Myanmar’s long-awaited foreign investment law analysed

Author: Ashley Lee | Published: 9 Nov 2012
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Investors have been pleasantly surprised by Myanmar’s new foreign investment law, which was signed by President Thein Sein on November 2.

The draft investment law passed by Parliament in September was widely criticised by market participants. One reason was the lack of clear definitions around restrictions on joint venture ownership in 13 key sectors.

Investors consider this new iteration of the law, created after an intervention by President Thein Sein, much more workable.

“What is particularly important is that the reputational risk associated with investment in Myanmar has now evaporated,” said Derek Tonkin, chairman of foreign investment development organisation Network Myanmar.

Thura Soe-Paing, managing director of All Myanmar Investment & Development Partners, an affiliate of Singapore-based investment company Frontier Investment and Development Partners, noted that investors hate uncertainty more than anything. At least now, he said, Myanmar has certainty in its foreign investment regime.

“The law is not unworkable – it’s an improvement from the earlier draft – and will encourage investors to invest,” he said.

But Tonkin said that he doubts that there will be a rush to invest. “Under the previous law, it was always possible to invest on terms similar to the new law,” he said.

IFLR obtained an unofficial translation of the law, according to which the investment restrictions in the 13 key sectors do not feature in the law. The only industries with specific restrictions include long-term or short-term plantations, animal husbandries and salt-water fisheries reserved only for citizens.

But there is some room for interpretation. The translation said that barred or restricted businesses include those harmful to the health of people and the environment. It is unclear what sectors these restrictions will entail.

Moreover, the law details the formation of the Myanmar Investment Commission (MIC), which will set out more specific policy related to foreign investment. Foreign investors must apply to the MIC to approve foreign investments.

The MIC will scrutinise proposals and will be able to decide and change the type, amount, and terms of the investment. Moreover it will be able to scrutinise whether investors follow the Foreign Investment Law and will commence legal actions against companies found non-compliant.

The investment law looks good on paper, but it all depends on how the MIC implements the law, said Joseph Lovell, senior lawyer at DFDL. However he said that it’s unclear whether it will handle investments on a case-by-case basis or as policy matters.

The lack of specifics in the law may allow the MIC more flexibility. Tonkin said that the greater level of discretion for the MIC is prudent because it is difficult to define in advance all possible investment parameters.

However, Tonkin said Myanmar will need to ensure that investment licenses are not issued without assurances of guaranteed funding as sponsors and speculators may only have short-term engagement in mind.

The next step: banking and foreign exchange

Although foreign investors are understandably excited by the new law, they hope that Myanmar will enact further changes for investment under banking and foreign exchange regulations.

“We still need to reform the banking sector because it must drive the economy,” said Soe-Paing. “Now that this law is completed, we’ll begin working out quirks such as the conversion of the US dollar to the kyat, which isn’t yet a straightforward process.”

Lovell agreed, and added that he expects the development of a foreign exchange system just because it needs to be there for investor certainty.

Foreign investors are especially eager to enter Myanmar’s underdeveloped banking sector. But this may be delayed to due to local law issues..

The sector is covered by the 1990 Law on Financial Institutions and related regulations which may be amended in due course.

Notwithstanding the lack of regulations, foreign investors have already entered Myanmar’s financial services and banking sectors. Credit card companies Visa and MasterCard have formed joint ventures with Myanmar banks, while Big 4 accounting firms KPMG and PwC have also opened Yangon offices.

Given the enormous amount of foreign investment pouring into the country, counsel are optimistic. Lovell said that the law, at least on paper, is a big step in the right direction. “I expect more regulatory infrastructure reforms to follow in foreign exchange systems, IP protection and banking reform,” he added.

See also:

Myanmar investment: US and EU sanctions explained

Revealed: Why Myanmar’s new telco law could be shelved

Exclusive: Myanmar to redraft Special Economic Zone Law

Australia to help Myanmar build mining regulatory regime