Myanmar: All That Matters-Issue March 7 2016

Politics in Business

the politics of myanmar’s social media revolutionApps built for the last elections showcase Myanmar’s burgeoning IT sector

The untouchables The NLD will look to capitalize from easy-fix solutions, but the source of bigger problems from deeply seeded corruption may be harder to uproot

firing the corporate canonsCorporate governance is lagging behind, and it’s going to take more than a new stock exchange to fix it

Issue

March7

2016

Myanmar:All That Matters

special report

PUBLISHER’S NOTE

Dear Readers,

It has been four years since our firm, New Crossroads Asia, set foot in Myanmar and we have witnessed tremendous change during this period. When I arrived, the uncertainty surrounding the country’s future was mixed. It was constantly on everyone’s mind if the change that was seemingly taking place would be real or not. Was the military exhibiting a true willingness to move ahead toward greater liberalization both politically and economically, or was this just a magic trick to bring in much needed FDI and know-how, only to later shut the doors once again?

Though some uncertainty remains as to what the hand-over will look and feel like in March, it can’t be contested that these latest elections were as free and fair as anyone could ask for. The latest elections have ushered in the opposition party with a landslide victory which has clearly signaled to the world that Myanmar is truly embarking on a journey to a brighter and more prosperous future.

Though we will not see massive change overnight, we are already seeing Aung Sang Suu Kyi and the the old regime working together in a peaceful manner to address the many ills that exist after 50 years of isolation. It has been said only recently that it would be difficult for Aung Sang Suu Kyi and the NLD to fill the gaps of the existing ministries and power positions that act as the glue that keeps Myanmar running. This however seems not to be the case and we in the business community are very excited at the opportunities Aung Sang Suu Kyi and the NLD are seizing by working with the past regime to create a congruent environment that will foster greater economic growth powered by much needed foreign direct investment.

Since the new government is working to reconcile the past and to move boldly into the future, we congratulate all stakeholders who are part of this transition.

At NCRA, we strive to cover the developments taking place in the economic and business arenas so that interested foreign and domestic market participants can get a true picture of policies and trends. Our sector research, business data and publications are a conduit to understanding business and how foreign direct investment is affecting change. Having lived here for four years, I can attest that this is a very complex and opaque place to do business. We hope that our products give new market participants the tools they need to make well-informed business decisions as it relates to conducting business in Myanmar.

It is now my distinct pleasure to now offer you our newly re-branded and enhanced products that will be known as Myanmar Market Intelligence. Our re-branding strategy is one that we believe will provide our audience with a more interactive experience while looking for applicable data and insights in Myanmar. We created a new website, as well as a new category of white papers, data sets and added journalistic content to this new platform so that our readership can access all of this information from a single point of entry. As we migrate from the NCRA distribution platform we pledge to be more active in rolling out additional data driven products, which we are aiming to deliver to participants looking for dependable and reliable information.

Thank you for your continued support and please feel free to provide us with candid feedback as we are constantly striving to improve our portfolio of products.

Please enjoy the latest edition of Myanmar: All That Matters.

Sincerely,

William (Billy) SeligCEO, New Crossroads Asia

CEO, Co-Founder of NCRA

| Myanmar: All That Matters2

Con

tent

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Publisher NCRA

Editor-In-Chief Philip Heijmans

Associate Editor Jessica Mudditt

Senior Staff Writer Shine Zaw Aung

Senior Analyst Vijay Dayal

The Pulse4

News in brief6

The untouchables14

The perils of leapfrogging21

Politics by the numbers13

Myanmar’s tax headaches8

The government should go out of business18

May follies on Myanmar12

The politics of Myanmar’s social media revolution26

Legal Corner25

In the spotlight: Dr. Maung Maung Lay22

Firing the corporate canons30

Changes are coming in 2016, and here’s what to expect34

Polling Myanmar36

Peanut Gallery: Moving toward an integrated Myanmar40

New Crossroads Asia20B Thitsar Garden, Kanbe Road, South Okkalapa, Yangonwww.NewCrossroadsAsia.com | [email protected]

Business in Politics

3

The ascent of noble laureate Aung San Suu Kyi’s National League for Democracy (NLD) to power in Myanmar’s November 8 parliamentary elections – the first open elections in 25 years – marks a historic and encouraging sign for a country that has for years pledged to become one of Southeast Asia’s shining democracies.

According to the final results, the NLD won 77.1% of the total seats up for grabs in Myanmar’s upper and lower houses of parliament, allowing them to form a government with an absolute majority, while giving them the right to pass legislation and hand pick a president of their choosing. Well, almost anyone.

NLD party chairperson Aung San Suu Kyi, 70, is constitutionally barred from becoming president under the current constitution because she married a foreigner and has children with foreign passports. She has nonetheless vowed to have the army-imposed constitutional amendment changed, while boldly declaring just days before the election that she would rule Myanmar from a

position “above the presidency” until that time comes.

If successful, Aung San Suu Kyi -- daughter of assassinated father of modern day Myanmar and national hero, General Aung San -- will have loosened the military’s nearly six-decade-long violent chokehold on a country once isolated from the rest of the world.

Still, with a presidential appointment not to come until March and a transfer of power to come later, Daw Suu’s succession to leader of Myanmar is far from guaranteed lest history repeat itself.

In the country’s last open elections in 1990, the NLD won in a similar rout of the ruling party but the generals refused to recognize the results, imprisoned NLD members and placed Daw Suu under house arrest – where she would remain for 15 of the next 21 years.

Another roadblock for an NLD government is that while they have won firm control of parliament, 25% of

its seats are reserved for the military, whom also retain an automatic veto on certain legislation. The former Minister of Information Ye Htut has said if Suu Kyi is to rule, she would need to work in partnership with the military – the same military that has thrown her in prison while committing its troops to decades’ long civil war in the north.

Despite such obstructions, there are encouraging signs that Suu Kyi may be able to lead as her father had in bringing Myanmar independence from British rule.

Both President Thein Sein of the ruling Union Solidarity and Development Party (USDP) and the current commander-in-chief of the Myanmar Armed Forces, Senior General Min Aung Hlaing, have consistently reassured the public that there will be a peaceful transition, while these last elections have been welcomed as a great success by several countries and the United Nations.

The promises of Myanmar’s current leadership are further emboldened by

The winds of change are blowingin Myanmar, but questions linger


four years of a quasi-civilian government, starting in 2011, that saw significant reforms across the board from foreign investment to freedom of speech and the release of hundreds of political prisoners -- all in the name of global reintegration.

With Suu Kyi herself released from house arrest in 2010, her escalation to power would cap a historic personal struggle to bring democracy to Myanmar.

A scholar at the time, Suu Kyi returned to what was then Burma in 1988 from London to tend to her ailing mother as the country was engulfed in anti-government student demonstrations, now famously referred to as the 8888 Uprising.

As the situation escalated, the head of the ruling party and military leader of Burma since 1962, General Ne Win, resigned on August 8 1988, stirring further calls for democracy. It was then that Suu Kyi was thrust into the spotlight as the natural leader of a democratic Burma and on August 26 she addressed half a million people at a rally in front of Yangon’s Shwedagon Pagoda in her first public speech to call for a democratic government. The next month she helped found the National League for Democracy.

Though it has indeed been a long road for Aung San Suu Kyi, her rise to power means inheriting a laundry list of political, social and economic issues ranging from civil war to genocide, to combating a

heroin empire, to taking on some of the most corrupt businessmen in Asia. But first, it appears she will strike at more tangible goals.

According to the NLD’s election manifesto, the party is aiming to revive Myanmar’s once thriving agriculture sector through public support, while adopting universal healthcare, promoting equality for women, modernizing education and supporting entrepreneurship by decentralizing major industries.

Low on the NLD’s list of priorities, however, seems to be resolving the country’s Rohingya crisis, a situation Suu Kyi herself believes to be “exaggerated.” Currently, Myanmar’s 1.1 million

Rohingya Muslims are not afforded any political rights, remain stateless and -- overwhelmingly concentrated in northern Arakan State -- mostly live in complete squalor.

The sentiment is a discouraging sign for Myanmar’s Muslims, though it is suspected that the party’s public voice in the matter may be a tactic to appease the county’s powerful, hardline nationalist faction, the Ma Ba Tha. During her time on the campaign trails, Suu Kyi repeated her mantra of “making big problems small, and making small problems disappear.”

With so many issues on her plate, it may -- in the end -- be the only way forward for Myanmar.

“Still, with a presidential appointment not to come until March and a transfer of power to come later, Daw Suu’s succession to leader of Myanmar is far from guaranteed lest history repeat itself.”

5

news in briefThe latest business headlines from Myanmar’s front lines

straight from our news desk.

Mapco, FMI first firms expected to list on the Yangon Stock ExchangeMyanmar Agribusiness Public Co. Ltd. (MAPCO), and Serge Pun’s First Myanmar Investment (FMI) are likely to become the first companies to list on the newly formed Yangon Stock Exchange, according to news reports.

Officials from MAPCO, an agro-business firm, said that despite their eventual listing, they do not plan to trade stocks from the outset. MAPCO is among the six public companies that listed on the YSX in November 2015 and is undergoing preparations to trade its securities on the market.

The approved companies allowed to list thus far also include First Private Bank, Myanmar Citizen Bank, Myanmar Thilawa Special Economic Zone and Great Hor Kham.

Fourth public telecommunications operator expected to go publicLocally owned telecommunications operator Myanmar Technologies and Investment Corporation (MTIC) – largely expected to be the fourth telecom operator in Myanmar – said that it will go public as soon as it acquires the requisite telecom license.

Zaw Min Oo, member of the company’s board of directors, told international media that the government is currently working to organize an arrangement to bolster the firm as the next operator in a deal that will pair the public entity with a new foreign partner.

The seven foreign companies that submitted interest include those from ASEAN, Europe and Africa, he said. The companies from Myanmar will collectively have a 51 per cent stake.

Myanmar’s national carrier nixes Taiwan flights due to lack of passengersMyanmar Airways International, which only began offering services between Yangon and Taiwan Taoyuan International Airport a month ago, has applied to Taiwan’s Civil Aeronautics Administration (CAA) to suspend services from Tuesday due to low passenger loads, the CAA told international media.

After the Myanmar government set 2016 as a tourism boom year, the airline applied to operate three weekly round-trip charter flights between Yangon and Taoyuan from Jan. 26 to March 25. Still, the airline has applied to cancel all remaining flights scheduled for the two-month period, the CAA said. According to a notice issued by the Myanmar airline, the suspension was made based on the company’s flight planning and arrangements. However, the CAA has said it is because of low passenger numbers on the route.

United Kingdom to give Myanmar US$300 million loan to boost exportsThe United Kingdom is seeking closer trade engagement with Myanmar, with US$300 million in export financing to boost direct exports as well as drive infrastructure projects that require notable UK content.

UK Transport Minister Lord Ahmad was here in late February to unveil the export-finance facility, which will be extended directly to British exporters seeking to enter Myanmar, as well as to the Myanmar government for eligible transport projects. According to the minister, the Myanmar government will prioritise projects that need funding.

Many UK companies are well-qualified to play a crucial part in Myanmar’s transport infrastructure development, for example, in building new tunnels and roads, and improving airport capacity, he said.


Call NCRA today for your premier office space!

RSVP to Billy [email protected] +95 09 250 151 575

Call NCRA today for your premier office space!

RSVP to Billy [email protected] +95 09 250 151 575

7

8 | Myanmar: All That Matters

Myanmar’s tax headaches By Jessica Mudditt

F or the longest time, taxation in Myanmar has been a difficult

and underutilized tool that has lost the government millions in revenue. Seldom few paid it and those who did never seriously expected to see returns in the form of improved roads, schools or hospitals. All of that, however, appears to be changing.

The incoming National League for Democracy government is determined to broaden Myanmar’s tax base. Its election manifesto states that: “for the collection of tax revenues, we will develop a tax system that the public will actually want to support through tax payments. In order to broaden the tax base, we will reduce tax rates. We will collect, systematically and in line with the law, tax revenues from the profits made by the sale or transfer of immovable and other assets. We will ensure, through transparency that the general public is able to see how these tax revenues are used.”

However, this is likely to be easier said than done. Although a new and improved law was passed in April last year, the country’s taxation system remains beset by problems and it will take more than a few tweaks to tax Myanmar effectively. For many, tax is a wholly unknown concept, thanks to decades spent under corrupt military regimes.

“A tax culture needs to be taught in Myanmar – from the classroom up,” said vice-president of the Union of Myanmar Federation of Chambers of Commerce (UMFCCI), Dr. Maung Maung Lay.

The Union Tax Law 2015 lowered many tax rates and introduced new tax breaks as part of efforts to reduce endemic tax evasion. It was complemented by Ministry of Finance notifications on depreciations, commercial tax offsets and undisclosed incomes.

Photo: Phillip Heijmans

9

“It’s also interesting to note that the [new law] opens up opportunities for ‘whistle-blowers,’ whereby a person who tips off the tax authorities can receive 10% of the collected taxes. It will be very interesting to see what effect this mechanism will have,” said Ola Nicolai Borge, Partner at Baker & McKenzie Limited in Myanmar.

Still, when asked whether the recent reforms go far enough, Ding Suk Peng, Associate Director (Tax) at PwC Myanmar said they “represent partial and gradual reform to the existing tax regimes” because taxpayers still lack certainty.

“For example, the newly introduced offsetting rules for commercial tax allow only a partial claim of commercial input tax, which poses a problem to most businesses where unclaimable input taxes will constitute the sunk costs of the businesses. Some basic tax treatments, such as capital gains tax and tax deductibility are currently governed by thinly defined provisions in current tax laws.”

She also pointed out that the new law lacks a specific tax regime or rules governing the taxation of business in the extractives sector. This uncertainty “may discourage long term and capital intensive investment by foreign investors in these industries.”

Starting out from the bottomAccording to the World Bank’s World Development Indicators, tax collection in Myanmar was 3.3% of gross domestic product (GDP) in 2015.

Paul C ornel ius , Tax Leader, Pricewaterhouse Coopers (PwC) Myanmar said this figure is low compared with an average range of about 10% to 15% and 30%-35% for developing and developed countries respectively.

“Low tax revenues suggest that the NLD will be able to fund only the most basic public services, such as policing,

courts, armed forces, basic healthcare and education and it may not be able to provide Myanmar people with universal access to healthcare, education and infrastructure as well as to support the country’s sustainable economic growth,” he said.

He added that it is essential for the country to broaden the tax base so as to “fund a rebuilding of public services and critical infrastructure as part of the support of Myanmar’s economic development.”

According to Mr. Cornelius, Myanmar should look to reforms made in Singapore.

“Singapore is an example where the country’s tax policies complement its pro-growth economic policies. There are targeted tax incentives to attract desired foreign direct investments and to help promote the development of substantive value-adding activities that generate substantial economic spin-offs and good employment opportunities.”

Photo: Philip Heijmans


He added that Singapore’s tax laws are constantly reviewed and updated to ensure relevancy and robustness in light of evolving developments.

In Myanmar’s case, the new law represents the first genuine revision of taxation, which was hitherto negotiated directly with the taxmen themselves.

There exists a long tradition in Myanmar of keeping multiple accounting books, with ‘real’ profits shared only among family members.

“The environment was such that businessmen were uncomfortable with the idea of sharing their true profits. This was due to a fear of nationalization – a lot of businesses were nationalized in the past when they become too successful. Also, if you were a businessman in Myanmar a few years back, you’d be concerned that if you showed extraordinary profits, a crony might seize your business,” said the International Finance Cooperation (IFC) Country Representative Vikram Kumar.

Mr. Kumar added that although a reluctance to pay tax exists throughout Asia, the reasons for this in Myanmar are different.

“If you ask businessmen [in Myanmar] today, they all want to pay tax. It’s very interesting – I have worked in many different markets where there is a belief that tax funds aren’t spent on improving infrastructure. Here, people are proud to pay tax. The biggest problem they face is with the tax authorities themselves,” he said

In other Asian countries, the reluctance stems from a lack of faith in tax being spent on improving public infrastructure.

Mr. Kumar added that Myanmar’s tax policies were so arbitrary in the past that even tax collectors were wary of seeing true tax revenues.

“There were no set tax rates – it was basically what you negotiated directly with the tax man.”

He explained that if companies dramatically increase disclosed revenues between one year and the next, “the tax man will be concerned about collecting so much more from the same business – because it exposes them as potentially being people who were not doing their job properly.”

Myanmar now has a voluntary tax system for businesses. While some may dismiss it as toothless, IFC is far more optimistic – at least when it comes to Myanmar’s biggest business players. Still, at least 90% of companies are not declaring their true incomes, IFC estimates.

The NLD will therefore find it challenging to achieve its goal of generating tax revenue.

“Tax rules in Myanmar are thinly legislated and therefore subject to open interpretation by both tax authorities and taxpayers. This may undermine transparency in the tax assessment

process which could lead to uncertainties over the tax treatment and opportunities for corruption,” said Mr. Cornelius of PwC.

“With these constraints, the NLD may face practical challenges to implement any further tax reforms it makes to taxation laws… there may be a need for the country to increase its current tax administration and tax collection capacity,” he said.

This could include the reorganization of tax administration, training of tax officers and the use of technology.

UMFCCI’s Dr. Maung Maung Lay agrees that it is imperative for electronic platforms to be introduced to eliminate the risk of non-compliance through bribery.

“Everything should be done online – there should no person-to-person contact. Technology can make taxation safe. There would be no need to ‘negotiate’ with a tax officer,” he said.

90%of companies in Myanmar do not declare their true income

11

In the West, the month of May seems a most desirable month — “the merry month of May,” as the British used to say. It is a month of rituals, and indeed there is a no more pleasant month in which to hold them. May is the promise of summer. The English used to dance around the May pole on May 1 — probably some fertility rite. In the U.S., Mother’s Day is in May. And May Day, with its socialist implications, was important in the West — and changed to a September Labor Day in the U.S. to avoid pollution with socialist doctrines. This is all in contrast with Myanmar: the month of May sees the onset of the monsoon season.

As the American poet and essayist Ralph Waldo Emerson noted, “What potent blood hath modest May.” But Shakespeare in one of his sonnets wrote, “Rough winds do shake the darling buds of May.” And we in the United States will no doubt soon see the “rough winds” in relation to Myanmar, which the United States still calls Burma.

It is our own May ritual. Every May, in order to maintain certain sanctions imposed by the U.S. on Myanmar, the US President has to assert that Burma is a threat. In 2014, and in 2015, that statement indicated: “Because the actions and policies of the Government

of Burma continue to pose an unusual and extraordinary threat to the national security and foreign policy of the United States,” certain sanctions would continue. Then, it came about two weeks after the U.S. opened a trade office in Yangon, thus officially placing American staff at that office under dire (but of course meaningless) threat. There is every indication that another such statement is due from the White House in 2016.

It is all very well that the U.S. regards such bureaucratic necessities as simply legal requirements to maintain its domestic policies, and that they do not interfere with the need to engage in diplomacy, do business, and provide assistance -- public and private -- to Myanmar. We dismiss their psychological and other policy impacts on others. So we ignore the effect that such statements may have on the Burmese, and disregard the implications for charges of U.S. duplicity, intransigence, or ignorance in dealing with Myanmar. And yet the U.S. lectures the Burmese people and provides assistance to develop what it calls, with prioritized emphasis in capital letters, the Rule of Law. If we treat law as simply ritual, what lesson does that send?

If an administration wants to maintain some form of sanctions, a position with

which I would disagree, then there should be more logical means by which to accomplish that end. We should not have to live with cognitive dissonance. Will the elections in Myanmar change and liberalize U.S. sanctions policy? Possibly, but in a U.S. election year and the central role of former Secretary of State Hillary Clinton, no one will use up political capital on Myanmar and strong lobbies exist to keep the sanctions. U.S. investment and both public and private assistance will continue and possibly expand. That is desirable, but there ought to be a better way. Still, the U.S. ritualized sanctions approach seems to defeat the very policies it is attempting to uphold -- the role and rule of law in the development of a democratic society. Do we still have to quote another Emerson line: that “a foolish consistency is the hobgoblin of little minds?”

David Steinberg is emeritus professor of Asian Studies at Georgetown University, and visiting scholar at Johns Hopkins University’s School of Advanced International Studies. He is the author of six volumes on Myanmar including: “Burma/Myanmar: What Everyone Needs to Know”; “Modern China-Myanmar Relations” (with Fan Hongwei); and most recently the editor of “ Myanmar: The Dynamics of an Evolving Polity.” He has published some 140 chapters/

articles and many op-eds.

May follies on Myanmar By David Steinberg

U Tin Oo, NLD elder walks toward the party head quarters in Yangon in November


COMMENTARY


Politics By The Numbers

36ministries in myanmar

2deputies perministry

Upper House135 seats

NLD

56 seatsMilitary

22 seatsother

11 seatsUSDP

Lower House255 seats

NLD

110 seatsMilitary

45 seatsother

30 seatsUSDP

$2.9Billion$257 million 8.2% GDP

Expected deficit for 2015-2016 fiscal year

National Budget for 2016-2017

Growth projected for 2016

224 total seats 440 total seats

13

To say that the incoming government led by the National League

for Democracy has a long to-do list is something of an understatement. While specific policy details are yet to be laid out ahead of it assuming power on April 1, the NLD has made no secret of the fact that coming top of its multi-faceted agenda is securing internal peace, boosting the living standards of Myanmar’s millions of agricultural workers and improving educational and healthcare standards. Even with the military occupying 25 percent of parliamentary seats, the NLD’s landslide victory at last November’s historic polls will allow it to push through much of its legislative agenda without too much of a tussle.

However, managing public expectations, which largely rest in party leader Daw Aung San Suu Kyi, may prove to be an uphill battle. The NLD has inherited a litany of economic, social and political problems following 50 years of mismanagement under military rule.

There also lies the question of whether some issues – notably illegal border trade, illicit drug production and the jade trade – are simply too sensitive for the NLD to touch, even for a party with an overwhelming mandate to clean up Myanmar.

The NLD will look to capitalize from easy-fix solutions, but the source of bigger problems from deeply seeded corruption may be harder to uprootBy Jessica Mudditt

Untouchablesthe


Vigilantes ready to destroy poppy cultivations in Kachin State.

Photo: Paul Vrieze15

The ongoing ‘power sharing talks’ between Daw Aung San Suu Kyi and senior military leaders are already causing some to worry that the NLD may end up ceding too much power to the military in exchange for the latter repealing the section of the constitution that bars Myanmar’s democracy icon from being president.

Much of the problem lies in the fact that these potential ‘untouchables’ are inextricably linked. A number of armed ethnic groups are dependent on illegal border trade, drugs and gems and would likely interpret attempts by the government to end their illegal operations as being politically motivated.

Equally, members of the still powerful military have vested interests in maintaining the status quo. A report published last October by Global Witness

uncovered just how high those stakes are. ‘Jade: Myanmar’s ‘Big State Secret’ revealed that almost US$31 billion was extracted from mines in Myanmar in 2015 and estimated that the opaque sector’s value over the last decade could be more than $120 billion.

These are far higher sums than figures ever publicly disclosed. Myanmar’s largest jade quarries are located in the war-torn northern state of Kachin, where the military elite go head to head against ethnic rebel leaders to control jade smuggling into neighboring China.

Meanwhile, ethnic Kachin miners are enslaved in an epidemic of heroin addiction, prostitution and disproportionately high HIV infection rates. Global Witness identified by name the drug lords and military elites, including former junta ruler Senior

General Than Shwe, who pockets the profits of funds from jade that could otherwise be spent on causes that further the public good.

The NLD will undoubtedly be wary of doing anything that could jeopardize a future peace agreement between the government and the armed groups – particularly as Daw Aung San Suu Kyi has a strong desire to complete her father’s legacy in the ‘Panglong spirit’.

“The NLD led government will be desperately looking for funds, and the military will still get to choose its own budget and take the biggest slice of the pie, so cracking down on illegal gems and border trade will be a tempting target for them in order to generate revenue. However, they face a great many obstacles,” said Mark Farmaner, the Director of Burma Campaign UK.

He cited the lack of NLD’s specific policies and in-house expertise as two such obstacles, as well as the fact that the military are “neck deep in these areas and any moves to address them will risk antagonising them.”

“[The NLD] will be dependent on existing ministry officials, local administrators, police and security services. These people will all have vested interests in the status quo, especially given high levels of corruption, and are unlikely to fully implement new policies even if the NLD led government introduced them. Many of these officials will also be under military controlled ministries, limiting the government’s ability to implement change,” he added.

However the vice president of the Union of Myanmar Federation of Chambers of Commerce (UMFCCI), Dr. Maung Maung Lay, believes that the NLD has a moral imperative to act.

“The NLD should not wait: it should dare to face the challenges. The people have spoken: they want the NLD to tackle all the misdeeds that previous regimes have done. With social media now so strong in Myanmar, it will be easy for the public to vent their criticisms if the government fails to act. Of course the [extractives sector] is a very sensitive issue. It will be hard for Daw Aung San Suu Kyi to walk that tightrope – I don’t envy her,” he said.

Juman Kubba, a Global Witness analyst and one of the aforementioned report’s authors, told Myanmar: All That Matters via email that: “What is needed right now is the political will to reform the jade industry, and to stand against the corruption and vested interests which have held sway for so long. Myanmar’s people chose the NLD because they

Dispensing methadone at Myiktyina Drug Dependency Treatment Hospital

Photo: Jessica Mudditt


wanted change, and the party now has the opportunity to show that it is taking action.”

Mr Kubba pointed out that Daw Aung San Suu Kyi was one of the first proponents of the Extractive Industries Transparency Initiative (EITI), which is a global scheme focused on opening the oil, gas and mining industries up to public scrutiny.

“With the right political backing, the EITI could be used to shed light on who owns and controls companies bidding for and winning jade licences, and what political connections these individuals have. It could also flush out information on the terms upon which jade licences are granted, and crucially, what revenues the government receives from the industries,” he said.

When asked whether it could be a long while before the NLD turns its attention to making the jade industry more transparent than it currently is, Mr. Kubba replied, “There is already a transparency reform underway in the form of the EITI. This gives the NLD a real opening to open the jade sector up to public scrutiny... The 2015 election was a resounding call for change. For years, ordinary people have suffered poverty and conflict whilst a powerful elite devoured the country’s natural riches. The people of Myanmar want and deserve a stable, prosperous and peaceful future but this will not be possible unless the corruption and misrule of the past is put to an end.”

The NLD’s election campaign manifesto states that it will “work to ensure a fair

distribution across the country of the profits from natural resource extraction, in accordance with the principles of a federal union”. It also pledged to ensure transparency in the extractive industries and to establish a long-term fund for national development out of the proceeds while eradicating what it calls “the monopolistic management and unfair distribution and usage of natural resources.” Implementing these pledges will prove extremely delicate and will demand unfathomable political prowess that the NLD may or may not possess.

While the politics surrounding these issues is highly complex, the high toll on human lives will simply continue unabated if the NLD side-steps these issues in the short or medium-term. Myanmar has one of the highest HIV rates in the Asia-Pacific region, with an estimated 210,000 people living with the disease as of 2014, according to UNAIDS. HIV prevalence among people who inject drugs in Myanmar is remarkably high at 28.3% and the use of heroin and other drugs is on the rise, according to UNAIDS.

Opium is mostly grown in Kachin and northern Shan States, in areas that are difficult to access, lie along borders areas or mining areas and conflict zones. Myanmar is the world’s second-largest opium growing country after Afghanistan, accounting for 25% of global cultivation in 2012, according to UNODC. The production and consumption of Amphetamine-Type Stimulants (ATS) have also increased rapidly, according to a 2013 report by UNODC called “Patterns and trends of amphetamine-type

stimulants and other drugs: Challenges for Asia and the Pacific.”

“Further delays to reach people in these severely affected areas will result in continued increases in incidence, mortality, and other negative consequences among people in their most productive years,” said UNAIDS Country Director Eamonn Murphy.

To prevent new HIV infections, UNAIDS advocates a different approach from that currently used by the Ministry of Health, as it is not comprehensive enough.

“Drugs are... one of the main concerns people in ethnic states raise with us. For the NLD, it is very hard to see how they can do very much to tackle this issue,” said Mr Farmaner.

He added that drugs are mostly grown and manufactured in areas not under government control: in many cases local military commanders and police, who are under ministries which the NLD will not run are “either directly involved in facilitating the trade, or paid to do nothing to stop it.”

However in January, the Rule of Law Committee, which is led by Aung San Suu Kyi, recommended forming an independent anti-corruption body to monitor the courts and law enforcement and stated that international training would be provided to help put an end to a culture of institutionalised corruption.

It is impossible to know how long such initiatives may take to bear fruit.

Aung San Suu Kyi has pledged to clean up Myanmar

Photo: Joseph Freeman

17

There are many things that the incoming National League for Democracy government should do – and reforming state-owned enterprises (SOEs) must be high on the agenda if business in Myanmar is to truly liberalize.

In its election manifesto, the NLD has pledged to reduce the number of autonomous government ministries. As the country has 30 cabinet-level ministers -- each of whom are staffed by two deputy ministers and a permanent secretary -- this is a worthwhile goal. However, Myanmar is run as much from ministerial offices as it is from various ad hoc committees, powerful sub-departments (such as customs) and state- and military-owned corporations.

State-owned enterprises are a crucial part of Myanmar’s continuing reforms: they control sectors whose transparency has been repeatedly called into question, i.e. mining and oil and gas. They are market leaders in recently liberalized sectors; telecommunications and beer and soda, and they are dominant in sectors where private enterprise is sorely needed; public transportation and electric utilities.

However, the population is chary of privatizing these SOEs – as they are in many transitioning countries. Previously, several state-owned assets in Myanmar were placed in the hands of a small cadre of military-linked business tycoons, and at rock-bottom prices. Auction processes in the past were not transparent, and it will be beneficial for the country if the NLD tries to reform these SOEs sooner rather than later by floating them publicly so that the people, rather than well-connected businessmen, can share the bounty.

Laggards According to the Ministry of National Planning, revenues from state-owned enterprises were 6.3 trillion kyat, or US$5.02 billion, (around 11% of the country’s GDP) in the 2014-15 fiscal year – and this figure does not include revenues from military-owned enterprises. More importantly, of US$54 billion invested in Myanmar as FDI, US$16.6 billion are in state-owned enterprises and a further US$24 billion are production sharing contracts (in oil & gas and mining, which is only done via SOEs).

Despite these large sums, not all state-owned enterprises are profitable: the only profitable ones appear to be in the extractives sector where SOEs operate together with private industry, lamented a parliamentary budget commission. The loss-leaders are heavy-industry SOEs under the Ministry of Industry, whose products (such as locally-made cars) are not commercially viable. More lucrative enterprises and factories under the Ministry of Industry were privatized between 2008 and 2013, and for the 2015-2016 fiscal year, three SOEs under the ministry are slated to lose a staggering 70 billion kyat ($55 million). Closing down these SOEs and scrapping its factories will save taxpayers a lot of money.

Two transportation SOEs face similar criticisms. Myanmar Railways has revenues of around 60 billion kyat ($47.9 million) annually, and expenditures of around 130 billion kyat ($103.79 million). The Inland Water Transport (IWT), an entity which regulates and operates waterways and river ports, has annual expenditures of around 13 billion kyat, but revenues have been below 10 billion kyat ($7.98 million).

The government should go out of businessBy Shine Zaw Aung

COMMENTARY


Reforming these SOEs is planned, but progress remains slow. Parliament enacted the Inland Water Transport Board Law in December 2014 in order to corporatize IWT, but no further developments have been reported. Corporatization is not planned to begin until April 2016, according to a press release reported in The Global New Light of Myanmar in December 2015. Meanwhile, IWT has been seeking private investment in the form of joint ventures to upgrade its World War II-era dockyards, which now primarily deal with repairing old ships and dockyards, to build new ships. Investment needs will be large, and given IWT’s financial reform, interested parties will be few.

Other plans to corporatize SOEs have not been entirely successful. In late 2014, the country restructured its ill-reputed state-carrier Myanma Airways, rebranding it as Myanmar National Airlines and announcing plane purchases and aggressive marketing campaigns. It is slated to lose 9 billion kyat ($7.18 million) in the 2015-2016 fiscal year.

A major problem has been the lack of proper oversight and international expertise. As such, the reformist government under former President Thein Sein has sought assistance from international donors and consultants to reform SOEs under the Ministry of Electric Power and Myanmar Post and Telecommunications (MPT).

The Ministry of Electric Power is considering plans to spin off Yangon and

Mandalay’s Electricity Supply Boards (YESB). There are also plans to transform these ESBs into listed companies – which is also on the agenda of the Ministry of Finance, which recently launched the Yangon Stock Exchange. As part of the stock exchange’s Phase 2 expansion, the Ministry of Finance is encouraging SOEs to consider going public – a strategy which worked well in drumming up liquidity and interest into stocks in the Vietnamese bourse’s early days.

MPT’s corporatization can provide a useful template for further parastatal reforms. A detailed roadmap has been drafted by the World Bank, which covers not only strategic planning for MPT, but also human resource management. High-level business plans spanning over the next ten years will be drawn up. A detailed review of MPT’s pension obligations is on the cards, as is the transfer of MPT’s financial systems into more commercially and internationally acceptable practices. Already, the spinning off of MPT in the form of Myanmar Post, a small monopoly that is going to lose money no matter what, is underway.

Leaders As noted earlier, not all SOEs are created equal and some are dizzyingly profitable. Of the 6.3 trillion kyat in revenues SOEs garnered in the 2014-2015 fiscal year, 2.3 trillion ($1.83 billion) comes from Myanma Oil and Gas Enterprise (MOGE), which has operating profits of 42%. Other SOEs which are in the extractives industries

(ranging from timber, pearls and metal mining) are equally profitable.

Starting in 2012, as part of comprehensive SOE reforms, the government of Myanmar reduced the payments that profitable SOEs are obligated to pay to the state and to increase their ability to retain revenues. These retained earnings are kept in “other accounts” with some oversight from the supervising ministries (e.g., the Ministry of Energy in the case of MOGE), and the Auditor General’s Office. According to the Natural Resources Governance Institute (NRGI), in the 2012-13 and 2013-14 fiscal years, the retained earnings for nine SOEs under the Ministries of Energy and Mines were around $1.6 billion annually.

The NLD government should reflect on how to manage SOE incomes. In July 2015, the Norwegian government held a conference that focused on the establishment of a national sovereign wealth fund for Myanmar, which was attended by over 250 participants from civil society and the government. The Norwegian government’s assessment paper was submitted to the government in December, and dealt broadly with five topics: the source of capital, whether the fund should be held onshore or offshore, who would manage the fund, how it would be spent, and how to ensure transparency.

A committee for tackling a sovereign wealth fund has been formed with the Minister of Finance chairing it ex officio. The deputy minister of finance,


19

Maung Maung Thein, who is a member of the committee, noted that there was significant political will to pursue the project. Whether that will be sustained in the next administration remains to be seen.

There are many objections to such a sovereign wealth fund (SWF), however. A SWF is normally established only when a government has a budget surplus, but Myanmar has been running a worsening budget deficit over the last five years. Others, meanwhile, point to corruption as a reason why a SWF can fail. However, these can be managed by outsourcing the management of a SWF to international asset managers. Moreover, a dollar-denominated SWF can serve as a bulwark against a depreciating local currency.

Comprehensive Reforms There are various ways to reform state-owned enterprises for the incoming NLD government. State-owned corporations mainly extract resources from ethnic states (for instance, jade mining is in Kachin state and major gas fields are located offshore of Rakhine state). Meanwhile, the union government’s spending on ethnic states is small in comparison with the country’s regions. A comprehensive reform of SOEs should address this issue – and the new

parliament, chaired by ethnic minority MPs, might bring this issue to the forefront of state sector reforms.

The Natural Resource Governance Institute suggests several areas of reform for state-owned enterprises. Firstly, SOEs should leave their “non-commercial” activities. Many SOEs, including MOGE and MPT, also oversee the awarding of licenses or contracts in their respective domains, and also has some oversight of projects and enforcement of legal rules. This creates a conflict of interest.

Secondly, state-owned corporations need human resource management. In the recent past, many top level military personnel were transferred into civilian ministries and SOEs to maintain rigorous military control of all facets of Burmese

life. As such, the top management of many SOEs in Myanmar are ex-military officers who lack experience in managing these industries. Creating skilled, technocratic management and boards of directors will be a crucial step. Meanwhile, capacity should be created among the junior staff to take on leadership roles in the future.

In the end, the reforms may yet be thwarted by the existing political and military establishment, which has close ties with SOEs. For Myanmar to thrive, however, the existing SOEs should function well and in many sectors, ranging from construction to utilities, and they should compete with international entrants. Otherwise, SOEs in Myanmar will be nothing more than economic areas where losses are publicly subsidized but profits are privately held.

“Auction processes in the past were not transparent, and it will be more beneficial for the country if the NLD government tries to reform these SOEs sooner rather than later.”

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The National League for Democracy’s euphoric mandate claimed at the 2015 election means there is no more time for excuses. The new government’s majority in the Union Assembly in Naypyitaw should ensure it goes about slowly dismantling the remnants of the old military regime.

But delivering on even a fraction of the NLD policy agenda will require serious improvements in how the party operates. It does not have experienced personnel nor the internal culture to make things easy. It also needs to adjust to the mega-trends confronting Myanmar society.

At the top of the list is to thrust forward with technological improvements. The evidence of the new communications age Myanmar has entered is all around us, especially in rural areas where plenty of people who may never get centrally provided electricity are now comfortable with their newly acquired smartphones. They keep them charged with batteries and solar panels; sometimes even with micro-hydroelectricity generators.

As the market advances, farmers will have quicker ways of tracking changing market conditions and keeping in touch with suppliers and buyers alike. Seeing what else is available, and how other people

live, inevitably changes preferences too.

Under the NLD, businesses that can support individuals to achieve their potential are going to thrive. Private education providers are already seeing returns on early investments. Then there are the other booming parts of the economy that support the transfer of information and knowledge.

After so many decades of strict censorship, the explosion in largely unregulated online communication is upending social expectations. For now, Facebook offers the revolution that was never cemented on the streets.

These flows of information add to the solid overall condition of Myanmar society where, for all the hardships, people have maintained good levels of nutrition, education and civic engagement. Tens of millions of people are well prepared for the chance to flourish in a more open society.

In this sense, the people who voted for the NLD in such large numbers are not just hoping for a more democratic political system. They want direct, positive impacts on their lives, including in what they share, see and know.

If the NLD can offer a chance for people to empower themselves, the prospects for Myanmar’s future will be brighter than ever. By unleashing the latent everyday potential of the people, business can be a part of what could prove to be the early 21st century’s most exciting economic and political story.

However, today’s exhilaration must be tempered by an awareness that hard work is required before individual opportunities match the lofty rhetoric.

There is also a growing realization that successful new businesses will need predictable law enforcement, fair adjudication of disputes and confidence in ownership rules. Sadly, there is no local tradition to follow in this regard. The NLD faces an uphill battle against generations of vested interests.

In its day-to-day decision-making, the new government will also inevitably disappoint some of its supporters when things do not go according to plan. In the social media era, there may be nowhere to hide from the voters and their judgment.

Dr. Nicholas Farrelly is Director of the Myanmar Research Centre at the Australian National University. He is available at [email protected].

The perils of leapfrogging By Nicholas Farrelly

NLD supporters celebrate the November 8th elections in front of

the NLD head quarters in Yangon


COMMENTARY

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Do you think that the benefits of the economic reforms launched by President Thein Sein will pick up pace now that the election has passed and the National League for Democracy (NLD) will soon be governing the country?

I am not an oracle, but my prediction is that it will take at least three to six months for the new administration to acclimatize itself with bureaucratic processes. Things on the economic front will be stalled for some months. But that’s normal in a developing country such as ours. In developed countries, business

people need not worry when there’s an election – things just continue along for the most part.

Has UMFCCI received a lot of inquiries from potential foreign investors since the general election was held in November?

Yes – there have been a lot and we have met with people from a number of different countries. But what we’ve noticed is that no one has actually come into Myanmar to invest: the ‘wait and see’ attitude remains.

By contrast, some have started trading operations. I think investors are waiting for the new foreign investment law to be passed and to learn what kinds of policy changes the next government will announce.

I think that Western investors will start their activities here a couple of months after the new administration comes to power, and by the year’s end, things will really get going. With that in mind, I am in the process of arranging a second economic forum in conjunction with AMCHAM [the American Chamber

IN THE SPOTLIGHT

DR. MAUNG MAUNG LAY


With a democratically elected government set to assume power on 1 April – the country’s first in 50 years – Myanmar appears to be on the cusp of a new era for investment. It could see significant inflows from countries that once shunned the former pariah state, however a number of challenges remain that could prevent Myanmar from reaping the financial benefits of its hard-won political transformation.To discuss the future of trade and investment, Jessica Mudditt of Myanmar: All That Matters sat down with the Vice-President of the Union of Myanmar Federation of Chambers of Commerce (UMFCCI) Dr. Maung Maung Lay.

of Commerce in Myanmar]. We’re still considering dates – it will probably be sometime in October.

Will UMFCCI forge strong links with the NLD in terms of offering it advice on policies that affect business? And would this not be a valuable contribution for UMFCCI to make, considering that NLD members on the whole, lack business experience?

We will give feedback on government policies about what we think the

“Only now have people started to think creatively again, but it’s impossible to do anything with those ideas if you don’t have any capital.”

-Dr. Maung Maung Lay

Vice President UMFCCI

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private sector needs. But we are a liberal, independent body representing the private sector and lobbying on our members’ behalf: the government will do things in its own way.

I do think that it will take some time for the NLD’s policies to be settled. And because Myanmar has been a pariah state for so long, the experience, knowledge and exposure to global business simply isn’t there. Both politically and economically, Myanmar is stuck in the 20th century. That’s why the likes of the IFC [International Finance Corporation] are willing to help Myanmar in areas such as corporate governance. We have to catch up with all the big changes, so it will take time for trade and investment in Myanmar to grow.

Do you think that the establishment of the ASEAN Economic Community (AEC) will help deliver growth to Myanmar: or is not yet ready to compete?

Most of Myanmar’s entrepreneurs lack knowledge in many areas. A knowledge upgrade is needed. This can be done through sharing regional experience and expertise. But I feel that our entrepreneurs have faced so many hurdles to doing business over the past 50 years that there is a general mistrust of government and a sense of fatigue.

Now that the doors have really opened up – as opposed to swinging back and forth – we are rather exhausted by the prospect of new challenges. Myanmar isn’t competitive even on a regional level – the global market is something else altogether. But we’ll just have to inject more energy to compete within ASEAN.

One positive thing I’ve noticed is that the people of Myanmar are good at picking things up – they’re smart. During the days of military rule, all we could do was obey orders and follow the rules. As a result, our creativity was lost. Only now have people started to think creatively again, but it’s impossible to do anything with those ideas if you don’t have any capital.

Unless you own a house, it’s very difficult to start a business because there’s no loans or grants given in Myanmar. It’s a big problem that’s holding us back.

Another limitation to Myanmar’s competitiveness is the fact that transactions have to be done in US dollars and a third party from Singapore needs to be used – this adds 2-3 percent to the total transaction cost. There are other limitations I could cite that prevent our exports from being competitive.

Is UMFCCI therefore providing a lot of training for its members?

We have been holding a lot of programs, together with AMCHAM. We have 30,000 members and of course not every businessperson in Myanmar is a UMFCCI member. So it’s like putting a sesame seed in an elephant’s mouth, to be honest.

What do you think will be the NLD’s biggest challenge in helping the economy to grow?

I think the NLD’s biggest challenge will be managing high expectations. There are so many competing priorities, such as tackling corruption, establishing the rule of law and corporate governance – and that’s just in the business arena.

An ordinary human being can’t resolve all the issues Myanmar faces and Daw Aung Suu Kyi is not a god. She may have 15 or 20 angels surrounding her, but the NLD still may not be able to deliver.

What I believe is that each and every one of us should take responsibility for helping Myanmar’s economy to grow. As Horatio Nelson said, we must each perform our duties with sincerity. We cannot expect foreigners to give the country loans – we must be taught how to fish rather than being given fish. We can’t always rely on foreign assistance. And we should be ashamed of ourselves for doing so, because our country is so large – it’s the size of England and France combined and it is endowed with so many natural

resources. It’s quite sad for me to say that because of corruption, much of our fortunes were lost.

Do you think that it will take a long time to weed out corruption?

Something has to be done because it really makes Western investors hesitate. Only through the rule of law can we eradicate it. The problem is that it’s systemic. There’s a phrase in Myanmar that means, “We are friends.” Everything is about relationships – if a friend does something wrong, their friend will let them off with a warning rather than arresting them. Or at least that person will have second thoughts about arresting them. If the act in question is really harmful to the public, then perhaps an arrest will follow. But, usually it’s just a slap on the wrist and no one cares. We look the other way. That’s a weakness and this mentality must change.

Things must be dealt with according to the law. Daw Aung San Suu Kyi has already made statements to the effect that wrongdoers – including NLD MPs – will be prosecuted without exception. I say this because although new laws will be introduced, implementation has to happen or there’s no point. Not paying tax is an example: prosecutions must follow. Myanmar has always been so lenient – it was only if a person went against the government that they were prosecuted.

What are the most common inquiries UMFCCI is getting from its foreign and local members at the moment?

Our foreign members are asking us about the FDI law, labor unions, the arbitration law and land rights. The questions depend on the sector – land rights and land grabbing, for example, is a huge issue for telecoms because of the need to build mobile towers.

Our local members aren’t asking us any questions about the impact the new government will have on business. That’s because there’s a commonly held belief that they won’t face any obstacles under the next administration. They only foresee an ease of doing business.

How would you describe Myanmar’s trade and investment prospects over the next five years?

It will certainly be much, much better but we need more time to get on the right channel. Changing mindsets will take at least a generation. But I think that within five years the business environment will be more structured, with a great deal more knowledge. The journey, however, has just begun.

“What I believe is that each and every one of us should take responsibility for helping Myanmar’s economy to grow. As Horatio Nelson said, we must each perform our duties with sincerity. ”


legal cornerpresented by:

Since Myanmar opened up to foreign investment in 2011, the country’s labor and employment regulatory framework has evolved and continues to develop. A key change relevant for employers was the issuance in September 2015 of the latest version of the Ministry of Labor, Employment, and Social Security’s Standard Employment Contract, known as “2015 SEC.” The SEC, in general, is a template employment contract issued from time to time by the Ministry of Labor that contains compulsory provisions an employer can only change to grant more generous conditions to an employee.

As a protective measure against worker exploitation, the 2015 SEC is drafted with a factory worker employee in mind and, as such, certain provisions are inapplicable and unusual in the context of other employment situations. While the concept of a template contract may be good, a “one size fits all” approach is not a suitable fit for Myanmar’s diverse workforce.

Three of the myriad of provisions within the 2015 SEC that are not suitable for all employees are those that relate to probation, overtime, and termination:

(1) Probation. The 2015 SEC sets a non-extendable three-month probationary period during which payment can be as low as 75% of the normal wage for the position. Within any workforce, three months may not be long enough to determine an employee’s suitability for the role, and especially in a skilled position, the probationary period may need to be extended to ensure the employee has the skills for the job.

In a developing country and workforce, the set probationary period could be detrimental to developing a skilled labor force, as an employer who is uncertain about a prospective employee’s performance after three months may err on the side of terminating the relationship, rather than confirming the employment since the probationary period cannot be extended. For non-skilled workers, payment at 75% may not be feasible as non-skilled worker wages are already relatively low.

(2) Working Hours/Overtime. As the 2015 SEC is silent in respect to specific working and overtime hours, the relevant provisions in the Shops and Establishments Act and the Factories Act apply, i.e., 48 working hours per week, and 44 working hours per week, respectively. The Shops and Establishments Act applies to employees in certain establishments, including fitness and beauty centers, photograph shops, and computer and electronic accessories shops. The Factories Act covers all other employees.

Employment Contracts in Myanmar By Danyel Thompson, Senior Legal Advisor with DFDL

These laws also prescribe limitations on overtime working hours. At issue with the 2015 SEC is that working hours simply cannot be prescribed in certain industries, particularly in services; and overtime is usually not applicable in certain employment relationships, particularly for management level employees. While the 2015 SEC appears to allow changes to working hours by agreement, the 2015 SEC does not set out any exemptions for overtime. Whether an agreement changing the working hours and exempting overtime would be approved is uncertain.

(3) Termination. Myanmar laws provide for the termination of an employment relationship with or without cause. An employer can terminate the employment contract for important reasons provided in the SEC or work rules, or in the relevant labor laws “with cause.” If an employee is terminated “without cause,” the employer shall pay severance. The 2015 SEC list of reasons for “with cause” termination allow poorly performing employees to fall into the category of termination “without cause.” As a result, employers incur a notice period and severance payment obligation to terminate the employment contract. Only if the poorly performing employee has also violated other aspects of their contract and/or work rules (e.g., consistently being late to work) will the employer have a “with cause” basis to terminate the employment relationship and avoid a severance obligation to an employee who may have already caused the employer to suffer financial or other loss.

Interestingly, not even the employees that the 2015 SEC intends to protect are convinced of its protective measures. According to an article in the local media, only 2,000 out of 23,000 registered factories have signed contracts with their employees due to a lack of employee trust and not enough communication regarding the contents of the 2015 SEC. For employees who have not previously had employment contracts to be suddenly required to sign a document which they do not understand, have not had time to read or consider, or which appears to contain non-beneficial provisions to them, is understandably disconcerting.

Indeed, legally binding and well-drafted employment contracts are crucial to ensuring a transparent, workable employer-employee relationship. Such contracts, however, need to be tailored appropriately to the employer-employee, rather than treated as one uniform applicable to all.

Fortunately, the issues with 2015 SEC continue to be discussed and will hopefully result in a better approach to negotiating and confirming employment agreements in Myanmar.

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The politics of Myanmar’s social media revolutionApps built for the last elections showcase Myanmar’s burgeoning IT sector

By Philip Heijmans


Photo: Philip Heijmans 27

Standing in front of a small crowd of local programmers and journalists at the offices of a recently formed information and communications technology hub in Yangon, 20-year-old Myat Min Soe is demonstrating one his country’s first ever mobile election applications.

The app, mVoter 2015, is an educational tool that gives a brief description of each of the political parties and candidates who were to run in the historic general elections on November 8. It also shows users how to properly fill out ballots for the candidates of their choosing -- something many had not had the chance to do in 25 years, when the last open elections were held in Myanmar.

Part of a team of young coders called Pop Stack, Myat Min Soe is one in a growing community of programmers that have come to the forefront of Burmese entrepreneurship since sweeping political and economic reforms in recent years led to a frenzy of new mobile phone and internet users.

“Technology is changing very fast,” Myat Min Soe said while holding an iPhone in one hand.

“A lot more people now have access to the internet and that’s helping Myanmar’s ICT sector.”

Within just a few weeks, his platform attracted more than 130,000 users during the lead up to the election.

mVoter 2015 was just one of 10 election mobile applications showcased during a tech event in October last year, which was held by Phandeeyar, a local not-for-profit tech association. Other apps included Kyeet, a citizen based crowdsource election monitoring platform that allows users to update observers of important events in real-time, while another called New Niti sought to educate rural Burmese about citizenship rules and local laws -- among other things – by using audio scripts and animations.

Ye Lin Aung, the 23-year old developer behind the application programming interface (API) for which all of these applications are based on called Mae Pay Soh, Burmese for “Let’s Vote,” thinks such applications have the potential to make an impact in the era of growing connectivity in Myanmar.

“We really hope [it will] because it shows that technology can educate people. It’s new for everybody, including the developers. They can use their skills to help the people and we hope to do more in the future, and not just to focus on the election,” he said.

After learning how to code from old books, blogs and through his friends, he said his biggest challenge in putting together API was trying to explain to the Union Election Commission why he needed their data. The concept of citizen-created mobile applications is still novel and misunderstood.

“You can’t just walk in and ask for information,” he said.

Phandeeyar, which launched in 2014, is hoping to raise awareness about voter rights and responsibilities by bringing information to voters’ mobile phones and computers, who until now had traditionally relied on word-of-mouth and infrequent rallies to glean practical information about voting.

“I think this is one of the things that makes Myanmar a historically significant place, because [while] it has been opening up, it has also been experiencing this connectivity revolution,” said Phandeeyar founder David Madden.

Indeed, when Myanmar granted mobile licenses to foreign telecom operators for the first time back in July 2013, mobile penetration reached just 7.08% of the country’s 51.4 million population, according to government data. Just a little over a year after those services commenced, mobile usage has skyrocketed and more than 30 million SIM cards have been distributed, according to the three licensed telecommunications operators.

With a wealth of new users, local programmers quickly came out of the

“Most IT companies are now targeting Myanmar and I can’t even imagine what will happen next.”

- Ye Lin Aung

mVoter 2015 App Developer



woodwork, designing new online games, retail outlets, real estate listings and social media applications – all of which are in Burmese or bilingual. New websites are popping up on a daily basis.

According to the most recent data released by the Ministry of Communications, Information and Technology, the number of websites registered using Myanmar domains increased from just 315 in January 2013 to 2,331 in November 2014.

“It has really been quite amazing what we’ve seen happening [in Myanmar over the past] few years. What is particularly amazing is that Myanmar leapfrogged the internet and has gone from nothing to a mobile first country and no country has quite done that yet,” said Marc Einstein, head of the Asia Pacific telecommunications and digital media division at the US-based market research and consultancy firm Frost & Sullivan.

“The business environment is finally conducive to entrepreneurialism and most of the locals who were studying in Singapore, Malaysia and Thailand are coming back. There is a lot of excitement,” he said.

Myanmar’s mobile revolution is a far cry from the way things were just 15 years ago, when mobile connectivity in Myanmar was largely restricted to the wealthy, military-connected elite.

When state-run operator Myanma Posts and Telecommunications (MPT) launched

the country’s first mobile services in 2000, a SIM card could cost more than $5,000 on the black market, an unthinkable amount for anyone: and especially so in a country where gross income per capita was less than $100 per month.

At the same time, telecommunications were tightly controlled by the government, which held a monopoly over the sector, and viewed mass communication as a potentially destabilizing force.

With the stigma of an oppressive yesteryear still very much alive, not everybody is convinced that ICT jobs are a sure bet.

“When I told my parents that I was going to have a career in computers, they were very surprised and were totally against it,” said Mae Pay Soh’s Ye Lin Aung, explaining they would rather he become a doctor or an engineer.

“I don’t blame them. They don’t know of or see any examples of this kind of success story with computers yet. It still hasn’t happened in our country yet.”

Despite his family’s disapproval, Ye Lin Aung remains optimistic.

“Most IT companies are now targeting Myanmar and I can’t even imagine what will happen next,” he said.

Domains in Myanmar

vs

Jan 2013 Nov 2014

315 2,331

Photo: Philip Heijmans 29

firing the corporate canonsCorporate governance is lagging behind, and it’s going to take more than a new stock exchange to fix it.By Jessica Mudditt


Myanmar’s ambition to expand its economic reach beyond its own borders may be a necessary step toward becoming a fully integrated member of the international business community, however legitimacy comes at a price.

If those companies wish to find success in the form of new investors in the post-junta era, they are going to need to quickly learn the definition of corporate governance, analysts familiar with Myanmar believe.

“The majority of [local] businesses are starved for capital. The cronies never needed capital – they had their own sources of money,” said Peter Beynon, country manager of Jardine Matheson International Services, who is also the contact person for the Institute of Chartered Accountants in England and Wales (ICAEW) strategy in Myanmar.

“The family grown businesses have never had access to investors like us or international lenders,” he said. “Bank lending has only just started now, but it doesn’t cut it for those seeking large-scale expansion.”

Indeed, obtaining international capital will require a great deal of internal change as corporate governance is a relatively new concept – and for many, one that remains wholly unknown – while accounting standards are rudimentary across the board.

“There basically aren’t any [accounting standards] in Myanmar. It’s as rare as hen’s teeth to find a high quality financial accountant,” Mr. Beynon said.

He explained that this is common in frontier markets, as most businesses are owner-managed.

“Business owners don’t think they need a set of financial books and they are not demanded by the authorities. They understand how their business is doing purely by the level of money they have in the bank account – or how big the pile of money is at the end of the day if they don’t have a bank account,” he added.

The Myanmar Institute of Certified Public Accountants did not respond to requests for an interview about the standards it recently adopted for the profession.

As the issue has all but stunted growth for Myanmar’s biggest companies, the International Finance Corporation (IFC) and the Union of Myanmar Federation

of Chambers of Commerce and Industry (UMFCCI) signed a deal to improve local corporate governance practices in mid-February by providing training and workshops in an array of related topics.

The deal will focus on addressing challenges such as the necessity for more independent boards of directors, creating a more defined role for directors, improving transparency and putting place better control frameworks and shareholder practices.

Many of these problems are due to the lack of a robust legal and regulatory framework that includes basic governance provisions and investor protections.

“There is awareness of corporate governance in Myanmar, but the understanding of it remains limited,” said

“Every shareholder should have a voice, but large shareholders can change dividends and there is no mechanism to prevent that. You can basically do whatever you want,”

-Vikram Kumar

IFC Country Representative


31

IFC’s country representative, Vikram Kumar, citing a widespread lack of investor protections.

“Every shareholder should have a voice, but large shareholders can change dividends and there is no mechanism to prevent that. You can basically do whatever you want,” he said. “There is no form of minority rights and very few companies hold AGMs. It’s very important to build capacity on the quality on financial information that’s shared.”

Protection for investors in listed companies is even more important as private shareholders are typically family members.

The hope for the Yangon Stock Exchange (YSX), which launched in December but is yet to begin trading, is to bring a greater level of transparency and corporate governance to Myanmar. However experts have lamented the rules on public disclosure as being nebulous at best.

“When you look at YSX listing rules in terms of disclosure requirements, they refer to company information,” an expert told The Myanmar Times. “It’s not clear what company information is, so it’s very vague ... and in my opinion the big issue here is that the listing rules are not supported by any corporate governance code.”

Others agreed, saying that the Central Bank has done a poor job in producing said rules – and merely requires that accounting standards be in line with ambiguous local accounting standards.

“I personally think that [the terminology of the rules] means nothing because it’s open to anyone’s interpretation,” said an industry player who is not authorized to speak to the media.

The source added that the Central Bank is aiming to develop a set of standards that meet the “very basic” local standards half-way with those of the International Financial Reporting Standards (IFRS) –

the latter of which he said is “way above everybody’s head.”

Forty-nine percent of YSX is owned by two Japanese companies – Japan Exchange Group, the operator of Tokyo Stock Exchange and Daiwa Securities Group.

The source said that the Japanese owners “would like to bring the standards for listing up but in the early stages, they will find that very difficult to do. It’s working from scratch and things will be very difficult during the first six months – if not the first two years,” said the source.

Still, he believes the stock exchange represents a huge step forward for the country.

“It’s exactly what Myanmar needs. It will bring up standards of corporate governance and accounting. It’s an ideal opportunity for companies looking at other ways of getting financing,”

Others remain more holistically optimistic.

“We believe that there is a growing awareness of corporate governance in Myanmar,” Tina Singhsacha, who co-chairs the UK–Myanmar Financial Services Taskforce. The taskforce comprises the British Government and UK private sector organizations and was established in 2013 to aid the development of a transparent financial sector.

“More importantly, we see…a growing recognition of the importance of good corporate governance practices. The main challenge on this front is not uncommon, and it is to do with the need for greater exposure and experiences to be able to adopt the appropriate practices that suit the local environment,” said Ms. Singhsacha, who is also the chief representative of Standard Chartered Myanmar’s representative office.

Anthony Preston, head of the British Embassy’s Burma’s Prosperity Team, said: “We are getting to the point where a core group of businesses will adopt good corporate government practices. And once we have that, we might see a group of businesses collectively developing standards, rules and regulations; or at least advised standards for the local business community.

“It will be a process of selection – I think certain companies will end up doing very well out of investment and the stock exchange and those who don’t catch onto corporate governance with fall behind,” he said.

of the YSX is owned by 2 Japanese companies

49%Japan Exchange Group

Daiwa Securities group



Myanmar is set to enter a new exciting era of business and politics, with the pro-democracy party – the National League for Democracy (NLD) – taking over the reigns of government on April 1. For most businesspeople in the country though, it is a trying time, waiting nervously to hear concrete details of what Aung San Suu Kyi’s new government plans to do.

Speculation is rife over almost every aspect of the future government, including who will be president as it is certain the Lady has agreed with the military commander-in-chief that she will not push for that position, as it would entail amending or suspending parts of the constitution. This at least has averted a possible constitutional crisis, but the stability craved by Myanmar’s business community is still elusive. Uncertainty prevails and businesses are anxiously waiting to hear about the government’s immediate plans.

Senior NLD members frequently point to the party’s detailed manifesto as the blue print for the new government’s direction and strategy. The party has set up new committees and think tanks to prepare the ‘action plan’ for the first few months of government. “Turning principles into practice,” a senior NLD economic advisor told me. “Further liberalization of the economy will be the key headline,” he added. Free market principles will be the watch-word.

Agriculture, economic reform, monetary and fiscal policy, education and health will be the key initial areas that the government turns its attention to. For starters, the NLD government is committed to bringing increased transparency and accountability into government: this means separating regulatory functions from service delivery and the management of state-owned enterprises (SOEs). The latter are going to be privatized – MOGE may

well be the first put up for auction, but others will follow. The Central Bank will be made fully autonomous – though the future position of the Yangon Stock Exchange and the Myanmar Investment Commission has yet to be decided.

All government restrictions on farmers will be lifted, and they will be allowed to plant whatever they want, where ever they want. “Let the market determine what famers grow,” said another NLD economic advisor. Increasing farmers’ access to credit will also be a top priority, so increased micro-financing facilities will be sought. Reforming storage and marketing in the agriculture sector will also be on the immediate agenda.

Of course investing substantially in education and health will be one the first tasks the government tackles. “We need to deliver something to the people who gave us their votes,” said Tin Oo, the NLD patron. “And we have to do that within the first year or people will become disillusioned and impatient.”

But the question is how to finance these increased services. There is nothing left in the government coffers. There will be greater scope for private-pubic partnerships, according to NLD economic advisers. In the long run, improved tax collection is expected to provide revenue for increased government expenditure in the social sector. In the short-run, NLD

leaders are exploring the possibility of loans from international financial institutions and donors to cover the shortfall until tax revenues begin to roll in.

But the biggest anxiety voiced by Myanmar businesses is the likelihood that the new government will not hit the ground running at the beginning of April. The president and the new ministers will need time to find their feet. No real handover has yet happened. And of course there is significant concern about the ability of the new Cabinet members’ ability to manage their ministries. While the NLD government insists it has a practical plan of action for the first three months, the reality is that it is likely that the first three months will be a period of inertia in politics, government administration and business.

So for the county’s businessmen and foreign investors alike it is going to be a period of wait-and-see. The NLD’s commitment to taking politics out of business is commendable, but more worrying is that they have so far side-stepped the thornier issue of the role of the military in the “market”.

Larry Jagan is a freelance reporter and media consultant, based in Bangkok and Yangon. He has been reporting on the region and Myanmar for more than 40 years. He is a former BBC chief news and current affairs editor for Asia and a

Myanmar specialist.

Uncertainty,Confusion &Speculation By Larry Jagan

“The president and the new ministers will need time to find their feet. No real handover has yet happened. ”


COMMENTARY

33

Changes are coming in 2016 and here’s what to expect

By Edwina Kane

M yanmar’s Union and Solidarity Develop Party wasted no time in

their final parliamentary sitting as the country’s “reformist” government, passing some 43 laws since losing a vast majority of seats in November’s elections.

Many of these laws had been kicked up and down the halls of Nay Pyi Taw for months, or in the case of the hotly anticipated Condominium Law, for several years.

The biggest ticket items for foreign investors were the Condominium Law, the Financial Institutions Law and the Arbitration Law, as well as the beginning of a new regime in the mining industry.

Entrepreneurs will have to wait for more detailed rules and regulations for these laws to be promulgated – a step that will likely extend beyond the required 90 days for issue – before being able to take full advantage of the liberalisation the laws promise.

Foreign investment in key sectors such as garment manufacturing may be held back during the state

of flux, but will not stop altogether, say experts.



The Condominium Law took the preliminary step of opening up Myanmar’s fiercely protected property sector to nascent foreign investment, allowing foreigners to own up to 40% of condominiums, which are defined as buildings higher than six stories meeting certain other engineering specifications. Yet details on mortgaging, financing, and how to manage conflicts between the Condominium Law and the Transfer of Property Restriction Act – a 1980s law that forbids foreigner’s from transferring any property rights, effectively curtailing the right for foreigners to own land in Myanmar – are still up in the air.

The Financial Institutions Law, an update of its 1991 predecessor, was passed at the same time as the Central Bank of Myanmar (CBM) began a second round of tenders for foreign banks to enter the market aimed at “welcoming new foreign banks from additional neighboring and important trading partner economies”.

“The main objective of the second round of licensing is to further promote existing economic cooperation; foreign banks with representative offices in Myanmar or which are in the process of obtaining one will be permitted to participate,” CBM said in a statement. While currently the activities of foreign-owned backs are severely restricted, the Financial Institutions Law sets up a framework possibility for more robust banking activities to be performed by foreign players.

Providing further comfort for large foreign investments, the Arbitration Law replaces a 1944 Act by the same name and implements Myanmar’s obligations under its accession to the International Convention on the Recognition and Enforcement of Arbitral Awards (the

New York Convention). Importantly for investors, the law technically creates a mechanism for foreign arbitral awards to be enforced by Myanmar courts. The practical realities of enforcing such awards will be a test for the country’s beleaguered court system.

However, missing from the tranche of badly needed regulations were updates to the 1914 Companies Act and Foreign Investment Law 2012, which is slated to be scrapped along with the Myanmar Citizens Investment Law and replaced by a new Myanmar Investment Law, which will govern both foreign and local investors.

The status of these two laws remain uncertain, posing problems for investors looking to enter the market. A recent draft of the Myanmar Investment Law published by the governmental Directorate or Investment and Company Administration (DICA) shows a more favourable investment field in comparison to the current set-up. Especially in requalifying foreign projects, which are subject to various restrictions. Currently a company or project will be classified as foreign if a foreign national holds even one share in the venture. Classification as “foreign” heaps certain burdens on the project, such as restrictions to accessing land rights.

Industry players told Myanmar: All That Matters they believe the new laws will be passed this year, but by the new government, meaning that consultations could be extended.

Sebastian Pawlita of LawLEX said that changing even more laws may very well be on the legislative agenda for 2016.

“We may see a revision of existing laws as NLD figures have pointed out that they

wished to change what they consider to be ‘mistakes’ in existing laws,” he said. “It is unknown, however, if laws relevant to foreign investment will be affected. In addition to a new, combined Investment Law, we expect to see a new Companies Law which should, most significantly, result in foreign-invested companies being treated as local companies if the percentage of shares held by foreigners does not surpass a certain threshold.”

In the meantime, Mr. Pawlita said that while investment may be held back during the state of flux, it will not stop altogether.

“I think everybody expects an increase in foreign investment once it is apparent that the new government is safely installed.”

Chris Razook, IFC’s corporate governance lead for the East Asia Pacific region, said in a recent opinion editorial in The Myanmar Times that a key factor of this investment environment, not yet addressed in existing laws, is responsible business practices.

“IFC’s experience in Myanmar has revealed that many local companies struggle with underdeveloped boards of directors, ill-defined director duties, poor transparency, rudimentary control frameworks and inadequate shareholder practices,” he wrote.

“This is partly due to the absence of a robust legal and regulatory framework that includes basic governance provisions and investor protections. Poor governance not only undermines a company’s overall performance and market competitiveness, but also fuels trepidation among investors, creditors, business partners and other stakeholders.”

Parliament building in Naypyitaw


35

Myanmar’s most free and fair elections in five decades are now in the bag, with the results proving a resounding win for the National League for Democracy. However one of the more interesting surprises of the election was the turnout, as some 22.2 million eligible voters, out of a total population of 51.4, turned out on election day to cast a vote.

In the months of January and February 2016, we surveyed 200 households in Yangon to assess the impact of pre-election activities, their involvement in this highly acclaimed election and their feelings about moving forward under the government.

Voting, penetration and contributionsOur average respondent engaged in recent elections, with 84% of respondents voting in the 2010 general election and 89% voting in the most recent November 2015 general election. Of the total field of respondents, 95% claim to have seen party political broadcasts from the most recent election either on television or in the newspapers.

However in some arenas, political engagement is low: only a quarter of those surveyed said they contributed to a political party/candidate/campaign, and only 2% said they tried to contact their elected representatives in the past to discuss a business issue.

Country’s Direction According to our survey, 80% of respondents believe that Myanmar is heading in the right direction politically and two-thirds (68%) believe the country is heading in the right direction economically. 77% of interviewees noted that they made voting decisions based on business and economic reasons.

Polling MYANMAR

NCRA surveyed 200 households in 20 townships of Yangon to understand the average person’s views and hopes for their political and economic future.

Did you ever contact your elected representative for a business issue?

Did you ever donate or contribute to a political party or candidate?

98%

2%

75%

25%

Yes No

Yes No


Similarly, two-thirds of the respondents said that the reforms of the last four years have improved their lives and 97% answered that they believe that the next generation of Burmese will be better off when they reach the same age as the respondents.

A total of 45% of those surveyed strongly believed that there will be more employment opportunities in the coming 12 months.

Government Policies Respondents expressed support for heavily subsidized government services. Upon being asked to rate whether universal healthcare should be implemented, on the scale of zero (disagree strongly) to ten (agree strongly), 192 of the 200 respondents rated the issue at a 10; while 189 strongly agreed with the hypothesis that “Basic Education (kindergarten to Grade 12) should be free”, and 158 respondents strongly agreed with the hypothesis that “University education should be free”.

Similarly, strong agreement was expressed towards further spending on infrastructure; 164 respondents said the government should spend more on infrastructure, and 173 said the government should devote more spending on the power and electricity sector.

165 respondents said that the minimum wage of K3,500 should increase; and 147 respondents said that public sector pay should increase. Moreover, 168 respondents strongly believe that the government should create more public sector jobs. However 64% of respondents are strongly in favor of reducing the number of autonomous government departments – a key pledge in the NLD’s manifesto.

Taxation and Government Finances However, respondents lacked a clear handle on how the government should finance such extravagances and handouts. In terms of taxation, 79% of respondents admitted to not paying any income tax and 80% of respondents do not pay any commercial tax; 88% of respondents do not subscribe to any social security scheme or make any social security payment to the government.

Tax increases are viewed equally dimly. 134 out of 200 respondents disagree strongly that income taxes should be higher; 123 respondents strongly disagree that commercial taxes should be higher. Moreover, 140 respondents (70%) are strongly against VAT tax increases, and 188 respondents disagree strongly that a tax on cell phone top-up cards (mooted in the last parliament) should be implemented.

With low tax compliance, the government of Myanmar has recently run deficits to fund itself. Opinions are bitterly divided on this: upon being asked whether, the government should print money to spend more on social, economic, and infrastructure projects, 88 respondents (44%) strongly disagreed. Only 25% strongly agreed with this statement (the rest were neutral on the issue).

Miscellaneous Respondents envision that they will be overburdened with regulations and interventionist policies too. 190 out of 200 respondents strongly want more environmental regulations, and 192 respondents strongly want more occupational safety regulations (construction regulation and fire safety, for example); 190 also believe strongly that the government should intervene to address inflation – and the same number said that the government should institute price ceilings and price floors to address inflation.

When asked which of the three issues the incoming government should tackle in its first twelve months, the respondents were strongly in favor of:

• Universal healthcare

• Free education, from kindergarten to Grade 12

• Regulatory intervention to address inflation

While 139 respondents are strongly in favor of tax breaks for SMEs, 171 respondents argued strongly against giving tax breaks to attract foreign FDI investments. An even larger number (176 respondents) argued strongly against giving tax breaks to local conglomerates to spur capital expenditures and investment.

When asked whether state-owned enterprises should be either abolished or privatized, only 102 respondents agreed strongly; 85 respondents are largely neutral on the issue.

Do you pay income taxes?

Do you pay social security contributions?

12%

88%

79%

21%

Yes No

Do you pay commercial taxes?

80%

20%

Yes No

Yes No

37

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Do you think unemployment is an issue?

Do you think inflation is an issue?

Do you think budget deficits are an issue?

Universal Healthcare should be implemented.

Basic Education (to Grade 12) should be free.

University Education should be free.

Government should provide more vocational training.

Government should spend more on infrastructure.

Government should spend more on power and electricity.

Government should print money to fund social, economic, and infrastructure projects.

Government should increase minimum wages.

Government should increase salaries of public sector workers

The number of autonomous government departments/ministries should be reduced.

Government should create more public sector jobs.

Government should let private sector run state-owned corporations.

Government should introduce more environmental regulations.

Government should introduce more occupational safety guidelines.

Government should regulation inflation.

Government should institute price floors and price ceiling to regulate inflation.

Income Taxes should be higher.

Commercial Taxes should be higher.

Social security payments should be higher.

VAT taxes should be higher.

Tax on cellphone top-up cards should be implemented.

Government should give tax breaks to SMEs

Government should give tax breaks to FDI investments.

Government should give tax breaks to Big Local Conglomerates.

Strongly Disagree Neutral Strongly Agree

People were asked to rank socioeconomic and political issues likely to be addressed in the new government’s agenda

Where they stand


Got Questions?We’ll get you answersWe have years of experience on the ground in Myanmar, collecting research crucial to business success. For your next research project, don’t risk getting a bad data set. Put an experienced, effective team on your side.

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39

Moving toward an integrated MyanmarBy Shine Zaw Aung

40 | Myanmar: All That Matters40

THE PEANUT GALLERY

41

As I travelled through the United States this month, one change regarding Myanmar was palpable. Whenever I mentioned ‘Burma’, as I still refer to my country, I was corrected by the Americans, urban and rural alike with, “Isn’t it called Myanmar now?” This marks a great change from a decade ago, when nobody in the United States knew where Burma was.

With this awareness came excitement at the markets the country and its 53 million inhabitants possess. The easing of sanctions by the United States if a democratic handover of power takes place will lead to normalizing trade relations between the two countries. Myanmar hopes to regain its GSP status and LDC tax breaks with the US. Before sanctions were imposed in the early 2000s, over 10 percent of Myanmar’s exports went to the United States (mainly in the form of garments and marine products).

With the form of the incoming Suu Kyi-led government still amorphous, Western investors remain cautious. However, Ms. Suu Kyi’s pledge to ratify the International Labour Organization’s labour rights rules signals her willingness to join other international and regional frameworks in the near future. Environmental regulations also play a large role in her manifesto. These signals should grant a

sigh of relief for lawyers, tax attorneys, and various advisers consulting Western multinationals who fret about the legal and reputational risks of doing business in Myanmar.

Certain legacies, however, will persist. In 2015, Myanmar had several industrial accidents, including fires and building collapses. A recent study noted that in garment manufacturing, 43% of workers did not feel safe, primarily due to a perceived risk of fire, and 39% said they had sustained work injuries. As the country has a limited number of labor inspectors, multinationals cannot ascertain whether their contractors or subcontractors are using sub-par or outdated equipment.

Despite low labor costs, these on-the-ground realities make compliance officers in multinationals pause before signing off on Myanmar deals. Another worry was the lack of arbitral standards – Myanmar ratified the New York Convention in 2013, but failed to enact legislation to enforce it. Finally, in early January 2016, parliament passed the Arbitration Law, which broadly follows international standards of the UNCITRAL Model Law. Most importantly, the Arbitration Law distinguishes between domestic arbitration and foreign arbitration, making a previously murky legal area

clearer. The arbitrator is also granted immunity.

However, a stunning deviation from the Model Law may be observed in Section 46. The Model Law allows the government to refute arbitral awards “on public policy grounds”. However, under Myanmar law, this is written as “on national interest grounds” – a much more nationalistic choice of words. It is left for judges and lawyers to interpret what these words mean – but more encouragingly, Ms. Suu Kyi has promised a more transparent and independent judiciary.

Another matter left for the incoming administration and its judicial policies are antitrust policies. The Competition Law was enacted in February 2015 and will come into force in February 2017. As antitrust enforcement grows across ASEAN states and Asia more broadly, this is another welcome step. Now it is up to Myanmar’s Ministry of Commerce to publish the relevant rules and regulations (that is, by-laws) on how to police businesses. The Competition Law itself covers such normal areas as ‘abuse of market dominance,’ ‘monopolies’ and ‘unfair competition’ but a government-appointed commission will have the final say. In Myanmar, where many state-owned enterprises operate de facto monopolies, the law will be contentious.


Moreover, the competition law governs all merger and acquisition activities, which are currently taking place informally. The impending enactment of the competition law in February 2017 might lead to Myanmar seeing a frenzy of mergers and acquisitions activities before that date.

This will all lead to a very exciting year. Relatively untested leaders, a civil service still staffed by leftover mandarins, and an enlivened business environment in a post-election honeymoon period are together creating a heady mixture of excitement and confusion. Yet, Myanmar has time on its side: during its economic renaissance, the country will be aided by its youthful population, whose median age is 27. There are 14.5 million people in Myanmar between the ages of 5 and 19. They will enter the workforce in the

next decade, and if proper training and vocation programs are rolled out, the increased labor productivity will be a boon for Myanmar’s economy.

Furthermore, the sizeable population entering the workforce in the medium term will make Myanmar an attractive location for manufacturing. Regional manufacturing powers such as China and Vietnam are aging rapidly. The Arbitration and Competition Law, and the Minimum Wage Law, which was passed last year along with occupational safety regulations, are cornerstones for building a manufacturing industry. Meanwhile, Myanmar’s ascension into regional free trade areas will forge greater investment linkages. With Myanmar entering the ASEAN Economic Community (AEC) in 2016-2017, tariffs on its manufactured

goods will fall, making the country’s manufacturing sector even more attractive.

Some of the chronic problems surrounding the manufacturing sector will not disappear overnight. Most of them – such as a stable supply of water and electricity, traffic and logistical gridlocks – are infrastructure-related and will require billions of dollars to fix. However, in a country where over 30 percent of the population are underemployed (i.e. engaged in part-time, seasonal, or informal work), wages are low and are extremely competitive with regional players.

However, the biggest problem stemming from infrastructure is not the gridlocks it creates, but the emphasis it places on a handful of major metropolises. Most foreign investment has so far gone into Yangon and its environs (such as Thilawa and Bago). This galls ethnic leaders for whom the economic boom has not accompanied political openings. In the end, Myanmar’s appeal stems from its close proximity (through ethnic regions) to China and India and its strategic location within continental Southeast Asia. However without investment flowing into these ethnic regions, Myanmar’s opening might hit a ceiling in the next couple of years.

Ballot CountingPhoto: Phillip Heijmans

“The Arbitration Law distinguishes between domestic arbitration and foreign arbitration, making a previously murky legal area clearer”

43

e v e n t sMyanmar’s most important

business functions

March

April

4th MOGP2016

MyanmarWoodInd. Electronics and Electrical Engineering

2nd Myanmar Offshore Summit

3rd Global Oil & Gas Myanmar

8th Myanmar Job Fair

Refining and Petrochemical

Summit

Upstream Summit & Exhibition

March

May

March

May

March

May

15-16

22

19-21

12-15

30-31

17-19

30-31

19-20


For full report, contact NCRA at +95 1 122 1673 or [email protected]

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join us at: myanmarmarketintelligence.com

Macro-economicsMyanmar has defied the emerging markets slowdown and is slated to grow more than 7% in 2016.

The following pages are a sample of MMI’s Myanmar: Economic Insight 2016, our yearly review of and projections for Myanmar’s economy in the year ahead.

In 2010 and 2011, the government reported the GDP growth of 10.6 percent and 10.4 percent – in line with double digit growth the military governments reported for most of the previous decade to World Bank. In between 2003 and 2006, the government reported annual growth of over 12 percent. However, IMF reports that the country has grown by less than 5 percent annualized during that time.

This slower growth rate is supported by satellite photos of the night sky over the country. Generally, the intensity of artificial light over a country at night-time increases proportionally with incomes and GDP; and this analysis (Measuring Economic Growth from Outer Space) suggests that Myanmar’s GDP has grown at annualized rate of 5.8 percent between 1993 and 2003, and with annualized growth rate of 3.26 percent since 2004 until the recent reforms began in 20118.

The country’s economy is still largely agrarian, with agriculture (including livestock, fisheries and forestry) representing a large portion of GDP. As of March-2015, agriculture GDP is 19 trillion Kyats ($14.8 billion), to which contribution from farming is 14 trillion Kyats; therefore, agriculture sector in Myanmar contributes 29 percent to GDP in nominal prices. Industrial and services sectors make up 35 percent and 36 percent respectively. GDP contribution from service sector includes trading, which represented 19 percent of GDP (12 trillion Kyats).

Gross Domestic Product

According to the government, Myanmar’s Gross Domestic Product (GDP) was 65 trillion Kyats (US$ 51 billion) as of end of March 2015. The country’s economy is still largely agrarian, with agriculture (including livestock, fisheries and forestry) representing a large portion of GDP. The sector employs 57 percent of the total employment, and 11 percent are employed in manufacturing, 4 percent in mining, power, energy and construction, and 28 percent in services, of which 16 percent are in trade (retail and wholesale trade)6.

The country’s GDP is estimated to have grown by 8.5 percent in 2014, according to IMF, accelerating from 5.9 percent in 2012. The government claimed an even more optimistic figure, aiming at 8.7 percent growth, driven by a boom in construction, mineral extractives, and telecoms sectors7. The government predicts the economy to grow by 9.3 percent in fiscal year 2015-2016, and hopes that GDP contribution from the industrial sector to overtake agricultural sector for the first time, spurred by double-digit growths in construction and manufacturing sectors due to increased FDI.

However, historically, the governments of Myanmar had been consistently optimistic about GDP growths.

Source: IMF (October 2015)

0

20

40

60

80

100

120

2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16e 2016-17e 2017-18e 2018-19e 2019-20e 2020-21e

GD

P (b

illi

on U

S$)

Exhibit 4 Gross Domestic Product

SAMPLE

Farm21%

Manufacturing20%

Trading19%

Transport11%

Livestocks and fisheries8%

Energy7%

Construction5%

Others9%

In addition, while there is a reduction in absolute poverty, income distribution shows that the majority of people live marginally above the poverty line, which is defined by the UN at US$1 per day. In fact, nearly 60 percent of the population lives between US$1 per day and US$2 per day. Thus, using a more recent World Bank’s measure of moderate poverty set at US$2 per day, 86 percent of the population in Myanmar can be considered as poor. This is a bad indicator in a country which needs to promote a consumer class.

Extractives IndustryIn late 2012, President Thein Sein signed a presidential decree to render the extractives industry in Myanmar more transparent, as part of the efforts to join an international framework on mining and minerals called the Extractive Industries Transparency Initiative (EITI). Myanmar became an EITI candidate country in July 2014, and in January 2016 produced its first EITI Report.

The report surveyed 57 companies (which represent 100 percent of oil and gas sector revenues, 53 percent of revenues from Gems and Jade Emporium and 45 percent of revenues from other minerals) and 11

GDP contributions by different regions of Myanmar are largely uneven. The main commercial hubs are Yangon and Mandalay, both former capitals on Myanmar under various past governments. Yangon is highly-urbanized: there are 7.3 million people living in the state of Yangon, of which 5.2 million people live in the city of Yangon. Yangon Region, which has 14.3 percent of population, contributes around 22 percent to GDP (14.4 trillion Kyats). Underperformance of Myanmar’s peripheral regions is especially concerning. In 2014-2015, ten of fifteen states in Myanmar missed their GDP targets9.

Poverty Alleviation It has been noted that Myanmar’s recent growth has not been sufficiently broad-based to alleviate poverty on a big scale. The country’s most comprehensive poverty assessment was conducted by the UNDP in 2009-2010, and it found that people living in absolute poverty is 26 percent of the population (slightly down from 32 percent in 2005, but not very significantly)10. However, in eight of fourteen states, poverty is higher than national average: in conflict torn Rakhine state and far-flung Chin state poverty rates are especially high, and since these states are severely hit by the recent floods, their future remains grim.

Exhibit 5 Source: Government of MyanmarGross Domestic Product by Sector

SAMPLE

Understand Myanmar in 2016

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Myanmar: All That Matters-Issue March 7 2016

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Transcript of Myanmar: All That Matters-Issue March 7 2016