Until March 26, the Myanmar government will welcome civil society consultations on a new investment law, which will combine the Myanmar Citizens Investment Law and the Foreign Investment Law.
Titled “The Investment Law of the Republic of the Union of Myanmar”, the law was drafted in cooperation with the World Bank’s financial arm, the International Finance Corporation (IFC).
The draft was completed months after the release of a World Bank survey in October. The Enterprise Survey suggests that Myanmar needs to embark on more reforms if the private sector is to play a greater role in driving the economy forward.
“The early findings of the Enterprise Survey tell us that reforms of Myanmar’s investment climate are urgent across a number of areas. For the private sector to contribute fully to the well-being of Myanmar and its people, the identified constraints need to be addressed,” the report said.
“We learn that for the ambitious economic reforms to be successful, the government itself still needs to complete a shift in how it interacts with the economy. Instead of the state being the primary actor, the most urgent business is the provision of a level playing field and of fair, transparent oversight for all. Completing this change is neither easy nor quick.”
The survey demonstrated that the policies and procedures for entering the formal economy are outdated and cumbersome. Most firms stay either completely informal or register only with City Development Committees. Informal firms cite fear of government interference and complicated registration procedures as the main reasons for not registering at all, as well as the perceived lack of benefits from registration. Meanwhile, larger firms that do not have the option of avoiding registration spend more time complying with government regulations.
The survey also noted that coordination among government agencies is sorely lacking. Firms complain about the high number of agencies and ministries they have to visit and the various inspections carried out by different government entities. Comparative measures of government regulation, such as the World Bank’s Doing Business Index or the Heritage Foundation’s Index of Economic Freedom, echo the impression that significant reform is needed, especially in the government’s approach to regulating the private sector.
The World Bank has grouped the constraints on the private sector into two categories.
First, there are policies that indirectly affect the private sector. Such as he need for new banking licenses.
Second are direct regulations and taxation of private sector firms, like land tenure policies.
“The distinction matters because the reforms of the two sets of policies imply different challenges. Policies intended to improve access to inputs tend to be technically difficult, but politically relatively easy. There are fewer opponents to policies that expand the availability of inputs. On the other hand, policies that change the interaction of government agencies with firms tend to be more difficult to implement fully for political reasons,” said the World Bank report.
New law’s purpose
The draft of the Myanmar Investment Law, as posted on the Directorate of Investment and Company Administration (DICA) website, recognises that a vibrant private sector supported by direct investment is critical to the economic development. It also recognises that a favourable investment environment can help economic and social development and guarantee security and protection of lives and property.
“This will manifest the government’s commitment to policies and regulatory mechanisms necessary for promoting good governance, transparency, accountability, respect for the sanctity of contractual obligations and the desire to attract responsible investment,” said the English version of the draft law. The Myanmar version will soon be available.
The government also stressed the necessity to consolidate the Myanmar Citizens Investment Law, enacted on July 29, 2013, and the Foreign Investment Law, enacted in November 2012. The government hopes the consolidation will “ensure consistency with best practices in the Asean region and be a sign of the commitment of the Republic of the Union of Myanmar to the establishment of the Asean Economic Community.”
The government also aims to draw more investment through a transparent, equitable and non-discriminatory legal framework for investment.
Companies operating in the country are also governed by the Myanmar Companies Act (1914), which has been under revision since October 2012 with the assistance of the Asian Development Bank.
Since 2011, when Thein Sein took office as the head of a quasi-civilian government that brought almost 50 years of military rule to an end, Myanmar has been going through broad political and economic reforms, to ensure greater participation of the domestic and foreign private sectors. Nine banking licenses have been granted, while new laws have been passed for the Central Bank of Myanmar, microfinance and the stock exchange. Broad plans for the tourism and energy sectors have also been launched.
The IFC is working to establish the Myanmar Business Forum in partnership with the government and the Myanmar’s Federation of Chambers of Commerce and Industry. The forum will be a public-private dialogue platform to facilitate reforms that help companies grow and create jobs.
“IFC supports Myanmar in preparing a new investment law as well as regulations to create a level-playing field for both local and foreign investors,” it said on its website.
The Foreign Investment Law was one instrument of the Thein Sein administration’s efforts to draw back foreign enterprises. Enacted in 2012, it replaced the old law, which dated back to 1988.
When international sanctions on Myanmar were lifted, the law has been instrumental in drawing foreign investment into the country. During the first 10 months of the 2014-15 fiscal year, to end in March, foreign direct investment reached US$6.96 billion, an increase of 69 per cent from $4.107 billion recorded for the previous fiscal year.
Under the law, businesses operating in Myanmar can be 100 per cent foreign-owned without the need for a local partner as was required under the previous law dating from 1988. But there are restrictions in some areas.
Under the law, foreign investors can lease land from the government or from authorised private owners for up to 50 years, depending on the type and size of the investment, and the deal can be extended twice for 10 years each time. The old law did not define land lease periods.
Foreign firms are also entitled to a tax holiday for the first five years of operation, as opposed to a three-year holiday under the old law.
From 1988 until the end of 2014, 859 companies from 37 countries have won approvals with a combined project value of $52.8 billion. Projects from China accounted for 27.43 per cent of the total, making it the top investor in terms of approved project value, followed by Thailand (19.41 per cent), Singapore (15.78 per cent), Hong Kong (13.16 per cent) and the United Kingdom (7.03 per cent).
Of the total, 598 companies from 31 countries have invested a combined $42.78 billion in the country. The value of 67 Chinese companies was the highest, at $14.4 billion or 33.7 per cent of the total. This is followed by investment from Singapore (18.70 per cent), Hong Kong (16.04 per cent), Korea and Thailand (7.36 per cent).
Among 81 approved Thai companies, 45 have invested a total of $3.2 billion in the country.
Foreign investment has gone into several sectors, including power, oil and gas, manufacturing, mining, transport and communication, hotels and tourism and real estate.
Further reforms are necessary given that on the global scale, Myanmar still lags in terms of rules and regulations.
Among 189 countries, Myanmar is ranked 177th on the World Bank’s Ease of Doing Business Index for 2015, which is a one-notch improvement from 2014.
In the past year, the country showed improvements in granting construction permits and approving access to electricity, as well as border trade facilitation. Nonetheless, more improvement is needed in the areas of access to funding, taxes, starting a business, and enforcing contracts.
In starting a business, Myanmar ranks at the bottom. It is estimated that an investor needs 72 days to start a business, compared to 34.4 days on average as required by countries in the East Asia and Pacific, and 9.2 days in the OECD zone.
Not every reform is without critics.
As the government consolidated its two investment laws, the International Commission of Jurists last month issued a statement, urging Myanmar to involve all stakeholders. As the resource-rich country would attract more investment in the area, key stakeholders should include affected communities and civil society, to promote a law that balances investors’ needs with human rights.
“This is a critical moment for the economic development of Myanmar. The laws it implements now will shape investment, economic development and, in turn, human rights for the foreseeable future,” said Daniel Aguirre, the international legal advisor to the ICJ.
“It is imperative that drafting is not rushed and that laws take into account international human rights laws and standards.”
ICJ has been working directly with DICA as well as with Myanmar civil society on investment laws and their potential impact on human rights in Myanmar.
While praising DICA’s willingness to consult civil society, including international non-governmental organisations, ICJ remains concerned that the draft law establishes significant rights for investors without protecting the rights of those affected by business activity. The draft would require investors to follow national laws without acknowledging that the existing national legal framework does not adequately protect human rights or provide remedies for those whose rights have been violated, it said.
Furthermore, the draft law does not establish or protect Myanmar’s ‘right to regulate’ to protect human rights or other social or environmental needs. Investment law should indicate Myanmar’s obligation to enact necessary regulations for the protection of human rights, including economic and social rights such as the right to health, in the future in order to avoid legal disputes when adopting these regulations.
“The draft law’s proposed legal framework would provide all investors the right to be consulted and challenge any new national law or regulation that may impact their profits,” said Aguirre. “This framework would allow businesses to challenge government policies aimed at addressing legitimate needs within the country, and it could create a regulatory chilling effect in which Myanmar’s government would find itself in the troubling position of evaluating whether the passage of new social policies would lead to costly lawsuits from investors.”
“The draft Law as currently formulated runs the risk of hindering progressive regulation to protect human rights in Myanmar,” said Aguirre.
As the country is running for more responsible investment, western countries have expressed their readiness to help Myanmar strengthen the private sector’s role.
According to Antonio Berenguer, European Union’s head of trade and economic affairs, the EU has been working to support the development of a culture of corporate social responsibility – for both foreign and domestic companies – ensuring companies consider the social and environmental aspects of their business, as well as profit.
The EU launched a project called SMART Myanmar which actively promotes and supports the sustainable production of garments made in Myanmar. With the support of the project, the Myanmar Garment Manufacturers Association drafted a Code of Conduct to provide a benchmark for responsible business practices in Myanmar’s garment sector. It was released earlier this month.
The launch of European Chamber of Commerce in Myanmar last year is one of the EU’s moves to develop deeper EU-Myanmar economics ties. The EuroChamber aims to improve the Myanmar business environment by developing links between local businesses and their European counterparts as well as provide local businesses and legislators with technical support from industry experts to strengthen the economy and grow local business.
“The EuroChamber will also be an advocate for Myanmar business throughout the European Union, increasing awareness about the opportunities in Myanmar, especially to Small and Medium Enterprises with the aim of stimulating two-way trade and investment,” said Berenguer.
Last year, the EU announced it has allocated Euro 688 million (US$ 900 million) to Myanmar under its bilateral cooperation programme over the period 2014-2020 to reinforce its support to the country’s transition. The funds will help to develop rural areas and agriculture; improve food and nutrition security; support education; improve governance and the rule of law; and contribute to peacebuilding.
Source: The Nation