OVER the last few years, foreign investment into Myanmar had been steadily increasing with FDI hitting US$8.1 billion (Bt282 billion) in fiscal year ended 31 March 2015.
With the stable political transition after the recent general elections comes a greater interest and confidence from foreign investors to invest in Myanmar.
However, when foreign investors’ management teams sought board approvals for their investment, many of the usual concerns and questions still arise. One of the main causes of this is that many senior business leaders still have scant knowledge of the situation, challenges and opportunities in Myanmar.
On the transfer of funds to local financial institutions in Myanmar, there has been improvements with the granting of the 14 licences for foreign banks. Whilst their branches are restricted in the operations, they have helped establish additional channels which could be tapped on regularly to receive funds in Myanmar from overseas. Local banks have also made great progress in establishing links with many of the banks in the region and also digitising many of their banking functions in a bid to improve their own efficiency in handling banking transactions.
However, from a regulatory perspective, much of the funds flow into and out of Myanmar still requires approvals from the Central Bank of Myanmar. As such, some of the funds were returned to the originating bank and others met with long delays as approvals needed to be obtained before they were able to access the funds.
As the regulators are sorting for solutions, investors can make sure that their funds flow are planned ahead of time so the necessary approvals can be sought beforehand. Prepare all necessary documents. Further, it would be useful to check if the bank you use has had experience wiring funds into or receiving funds from Myanmar.
Another common worry was that it is extremely difficult to get investments approved in Myanmar.
Most investors on their first visit assumed they could simply set up a company to undertake many different types of business and to also carry on multiple businesses in a single entity. However, after their first visit, they quite often get overloaded with information about all the different restrictions and possible options they will need to consider. They hear about the Myanmar Investment Commission (MIC), the foreign investment law, the special economic zones, the local joint venture requirements and ministerial approvals. Sometimes, friends tell them that someone trust worthy said some new regulations will be announced soon.
Here are 2 basic questions to the potential investors:
— What type of services or products will be provided/manufactured in Myanmar?
— Will the products be exported or for local consumption
Generally, for investments that are not restricted, companies would be able to set up a basic company that falls under the purview of the company Act. For investments in restricted sectors or the construction of manufacturing plants which required a long term lease of land, investors would be able to choose between setting up an entity in a special economic zone or apply to MIC for an investment permit if it does not want to establish its investment inside an SEZ.
Currently, for applications to MIC, a detailed submission pack which includes projected financials, plans for the investment and more is required. In some cases, environmental assessments are also necessary. The overall process is rather comprehensive and looks very similar to a bid process for major infrastructure investments elsewhere. However, in Myanmar this was applied to all and sundry and thus many smaller investments also met with timing and cost to put together the detailed submissions. The process can take many months.
The new investment law seeks to lighten the load on MIC as well as speeding the approval process. The new law specifies 2 types of submissions to the commission: non-restricted investments which will not be scrutinisd much and the other type that will be the same as the current investment proposals to MIC.
Investors who will be exporting the bulk of their products made in Myanmar or would like to be operating in a free trade zone may wish to consider registering their entity in SEZs. Export oriented free zone provides slightly better tax incentives as well as a slightly longer lease period (75 years vs 70 years maximum lease term) as compared to the Myanmar foreign investment law. As the SEZs receive less applications and have a more streamlined approval process, the approval process has been generally faster than the approval process for the Myanmar investment commission.
Part 1 of a two-part series. Second part: More about importing, land and financial accounting.
The article was published by The Nation | 28 February 2017