Myanmar drafts new foreign investment rules

By Aung Hla Tun
Volume 31, No. 619
March 19 - 25, 2012

YANGON – Foreigners will no longer need a local partner to set up businesses in Myanmar and may be granted a five-year tax holiday from the start of commercial operations, according to the draft of a new investment law obtained by Reuters.

The long-awaited new investment regulations, along with plans to float its currency, the kyat, from April mark the boldest economic reforms since resource-rich Myanmar emerged from decades of dictatorship last year, its economy decimated by chronic mismanagement and trade-crippling sanctions.

Its nominally civilian government has begun to court Western investors, who have swarmed into the commercial capital Yangon in recent months ahead of a possible end to US and European sanctions in Myanmar.

The draft law adds to other signs of a remarkable economic liberalisation in the long-isolated country. Foreigners, it said, can now either own companies 100 percent or set up a joint venture with Myanmar citizens or government departments. Such joint ventures must involve at least 35pc foreign capital.

Foreign investors can also lease land from the state or from private citizens who have permission to use land, the law says. The initial lease would be for up to 30 years, depending on the type and size of foreign investment, and could be extended twice, for up to 15 years on each occasion.

Foreign firms will not be allowed to employ unskilled foreign workers, and citizens of Myanmar must make up at least 25pc of their skilled workforce after five years, with companies ensuring the necessary training to achieve that.

The percentage rises to at least 50pc after 10 years and 75pc after 15 years.

It also dropped a requirement from previous legislation that products manufactured by foreign firms in Myanmar must be entirely for export. The aim is to provide more for the domestic market to reduce Myanmar’s reliance on imports, which are often too expensive for domestic consumers.

The draft law goes some way to reassuring investors worried about a reversal of the reforms and the possible seizure of assets.

“The government gives a guarantee that permitted businesses will not be nationalised during the period allowed in the contract or extended in the contract other than by giving compensation based on current prices in the market, in the interest of the general public,” it says, according to a Reuters translation.

The law is likely to be approved by parliament during the current session, which is expected to end later in March. The president then has 14 days to either approve it or send it back to parliament, according to the constitution.

The latest reforms will heighten debate over Myanmar’s economic potential.

As big as France and Britain combined, the resource-rich country sits strategically between India, China and Southeast Asia with ports on the Indian Ocean and Andaman Sea, all of which have made it a coveted energy-security asset for Beijing’s western provinces.

Some expect sanctions to begin to be lifted if by-elections on April 1, in which Nobel peace laureate Daw Aung San Suu Kyi will run for parliament, are free and fair. A November 2010 general election was widely criticised as a sham. – Reuters