Investing in Myanmar

Soe Win Myanmar Vigour 12 September 2012

Background Blunders in the past Revolution Council took over power 1962 resulted in: -Introduced Burmese Way to Socialism & centralized economic planning. -Banks and private commercial businesses nationalized. -English language banned in schools creating & language barrier & isolation to international community for younger generations. -Monetary demonetization 3 times preceded 1988 uprising.

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Blunders in the past Leadership crisis and disunity period from 1988 resulted in:- Consolidation of political environment under military. - Disagreement on election mandate which extended military authority. - International criticism leading to economic sanctions. - UN actions needing Security Council’s approval vetoed.

- Economic concessions to neighboring countries to gain foreign income without consideration of national interest. - Myanmar became dumping ground.

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Laws relating to Foreign Investments in Myanmar 1. Myanmar Companies Act

1914

2. Foreign Exchange Management Law

2012

Substituted Foreign Exchange Regulations Act 1947

3. Special Companies Act

1950

4. Myanmar Arbitration Act

1954

5. Myanmar Foreign Investment Law

1988

New MFIL under process in Parliament

6. Myanmar Income-tax Law

1989

7. Special Economic Zone Law

2011 2

Myanmar Foreign Investment Law (Current) Capital Brought-in (Provided that the news mentioned in the media is correct, this picture is likely to change) 0

0

100%

35%

100% Foreign owned company

At least 35% foreign investment for setting up a JV with local. (Any Myanmar partner, individual, private company or State-owned enterprise) 3

Myanmar Foreign Investment Law (Current) Minimum Foreign Capital (Provided that news mentioned in the media is correct, these figures will change) • Manufacturing USD 500,000 • Services USD 300,000 For manufacturing under MFIL, foreign capital can be brought in as: • In kind 70% • In cash 30% For normal services investments: • 100% Limited Company USD 50,000 • Branch USD 30,000 • Branch (Construction) USD150,000 4

Myanmar Foreign Investment Law (Current) Tax Holiday (Provided that the news mentioned in media is correct, this presentation will change) Foreign Investments under MFIL can enjoy:• 3 years tax holiday • Further tax exemption /relief for an appropriate period if considered beneficial for the State

Areas of Investment • Foreign investors are allowed to invest in • Services Sector: 100% foreign owned or JV • Manufacturing Sector: 100% foreign owned or JV- requires a piece of land from the government or private sector

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Improvements Land Lease • Foreigners can now lease land from private nationals or Government up to 30 years+15+15 New Foreign Exchange Management Law introduced To address critical policy issues relevant to current business and social demands. Transfer of foreign currency •

The entitled foreign currency, Net profit, Withdrawal permitted by MIC Commission and Salary and lawful income after deducting taxes & living expenses Guarantee • Foreign investments operating under MFIL shall have the State guarantee against NATIONALIZATION & EXPROPRIATION 6

New Administration Unity of political actors and new political environment. • Clean government and good governance. • Suspension of hydro-electric power dam project on Ayeyarwaddy. • Opposition leaders allowed to move freely. • Release political prisoners. • Unification of exchange rate. • Initiation of peace talks with ethnic groups.

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Co-operation among policy makers • Two main political parties USDP and NLD committed towards economic development & leading parliamentarian action.

• Other interested groups also moving towards same direction. • Trust building efforts have built confidence among people that positive change is eminent.

• Frequent and open dialogue between political and ethnic leaders give confidence to the people. • In more than 50 years Myanmar had no such united leadership like present.

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Myanmar Foreign Investment Law (Proposed) Areas of Possible Deviation from Current MFIL Newspapers reported that • FDI may not be allowed in some sectors like agriculture, forest & fisheries and also SMEs • Restricted business will be allowed to nationals by MIC with approval of Council of Ministers • 50/50 ratio instead of 39/ 49 will be allowed to JV with FDI • 5 million $ foreign capital is now dropped and MIC will determine the amount of capital to per brought in per case. How reliable are above reports still remains to be verified.

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Myanmar Foreign Investment Law (Proposed) Foreign investment limited to 50% of equity

Capital Brought-in USD 5 Million Are these thinking the effects of long term isolation? Suppose a JV is set up with USD 5 Million,

50%

50%

2,500,000

Foreign Investors

2,500,000

Local

Can Local afford to invest USD 2,500,000 ? If so, who?

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Observations Provided above reports will become true, one will be compelled to think about the following:• Impact of isolation • Is protectionism coming? Certain protection is good. • Do we still want the luxuries of being wet-nursed? • Are we not growing up to fight out own battles?

• Who will benefit? 60 million people? Job opportunities? Expertise and technology • Will we be able to manage or will we be selling business later to foreigners in case we are not successful? 11

Latest Revisions According to Media It is said that Pyidaungsu Hluttaw has approved the following:• • • • •

5 Million, (highest in ASEAN) is removed. 49-51 ratio & minimum foreign investment 35% cancelled. 50 /50 introduced. Changes regarding any sector restriction not known. There may be a number of other improvements that still need to wait and see.

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• What Foreign Investors want:•

Certainty of the Laws, Rules & Regulations,

•

Transparency of Procedures,

•

Expediency,

• •

Protection Laws for investment.

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Thank you

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