Following her recent trip to Myanmar, Kate Higgins provides a perspective for businesses on the political reforms and opportunities for investment.
This week's announcement that direct censorship of the media is to be abolished in Myanmar is the latest in a growing list of liberalising reforms which have hit the headlines this summer. The fast pace of reform in the country is attracting much press coverage and comment and those seeking to invest in Myanmar, rightly want to know what the business environment is like and whether the reforms are sustainable. Coming hot on the heels of my recent visit to the country, I must admit I am not particularly surprised by the reforms. There is much to be done but the Government is aware that it must change in order to attract outside investment and continue to win the trust of the international community. I was in Myanmar (the country formerly, and still by some, called Burma) in July 2012 to participate in the first British trade delegation since sanctions were suspended by the EU in April. Led by UK Trade and Investment (UKTI), which works with UK-based businesses to ensure success in global markets, there were about 20 businesses, large and small, and of diverse sectors on the trip.
Because of sanctions, there has been no UK Government support for businesses investing in Myanmar for some 20 years. However, the reforms implemented by the current Government (led by President Thein Sein) and the release of Daw Aung San Suu Kyi from house arrest and a number of political prisoners from prison, have led to a change in UK policy. I was honoured to be on the trip. Through the considerable recent press coverage and information received from contacts of my firm, the law firm Mishcon de Reya, I had read and heard much about Myanmar, but I wanted to see for myself. I had two principal goals: firstly, to hear about the opportunities for business in the country, meet with local businesses and understand the business environment; and secondly to meet with Government, learn about the reform agenda and establish whether there was anything we could do to help in respect of updating corporate law.
Through the impressive programme of events arranged by UKTI, which involved seminars and workshops and by meeting with local businesses, I was able to go some way to meeting the first objective of understanding the business environment.
Myanmar is a country of some 60 million people, the size of France and Great Britain combined. It is rich in natural resources, benefitting from a substantial agricultural base (some 35% of GDP), oil and gas as well as minerals and gems such as jade and rubies. It is strategically placed between the consumer economies of China and India and has a young and competitively priced work force. It is a country in which some local businesses are thriving, particularly those in real estate (which is in limited supply and therefore expensive), construction, tourism, jewellery and retail. These sectors look set to expand. While the West has been imposing sanctions, trading has been taking place with other countries in Asia and, in Yangon at least, businesses reported that there was plenty of cash in circulation. I met some sophisticated business people, whose businesses were thriving, notwithstanding the extremely limited availability of growth funding. Many of those businesses are looking to form new international trading relationships or to find investors to help them expand.
The main challenge facing the country is that all the infrastructure, from transport to telecommunications, desperately needs updating and the funds, skills and technical knowledge to do this are in very short supply. The education system has suffered under the past Military regime, with the effect that much of the labour force is relatively unskilled. Banking has largely been under State control and an efficient and transparent international payments system is not in place. No overseas banks have been permitted branch offices, and international credit card companies are not fully functional in Myanmar yet. It is a similar story with the insurance industry. The economy relies on cash: payment is in local currency (Kyats, pronounced "chats") or, in some places, pristine, unmarked and unfolded US$. Most people do not have bank accounts or insurance. There are exchange controls in operation, permission is required to extract profits from the country and foreigners are restricted from owning land.
Government and parliamentary process
Early in the morning of the second day we flew to the recently built capital city, Nay Pyi Taw, which is an hour's flight north of Yangon, for meetings with Government Ministers and with the leader of the opposition, Daw Aung San Suu Kyi.
We arrived in Nay Pyi Taw just as the Parliament was about to open for the day. The Parliament buildings were imposing and very impressive and accessed via a suspension bridge over a moat, which surrounded the city. The Speaker of the Lower House, Thura U Shwe Mann, a person said to be of considerable influence and vision in the Government, welcomed us. He emphasised that the Government was committed to implementing the rule of law and also said, with considerable charm, that the Government would like to co-operate with us because we had "quality and drive" and recognised that Myanmar needed technical assistance and help with training. These messages were repeated by the Attorney General, with whom a small group of us met later in the day in his offices. The Attorney General himself, having studied business law and international law in London, viewed the English education system as second to none. He spoke fluent English and clearly had fond memories of England. When asked about the considerable challenge facing his country in terms of law reform, the Attorney General explained that an important priority for the Government was to encourage economic investment and business. He understood that a key aspect of encouraging that investment was to ensure rule of law in Myanmar. The establishment only a few weeks later of the Rule of Law and Tranquillity Committee, to be chaired by Daw Aung San Suu Kyi to monitor and help implement the rule of law, can only be seen as further evidence of the commitment voiced by both the Speaker and the Attorney General.
Later in the day, the delegation had the opportunity of meeting with Daw Aung San Suu Kyi. After winning by-elections overwhelmingly in April, she was in Nay Pyi Taw with other recently elected members of the National League for Democracy for the day's parliamentary proceedings. She spent a good half an hour or more in conference with our mission asking questions of the delegates and giving comment. She was interested in the opportunities we saw in her country and topics such as the prospects for the textile industry and how mining could be done with minimum disruption to the environment. She expressed concerns over transparency in the law reform process and mentioned that the Government were not publishing draft bills or allowing sufficient consultation on them, using the hotly awaited Foreign Investment Bill as a case in point. As we had already obtained a translation of the draft Bill, I was asked to explain its contents to her.
The foreign investment law
The country's existing Foreign Investment Law offers tax breaks (including a 3 year income tax holiday) to businesses whose business proposal fits in with various status objectives for encouraging investment in Myanmar. It grants protection against nationalisation and gives certain guarantees in relation to repatriation of capital to those businesses. To operate under the law, the business has first to obtain a permit from the Myanmar Investment Commission, approving the investment project (this ultimately requires approval of a committee of Ministers), bring in a minimum amount of foreign capital and take insurance with the State insurance company. It is available to businesses which are 100% foreign owned or conducted as a joint venture with at least 35% foreign investment capital, but not to businesses investing in restricted business sectors (such as oil and gas which has to be done through a joint venture with a State company). The draft new Foreign Investment Bill works in a similar way, but extends the tax breaks (the income tax holiday is extended to 5 years) and seems to contemplate that insurance could be provided by other insurance companies operating in Myanmar in due course. It also allows for land to be leased for up to 50 years as opposed to 30 years (foreign ownership of land is otherwise prohibited in Myanmar), although this could be extended. Finally, the new law contemplates that in the case of an investment with local partners, the parties could agree on their own dispute resolution mechanism. Earlier in the day I had asked the Attorney General about this - it was not clear how far it would go to override current requirements favouring the jurisdiction of the Myanmar courts. He explained that it had been included because Myanmar was planning on adopting new arbitration rules, following the UNCITRAL rules and would ratify the New York convention, allowing enforcement of overseas arbitral awards in Myanmar. There is no doubt that if carefully implemented, this would be an important step to giving comfort to foreign investors contracting in or investing in Myanmar.
Comment on law reform for business
The Attorney General explained to me that policy to date had been to "breathe new life" into the already existing laws in Myanmar, many derived from British law. For example, the Myanmar Companies Act, dated back to 1914 and had been reinvigorated by establishing the Companies Registry. It had been amended slightly in the 1950s and supplemented by the Foreign Investment Law. It was good to hear that the UK company law model is still highly regarded, but of course UK law has also been considerably modernised and developed over the years and there are now a number of differences between the two sets of laws. One example is the Foreign Investment Law concept requiring high level Ministerial approval for a foreign business to establish and continue business operations in Myanmar before it could take the benefit of the tax incentives and other protections afforded by the legislation. By contrast, UK law requires businesses to act responsibly in other ways (for example, by placing corporate social responsibility squarely within the responsibility of the directors of the company through a new statutory code of directors' duties). In the UK, tax incentives are provided to promote investment in key areas and dependent on compliance with conditions set by and operated by the tax authorities, but those tax incentives and other protections that businesses expect to see are not linked to a system of licensing in the same way. In Myanmar, Government approval is also required to transfer shares in a Myanmarese company to a foreign owner, a difference again from the concept that shares in a UK company are freely transferable unless the shareholders agree otherwise (and subject to merger control in order to establish functioning of a competitive and free market). Of course, currently market conditions are different in Myanmar and I could understand why the Government had felt the need to introduce some control, including a mechanism to ensure that there should be responsible investment in the country while the country was in transition. However, I hoped it would also have an eye on planning for the future.
There appears to be real commitment to reform in Myanmar but equally apparent is the enormity of the task. British businesses, because of their skills and technology can help the country. Indeed, the Government is asking for help, but understandably at the same time is concerned to protect the country's resources and the interests of its people. President Thein Sein has indicated a commitment to a "second wave" of reforms. However, what is happening with the new Foreign Investment Law is a good example of the fact that there is a need not only for short term legislation, but also for further dialogue to build trust and for a wider programme of more fundamental and longer term reform and consultation. The Government is taking the first steps towards this, but success will depend in part on whether overseas parties are able to follow up with help in a sensitive and constructive way.