In 2017, Myanmar continues to reform its regulatory reforms in the political and social sectors as well as in the economic sectors. Whilst experiencing slow growth in 2015/16, Myanmar expects to grow at 7.1% per year for the next three years.
The reforms undertaken since 2011 have put Myanmar in front as a frontier market for investors. The availability of labour at competitive wages and the potential of a new market with huge natural resources has prompted many investors to consider Myanmar as an investment destination, particularly in the manufacturing and extractive oil and gas sectors.
With the new government led by Daw Aung San Su Kyi taking office in 2016 April, the expectations from both domestic and international investors were high and it is clear that there is a strong intent to establish a strong framework for transparency and responsible investment development. However, basic infrastructure development and the development of supporting industries, such as the financial sector, remain the key considerations for investors.
The government’s effort to update and streamline its foreign and citizen’s investment laws has finally been achieved with the enactment of the Myanmar Investment Law in October 2016 (MIL 2016). Besides extending automatic investment protections to citizen and foreign investments that cover a wide-range of asset classes including shares and property, the MIL 2016 also introduces a new regulatory mechanism that will allow investors to enjoy additional investment benefits such as the capacity to enter into long-term leases of land and enjoy tax and customs exemptions: the so-called “MIC Endorsement”. Unlike an investment permit (or MIC Permit) that will continue to be required for certain restricted or protected investment categories outlined in the MIL 2016, this MIC Endorsement is intended to provide a more speedy recourse to secure investment benefits that were not available under the previous foreign and citizen’s investment laws.
With regards to incentives for investments, the MIC 2016 empowers the MIC to issue a notification dividing Myanmar into three geographical “zones” for purposes of identifying the income tax duration that may be granted, all with the view to granting exceptions only to those sectors that are generally considered underserved by way of investments. Thus, for “least developed zones”, the MIC may grant seven consecutive years of income tax holiday, for “moderately developed zones”, five consecutive years of income tax holiday, and for “adequately developed zones”, the MIC may be granted three consecutive years of income tax holiday.
While the MIL 2016 has been enacted, the implementing rules as well as the prohibited and restricted or protected sectors has yet to be enacted. Given that the MIL is one of the key regulations governing investments in Myanmar, the delay in the enactment of the implementing rules may result in foreign investors deferring a decision to invest.
Foreign exchange transactions in Myanmar are regulated by the Foreign Exchange Management Law (FEML) which was promulgated in 2012. Under the FEML, foreign investors may open foreign currency accounts in authorized banks in Myanmar, and to remit foreign exchange abroad, subject to the approval of the relevant government authorities.
In addition to the FEML, the Central Bank of Myanmar’s (CBM) Notification No. 7/2014, and the Foreign Exchange Management Regulations, (FEMR), also requires that internal residents, including companies and branch offices established under the Myanmar Law to request for CBM’s permission when obtaining off-shore loans. The CBM has also issued the criteria for evaluating offshore loans in July 2016. The published criteria are as follows: whether the company concerned has invested equity or capital brought-in in the amount of at least $500,000; whether the entity obtaining the offshore loan is a business entity which has regular foreign income; if the entity does not have foreign income, whether it has the ability to repay the loan from local income and whether it has plans to protect against the exchange rate fluctuation; whether the entity has brought in at least 80% of the equity amount mentioned in the MIC Permit; whether the debt to equity ratio is within the stipulated range between 3:1 and 4:1; whether the loan related terms and conditions concerning the company are sufficient and valid; and whether the repayment tenure contained in the loan agreement is medium-term or long-term and whether the repayment schedule is appropriate to the loan agreement.
In addition to the MIL 2016, which was passed towards the end of the year, several key pieces of legislation were also adopted in 2016 that showcase the Myanmar government’s efforts to further modernise Myanmar’s commercial and legal framework. Among these were the Arbitration Law, the Financial Institutions Law, the Mobile Financial Services Regulations, the Condominium Law, and the updated laws on labour and employment. The long-awaited Myanmar Companies Act which will modernise the regulatory framework for companies, is currently being discussed in Parliament and is expected to be enacted in the very near future.
Myanmar, as an ASEAN Member State, is a member of the ASEAN Free Trade Area (AFTA), and also a member of other free trade agreements between ASEAN and its Negotiation Partners, such as the ASEAN-China FTA, ASEAN-Korea FTA, ASEAN-Australia-New Zealand FTA, ASEAN-India Comprehensive Economic Cooperation Agreement, and the ASEAN-Japan Comprehensive Economic Partnership. Myanmar is also taking part in ASEAN’s other regional free trade agreement negotiations, such as the negotiations for the Regional Comprehensive Economic Partnership, and the ASEAN-Hong Kong, China FTA.
2016 has seen a period of transition from to the current administration led by Daw Aung San Su Kyi. In line with this transition, the government has also demonstrated commitment to strengthen the legal framework to enhance investment facilitation, with the efforts to enact the implementing rules and regulations for the MIL 2016, and the efforts to enact the new Myanmar Companies Act. Such efforts will ensure growth momentum and attract new investors to Myanmar.