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Investors keen on Myanmar investment law amendments

Publication Date : 19-09-2012


Myanmar Convention Centre (in the background) was opened for the first time for an international conference, marking the opening of the isolated economy.

All foreign and local investors at a recent conference here in the Myanmar capital focused their attention solely on the amendments to the Foreign Investment Law (FIL), which is believed to bring enormous changes to the investment climate after the lifting of sanctions by major economic powers.

Myanmar's parliament, or Pyidaungsu Hluttaw (Assembly of the Union), approved the amendments on September 7, leaving President Thein Sein 15 days to decide whether to enact the changes immediately or return them with comments to parliament.

The amendments are hailed as Myanmar's biggest attempt so far to draw more foreign direct investment, as since the 1960s the country has attracted US$40 billion in total FDI.

Among the amendments that stirred questions, the 50:50 joint venture clause appeared to draw the most comments from both foreign and local investors (including several Thai companies) joining the Euromoney Conferences on Myanmar Global Investment Forum last week. Most foresaw deadlock from the clause, as it |prevents majority control of either side.

As well, Soe Win, managing director of Myanmar Vigour Consultants, pointed out that if Thein Sein wanted to maintain the $5 million minimum capital investment, this sounded protectionist.

"The question is how many local companies can afford the investment. Do we still want the luxury of being wet-nursed? If the minimum capital investment is maintained, who will benefit, the 60 million people [of Myanmar] or a [small] group of people? Will we be able to manage, or will we be able to sell business later to foreigners in case we are not successful?" he asked.

Serge Pun, executive chairman of Yoma Strategic Holdings, said the government should instead come up with a list of restricted businesses where minority foreign ownership is promised.

Then, ownership in non-restricted industries should depend on negotiation between foreign investors and local partners.

"Now, every industry falls into the same rule. It's a deadlock."

Foreign banks such as Bangkok Bank and Siam Commercial Bank are also pushing for bank-branch licences rather than joint ventures, largely out of concern over prospective partners and quality of management.

Investors were also concerned about foreign-ownership limits |for small and medium-sized enterprises (SMEs).

However, George Soe Win, a senior economic and business consultant, soothed foreign investors' concerns with his own interpretation that "there is only clause under the amendment.?? "foreign investors can take up to 100-per-cent ownership in businesses that locals can't do".

To Aung Zaw Naing, chief executive officer and managing director of Shwe Taung Group, in the real-estate industry, foreign investment is welcome with or without the amendments.

He anticipates more investment to come after the amendments are announced.

"The legal platform is already there. With the amendments, foreign investment is more flexible |in terms of financial transactions," he said.

Peter Ryder, CEO of Indochina Capital, said 100-per-cent ownership in his industry would draw foreign players who would bring along quality business management.

Parliament on September 7 agreed to abolish the controversial $5-million minimum investment threshold and raised the maximum share that foreign firms can hold in 13 restricted sectors from 49 per cent to 50 per cent.

The former restrictions were judged as making foreign partners provide significant funding in exchange for little control.

Significantly, foreign investors are also guaranteed no nationalisation. They now enjoy three-year tax holidays. Land-lease terms will also be extended from one year to 15 years, with a 15-year renewable clause. Under the amendment, foreign investors can also lease land from individuals, not only the government, whose land is generally in poor locations.

As most of Myanmar's 60 million people live in poverty, the country is desperate for new investment. According to the Union of Myanmar Federation of Chambers of Commerce and Industry, since the country fell under the military rule, it has attracted investment of $40.4 billion (1.25 trillion baht) from 456 companies.

While China controlled 34.42 per cent of the FDI, Thailand was ranked second with 23.39 per cent.

Of the total, investment in the electrical-power and oil-and-gas industries accounted for 80 per cent.

Asian Development Bank (ADB) data also showed that from 2005 to 2010, investment in the oil-and-gas industry continued to rise, totalling $2.9 billion or 77 per cent of the total FDI of $3.77 billion during the period.

According to the Directorate of Investment and Company Admin-istration, there are only 29,614 registered businesses in Myanmar, including 1,377 foreign ones. While there are 27,044 local companies, there are 1,072 partnerships, 72 joint ventures and 49 business associations. It is estimated that there are 42,000 SMEs.

FDI is crucial given that Myanmar companies' investment has so far since when?? been to the tune of 1.84 trillion kyat (65.6 billion baht).

Easing of economic sanctions imposed on Myanmar by Western countries will lead to higher levels of trade and investment.

According to the ADB, manufacturing and tourism have not yet attracted significant inflows but hold enormous potential, notably for two reasons.

First, the government is actively promoting foreign investment, and second, trade sanctions are being eased, so that investors might now be tempted to take advantage of low-cost labour to produce and export from Myanmar to a broader range of destinations.

Despite concerns over the amendments to the FIL, all investors were apparently enthusiastic about participating in Myanmar's economic reforms.

Yoma Strategic Holdings' Serge Pun, a Myanmar national who returned to establish a business in the country, said: "Go in. Do something small and make it bigger and work with your local partners."


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