Investors have been pleasantly surprised by Myanmars
new foreign investment law, which was signed by President Thein
Sein on November 2.
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
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 its 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 its unclear whether
it will handle investments on a case-by-case basis or as policy
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
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, well begin working out quirks such
as the conversion of the US dollar to the kyat, which
isnt 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
Foreign investors are especially eager to enter
Myanmars 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 Myanmars financial services and
banking sectors. Credit card companies
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.
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