Preface: U.S. Investment Subject to Sanctions
On May 20, 1997, by Executive Order 13047, the President imposed economic sanctions prohibiting new investment by U.S. persons or entities in Burma (Myanmar), based on the determination that the Government of Burma's actions were a threat to U.S. national security and foreign policy. The Cohen-Feinstein Amendment to the Foreign Operations Act of 1997 forms the legal basis for the investment ban. Every year, the U.S. Government reviews the sanctions policy. Since imposing the investment ban, the U.S. Government has found no measurable progress toward political liberalization in Burma and the sanctions have been renewed at each interval.
Prior to the imposition of the investment ban, many prominent U.S. investors had already withdrawn from Burma due to a hostile investment climate and disappointing returns. An active anti-Burma consumer movement in the United States and Europe also put investors’ corporate images at risk. Current U.S. federal sanctions allow companies invested in Burma prior to May 20, 1997 to maintain their investments. Very few companies have elected to do so.
In 2003, the President signed into law the Burmese Freedom and Democracy Act (BFDA) and issued an accompanying executive order barring the import of Burmese products into the United States, with limited exceptions. The 2003 sanctions also prohibited U.S. persons from providing financial services to Burma, and seized the assets of certain Burmese entities. The 1997 and 2003 economic sanctions joined a number of other sanctions the United States imposed against Burma in 1988, following the military’s crackdown against civilian democracy activists, and in 1990, when the military nullified the results of democratic parliamentary elections. The United States opposes the provision of international financial institution assistance to Burma, prohibits military sales, denies most bilateral economic aid and commercial assistance programs to the government, bans the issuance of U.S. visas to senior members of the military and government, as well as those identified as impeding Burma's democratic transition and, since 1990, has downgraded our representation in Rangoon from Ambassador to Charge d’Affaires. In addition, the United States continues to engage in vigorous diplomatic efforts to promote political and human rights reforms in Burma.
U.S. law allows U.S. firms to export to Burma, with some exceptions such as the export of any financial service and sales of any kind to individuals or entities on the Department of the Treasury's Office of Foreign Assets Control (OFAC) Specially Designated Nationals (SDN) list.
In September 2007, in light of the Government of Burma's (GOB) long-standing oppression of the Burmese people and in the wake of its use of violence against peaceful demonstrators, the President designated an additional 14 senior Burmese government officials as subject to an asset block under Executive Order 13310. In October 2007, the President announced Executive Order 13348, which expands the authority to block assets to individuals who are responsible for human rights abuses and public corruption, as well as those who provide material and financial support to the regime.
In July 2008, the U.S. Government enacted the Tom Lantos Block Burmese JADE (Junta’s Anti-Democratic Efforts) Act. The JADE Act prohibits the importation of rubies and jadeite extracted from Burma. It also expands the list of persons whose assets may be blocked by the U.S. Government to include current and former leaders of the Burmese military, State Peace and Development Council (SPDC), and the Union Solidarity and Development Association, as well as any person who provides significant economic and political support to those organizations. Immediate family members of those targeted by the JADE Act are also subject to the restrictions.
Openness to Foreign Investment
The Burmese government enacted the Foreign Investment Law (FIL) on November 30, 1988. The government's priorities for foreign investment, according to the FIL, are:--promotion and expansion of exports;
According to the State-Owned Economic Enterprises Law, enacted in March 1989, state-owned enterprises have the sole right to carry out the following economic activities:--extraction of teak and sale of the same in the country and abroad;
The Myanmar Investment Commission (MIC), “in the interest of the State”, can make exceptions to this law. The MIC has granted some exceptions in the areas of banking (for domestic investors only), mining, petroleum and natural gas extraction, telecommunications, and air services. As with all major political and economic decisions, this discretion lies solely with the Cabinet and senior generals.
According to the FIL, the MIC must review all potential investment, both foreign and domestic. Due to accusations of corruption within the MIC, the ruling SPDC sharply reduced the MIC’s influence in 1999. Potential investors must still work through the MIC, but it has lost most of its decision-making authority. Interested foreign investors must submit proposals through the MIC, which obtains the final approval from either the Cabinet (chaired by Prime Minister General Thein Sein), or the Trade Policy Council (TPC, chaired by SPDC Secretary 1 Lt. General Thiha Thura Tin Aung Myint Oo). The Cabinet and the TPC have the same membership, so authorities choose the decision-making body on a case-by-case basis. Although the MIC has no power to protect foreign companies, there is no evidence that the MIC overtly discriminates against foreign investors. Bureaucratic red tape, arbitrary regulation changes, and endemic government corruption, however, continue to pose serious obstacles for all potential investors.
In February 2002, a partial reversal of the GOB’s economic policy came from a verbal directive prohibiting the issuance of new “Permits to Trade” and renewal of existing permits for any trading firms owned by foreigners (or jointly owned by foreigners and Burmese). The government allegedly took this measure to promote local trading firms, but it has served to further distort the local marketplace. The authorities have not published any official notice of this directive but they generally enforce it, including against foreigners who have tried to evade the directive by listing their company under the name of a Burmese colleague or friend. This measure affects foreign trading companies only and does not impact other forms of investment.
Once licensed, foreign firms may, in theory, use their permits to obtain resident visas, lease cars and real estate, and obtain new import and export licenses from the Ministry of Commerce.
Import and export licenses are strictly controlled. Since August 20, 2005, the high-level TPC is responsible for final approval of all import and export licenses. The GOB has had a de facto policy in place since the end of 2001 to only issue import licenses to those firms that are export earners. Companies without export earnings must purchase “export dollars” from another firm at an inflated exchange rate in order to apply for an import license. Some companies fraudulently transfer money between the accounts of export revenue earners to facilitate this process. Companies can also use account transfers from Burmese workers in foreign countries to facilitate exports. Since the government taxes these overseas remittances at a rate of 10 percent, many overseas workers remit their money home through informal money transfer networks (aka the "hundi" system).
The FIL allows FDI in a wholly foreign-owned venture or a joint venture (JV) with a Burmese partner (either private or state-owned). The FIL requires that at least 35 percent of equity capital in all JVs and partnerships be foreign-owned. The minimum foreign investment required in practice, though not specified in the law, is $500,000 for manufacturing investments and $300,000 for services in cash or in kind. These minimum amounts include cash-on-hand requirements in foreign currency (calculated at the official rate of exchange of roughly 6 kyat = US$1.
--300,000 kyat (US$50,000) for a services company
--500,000 kyat (US$83,000) for a trading company (though the GOB does not currently allow foreign invested trading companies)
--1,000,000 kyat (US$166,666) for a manufacturer
In June 2006, the Ministry of Finance and Revenue issued a notification for levying tax on profits gained by transferring assets of companies conducting business in oil and gas sector at the following rates:
Profit Tax rate
(a) up to US$100 million 40%
(b) Between US$100 and $150 million 45%
(c) Over US$150 million 50%
These tax rates remained the same in 2009.
The Burmese armed forces are involved in many commercial activities via the Union of Myanmar Economic Holdings, Ltd. (UMEHL) and the Myanmar Economic Corporation (MEC). To set up a joint venture, foreign firms have reported that an affiliation with UMEHL or MEC proves useful to help them receive the proper business permits. Nonetheless, entering into business with UMEHL or MEC does not guarantee success for foreign partners. Some investors report that their Burmese military partners are parasitic, make unreasonable demands, provide no cost-sharing, and sometimes muscle out the foreign investor after an investment becomes profitable.
In November 2005, the government moved Burma’s administrative capital to the newly-constructed town of Nay Pyi Taw, located in a remote valley about 240 miles north of Rangoon. All official transactions, including import/export licenses, must be approved in Nay Pyi Taw. Although the majority of import/export procedures have not changed, several businesses have complained that the time and cost of obtaining licenses have increased since 2005. Currently, it takes approximately two weeks for license approval. The Burmese Government, to offset the time lag for import/export approval, introduced in October 2007 a one-stop service in Rangoon for marine products and medicine licenses. For these products alone, import/export licenses are generally approved in two days.
Independent evaluations of the Burmese economic climate:
|2009||Heritage Economic Freedom Index||175/179|
|2009||World Bank Doing Business Index||Not ranked|
Conversion and Transfer Policies
According to the FIL, investors in Burma have a guarantee that they can repatriate profits after paying taxes. The law also provides that, upon expiry of the term of the contract, the investor can receive the amount to which he or she is entitled in the foreign currency in which the investment was made. Foreign investors have encountered difficulties in legally transferring their net profits abroad. The Foreign Exchange Management Department of the Central Bank of Myanmar must give permission for all transfers abroad of foreign currency.
Likewise, Burma’s multiple exchange rates and currencies make conversion and repatriation of foreign exchange very complex, and ripe for corruption. The official rate of approximately 6 kyat to the dollar is grossly overvalued. The unofficial market exchange rate as of December 2009 was approximately 1000 kyat to U.S. $1. The unofficial exchange rate fluctuates according to the season as well as domestic and foreign effects. The government also issues Foreign Exchange Certificates (FEC) which are nominally valued at $1=1FEC but ostensibly trade at a fixed rate of 1FEC=450 kyat via a small number of licensed exchange counters, but that rate is still significantly overvalued and in practice the counters will buy FEC at that rate but will never sell them at the 1FEC=450 kyat rate. Companies generally unload their kyat earnings as quickly as possible. The government requires foreign companies to use dollars or FEC to pay rental charges and utility and telephone bills (charged at a rate that is often 10 times higher than what local firms are charged). The government allows foreign firms to deposit dollars in a state bank for later withdrawal as FEC by the company’s employees.
In Burma, only three state banks -- the Myanma Foreign Trade Bank (MFTB), the Myanma Investment and Commercial Bank (MICB), and the Myanma Economic Bank (MEB) -– are legally permitted to handle foreign exchange transactions. In practice, the MFTB and MICB handle most of these transactions. The MFTB primarily handles foreign currency transactions for government organizations, businesses, and private individuals, while the MICB primarily serves companies and joint ventures. MEB handles foreign currency transactions in the border regions.
U.S. government restrictions imposed in 2003 on the provision of financial services to Burma severely disrupted the legal foreign trading system in Burma, which had long been primarily dollar-denominated. U.S. banks no longer offer trade facilitation or correspondent banking services unless they are incidental to a legal U.S. export or licensed by the OFAC, making the use of letters of credit denominated in U.S. dollars problematic. Some traders and government banks have shifted to euros or Singapore dollars. As of July 29, 2003, the U.S. Government also froze the correspondent accounts of MEB, MFTB, and MICB in the United States.
Private banks held a large share of domestic banking activity until February 2003, when a major banking crisis severely reduced the holdings of the private banking sector. The GOB never permitted these banks to deal in foreign exchange. Although the government allowed some smaller private banks to resume operations in 2004, the sector remains tightly restricted. There is no indication that if the private banking system is revitalized the GOB would give private banks the right to deal in foreign currency.
Expropriation and Compensation
The FIL provides a guarantee against nationalization during the “permitted period” of investment. However, in the past, the GOB has forced a number of foreign firms in various sectors to leave the country because it did not honor the terms and conditions of investment agreements. In the late 1990s, two large Japanese firms voluntarily left Burma after they found they were not able to operate according to their investment agreements. Additionally, the GOB has seized the assets of foreign and local investors without compensation when the particular investment turned out to be very profitable.
In the 1990s, the GOB forced out a Swiss cement importer and distributor ostensibly because the company was not “operating according to its permit.” According to most accounts, however, the government evicted the company because the Swiss company could sell better quality, cheaper cement than its government-owned competitors. In another case in 1999, the government confiscated a large brewery that an expatriate businesswoman had made profitable and turned it over to the Ministry of Industry (1) to run. The local courts proved unhelpful in resolving the case, and the investor never received any compensation from the government.
Aside from the possibility of outright expropriation by the GOB, private businesses have been subject to predatory practices by regime-linked cronies. Given the absence of rule of law in the country and the pervasive and powerful system of patronage, larger and more well-connected entities are able to muscle out smaller competitors by denying access to markets, forcing the sale of assets, or otherwise disrupting business operations.
Private and foreign companies suffer major disadvantages in disputes with GOB and quasi-governmental entities. Foreign investors generally prefer to use the 1944 Arbitration Act, which allows for international arbitration. The Burmese government usually tries to stipulate local arbitration in all contracts it signs with foreign investors. The military regime closely controls the entire legal system in Burma, and courts are neither independent nor impartial, so local arbitration is not reliable. Companies facing adverse administrative decisions have no recourse. Burma is not a member of the International Center for the Settlement of Investment Disputes, nor is it a party to the New York Convention.
The Attorney General’s Office and the Supreme Court ostensibly control the legal system in Burma, but neither body is independent of the ruling regime. Burmese criminal and civil laws are modeled on British law introduced during the colonial period, which ended in 1948. Every township, state, and division has its own law officers and judges. The regional military commanders and military authorities at the township, state, and divisional level, however, have supreme de facto authority over judicial decisions at the local and state/division level.
There is no bankruptcy law in Burma.
Foreign companies have the right to bring cases to and defend themselves in local courts. As the military government controls all courts tightly, foreign investors involved in conflicts with the government are unlikely to receive compensation.
Performance Requirements and Incentives
Officially, companies covered under the FIL are entitled to a tax holiday for a period of three consecutive years subsequent to their initial investment. Under the FIL, the Myanmar Investment Commission can extend this tax holiday. At the MIC’s discretion, investors are also eligible for a number of other incentives, including: accelerated depreciation of capital assets, a waiver of customs duties and taxes on imported machinery and spare parts during the period of construction, or a waiver of duties on imported raw materials during the first three years of commercial production. Although the MIC issues the permission, the TPC and the Cabinet make final decisions on these incentives and extensions.
There are no official performance requirements for new foreign investors in Burma, but the government does require investors to purchase local machinery and insurance (fire, marine, and personal liability). Unofficially, before approving an investment, the government often requires companies to commit to a certain level of exports. There is no evidence that the GOB has taken any action against firms that do not meet their initial export targets.
There is no requirement that foreign investors buy or hire from local sources. Technology transfer is not generally a pre-requisite for investment.
Any enterprise operating under the FIL or the Myanmar Companies Act must pay income tax at a 30 percent tax rate. Withholding tax on royalties and interest is 15 percent for resident foreigners and 20 percent for non-resident foreigners. Tax collection in Burma is, in practice, extremely lax, but foreign investors are an easy target for cash-strapped tax authorities. The Burmese fiscal year ends March 31; tax returns are due by June 30.
Right to Private Ownership and Establishment
By law, foreigners may not own land in Burma, and may only rent property on a short-term basis, leases are typically limited to one year. A private entity can establish, buy, sell, and own a business only with the review and approval of the MIC (and, by proxy, the top regime leadership).
Protection of Property Rights
Burma does not have adequate IPR protection. Patent, trademark, and copyright laws and regulations are all deficient in regulation and enforcement. After Burma joined ASEAN in 1997, it agreed to modernize its intellectual property laws in accordance with the ASEAN Framework Agreement on Intellectual Property Cooperation. An IPR law, first drafted in 1994, still awaits government approval and implementation. A Committee for IPR Implementation, established in July 2004, has worked toward approval of a new law, with assistance from the World Intellectual Property Organization. The World Trade Organization (WTO) has delayed required implementation of the TRIPS Agreement for Least Developed Nations until 2013.
The registration of patents and designs in Burma is still governed by the Indian Patents and Designs Act of 1911, enacted under British colonial rule.
The piracy of music CDs, video CDs, CD-ROMS, DVDs, books, software, and product designs is evident nationwide, especially in border regions and in the two major urban centers of Rangoon and Mandalay. Most consumers of IT products in Burma, both in the private sector and in government, use pirated software. Given the small number of local customers, poor state of the economy, and lack of infrastructure (e.g., unreliable electricity for manufacturing), piracy does not have a significant adverse impact on U.S. products.
Burma has no trademark law, although trademark registration is possible. Some firms place caution notices in local newspapers to declare ownership of their trademarks. After publication, the owners can take criminal and/or civil action against trademark infringers. Title to a trademark depends on use of the trademark in connection with goods sold in Burma. The British colonial government published a Copyright Act in 1914, but neither the colonial government nor the GOB ever instituted a means to register copyrights. Thus, there is no legal protection in Burma for foreign copyrights.
Most real estate transactions in Burma require cash. Regular bank loans are difficult to obtain and are not available directly to foreigners.
Transparency of Regulatory System
Burma lacks regulatory and legal transparency. All existing regulations, including those covering foreign investment, import-export procedures, licensing, and foreign exchange, are subject to change with no advance or written notice at the whim of the ruling generals. The country’s decision-makers appear strongly influenced by their desire to support state-owned enterprises and meet the needs of the military-controlled Myanmar Economic Corporation and Myanmar Economic Holdings, Ltd., as well as wealthy cronies. Even omens and fortune-tellers can play a role in their decisions. The government regularly issues new regulations with no advance notice and no opportunity for review or comment by domestic or foreign market participants. The GOB rarely publishes its new regulations and regulatory changes, preferring to communicate new rules verbally to interested parties and often refusing to follow up in writing. The government occasionally publishes selected new regulations and laws in the government-run daily newspaper, “The New Light of Myanmar,” as well as in “The Burma Gazette.”
Burma’s written health, environmental, tax, and labor laws do not impose a major burden on investment. However, the unpredictable nature of the regulatory and legal situation -– and irregular enforcement of existing laws -– makes investment in Burma extremely challenging without good and well-connected local legal advice. See the Preface and Openness to Foreign Investment section for further details of the legal and regulatory system.
Efficient Capital Markets and Portfolio Investment
Burma has no true equity or debt markets, and the average citizen does not have portfolio investments. Burmese authorities have stated in the past that the existence of capital markets is essential for the development of a well-functioning financial system, and the Myanmar Economic Bank (MEB) and Japan’s Daiwa Institute of Research Co. Ltd. established a joint venture -- the Myanma Security Exchange Centre Ltd. -- to set up a limited stock exchange. However, the exchange is moribund, with only two listed companies, a small forestry joint venture and Myanma Economic Bank. A few Burmese companies sell bonds privately on a very small scale. Private companies, whether foreign or domestically controlled, are generally small in size. Usually, a small number of people or entities, often within the same family, closely hold the business shares. There is no securities law.
The private banking system in Burma was frozen in February 2003 after a public scare and a run on private banks, and the subsequent decision by the government to avoid any bailouts. The crisis did not seriously affect state-owned banks and partially state-owned banks. Although some banks closed, other private banks resumed operations in 2004 with limited functions. Onerous government restrictions have made it impossible for the largest private banks to take in many new deposits or to extend significant new loans, and have limited the maximum amount clients can withdraw each week. The GOB has fixed interest on deposits at 12 percent. The government is increasingly financing its deficit by issuing treasury bonds that are sold locally to Burmese banks. Although Burmese banks are mandated by the government to purchase a minimum amount of bonds, some banks have begun purchasing more than their imposed requirements as they view bond options, which carry an 11 percent interest rate for three year bonds and 11.5 percent interest rate for five year bonds, as a relatively positive investment. The GOB began selling two year bonds with an interest rate of 10.5 percent beginning January 1, 2010.
In April 2004, the U.S. Treasury Department prohibited U.S. banks from doing business with Burmese banks or their overseas branches because of ongoing concerns of money laundering in Burma, specifically at Asia Wealth Bank (at one time Burma's largest private bank) and Myanmar Mayflower Bank. The GOB revoked the licenses of these two banks in March 2005 and, in August, closed a third bank suspected of laundering money, the Myanmar Universal Bank, for violations of the Financial Institutions Act. Currently, only six fully private and nine quasi-state banks operate, all under tight governmental restriction.
The Financial Action Task Force (FATF) removed Myanmar from its list of Non-Cooperative Countries and Territories in October 2006 in recognition of GOB efforts to better enforce its anti-money laundering regime, but advised the government to enhance regulation of the financial sector, including the securities industry. FATF continued to monitor Burma’s progress on anti-money laundering in 2009.
Foreign firms do not have access to bank loans, since the banks require collateral of land or real estate, neither of which foreigners can own in Burma. Since mid-2002, the government has forbidden the use of gold as collateral. Loans in kyat are available for local companies and individuals from state and private banks. Interest rates are currently fixed at 17 percent per year. As of September 2009, IMF staff estimated the 2009 inflation rate at 6.9 percent, versus the estimated 2008 inflation rate of 22.5 percent. Before the 2003 banking crisis, most private banks engaged in reckless lending and suffered from high levels of non-performing loans. Now, most are tightly regulated by the Central Bank and government regulations force them to be more conservative in policy. However, some businessmen and bankers tell USG officials the quasi-government banks are regularly asked to bankroll the regime’s pet projects and personal requirements, and as a result may still have a large percentage of non-performing loans.
A 1990 banking law permitted foreign banks to open representative offices to serve as trade and commercial liaisons for local and foreign clients in Burma, but they were not allowed to conduct business for the local market. For a variety of reasons, including the 1997-1998 Asian financial crisis, the local business climate, and the lack of liberalization of the Burmese banking sector, only five of the original 49 authorized foreign banks retain a presence in Burma. Under U.S. law, U.S. persons and institutions may not provide financial services to Burma unless pursuant to an allowed U.S. export or otherwise licensed by OFAC.
In 2004, in the absence of a government policy, the Myanmar Accountants Council issued its own standard accounting system –- the Myanmar Accounting Standards -– based very closely on International Accounting Standards (IAS).
Competition from State-Owned Enterprises (SOEs)
Private enterprises do not compete on the same terms and conditions as SOEs. The GOB reserves for SOEs many lucrative sectors and sectors deemed sensitive. Corporate governance of SOEs is not transparent, and they are not required by law to publicly release annual reports. Many observers judge Burmese SOEs to be inefficient and not likely to be able to compete with the private sector, especially foreign companies, on a level playing field. Burma does not have a sovereign wealth fund.
Private enterprises do not compete on the same terms and conditions with SOEs. The GOB reserves many lucrative sectors and sectors deemed sensitive for SOEs. Corporate governance of SOEs is not transparent and they are not required by law to publicly release annual reports. Many observers judge Burmese SOEs to be inefficient and not likely to be able to compete with the private sector, especially foreign companies, on a level playing field. Burma does not have a sovereign wealth fund.
Burma experienced major political unrest in 1988, when the current military regime seized power and jailed and killed an undetermined number of Burmese citizens. In 1990, the military government refused to recognize the results of a parliamentary election overwhelmingly won by the pro-democracy opposition. Burma also experienced major student demonstrations in 1996, and other demonstrations occurred in August and September of 1998. In May 2003, government-affiliated thugs ambushed a convoy carrying pro-democracy opposition leader Aung San Suu Kyi in northwest Burma, killing or wounding dozens of pro-democracy activists.
Political unrest continued in August-September 2007. Following a sharp increase in fuel prices in August, pro-democracy groups began a series of peaceful demonstrations to protest the deteriorating economic situation in Burma. The regime immediately responded by arbitrarily detaining over 150 pro-democracy activists. As popular dissatisfaction spread, Buddhist monks began leading peaceful marches. In September, security forces violently broke up demonstrations by monks resulting in injuries and triggering calls for a nationwide response and a government apology. Monks, joined by ordinary citizens, conducted peaceful protests in several cities throughout the country, culminating in a gathering of approximately 10,000 protestors in Rangoon.
In late September, the regime violently cracked down, shooting, beating and arbitrarily detaining thousands of monks, pro-democracy activists, and onlookers in Rangoon. Government security forces killed at least 30 demonstrators. In retribution for leading protest marches, monks were arrested and disrobed, and several monasteries were raided, ransacked, and closed. In addition to the more than 1,100 political prisoners whose arrests predate the September 2007 crackdown, hundreds more were detained in 2007-2008 due to their participation in the protests.
In April 2005, a bomb exploded in a market in Mandalay, killing three civilians. In May 2005, three bombs exploded simultaneously in central Rangoon commercial areas, killing at least 23 civilians. No individuals or groups claimed responsibility and, since the attacks, the government has not revealed any results of an investigation or offered credible evidence about the perpetrators. There have been several small explosions in Rangoon and other Burmese cities as recently as December 2009 with few fatalities, and authorities regularly claim to discover such devices at various locations throughout Burma. In most cases, no groups claim responsibility and no one is arrested after the bombings.
For decades, there has been anti-government insurgent activity in various locations, particularly near Burma’s borders. These areas have seen sporadic fighting between government forces and insurgent groups throughout the past 50 years. Popular unrest and violence remain possible throughout Burma.
Corruption is endemic in Burma. Many economists and businesspeople consider corruption the most serious barrier to investment and commerce in Burma. Due to a complex and capricious regulatory environment and extremely low government salaries, rent-seeking activities are ubiquitous. Very little can be accomplished, from the smallest transactions to the largest, without paying bribes. Transparency International rated Burma third worst in the world in 2009 in its annual Corruption Perceptions Index.
Since 1948, corruption is officially a crime that can carry a jail term. However, the ruling generals apply the anti-corruption statute only when they want to take action against a rival or an official who has become an embarrassment most notably in October 2004, when the SPDC arrested then-Prime Minister General Khin Nyunt and many of his colleagues and family members for corruption. In 2006, authorities arrested over 300 Customs officials, charging them with corruption. Most citizens view corruption as a normal practice and requirement for survival. The major areas where investors run into corruption are when seeking investment permission, in the taxation process, when applying for import and export licenses, and when negotiating land and real estate leases.
Bilateral Investment Agreements
Burma has signed several bilateral investment agreements, also known as “Protection and Promotion of Investment” agreements, with the Philippines, China, Laos, Vietnam, and Thailand. These agreements have had little impact on enhancing incoming investment from other countries in the region. Investment treaty discussions are underway with Singapore.
OPIC and Other Investment Insurance Programs
Due to U.S. law, OPIC programs are not available for Burma. Burma is not a member of the World Bank’s Multilateral Investment Guarantee Agency (MIGA).
In 1989, the United States withdrew Burma's eligibility for benefits under the Generalized System of Preferences (GSP) due to the absence of internationally recognized worker rights. Independent labor unions are illegal in Burma. Workers are not allowed to organize, negotiate, or in any other legal way exercise control over their working conditions. In some instances workers have gained minor benefits through direct work actions, especially for wage increases at private enterprises following a significant pay increase for civil servants in April 2006.
Although government regulations set a minimum employment age, wage rate, and maximum work hours, managers do not uniformly observe these regulations, especially in the private sector. The Ministry of Finance and Revenue Notification 60/2006, dated March 24, 2006, set the minimum wage at 500 kyat (roughly $0.50) per day. An average worker in Burma earns about 500-1000 kyat (roughly $0.50 to $1.00) per day.
The GOB often uses forced labor in its construction and commercial enterprises and for porterage and military building. These labor practices are inconsistent with Burma's obligations under ILO Conventions 29 and 87. The ILO imposed sanctions against Burma in 2000 and has critically reviewed the forced labor situation in Burma at subsequent ILO Conferences and Governing Body meetings. In 2006 and 2007, the ILO Governing Board raised the possibility of bringing Burma to the International Court of Justice for its refusal to address forced labor. The ILO continues to work with the Burmese Government on forced labor issues under the Supplementary Understanding on Forced Labor, which was signed in February 2007 and renewed in February 2009. The United States strongly supports ILO activities in Burma.
Burma’s labor costs are very low, even when compared to most of its Southeast Asian neighbors. Older Burmese, particularly those over 65 years of age, are generally well-educated, but the lack of investment in education by the GOB and the repeated closing of Burmese universities over the past 20 years have taken a toll on the country’s young. Most in the 15-39 year old demographic group lack technical skills and English proficiency. Many older educated Burmese studied English in mission schools during the British colonial and early independence period. The military nationalized schools in 1964 and discouraged the teaching of English in favor of Burmese.
The government does not publish any unemployment figures. Anecdotal evidence and recent divestment by many foreign companies indicate a very high level of unemployment and underemployment in formal, non-agricultural sectors.
Foreign-Trade Zones/Free Ports
The government has set aside 19 “industrial zones,” large tracts of land surrounding Rangoon, Mandalay, and other major cities. These areas are, however, merely zoned for industrial use. They do not come with any special services or investment incentives. The GOB has developed a draft industrial zone law, which has not yet been publicly released. There are no free trade zones in Burma.
Foreign Direct Investment Statistics
Investment figures compiled by the Burmese government include only investments approved by the Myanmar Investment Commission, only a fraction of which go forward. No statistics exist as to disinvestment. The figures do not appear to include many small and medium Chinese investments. At the end of 2003, the MIC stopped making its investment figures public. The Embassy calculated the figures below based on inputs from several sources.
Based on analysis of available data, at the end of November 2009, cumulative foreign investment approved by the MIC totaled 426 projects, valued at $15.8 billion. This is 7.5 percent higher than the cumulative total listed at the end of November 2008.
According to the latest GOB statistics, FDI approvals for Burmese FY 2008-2009 (April-March) totaled $984.996 million, compared with FDI approvals of $172.720 million in FY 2007-2008. Major sources of FY2008-2009 proposed investments include China ($855.996 million mainly in mining), Russia ($94 million in oil and gas), Vietnam ($20 million in oil and gas), and Thailand ($15 million in hotels and tourism).
The vast majority of approved new investment since 1997 has come from Asian countries. Western countries have largely stayed away from the Burmese market, largely due to the abysmal investment climate, including an absence of rule of law, economic mismanagement, and endemic corruption. Also serving to block foreign investment are economic sanctions levied by a number of Western governments including Australia, the United Kingdom, the European Union, and the United States. New U.S. investment ceased in 1997 when the U.S. government imposed an investment ban.
According to GOB statistics released in 2009, in stock terms, the United States is the eighth largest foreign investor in Burma, with 15 approved projects totaling $244 million. All such investments occurred prior to the 1997 imposition of U.S. sanctions and were grandfathered under the law. Pre-May 1997 U.S. investments are largely concentrated in oil and natural gas exploration.
Major non-U.S. foreign investors in Burma are concentrated in resource extraction and include: Petronas (Malaysia), Total (France), PTTEP (Thailand), Shin Satellite (Thailand), Keppel Land (Singapore), Daewoo (South Korea), China National Construction and Agricultural Machinery Import and Export Co. (PRC), Gas Authority of India Ltd. (GAIL) (India), CNPC (PRC) and the China International Trust and Investment Corporation (PRC).
Government statistics do not report external investments made by Burmese companies. However, there is anecdotal information that some wealthy Burmese individuals and small family businesses have made investments in China and in neighboring ASEAN countries.
FOREIGN INVESTMENT APPROVALS AS OF 11/30/2009 BY SECTOR (Millions of US Dollars)
|Sector||No. of Projects||Approved Amount||% of Total Approved Amt|
|Oil and Gas||89||3,398.478||21.53|
|Hotels and Tourism||45||1,064.811||6.74|
CUMULATIVE FOREIGN INVESTMENT APPROVALS AS OF 11/30/2009 BY COUNTRY (Millions of US Dollars)
|No.||Country||No. of Projects||Approved Amount|
|10.||Republic of Korea||37||239.318|
|18.||United Arab Emirates||1||41.000|