Burma’s Investment Commission Open for Business

By Erika Kinetz 20 September 2012

NAYPYIDAW—Once feared for its obstructionism, the Myanmar Investment Commission has put on a fresh, investor-friendly face and its bureaucrats are scrambling to deal with a deluge of interest even as a proposed investment law creates considerable uncertainty about how foreign companies will be treated in this long-closed Southeast Asian nation.

The new Foreign Direct Investment law envisions broad powers for the already over-taxed investment commission, restricts foreign investment in 11 poorly defined areas and requires local hiring, according to a copy of the widely misunderstood legislation obtained by The Associated Press.

Investors have criticized the legislation, which has been approved by Parliament and awaits the president’s signature, as too vague. Some fear it contains measures that will scare off much-needed foreign investment.

Top officials from the investment commission have said the president is likely to send the law back to Parliament for amendment, rather than sign it in its current form. Myanmar’s main business lobbying group, the Federation of Chambers of Commerce and Industry, met over the weekend to debate the law, an indication that its terms remain up for discussion.

The Myanmar Investment Commission is housed in a pink concrete building down a narrow lane flanked by thick flowering bushes in the country’s out-sized capital Naypyidaw that former military rulers ordered purpose built. Tucked into dim offices on the ground floor, the commission is reinventing itself as the country emerges from decades of isolation that plunged one of Asia’s most fertile and resource-rich countries into grinding poverty.

“We do not have enough staff,” said Kyaw Zaw Maung, a thin, smiling man who took over as director of the commission seven months ago. He said his department is looking to hire 30 more people. Behind his desk a whiteboard scrawled with appointments—Coca-Cola Co., Daewoo—testifies to Burma’s rising star status among global investors.

The commission’s 20 employees sit at rows of wooden desks that face a large television snowy with static. There are papers everywhere, in plastic baskets on desks, in cardboard boxes, and clamped in folders in bookshelves. There is one shared computer in the director’s office.

From April through August, it approved 21 foreign investments, up from 13 during all of last fiscal year. The increase in investor interest is likely to intensify if the contentious new foreign investment law is passed in a form that’s palatable to companies overseas.

The legislation is a cornerstone of the economic reforms Burma is rushing to enact in the wake of sweeping political change. President Thein Sein has freed hundreds of political prisoners, eased press censorship and allowed Nobel Laureate Aung San Suu Kyi and her party to contest special elections.

Economic reforms, however, have lagged. Many investors, particularly from the United States and Europe, are waiting for the investment law to be passed before putting money into a country that until recently was considered a pariah by the West.

“It’s important to have a good understanding of this investment law,” said Pierre Trouilhat, a senior projects manager at Nestle who is overseeing the company’s efforts to set up in Burma. “It’s the first thing our lawyer is going to ask us.”

Greater foreign investment is also a way for Myanmar to reduce its economic reliance on China, which grew during the country’s decades of international isolation. The majority of investments still come from China, which accounted for 45 percent of approvals from April through August of this year, followed by Hong Kong, Korea, Thailand and the United Kingdom, according to data provided by the commission.

Details of the new legislation, which would supplant Burma’s existing 1988 investment law, have been opaque and shifting. Factions in the government have tussled over how much to open up the economy, underlining a difficult balancing act of attracting overseas capital without decimating local business or alienating still powerful cronies of the former military regime.

“We would like to have a law which would benefit the majority of our people,” said Win Aung, president of Burma’s Federation of Chambers of Commerce and Industry. “Foreign direct investment alone will not contribute to the development of our country. Local businesses and industries are also important.”

A chief source of confusion has been a list of restricted activities, in which foreign investment apparently would be capped.

The latest version of the law reduces from 13 to 11 the number of “restricted” or “forbidden” areas for foreign investors, but also gives the Myanmar Investment Commission the power to restrict any manufacturing or services business it decides Burmese nationals can do, according to a copy of the legislation.

Farming, livestock breeding and fishing activities that can be undertaken by Burmese nationals are singled out for restrictions in the new legislation. The remaining restrictions apply to ill-defined businesses that might harm people’s health, traditional cultures or the environment; deal in toxic waste or dangerous chemicals; import technology, medicine or equipment that has not been approved for use outside the country; and businesses that lie within 10 miles of the border.

In restricted sectors, foreign investors “can propose” a 50-50 joint venture, according to the legislation. This is up from 49 percent foreign ownership in a prior version, but the new wording has left some wondering whether a foreign investor could also apply for a majority stake in a restricted joint venture. In unrestricted sectors, the law permits wholly-owned foreign businesses or joint ventures with a minimum 35 percent foreign stake.

Kyaw Zaw Maung, the investment commission director, said he fears the restrictions are so broad they could force foreign garment manufacturers to enter into joint ventures, hindering the growth of a sector that could create tens of thousands of local jobs.

The legislation also requires foreign companies to hire locals. A quarter of skilled positions must be filled by Burmese nationals during the first two years of operation, 50 percent during the second two years, and 75 percent thereafter. All unskilled positions must be filled by locals.

The law would sweeten tax incentives for foreign investors, increasing the minimum tax holiday from three years to five years, and would allow foreign investors to lease land for 50 years, extendable for two ten year terms. There is no minimum required investment. An earlier draft had stipulated a US $5 million minimum, which critics said would benefit Burma’s large crony-run businesses by limiting competition from small and medium-sized businesses that are also a crucial engine of job creation.

The legislation would give the investment commission sweeping powers over licensing and regulating foreign business, including approving which bank a company does business with and empowering it to blacklist foreign companies or withdraw their tax incentives.

Serge Pun, a businessman who chairs the SPA group, which includes one of Burma’s few listed companies—Singapore-traded Yoma Strategic Holdings—called the law “wishy-washy,” and said it “breeds more confusion.”

Of particular concern to him is the provision for 50-50 partnerships in restricted sectors, which he said would likely lead to deadlock between the foreign and local partners.

“There’s still a lot of flaws,” said Serge Pun. “Everybody wants everything to go at breakneck speed. I think it’s better for us to debate a little more.”