Navigating Myanmar’s New Business Landscape

SINGAPORE (Nov 1): As Myanmar undergoes a democratic transition, three trends are emerging from its new investment landscape under the new government, says OCBC in a report, This includes the Myanmar Investment Law which could be a game changer for businesses, both foreign and local.

The first trend analyst Terence Wu notes is that manufacturing getting a greater share of investments. As of Sept, total investment in manufacturing made up 53.1%, or US$686.9 million (S$956.2 million), of all investments. In FY2015-16 under the old regime, the figure was 14.1%. OCBC says this underscores the shift in investment priorities and it appears that the government is actively encouraging investment in this sector. In fact, Myanmar Investment Committee (MIC) secretary U Aung Naing Oo was quoted in local media saying that labour-intensive manufacturing will be at the top of the list for promoted sectors.

In comparison, investment into the oil and gas that made up 38.1% of all investment in FY2015-16 and mining are absent under the new government. This supports the notion that the new government is not overly enthusiastic on “extractive” industries. With national reconciliation between ethnic groups at the top of the political agenda, Wu notes that it may be some time before the government re-prioritises these sectors, due to the divisive effects of such projects which results in dislocating local peoples and environmental problems.

The second trend is the rising levels of foreign involvement, notes Wu. Year to date, 70% of all approved investments are either wholly owned by foreigners or joint ventures. In contrast, foreign involvement was only present in 56% of all investments in FY2015-16.

Wu notes this could either be seen as increasing acceptance of Myanmar by the international business community or this could also be the result of a decline in local citizen investment. Feedback from the ground suggests the second reason. Given a lack of clarity in the national economic policy and investment policy, the local business community has been clamouring for more details. And although there were 22 counts of investments by citizens, they amounted to just US$76.9 million. “However, with additional details on economic policy set to be unveiled at Naypyitaw in late-October, and the passing of the new Myanmar investment law, we expect uncertainties to be lifted in time,” says Wu.

The last trend Wu observes is the greater proportion of investment flowing into the Yangon region. The current figure is 80% compared to 65% a year ago. Wu says this is not surprising because Yangon is the commercial capital and main urban centre and provides reliable financial and transportation infrastructure with a pool of urban labour to support manufacturing investment. However, Yangon’s status as the investment destination of choice may diminish as changes on the income tax incentives under the new Myanmar Investment Law may act to channel investment towards less developed regions.

The new Myanmar Investment Law will consolidate the existing Foreign Investment Law and the Myanmar Citizens’ Investment Law and unify the investment code for all investors. After the law was passed through Parliament on Oct 5, MIC is currently drawing up details and regulations required in implementing the law. The new Myanmar Investment Law is expected to come into force on April 2017, in conjunction with the start of FY2017-2018.

Under the new law, foreign direct investment (FDI) that meet yet-to-be finalised criteria will be “permitted” and will not require MIC approval. Only investments regarded as strategic or valued above a threshold will require approval. This should bring a boost to FDI, notes Wu, as it reduces bureaucratic hurdles for potential foreign investors.

Under the new law, a tiered structure for income tax exemption will also be introduced. Different areas of the country will also be divided into three zones by their level of economic development. Investments in Zone 1 will enjoy up to seven years of income tax exemption, while Zone 2 and Zone 3 will enjoy up to five years and three years of income tax exemption. Degrees of exemptions will also be granted based on the type of industry, with manufacturing, infrastructure development, agriculture and food processing earmarked by MIC officials in the local media as “promoted sectors”.

Land use is also set to see two key changes. Foreign investors will be allowed to lease land directly from private landlords and foreign investments in less developed regions may be allowed a longer land lease beyond the current 50-year lease with two 10-year extensions. Wu opines that these measures should increase the attractiveness of other less developed regions outside of Yangon.

“In principle, cutting bureaucratic red tape and refining incentives to encourage greater investment in less developed regions should also be viewed as beneficial,” says Wu, “However, a note of caution should be sound as the details of the new Myanmar Investment law have yet to be finalised,” he adds, “as the saying goes, the devil – as always – is in the details.”

 

Source: The Edge Markets

 

 

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