Key Challenges Facing Investors in Myanmar’s Current Investment Environment

This week, we are featuring a two-part guest blog prepared by TransLegal’s correspondent in Myanmar, Oliver Massmann.  Oliver was invited by His Excellence, Minister Soe Thane, to the President’s office on 22 January 2014 to discuss current investment and trade issues faced by foreign investors in Myanmar.  Below is the position paper Oliver drafted after the meeting.

This week, Oliver focuses on the issues facing foreign investors in Myanmar.  Next week’s blog will discuss possible solutions.

Contact TransLegal and Oliver to learn more about investment opportunities and challenges in Myanmar.

Oliver Massmann 

I           The Vision for Myanmar:

Map of Myanmar

Map of Myanmar

Historically, Myanmar was the wealthiest country in Southeast Asia and also once the world’s

largest exporter of rice. It produced 75% of the world’s teak and had a highly literate population.

After such a long time being closed off, however, it is now one of the poorest countries in Asia.

Everything has changed since Myanmar embarked on a major policy of reforms in 2011, and

Myanmar is now a new Asian emerging market.

Myanmar has all the elements required to create another Asian economic miracle, and it has strong potential.  Before realizing that potential, Myanmar has to solve the challenges and impediments hindering its development.

Myanmar must seize the opportunity to become what it once was: a country with a transparent and responsible investment and trade policy. 

II. Myanmar’s Present Investment Environment:

Even though Myanmar presents unique opportunities for investment and growth, it is still facing major challenges, especially with a systemic lack of transparency within the nation’s trade policies.

If Myanmar cannot resolve a number of pressing challenges and impediments faced by potential investors, it may cease to be an attractive country for foreign direct investment (FDI) or joint ventures.

Market on Lake Inle Photo Credit: Justin Blethrow via Wikimedia Commons

Market on Lake Inle
Photo Credit: Justin Blethrow via Wikimedia Commons

Specifically, some of these challenges and impediments are:

1.     Lengthy bureaucratic licensing process and high start-up costs, especially for lease rentals for offices and establishing manufacturing facilities:

Currently, foreign investors face lengthy bureaucratic processes when licensing their businesses.

Most investors are facing high start-up costs, especially related to office rent and establishing manufacturing facilities.

2.     Impractical and very time-consuming procedures for import license approval:

Currently, ministries must approve import licenses for every consignment.  This procedure is impractical and very time-consuming It would be more efficient and trade-friendly to approve imports for a range of goods that the particular company can import for a fixed period (e.g. – 1-2 years).

3.     Lack of land protection: Legally only allowed to sign one-year lease

Foreigners and foreign-owned companies are legally only allowed to sign one-year leases (unless they go through the Myanmar Investment Commission (MIC) process). This is fraught with danger. An investor cannot feel safe establishing a business knowing that his business location lease might not be renewed the following year. This is a major source of frustration for many operating in Myanmar, and it is a considerable factor behind dubious ‘straw man’ joint ventures with local individuals and other partners which are not secure or in the interests of the Myanmar government.

4.     High restrictions on Myanmar monetary transfers and unreasonable interest rates:

The big banks (particularly the US domiciled ones) have been self-imposing high restrictions on monetary transfers to Myanmar. We understand there are limits to what the Myanmar government can do to address this, but it is important to recognize the difficulties this causes investors.

Moreover, the problems of exchange and interest rates under a backward and hard-to-reform financial system are still constraining the development of Myanmar’s economy. Unreasonable interest rates adversely affect businesses that face relatively high financing costs as a result.

5.     Only country in ASEAN that has two laws for investment:

Myanmar is the only country in ASEAN that has two laws for investment: one applicable to local firms; and another to foreign investors. All others have a single law. In terms of arbitration, the Foreign Investment Law allows investors to settle disputes outside Myanmar, but there is no such provision in the Myanmar Citizens Investment Law.

A unitary law could ensure fair and equitable treatment for all and create a more attractive environment for FDI, greater protection for both foreign and domestic investors, and measures to streamline and simplify the investment process.

6.     Myriad questions around land auctions, tender processes:

There are still myriad questions around land auctions and tender processes. Nobody knows what tenders are ongoing through which ministries and what stage they are.

7.     Ambiguous tax system:

Investors face difficulties complying with the tax system in Myanmar because of problems understanding the rules and procedures. There is very little clarity on taxation and too much case-by-case decision-making power.

Contact TransLegal and Oliver to learn more about investment opportunities and challenges in Myanmar.

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