Businesses warn govt not to backtrack on retail and wholesale reform

AMID news that the commerce ministry might backtrack on the retail and wholesale sector reform and impose further restrictions on foreign investments, business leaders warn that any such retraction will be “extremely disappointing” and seriously derail efforts to attract foreign investments for the country. The ministry insisted that they currently have no plans for additional restrictions and that a review put in place for the reform is only intended to clarify the regulation.

Information from one of the major chambers in the country reveals that the government is considering backtracking the liberalisation for the retail and wholesale sector by limiting the scope of foreign investors and/or joint-ventures (JVs) by imposing restrictions additional to those laid out in the Directive 25/2018 — namely the substantial capital requirement and restriction on retail size.

The Directive 25/2018, released by the Ministry of Commerce (MOC) on May 9, authorises 100 percent foreign-owned companies as well as JVs between international and domestic investors to carry out retail and wholesale businesses.

Domestic companies, foreign firms and JVs are all permitted to operate businesses in the sector, with the exception that foreign investments and JVs are not allowed to operate mini-markets, convenience stores and any retail distribution where the floor area is smaller than 929m2. Business groups have been widely supportive of the reform.

However, a document published by a chamber in late June seen by The Myanmar Times reported that the ministry is considering producing a “negative list” of business which JVs and foreign-owned companies are not allowed to invest.

Another internal memo circulated on June 27 stated that “The MOC is considering to amend the notification because Myanmar local companies have been opposing the measure. The ministry is considering limiting the type of business but they’ve also said they have not confirmed the said amendments or the details or the date they plan to issue the amendments.”

As the original Directive did not mention any restrictions on the type of business for foreign investments and JVs, except a minimum retail distribution area and minimum capital requirement, imposing further restrictions amounts to backtracking on the liberalisation.

A source from that chamber, who is not authorised to speak to the press, said if those amendments go ahead, the actual policy will substantially deviate from the intent and direction of the original reform.

“The Myanmar investment boom is now gone and this liberalisation is a measure which could reboot the interest among the international investment community. The government really should not backtrack and sabotage this reform. FDI is what Myanmar’s economy really needs,” the source continued.

Similarly, the business community warns that issuing additional restrictions on foreign investors in the retail and wholesale sector will be “extremely disappointing” and are bound to hit investor confidence.

“Extremely disappointing”

“Given that Directive 25/2018 already places significant financial restrictions on foreign investors wishing to invest in this sector [US$5 million and $3 million paid-up capital for 100pc foreign investments in wholesale and retail respectively], not to mention the restriction on retail size, news that the Ministry of Commerce might further restrict these activities is extremely disappointing,” Kate Baillie, vice chair of the British Chamber of Commerce Myanmar, commented.

It took the MOC over one year – after the List of Restricted Activities No. 15/2017 was issued by Myanmar Investment Commission (MIC), which allowed foreign investors to invest in retail and wholesale without restriction – to publish the Directive on May 8.

“This is, in my view, just another example of how, despite the MIC’s best endeavours to promote investment in Myanmar transparently through legislative and procedural reform, certain ministries – including the MOC – continue to undermine MIC’s efforts by enforcing unwritten or unpublished internal policies that restrict foreign investment in certain sectors,” Ms Baillie went on.

Peter Beynon, chair of BritCham, echoed her sentiments that “any retraction will be seen negatively by the foreign investing community at large”.

“At a time when the country is ‘purportedly’ actively seeking investment from overseas, this would be considered a backward step and would reflect badly. Indeed, the investing community has long advocated liberalisation of the trading environment, any indication of a retrenchment towards further protectionism would be counter to the position that U Thaung Tun as MIC chair pronounced to a meeting with four foreign chambers of commerce on June 22,” he explained.

Nishant Choudhary, co-chair of EuroCham Myanmar’s legal advocacy group, argued that the liberalisation announced in the Directive has bolstered investor confidence and adding restrictions will disrupt investment plans.

“Further restriction may not be appreciated by foreign investors, who are already taking steps for market entry and those prospecting. This would create ambiguity of future course that MOC may follow and possibly discourage investors,” Mr Choudhary stated, adding that the liberalisation is not set in stone and the authorities may make changes to safeguard the interests of domestic wholesalers and retailers.

In addition, the Directive issued requires clarification, especially on how it harmonises with restriction list under the Investment Law. It will reduce uncertainty if further amendments also provide detailed procedures at the ministerial level. “We hope that if the further amendments are going to happen, government may take steps for issuing a comprehensive guideline for this sector, which may be a code in itself,” Mr Choudhary commented.

Review in the pipeline

When asked whether the ministry is “considering” the alleged changes, U Yan Naing Tun, director general of the MOC’s trade department, said the ministry “as of now does not have plans to place further restrictions” and the plan is to “implement what is laid out in the original directive [directive 25/2018]”.

Asked whether the ministry rules out the possibility of amending the Directive in a way which further limits the scope of business for foreign investors and JVs, U Yan Naing Tun replied that “There are currently no plans to amend the directive or to release the amendments. However, we are carrying out a review. In order to clear some things up, we will conduct a review. By review, I mean to make the Directive clearer – the review is not to either restrict or relax the policy.

There might be some areas which we have announced but which aren’t easily understood. We will review to clarify those aspects,” he responded.

Meanwhile, Alexander Bohusch from law firm Luther, another member of EuroCham’s legal group, was sceptical on whether the MOC will backpedal on the decision.

“The current rumours resulting from the internal consultation and coordination process between the commerce ministry and other ministries should be treated with caution, since the MOC’s position on the general liberalisation of the trading sector was communicated very clearly.

“Previous attempts of local lobby groups to restrict the scope of the new wholesale/ retail regulations have been dismissed by the MOC as evidenced by the issued Directive 25/2018, at it can only be hoped that the MOC will stay its course,” he observed.

Source : Myanmar Times

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