew, including Texaco and Ivanhoe, though Total chose to stay and many Asian companies remained active. Malaysia’s Petronas took over the gas field operated by Texaco, and Thailand’s state upstream oil and gas company, PTTEP, became the sole gas customer. Meanwhile, PTTEP and South Korea’s Daewoo International each discovered additional offshore gas fields.

China’s Rise

FDI picked up again from 2007 as a rising China became Myanmar’s chief ally and dominant investor. China National Petroleum Company launched a pair of pipelines from the Myanmar coast to the Chinese border, with a gas line to be fed from Daewoo’s field and an oil line built for imports from the Gulf. Two Chinese state metallurgy firms launched a large ferronickel mine, and a division of military-industrial giant Norinco took over the copper project from Ivanhoe. China’s biggest ambitions were in hydropower: its firms and banks financed the construction of three hydroelectric plants and inked deals to build dozens more, including the giant 6000-MW Myitsone dam that would become one of the world’s largest. Thailand’s state power company, the Electricity Generating Authority of Thailand, had inked similar deals in the early 2000s but pulled out when a work site was attacked by rebels. The Myitsone site was also attacked, but Chinese backers pressed ahead, supported by the Myanmar military.

FDI ramped up rapidly, to annual inflows of $2.2bn in 2011, according to UNCTAD. More impressive still, a massive $20bn worth of foreign investments were permitted during the 2010 fiscal year (these run from April 1 of same-numbered calendar years), according to the Directorate of Investment and Company Administration (DICA), a department of the Ministry of National Planning and Economic Development (MNPED). That figure included $3.5bn for Daewoo’s gas field and a combined $14bn of planned Chinese investments – in dams, the Sino-Burmese pipelines and expansion of the copper project.

All major foreign investments during this period were de facto export-oriented, due to strict capital controls that gave the country’s kyat currency an officially high value but made it nearly impossible to convert. Foreign investors therefore typically negotiated permission to export 75-90% of their output while agreeing to deliver the rest to the government as its profit share. This practice caused some controversy, especially over the Myitsone project given the large land area that would be flooded.

Second Opening

The more recent thaw began to develop in 2010-11 as the next generation of military leaders came to power and initiated a transition to civilian rule. The new president, U Thein Sein, released opposition leader Daw Aung San Suu Kyi from a long house arrest and ordered a suspension of the Myitsone dam project, defusing what had been an escalating conflict between the military and local opponents of the dam’s development.

An April 2012 by-election brought Daw Aung San Suu Kyi and her party into parliament, followed quickly by the suspension or lifting of most international sanctions. Also in that month, the government liberalised foreign exchange, allowing the kyat to trade at market value. Western governments began encouraging their companies to trade with Myanmar and invest in it. “There is a great deal of interest from British business in opportunities, but like other Western investors they remain cautious when it comes to taking the plunge. Other Asian businesses, particularly the Japanese, have taken a more front-footed approach,” Lisa Weedon, director of UK Trade and Investment at the British Embassy, told OBG.

The Myanmar government lobbied hard to unlock foreign investment, at the same time fearing it could let in too much. A new Foreign Investment Law adopted in 2012 and regulations issued in 2013 improved tax incentives and lengthened land leases, but also restricted foreign investment in many sectors. Although the restrictions mostly formalised longstanding practices, they signalled a commitment to protecting local business. The new law also preserved a longstanding requirement that all major FDI projects pass a review of their merits.

New FDI permissions slowed during the political transition, falling to $1.4bn in FY 2012, according to the DICA. But they jumped soon thereafter, reaching $4.1bn in FY 2013 and another $4bn in the seven months of April-October 2014. Actual FDI inflows held steady at $2.2bn in 2012 and rose to $2.6bn in 2013, according to UNCTAD.

At the end of 2013, total accumulated inward FDI came to $14.2bn, while total FDI permissions reached $50.6bn at the end of November 2014. FDI inflows tend to lag one or more years behind and fall well short of permissions, especially when large projects such as the Myitsone dam are not realised.

Top Foreign Investment Sectors

Manufacturing has become the new leading target for foreign investment, especially for export-oriented garment factories and fast-moving consumer goods designed for the domestic market. Out of the $9.5bn in FDI permissions granted from April 2012 to October 2014, $2.9bn – nearly a third – went to projects in manufacturing, according to the DICA.

The lifting of sanctions has also led to a surge in business visitors, many of them from foreign companies and organisations setting up a presence in the country. That in turn is driving a wave of foreign investment in office buildings, hotels and other real estate projects that cater to newly arriving businesses and travellers. During the April 2012-October 2014 period, $2.2bn of FDI permissions went to projects in real estate, hotels and tourism.

The transport and communications sector accounted for a further $2.5bn of FDI permissions during that period, led by cellular infrastructure investments following the July 2013 award of national mobile network licences to two foreign groups, Norway’s Telenor and Qatar’s Ooredoo. Oil and gas sector projects accounted for another $1.1bn of FDI permissions during that period, while power sector projects accounted for about $450m.

In the meantime, the dominant source of investment has switched from China to Singapore, whose companies accounted for $5.2bn of the same $9.5bn of FDI permissions granted in the April 2012-October 2014 period. Only a portion of those planned investments, however, represent Singapore-based investors, such as Keppel Group, a major property and hotel investor in Myanmar. Many others are merely Singapore-registered holding companies owned by groups based elsewhere. Singaporean holding companies are preferred vehicles partly because firms from the ASEAN bloc are afforded certain protections in Myanmar under the ASEAN Comprehensive Investment Agreement.

A further $694m of the FDI permissions from this period were given to companies registered in the UK and affiliated islands – mainly representing the ventures of offshore holding companies – while $645m of permissions went to Thai companies, $627m to Malaysian ones and $520m to Chinese ones.

Investment Gateways

The most important restriction faced by foreign investors is the requirement to apply for permission to invest. For most inbound investments, an application must be made to the Myanmar Investment Commission (MIC), a government-appointed committee made up of cabinet ministers, other senior government officials and private sector representatives. The Foreign Investment Law directs the MIC to take up to 90 days to scrutinise each application to determine whether the investment would be beneficial to the country.

Foreign investors planning to locate their operations within a special economic zone (SEZ) may apply instead to the SEZ’s management committee. This is a swifter and less onerous process. A separate SEZ Law, adopted in 2011 and revised in January 2014, functions as a parallel framework to the Foreign Investment Law, providing an alternate route for foreign investments to enter under different rules. The country’s first SEZ, located at the port of Thilawa about 25 km southeast of Yangon, began pre-booking plots in 2014 based on preliminary expressions of interest. It is expected to begin formally approving applications in 2015 (see analysis).

Investment projects permitted by the MIC or an SEZ receive holidays from corporate income taxes, lasting for seven years for exported-oriented projects in SEZs and five years for other investors. SEZ investors also receive an additional five-year 50% reduction in income tax, followed by the same arrangement for tax on reinvested income. Export-oriented projects in SEZs receive a broad, indefinite exemption from import duties on capital goods, materials and parts. Other SEZ- and MIC-approved investments receive time-limited exemptions.

MIC-approved investors are eligible to lease state land or land belonging to a joint-venture partner for up to a 70-year term, while investors in SEZs can lease SEZ land for up to a 75-year term. Also, foreigners wishing merely to establish a Myanmar company without bringing in significant capital can submit a relatively simple application to the DICA. However, foreign companies approved only by the DICA receive no tax incentives and may lease land or building space for terms up to only one year.

Ownership Rules

Foreigners are forbidden to buy land, and there is only a small amount of private freehold land available, mostly in Yangon and Mandalay. However, leases are transferrable and such transfers are referred to as purchases and sales. In 2013 the government submitted a draft law to parliament that would allow foreigners to buy condominiums, though as of early 2015 it was unclear if parliament would adopt it. In Yangon little land is available and prices are very high. In a further constraint, the electric power grid usually does not extend much outside of major cities and towns. “Unfortunately there is only a small amount of industrial land in the country, and so landowners try to sell agricultural land as industrial land,” U Soe Win, managing director of professional services firm Myanmar Vigour, a correspondent firm of Deloitte, told OBG. “We have to advise our clients not to step on agricultural land, as there are too often problems with squatters or people making claims to land based on having lived on and farmed it in the past. The lease or ownership status of land should be very clear.”

Crucially, foreigners are not allowed to buy existing Myanmar companies or their shares. Foreigners who wish to acquire or buy into an existing domestic business can do so only by forming a new foreign-owned company or joint venture and, after receiving permission from the MIC, by transferring the assets of the business to the new entity.

This means foreigners cannot participate in Myanmar’s nascent equity market, and that Myanmar companies cannot raise equity financing from foreigners without first going through a complex restructuring and permission process. The government has worked on a rewrite of the relevant law, the Myanmar Companies Law, but as of December 2014 no details had been announced.

Prohibited Sectors

Foreign investment continues to be legally banned in some sectors. The most important of these are mining of jade and gemstones and most kinds of staple crop farming. Native-language periodicals are also off-limits, as is prospecting in rivers for minerals; any “small or medium-scale” mining; and arms, ammunition and related services. Foreign investment in “value-added” cultivation is allowed, but only through joint ventures with a minimum 51% local stake.

In some areas of finance, foreign investment is prohibited through licensing requirements. These include most kinds of banking, which the central bank has reserved for domestic banks by issuing only highly restrictive licences to foreign banks. The Insurance Business Supervisory Board at the Ministry of Finance has similarly kept the insurance market closed by not issuing any licences to foreign firms. Also, the Directorate of Trade at the Ministry of Commerce effectively prohibits foreign companies from engaging solely in international trading.

Restricted Sectors

In a large number of other sectors, foreign investment is allowed, but only through a joint venture with a local partner, which must have at least a 20% stake. These areas are further divided into three groups. For the first – which includes most businesses related to oil and gas infrastructure, oil refineries, railways, electronic lotteries, urban redevelopment and development of new suburbs – the joint venture must be with a particular government entity. In the mining industry, the government collects a profit share from mines by issuing licences only to joint ventures that partner with state-owned mining enterprises.

For the second group – which includes the majority of businesses related to health care, fishery, forestry, ecotourism, soft drinks, water transport, postal services, broadcasting, movies and foreign-language periodicals – the local stake can be owned by any domestic party, but the investment requires approval from a relevant ministry in addition to permission from the MIC. For both of these first two groups, the government body that is forming or permitting the joint venture may insist that its own stake or the local partner’s be larger than 20%.

For the third group – which includes most business areas related to real estate, airlines, non-dairy food and beverages, packaging, paper, plastic, rubber, many kinds of chemicals, cookware, tableware and “small and medium-scale” power generation – the local stake can be owned by any domestic party and only MIC approval is required. In practice, in the oil and gas industry, the energy ministry has also typically required foreign investors applying for licences for onshore and shallow offshore exploration to have a local joint venture partner.

The list of restricted sectors is set out in regulations that can be revised by the government without parliamentary approval. The list was liberalised significantly in August 2014, most notably by allowing 100% foreign-owned firms to invest in transport infrastructure, retail trade, electricity trade and large-scale mining other than precious stones.

The lifting of explicit written restrictions, however, does not in itself open up sectors to investment. Daw Wah Wah Maung, deputy director-general at the MNPED’s Foreign Economic Relations Department, told OBG that the government was unsure it was ready to open up to retail trade, for example. “Japanese investors would like to build a big shopping mall in Yangon, but this is still under consideration,” she said in September 2014. “It’s still too early for us to open up completely to global supply. We would like to promote our own private investors.”

The US still retains sanctions on a number of top Myanmar businesspeople, politicians, companies and banks – mostly those considered close to the military leadership. These measures prohibit US citizens and companies from doing business directly with the sanctioned people or entities. It has also maintained bans on imports of Myanmar jade and rubies. At the same time, though, its embassy in Yangon has good relations with some of the sanctioned businesspeople, and the US government has strongly encouraged investments that has put US companies into indirect business relationships with them.

Not Easy Doing Business

Myanmar is ranked very low for ease of doing business in the World Bank’s annual surveys, placing 177th out of 189 countries ranked in the Doing Business 2015 report, which was based on information up to January 2014. Myanmar ranked particularly low in enforcing contracts (185th), protecting minority investors (178th), getting credit (171st) and starting a business (last at 189th). The rankings judge conditions from the perspective of local small businesses and hence do not always apply to foreign investors – for example, one of Myanmar’s biggest negative marks was for its high minimum company capital (MMK50m, $50,000) relative to local incomes.

The World Bank survey gave Myanmar a more middling score (116th) for its tax system. U Soe Win of Myanmar Vigour told OBG the biggest difficulty with taxes in the country was proportionality: tax officials tend to ignore financial statements and simply apply a “rule of thumb”, such as a certain percentage increase over the previous year’s tax payment. “The tax people cannot interpret financial statements properly,” he said, “so they just ask for an amount they think will look good to their bosses, regardless of whether you should actually owe more or less.”

The World Bank survey gave Myanmar a middling ranking for ease of getting electricity (121st), but only because the survey does not judge the reliability of supply and assumes location in an electrified area. Myanmar’s electricity supply is notoriously unreliable, especially in the dry season due to the grid’s dependence on hydropower, and the national power grid generally only covers major cities and towns. Nearly all foreign investment projects, even smaller ones, include backup diesel generators. A few use diesel as their primary energy supply.

Trade Liberalisation

The government under President U Thein Sein has been gradually liberalising Myanmar’s traditionally restrictive foreign trade regime. This trend has been reflected in a rising ranking in the Doing Business 2015 survey’s international trade category, where Myanmar jumped to 103rd from 135th the previous year. This steep climb is attributed largely to a reform passed in April 2013 that eliminated export and import licensing requirements on a wide range of goods.

The government is committed to improving Myanmar’s ranking in the Doing Business survey, U Toe Aung Myint, director-general of the Ministry of Commerce’s Department of Trade Promotion, told OBG. “In order to improve collaboration among departments and better facilitate business, the Ministry of Commerce has set up two teams working on private sector development and trade development,” he told OBG. “We’re holding meetings across ministries and also holding public-private dialogues – really open and frank discussions.” U Wah Wah Maung of the MNPED struck a similarly proactive tone: “We’re working especially on simplifying the formation of new companies, trade liberalisation, import-export licences and Customs procedures.”

As of December 2014, licences from the Ministry of Commerce were still required for each individual shipment of most goods. But even that requirement had become more of a formality than a restriction, as licences are usually approved within a day or two.


Import duties in Myanmar have long been relatively low for South-east Asia. Average applied import tariffs were 5.5% in 2013, a number that has changed little since the 1990s, according to the WTO. The trade-weighted average tariff was 2.9% in 2010, the last year calculated. Those rates were the lowest in the ASEAN bloc after Singapore and Brunei Darussalam – by comparison, Malaysia’s simple average and trade-weighted average applied tariffs were last measured by the WTO at 6% and 4.3%, respectively. Import duties are highest on clothing (16.8% by simple average), beverages and tobacco (24.3%) and coffee and tea (14.3%), and are generally higher on agricultural goods (8.9%). Though average tariffs are relatively low, only 4% of tariff lines are duty-free, while 47% incur “nuisance rates” of 2% or less.

Exporters of goods that require export licences must also receive a one-time export permit from a relevant ministry or state agency for each product they plan to export. For some goods these are quick and perfunctory, but for others, such as processed food, permission can take up to 18 months, according to the WTO. A few goods are subject to export taxes, including natural gas (8%), precious stones (30%) and timber (50%). While many of its trade partners have relatively high import duties, Myanmar is party to free trade agreements (FTAs) with most of them, including the ASEAN bloc as well as China, Japan, Korea, India, Australia and New Zealand, which themselves have FTAs with ASEAN.

Myanmar’s trade performance in recent years has been climbing steadily, jumping by 112% from FY 2009 to FY 2013, according to official figures from the Central Statistical Organisation. Actual performance appears to have been better still: trade partners reported that their commerce with Myanmar grew by more than 130% from 2009 to 2013, according to UN and IMF databases. What is more, even trade partners appear to be substantially undercounting Myanmar’s exports (see analysis).


Looking ahead, manufacturing investment appears set to accelerate as the long-planned Thilawa SEZ is completed. The most crucial question on the near horizon is whether the government will find a solution to a long-standing problem that has been holding back investment in electricity generation for the domestic market: the state-run national power grid charges residential customers and small businesses very little for electricity. Although since April 2014 large businesses pay a more realistic price of MMK150 ($0.15) per KWh, residential and small businesses customers pay effectively subsidised rates of MMK35-75 ($0.035-0.075).

The government has traditionally funded such effective subsidies by allocating the natural gas it receives as profit share from gas producers to state-run power plants. To expand power generation, the government will need to fund subsidies increasingly from its cash revenues. It has thus been difficult for the government to come to terms with would-be investors in power generation, as the government is reluctant to commit to paying a high enough price for power supplies. This problem is likely to increase the attractiveness of the Thilawa SEZ, where a dedicated power plant is being planned.

Investment in offshore gas is likely to begin re-accelerating from around 2016, as the many foreign companies that were awarded blocs in recent licensing rounds complete seismic work and begin exploratory drilling. Expensive deep offshore drilling, however, could be delayed if oil prices remain as low as they were in late 2014. Exploration is also picking up in the mining sector, and is poised to surge after adoption of a long-awaited revision of the industry’s main governing law, expected in 2015.

There is potential for greater public-private investment in infrastructure. Singaporean and Japanese investors recently won a $1.45bn tender to build a new international airport at Hanthawaddy after the Korean-led consortium that won a previous tender in 2013 failed to agree on terms. It is also possible that the 2015 elections could help unlock the huge potential in hydropower and agriculture, but forging a social consensus supportive of large-scale investments in those sectors is likely to take time.