Attitude toward Foreign Direct Investment
Since 2011, Burma has made significant reforms to improve its legal and regulatory framework in order to create an attractive business climate capable of generating more inward investment. Over the past several years, Burma’s attitude towards Foreign Direct Investment (FDI) has been positive, and recent measures undertaken by the government, including ongoing revision of the Foreign Investment Law (FIL), a new Special Economic Zone law, labor reform and the award of certain tenders and licenses to foreign businesses, illustrate the government’s commitment to further opening its economy and to aligning itself with international standards. Many investors regard Burma’s historical 2015 elections – the degree to which they were open, transparent and inclusive, as well as the government’s actions after the elections – as a key indicator of the government’s ability to continue reforms. Observers note that Burma’s democratic transition has led to a slowdown in FDI, with a number of investors waiting until the new government is in place to continue with their investment activities. Following the transition to a new government in April 2016, FDI to Burma is expected to continue growing in the short-term, but further liberalization will be critical for sustaining FDI growth in the medium- to long-term. International investors are closely watching to see what actions Burma’s new government will take to reform the economy, promote inclusive growth and attract investment.
Other Investment Policy Reviews
The OECD conducted an investment policy review of Burma in March 2014. The entire report can be found at: http://www.oecd.org/daf/inv/investment-policy/Myanmar-IPR-2014.pdf.
The World Trade Organization (WTO) conducted a trade policy review of Burma in March 2014. The entire report can be found at: https://www.wto.org/english/tratop_e/tpr_e/s293_e.pdf.
The World Bank’s Doing Business 2016 report includes an analysis of Burma’s investment sectors and business environment, and can be found at: http://www.doingbusiness.org/data/exploreeconomies/myanmar/
The World Bank also conducted an enterprise survey of Burma in 2014, the results of which can be found at: http://www.enterprisesurveys.org/data/exploreeconomies/2014/myanmar.
Burma’s Directorate of Investment and Company Administration (DICA) released its own investment guide in 2014 which can be found at: http://www.dica.gov.mm/files/document-files/myanmarinvestmentguide_2014.pdf?_ga=1.181010606.820975682.1458969219 DICA has announced that it will be publishing a new investment guide in 2016.
Laws/Regulations on Foreign Direct Investment
The Myanmar Investment Commission (MIC) is a government-appointed body, with Burma’s President appointing MIC’s Chairman and its members. The MIC reports directly to Burma’s President. MIC was formed under the FIL and the Myanmar Citizen Investment Law. The Directorate of Investment and Company Administration (DICA) is the Secretariat of MIC, and falls under the newly merged Ministry of Planning and Finance. However, DICA reports directly to the Chairman of MIC.
The main law applicable to foreign investors is the FIL, which was approved in November 2012. A new draft Investment Law, which would see a consolidation of the 2012 FIL and the 2013 Myanmar Citizen Investment Law, is currently being considered by the government of Burma. The draft law has been released for public comment 12 times and was last posted on DICA’s website in October 2015. The new Parliament is expected to take up the draft law in 2016.
The stated objectives of the 2012 FIL are to support:
The extraction/export of the rich natural resources of the state for the benefit of the people;
The creation and accumulation of jobs for the people;
The development of human resources;
The development of infrastructure such as banking and finance, modern roads, interstate highways, production of electricity and energy, and modern information technology;
Transportation of rail, water and air via an international standard to enable citizens to do business throughout the world; and
The advent of businesses and investments which are in line with established international practices and norms.
The FIL continues to limit certain types of foreign investment (see list of industries below in “Limits on Foreign Control and Right to Private Ownership and Establishment”).
The government did issue a number of notices to clarify the joint-venture activities of foreign companies such as Notification 96/2015 issued on November 11, 2015 allowing for a Burmese company and a foreign company to form a joint venture with the ability to import and trade specified goods. Imports are limited to fertilizer, insemination seeds, pesticides and hospital equipment. Foreign owned companies are still not permitted to be involved in trading.
On December 22, 2015 the government passed an amendment to the FIL decentralizing decision making authority to local (state and regional) government, while streamlining the coordination between the local and central governments in approving investments.
Although many foreign investors feel that the FIL’s stated objectives point to a positive, forward-thinking approach by the government, the OECD notes that the FIL “still leaves many questions unanswered, notably with respect to investor protection and the procedures for admitting foreign investors.” In addition, Burma’s current regulatory investment framework remains complex, and can cause confusion for investors given the numerous laws that regulate the entry of investors depending on the sector and the location, and depending on whether the investor is local or foreign. Investors have complained that the government’s investment approval process (outlined below) is opaque, complex, onerous with regard to the paperwork required, and lengthy.
All investors must register with the DICA – except for those in a joint venture with a State equity formed under the Special Company Act 1950. DICA has a website where businesses can register: http://www.investinmyanmar.com/myanmar-company-registration/. In 2013 DICA updated the registration process in an effort to make doing in business in Burma easier. However, observers have seen process improvements play out just this past year. Once a company submits their completed paper work to DICA and has deposited the registration fee in the Myanma Economic Bank, DICA will issue a temporary registration certificate within 2-3 days, allowing for the company to commence activities, such as applying for an investment permit. In the meantime, DICA will apply for the company’s “no objection certificate” with the relative ministries, yielding the company’s permanent registration certificate or the “Company Incorporation Certificate.”
The Ministry of Industry is responsible for issues pertaining to Small and Medium Size Enterprises. The MIC, using the Ministry of Industry’s definition, defines small enterprises to include no more than 50 employees and medium enterprises to include no more than 100 employees. However, according to the 2015 Small and Medium Enterprise Law, these categories can change according to sectors. For instance, a labor intensive manufacturer is considered a small enterprise with 300 or less employees and medium sized if it has less than 600 employees. In these cases the turnover in capital is also considered in its classification. As of March 2016, the Ministry of Industry had not implemented this definition because government officials on the ground have yet to receive implementing instructions. Because of this, the government is still using an outdated definition of SMEs from the 1990 Private Industrial Enterprise Law. A complete table illustrating these definitions can be found on Burma’s Central Department of Small and Medium Enterprise Development at http://www.smedevelopmentcenter.gov.mm/?q=en/def_sme.
Different ministries and agencies promote investment into different sectors (e.g., the Ministry of Hotels and Tourism promotes responsible tourism investment), although DICA is officially mandated to coordinate investment promotion under the FIL. DICA is responsible for encouraging and facilitating foreign investment by providing information, fostering coordination and networks between investors, and continually exploring new opportunities in Burma that would benefit both nation and the business community. Currently, DICA’s main office is in Rangoon, but as of March 2015, it has six branches throughout the country including Pathein, Monywa, Dawei, Taunggyi, Mawlamiyine and Mandalay. DICA is paying particular attention to attracting FDI in labor intensive industries; agriculture and its related industries including products manufactured from raw agricultural materials, agricultural construction, building and heavy equipment; and projects that benefit infrastructure including transportation, energy and manufacturing. DICA uses seminars, workshops, investment fairs and other events to promote the above investment, as well as its website: http://www.dica.gov.mm/en
On May 26, the Ministry of Commerce launched its new National Trade Portal and Repository, an online platform that has all of Burma's Laws, processes, forms, and points of contact for trade. The U.S. Agency for International Development funded the development of the Portal. This portal represents increased transparency in Burma and also meets Burma's requirements under Articles 12 and 13 of the ASEASN Trade in Goods Agreement. http://www.myanmartradeportal.gov.mm/index.php
Limits on Foreign Control and Right to Private Ownership and Establishment
The FIL limits certain types of foreign investment. Specifically, foreign investments cannot be made in the following businesses and services: administration and conservation of natural forests; production of traditional medicines; drilling of oil wells whose depth does not exceed 1,000 feet; small and medium scale mining; cultivation and production of traditional herbal plants; wholesale trading of components and scrap-iron; traditional food production; production of religious items and wares; production of traditional and cultural items and wares; handicraft production; private specialist traditional hospitals; trading of raw materials used for traditional medicines; medical research and operation of laboratories for traditional medicine; ambulance services; care centers for the elderly; catering on trains, freight forwarding using trains, cleaning of coaches, management of trains; agency services; [erection and operation of] power plants with less than 10 megawatts; and printing, publishing and distribution of periodicals in local languages spoken in Burma.
The FIL restricts foreign investment in certain agriculture and farming businesses, certain animal husbandry businesses, and certain fishery businesses. In addition, the implementing rules list those sectors requiring a joint venture (with a maximum of 80 percent foreign equity), as well as other foreign equity limitations and joint ventures permitted only with the state.
On March 24, 2016 MIC issued notification 26/2016 which amends the list of economic activities that require joint venture under the FIL, and now permits 100 percent foreign investment in the production and distribution of hybrid seeds and the production and propagation of high-yield seeds and local seeds.
The FIL has no minimum capital requirement for foreign ownership, except for (as noted) joint ventures in restricted sectors, although individual ownership requirements can be established by the MIC, which is in charge of assessing business proposals, setting requirements and conditions for investment and interpreting and overseeing the implementation of the FIL.
In addition to the FIL, the State Owned Economic Enterprises Law, enacted in March 1989, and still in effect today, also regulates certain investments and economic activities. However, the government of Burma is in the process of drafting a new Privatization Law. New laws such as the Myanmar National Aviation Law are leading to the corporatization of State Owned Enterprises (SOEs), including the Myanmar National Airlines and the Yangon Electricity Supply Board. Under the 1989 law, SOEs continue to have the sole right to carry out the following economic activities: extraction of teak and sale of the same in the country and abroad; cultivation and conservation of forest plantations, with the exception of village-owned firewood plantations cultivated by the villagers for their personal use; exploration, extraction, sale, and production of petroleum and natural gas; exploration, extraction, and export of pearls, jade, and precious stones; breeding and production of fish and prawns in fisheries that have been reserved for research by the government; postal and telecommunications services; banking and insurance services; broadcasting and television services; exploration, extraction, and exports of metals; electricity generating services, other than those permitted by law to private and cooperative electricity generating services; and manufacturing of products relating to security and defense; air transport and railway transport services. On this last, according to a new January 2016 Rail Transportation Enterprise Law, foreign and local business can make certain investments in railways, such as in the form of Private Public Partnership (PPP).
However, the MIC, "in the interest of the State," can make exceptions to this law. In the past, the MIC has routinely granted numerous exceptions including through joint ventures or special licenses in the areas of banking (for domestic investors only), mining, petroleum and natural gas extraction, telecommunications, radio and television broadcasting, and air transport services. The 2012 Foreign Investment Law and its implementing regulations continue to grant the MIC broad discretion with regard to its decisions on investments. This can at times be beneficial to investors wishing to engage in economic activities in certain prohibited economic sectors.
Although, as the OECD 2014 IPR notes, the system gives the government flexibility “to open progressively and selectively to foreign investment and to try to maximize the potential benefits from that investment,” the same flexibility also creates uncertainty for investors “concerning the criteria upon which the decision to admit them is based [and] creates opportunities for corruption when individual officials are given responsibility for deciding on what basis to admit an investment project.”
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). Under General License No. 17 issued by the Department of Treasury’s Office of Foreign Assets Control (OFAC) on July 11, 2012, U.S. businesses are not allowed to invest or enter into an agreement with the Burmese Ministry of Defense or any state or non-state armed group, or any entity in which any of the above own a 50 percent or greater interest.
According to the government of Burma, the private sector accounts for a majority of the country’s GDP, with the State participating in telecommunication services, social and public administration, energy, forestry, construction, and electricity. The activities of MEHL, MEC, and other military-dominated companies are not included in the budget’s data.
Prior to 2011, foreign participation was not allowed in the privatization process. In 2012, President Thein Sein created a new Privatization Commission headed by a Vice President. As of April 2016, the new government has yet to appoint the new members of the Privatization Commission. Between 2011 and 2016, privatization took the forms of the private leasing of state-owned assets and the establishment of joint ventures and PPPs. Bidding for these leases lacked transparency, but the Privatization Commission adopted new privatization procedures that emphasized open tenders and PPPs.
On January 19, 2013, President Thein Sein’s administration announced the Framework for Economic and Social Reform (FESR), a 45-page report calling for further reforms on commercialization and possible privatization of SOEs, to include creating step-by-step privatization plans, establishing regulatory frameworks and institutions, commercializing SOEs, and attracting PPPs. The FESR also requires all Burmese government ministries to take a judicious and cautious approach in privatizing public utilities and infrastructure industries that are critical to the functioning of the economy and are strategic to Burma’s “natural monopolies.”
SOEs are in different stages of privatization, with some, such as the Myanmar National Airlines, operating independently while still owned by the government.
Screening of FDI
The MIC plays a leading role in the regulation of foreign investment, and approves all investment projects receiving incentives except those in special economic zones, which are handled by the Central Working Body, set up under the existing Special Economic Zone Law. Joint ventures between foreign investors and SOEs are the responsibility of the relevant line ministries. There is no evidence that the MIC discriminates against foreign investors.
The FIL’s outlines the procedures the MIC must take in considering foreign investments. Investment approvals are made on a case-by-case basis. The MIC evaluates foreign investment proposals and stipulates the terms and conditions of investment permits. To obtain an investment permit, the investor must submit a proposal in the prescribed form to the MIC, together with supporting documentation including details of intended activities and the financial credibility of the company/individual; an undertaking not to engage in trading activities; and annual reports for the last two financial years, or copies of the company’s Head Office’s balance sheet and profit and loss account for the last two financial years, notarized by the Burmese Embassy in the country where the company is incorporated. The MIC accepts or rejects an application within 15 days, and decides whether to approve the proposal within 90 days. In November 2015, the government’s Cabinet approved an Environmental Impact Assessment Procedure. The Chairman of the MIC gives the final approval.
The MIC does not record foreign investments that do not require MIC approval, particularly for investors forming a joint venture with a military-controlled enterprise. Many smaller investments may also go unrecorded. Once licensed, foreign firms may register their companies locally, use their permits to obtain resident visas, lease cars and real estate, and obtain import and export licenses from the Ministry of Commerce. Foreign companies may register locally without an MIC license, in which case they are not entitled to receive the benefits and incentives provided for in the FIL.
More information on the MIC and DICA can be found at: http://www.dica.gov.mm/en/apply-mic-permit
A new Competition Law was passed on February 24, 2015, and will go into effect on February 24, 2017. The objective of the law is to protect public interest from monopolistic acts, limit unfair competition, and prevent abuse of dominant position and economic concentration which weakens competition. Specifically, the Competition Law sets a foundation for creation of a regulatory body with investigative and adjudicative powers, addresses the three standard pillars of competition law (agreements that restrain competition, abuse of dominance and mergers) as well as unfair trade practices, and establishes a comprehensive penalty regime.
The law classifies four types of behavior as sanctionable violations: acts restricting competition (applicable to all persons); acts leading to monopolies (applicable only to entrepreneurs); unfair competitive acts (applicable only to entrepreneurs); and business combinations such as mergers. The law also restricts the production of goods, market penetration, technological development and investment, although the government may exempt restrictive agreements “if they are aimed at reducing production costs and benefit consumers” such as reshaping the organizational structure and business model of a business so as to improve its efficiency; enhancing technology and technological advances for the improvement of the quality of goods and service; and promoting competitiveness of small and medium sized enterprises.
The Competition Law prohibits efforts to monopolize markets by: controlling prices of goods or services; limiting the availability of a good or service with the aim of controlling prices; reducing the availability of a good or service without appropriate reasons or lowering the quality of a good to reduce market demand; controlling or restrict the geographic market for sales to prevent entry and control market share; and interfering in another business’ operations in an unfair manner.
The Competition Law also prohibits mergers where the merger is intended to lead to excessive domination of the market; the merger will reduce competition in a market with few competitors; or the resulting market share exceeds the thresholds prescribed by the Competition Commission. However, the law permits an otherwise prohibited merger where the resulting enterprise remains a SME; one of the merging parties was, or was likely to become, bankrupt; or the merger promotes exports or development of technology, systems or innovation.
The Competition Law creates the Competition Commission, the principal regulatory authority under the law and the Investigation Committee which will investigate conduct that may infringe the law. The penalties provided for “acts restricting competition” in Burma range from imprisonment up to three years and/or a fine of up to $15,000.
Burma is not party to any bilateral or regional agreement on anti-trust cooperation.