This bulletin by Canadiars law firm Davis LLP provides an update on the significant changes Myanmar is experiencing in government, legislation, trade and tourism and outlines the opportunities in this growing country
With a population of more than 60 million people,opportunities in Myamnar are not limited to extractive industries, but also exist in manufacturing and the domestic market for consumer goods. Even so, Myanmar’s natural resources should not be underestimated: natural gas, petroleum, timber, zinc, copper, lead, coal, precious stooft, and agricultural land exist in abundance.
Political and legal reforms could open more doors for foreign investors
A general election is set to be held in Myanmar in November 2015. These elections could see Aung San Suu Kyi, Nobel laureate and leader of Myanmar’s main opposition party, the National League for Democracy (NLD), brought to power. Her release in 2010 after almost eleven years of house arrest imposed by the previous military regime, was instrumental in opening up trade relations with the West. Regardless of whether the current ruling Union Solidarity and Development Party (USDP) or the NLD forms a government next year, it is expected that political and economic modernisation efforts begun in 2010 by current President, Thein Sein, will continue.
However, it is important to note that at this time, Aung San Suu Kyi is barred from becoming President of Myanmar by virtue of the country’s Constitution, which prohibits anyone with family members who are citizens of another country from holding the country’s highest office. This provision did not prevent her from being elected to Parliament in 2012, when vacancies in 8 percent of the seats (46 out of 664) were filled following by-elections, with the NLD capturing all 43 seats in which they ran candidates. Another round of by-elections is anticipated late in 2014, to fill approximately 30 more vacancies. It remains to be seen whether the Constitution will be amended to enable Suu Kyi’s candidacy for President prior to the general election expected in late 2015.
Other legal reform is ongoing, making it more practical for multi-national companies to invest in Myanmar. It is anticipated that a new Companies Law will be introduced in 2014, to replace the current law that dates back 100 years. A draft Trademark Law is before Parliament and a proposed Condominium Law, that will allow foreign citizens to own a form of property for the first time, was also placed before Parliament in November 2013.
New incentives draw foreign investment despite trade restrictions
The government of Myanmar places restrictions on foreign investment within the country. The State-Owned Economic Enterprises Law (1989), Foreign Investment Law (2012) and the Foreign Investment Rules (January 2013) restrict certain types of business activities from occurring without government approval. Foreign investment is monitored and approved by the Myanmar Investment Commission (MIC) which has published a list of activities in which foreign investors are prohibited from participating or which require a joint venture with a local business.
At the same time, the country is also providing incentives to foreign investors. In January, 2014 a new Myanmar Special Economic Zone Law (MSEZL) was enacted, repealing earlier legislation regarding special economic zones. The MSEZL offers up to seven years of income tax exemptions for foreign investors, with further 50 percent discounts on income tax for another five years. Currently, this law applies in Myanmar’s three Special Economic Zones: Kyauk Phyu, Dawei and Thilawa. The MSELZ provides for the establishment of additional zones and contains dispute resolution procedures.
Domestic strife and ongoing corruption issues have certainly not disappeared. While Canada’s Special Economic Measure Regulations (sanctions) have been relaxed in recent years, Canadians are still prohibited from dealing with certain businesses and individuals, including the state banks of Myanmar. Military shipments are also prohibited. These sanctions are enforced by the Export Controls Division of Foreign Affairs and International Trade Canada, the equivalent of the US Office of Foreign Assets Control. It is worth noting, however, that the Canadian list of restricted persons is more limited than comparable US prohibitions.
While Japan did not impose economic sanctions against Myanmar, there was a pronounced slowdown in government aid and private sector investment during the years that Aung San Suu Kyi was under house arrest. China expanded its economic and political influence during this period, but faces greater competition now that other countries, including Japan, are investing heavily. The Japanese government has pledged almost $2 billion in loans and grants since Prime Minister Shinto Abe was elected in December 2012.
Japan and Myanmar are jointly developing the ambitious Thilawa special economic zone just outside of Yangon, the country’s largest city. Plans call for a deep sea port, a power plant and waste water treatment facility, all in support of a 2,400 hectare industrial park. Construction began in November, 2013 and commercial operations are expected to start in mid-2015.
Financial growth: foreign banks increase presence in Myanmar
Despite some remaining trade restrictions imposed by various countries, growth of foreign investment in Myanmar has been substantial. At least 14 banks in Myanmar now permit foreign currency accounts. Even though foreign banks are currently permitted to only conduct research in Myanmar, 35 foreign banks have opened representative offices and it is expected that some licences for foreign branches may be tendered within the year. Daiwa Securities from Japan is one of the interested foreign financial firms.
In late 2012, automated teller machines (ATMs) linked to the international payment system were introduced in Myanmar. There are now hundreds of ATMs around the country, and while not as reliable as similar-looking ATMs in North America, they are providing much needed convenience and liquidity. On a visit this year, one of the authors of this bulletin found it’s possible to access funds held in Canadian accounts using some ATMs.
Further bank reform is needed and is on the way, with the IMF assisting in changes to the central bank and the launch of the Yangon stock exchange planned for 2015. Myanmar has also acceded to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, as of July 15, 2013. This will allow multi-national companies to settle commercial disputes outside the domestic legal system. Myanmar has also drafted a new arbitration law, expected to be enacted in 2014, which is required to allow for the enforcement of foreign arbitration awards by the courts of Myanmar.
At the end of 2013, Myanmar became the 180th member of the Multilateral Investment Guarantee Agency (MIGA), meaning MIGA guarantees are now available for foreign direct investments. The US Ex-Im Bank also opened in Myanmar on February, offering financial support for short and medium-term US export sales to Myanmar.
Industrial growth: global brands eye untapped potential
The country is endowed with hydrocarbons. The first barrel of oil was exported in 1853 but little production or exploration took place during the past 50 years of military rule. However, Myanmar has 50 million barrels of proven oil reserves and 280 billion cubic meters of natural gas. This is expected to increase with the recent arrival of foreign oil and gas companies. After a tender process for 16 on-shore blocks, Canadian company Pacific Hunt Energy won two oil concessions in Myanmar last year.
Even more recently, in March the government announced the awarding of 20 offshore oil and gas blocks. Majors such as Shell (in partnership with Mitsui) British Gas (with partner Woodside Petroleum), Total, Chevron and Statoil (in partnership with ConocoPhillips) were among the successful bidders.
In the manufacturing sector, GM and Ford have both entered Myanmar. Coca-Cola re-entered the country in September 2013 after an absence of more than 6o years. GE, VISA, and MasterCard are all increasing their presence in Myanmar.
Telenor (Norway) and Ooredoo (Qatar) both received investment permits after winning a tender in June 2013 for provision of telecom services. Significant investment and rapid growth is expected in the wireless sector.
In the garment industry, H&M has started placing test orders to explore possibilities, and a group of 12 Hong Kong garment manufacturers look to be the first to invest in the Thilawa special economic zone.
To sustain ongoing investment in Myanmar, parallel growth in infrastructure is required. In addition to the ambitious Thilawa special economic zone project already mentioned, two other major port development projects are planned: a deep sea port at Dawei, 3ookm west of Bangkok, supported by Thailand and a smaller port on the Bay of Bengal, a joint project between India and Myanmar. Completion of these projects may not be imminent, but the need for related bridges, roads, highways and water systems are major opportunities.
The electricity grid is inadequate by western standards. Companies offering a distributed power generation model are taking up the challenge, particularly outside Yangon. Large scale thermal and clean energy projects are also expected over in next few years. In March, 2014 the Japanese government pledged approximately $450 million in new loans to help finance additions to Myanmar’s electrical system. Mitsubishi, Marubeni, Fuji Electric, Toshiba and Hitachi are among the foreign firms already involved or actively pursuing involvement in this sector.
The Environmental Conservation Law was passed in 2012, but implementing rules to govern environmental impact assessments are still being drafted. More specific criteria from the government are eagerly awaited. Tourism growth: influx of travellers bring economic opportunities
The tourism industry is growing at a rapid pace. Myanmar is welcoming almost two million tourists each year. While this is less than lo percent of the number of visits to neighbouring Thailand, this gap is starting to narrow. Those plane loads of tourists are looking for a place to stay, and hotel chains such as Hilton, Pan Pacific, Peninsula, Accor and Best Western are responding to the opportunity presented by nightly rates that have tripled in recent years.
This also creates strong opportunities for airlines flying into Myanmar. Expansion of the country’s largest airport, Yangon International, has been announced, with a goal to handle 3.3 million passengers per year. A new international airport is expected to open in Bago in 2018, and expansion projects at other airports are expected. The private sector has been encouraged to participate but delays have hit some projects, particularly the planned new $1.1 billion Hanthawaddy International Airport, 100km from Yangon International Airport.
There are eight domestic air carriers operating in Myanmar, with at least four more preparing to launch. However, these carriers only operate a combined total of 40 aircraft and only two, Myanma Airways and Air KBZ, operate more than five aircraft. Consolidation of domestic airlines seems probable, even as growth in domestic air travel continues.
Myanmar is also looking outwards and is playing a more active role in the international economy. The country hosted the East Asia World Economic Forum in its new capital city, Nay Pyi Taw, in June 2013. Myanmar also hosted the Foreign Ministers Meeting of the Association of Southeast Asian Nations (ASEAN) in January 2014, and for the first time ever Myanmar is now chair of ASEAN. The biggest newsmaker, however, was when the 27th Southeast Asian Games were held in Myanmar just before Christmas 2013.
Other information to consider
For those considering doing business in Myanmar, the cost of leasing office space or renting reasonable accommodation in Yangon can be daunting. Rents currently surpass $100/square foot, which is higher than the average rental rate in Manhattan. Relief may be on the way, however, as construction cranes are sprouting across the city.
Although the tight real estate market seems to have delayed the promised opening of Canada’s first embassy in Myanmar (it was intended to open in mid-2013), Mark McDowell was named last year as Canada’s first ambassador to Myanmar. He and a small contingent of staff are currently working out of the British Embassy, but for now Canadian citizens requiring consular services are still required to seek assistance at the Australian Embassy. Canada’s Embassy is now expected to open in mid-2014.
Myanmar’s rich resources and untapped market and labour potential have made it a hot bed of new international economic development. Still, there remain significant challenges in navigating the emerging financial and legal systems. Caution and careful planning is recommended.
Resource from Myanmar First Bilingual Business Journal May 1,2014