Investment in Myanmar

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Agenda:• INVESTMENT IN MYANMAR

• INVESTMENT REGULATORY BACKGROUND

• CURRENT IMPEDIMENTS IN INVESTMENT ENVIRONMENT

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INVESTMENT IN MYANMAR

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INVESTMENT IN MYANMAR - Introduction • With its natural and human resources and cultural and national heritage

Myanmar represents excellent potential for business investment.

• Myanmar welcomes foreign investments in all forms. The Government is intending to maintain good and strong economic relationship with all countries, all foreign organizations and individuals.

• An untapped market- rich in natural resources with a young population and a high number of English speakers.

• A fertile and resource-rich country strategically located in the heart of Asia, one of the world’s largest growing economic regions.

• Firms involved in precious stone, agricultural products or other industries may find Myanmar a fascinating place to begin developing longer term interests.

• Significant legal reforms aiming to improve investment climate

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STRATEGIC INVESTMENTS: Most promising sectors • Construction and infrastructure: knowing that poor infrastructure may hold the

country back, Myanmar’s Government has accorded high priority to infrastructure development projects - such as transportation facilities, irrigation networks, communication systems, private hospitals, etc.

• Electricity/Energy: only about 15% to 20% of the total population are accessible to the electric power supply, and the rest have to rely on conventional natural resources… ELECTRICITY IS CRITICAL TO THE COUNTRY‘S DEVELOPMENT!

• Oil and gas: rich of oil and gas reserves, mostly unexploited, offering great opportunity for international bidders. World’s largest hydrocarbons companies such as Chevron, BP, Woodside, Shell, ConocoPhillips, ExxonMobil all expressed interest in entering Myanmar .

• Telecommunication: with population of over 60 million peoples, telecommunication is one of the most promising and lucrative industry.

• Mining: Myanmar is rich in mineral resources: copper, gold, lead, zinc, silver, tin and tungsten, antimony, chromium and nickel. In terms of mineral potential, Myanmar ranks high among Asian countries, but mineral resources are very much under-utilized

• Other: forestry, agricultural, tourism.

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INVESTING IN AGRICULTURAL SECTOR• Myanmar was once the world’s largest rice exporter from 1961 to 1963 (Source:

Bloomberg)• Myanmar’s current agricultural sector: An image of Vietnam 25 years ago• Current role of Myanmar’s Agricultural sector (Source: Ministry of

Agriculture and Irrigation of Myanmar - 2012):§ 36% of GDP (crops (27%), livestock & fisheries (8%) and forestry (1%)) § 61% of Labor Force§ 28.1% of Export Earnings crops (16.6%), livestock & fisheries (4.9%) and

forestry (6.8%))• As of July 2013, foreign investment in Myanmar's agricultural sector totaled USD

185.351 millions in 10 projects, accounting for only 0.43 percent of the total since the country opened to such investment in late 1988 (Source: Xinhuanet)

• Myanmar will potentially become an major food supplier of the region in the near future

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INVESTMENT REGULATORY BACKGROUND

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Investment Regulatory Background• Myanmar Foreign Investment Law (“MFIL”) 2012

§ New MFIL 2012 (Law No. 21/2012)§ Replaces previous MFIL 1988§ New improved investment incentives offered to foreign investors§ Restrictions on foreign investment on certain business activities§ Regulatory authority: Myanmar Investment Commission (“MIC”)

• Myanmar Foreign Investment Rules (Jan 2013)§ Myanmar Foreign Investment Rules (Notification No. 11 of 2013) released in

January 2013§ Foreign ownership in restricted business activities now allowed up to 80%§ MIC given more authority as government body§ Directorate of Investment and Company Administration (“DICA”) given

more power over foreign investments

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Investment Regulatory Background• MYANMAR COMPANIES ACT

1914

• 100% foreign-owned or JV with Myanmar entity

• Minimum of 2 shareholders

• Minimum capital requirements

• US$150,000 for Manufacturing-

related business• US$50,000 for

Service-related business

• MYANMAR FOREIGN INVESTMENT LAW 2012

• 100% foreign-owned or JV with Myanmar entity

• Minimum capital requirements may be determined by Myanmar Investment Commission (“MIC”)

• Due diligence conducted by MIC on the Investor – experience, financial standing and on investment project

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Investment Regulatory Background• General Types of Companies:

§ Private Limited Liability Company§ Public Limited Liability Company§ Sole Proprietorship§ Company Limited by Guarantee with Share Capital§ Company Limited by Guarantee without Share Capital§ General Partnership§ Branch of a Foreign Company

• Capital requirement: Minimum capital required to register for a Permit to Trade:§ About USD 138,199 for an industrial company§ About USD 69,000 for a trading company § About USD 41,460 for a service companyNote: Fifty percent (50%) of the prescribed capital must be brought in as foreign currency before the Permit to Trade is issued and the balance 50% must be remitted within 30 days prior to the date of renewal of Permit to Trade

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Investment Regulatory Background (cont.) • Form of Foreign Investment:

§ A foreign investor may incorporate in Myanmar a 100% foreign owned company permitted by the Myanmar Investment Commission!

§ A foreign company may establish a place of business or carry on business in Myanmar as a branch of a foreign incorporated company: by first apply for a Permit to Trade from the Ministry of National Planning and Economic Development.

§ A foreign investor can join with any individual, firm, company, co-operative or state-owned enterprise from Myanmar to establish a joint venture either as a partnership firm or a limited company on the basis of a joint venture contract (ratio of foreign capital is now decided by the JV parties)

§ Under the recent Foreign Investment Law 2012, foreigners are now allowed to set up companies fully owned by them (whether this company was incorporated in Myanmar or abroad), or go into joint venture with any Myanmar citizen or the government of Myanmar!

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Investment Regulatory Background (cont.)• Form of Foreign Investment (cont.) :

§ Any company with one or more foreign shareholders is classified as a Foreign Company, thus subject to Foreign Investment Law rather than Myanmar Companies Act (1914)

§ Possibility of establishing a Special Company created under the Special Company Act of 1950 (where part of the equity belongs to the State)

§ Foreign companies with business relations or investment projects in Myanmar may apply to set up representative offices in Myanmar (this being a common practice for banks)

§ In contrast with a branch, a Representative Office of a company incorporated outside Myanmar is not allowed to perform direct commercial or revenue generating activities in Myanmar

§ However, it is permitted to liaise with its head office and collect data useful for the head office

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Investment Regulatory Background (cont.)• Activities prohibited by Myanmar Foreign Investment Law:

§ Business which can affect the traditional culture and customs of the national races within Myanmar

§ Business which can affect public health§ Business which can affect the environment and eco-system§ Importation of hazardous or poisonous wastes into the country§ Business which produce or use hazardous chemicals under international agreements§ Production or manufacturing work or services which are activities reserved for citizens§ The importation of technologies, medicines or utensils/paraphernalia without

relevant permits, or not designated for use§ Agricultural investment and plantation and cultivation for long and short terms which

can be performed by citizens§ Livestock breeding which can be performed by citizens§ Marine fishing which can be performed by citizens § Foreign investment activities within 10 miles from boundary/borders between

neighboring nations of Myanmar, except in State economic zones approved by the Myanmar Government

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Investment Regulatory Background (cont.)• Investment Guarantee:

§ Enterprises operating under the Foreign Investment Law have the State guarantee against nationalization and expropriation.

§ Guarantee is subject to an exception if the nationalization or expropriation is in the natural interest, in which case the investor is to be compensated for the market value of the investment.

§ Government also guarantees that investment will not be terminated during the permitted term, and foreign capital will be transferred to investors upon the expiration of the term of the investment contract.

§ Myanmar has investment protection agreements with China, India, Kuwait, Laos, the Philippines, Thailand and Vietnam.

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CURRENT IMPEDIMENTS ON INVESTMENT ENVIRONMENT

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Current Impediments in Investment Environment• Key challenges faced by the investors in Myanmar:

§ Lengthy bureaucratic licensing process and high start-up costsØ Especially for lease rentals for offices and establishing manufacturing

facilities§ Impractical and very time-consuming procedures for import license

approvalØ Having line ministries to approve import licenses for every consignment

is impractical and very time-consuming§ Lack of land protection: one year lease limits are not commercially

tenableØ Legally only allowed to sign one year leases (unless Foreigners and

foreign owned companies go through the MIC process)

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Current Impediments in Investment Environment (cont.)• Key challenges faced by the investors in Myanmar:§ High restrictions on Myanmar transfers, particularly US domiciled ones,

and unreasonable interest ratesØ Self-imposed high restrictions on Myanmar transfersØ Unreasonable interest rates adversely affect businesses that face

relatively high financing costs as a result§ Only country in the ASEAN that has two main laws addressing

investment mattersØ In terms of arbitration, the Foreign Investment Law allows investors to

settle disputes outside Myanmar but there’s no such provision in the Myanmar Citizens Investment Law

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Current Impediments in Investment Environment (cont.)• Key challenges faced by the investors in Myanmar:§ Myriad issues and uncertainty around land auctions, tender processesØ Still myriad questions around land auctions, tender processesØ Nobody knows what tenders are ongoing through which

ministries and what stage they are at§ Ambiguous tax systemØ Investors face difficulties complying with the tax system in

Myanmar because of problems understanding the rules and procedures

Ø Very little clarity on taxation and too much case-to-case decision-making power

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Questions & Answers

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Thank you very much!OLIVER MASSMANN

Partner – Duane Morris Vietnam LLCMember of the Supervisory Board of PetroVietnam Corporation

Duane Morris Vietnam Duane Morris Myanmar

Pacific Place, Unit V1307/08, 13th Floor, No. 10 Phoyazar Street, 15 Ward, 83B Ly Thuong Kiet, Hoan Kiem Dist Baukhtaw Yankin Township Hanoi, Vietnam Yangon Suite, Myanmar

Contact email:

[email protected]

Investment in Myanmar

Law

Transcript of Investment in Myanmar