21 November, 2012


Legal News & Analysis – Asia Pacific – Myanmar


  • Political and economic liberation in Myanmar present investment opportunities for foreign companies
  • A shift to democracy has attracted conglomerates such as Coca-Cola Co. and MasterCard Inc.
  • The recent enactment of the Foreign Investment Law is expected to further open up the economy of Myanmar
  • FCPA and Bribery Act concerns continue


Political liberation and support from the West
President Thein Sein took power in April 2011 ending nearly five decades of direct military rule of Myanmar’s centrally planned, closed economy. Since taking office, Mr Thein Sein has dismantled the fixed exchange rate, eased media censorship, freed more than 500 political detainees as part of a series of reforms and has held talks with opponents such as former political prisoner Aung San Suu Kyi, who became a member of the lower house of parliament after being released from house arrest.
Australia, Japan and the EU have announced plans to forgive Myanmar’s debts and increase development aid to support the further rehabilitation of the country. The World Bank has also recently approved development aid to boost reforms.
More important still has been the suspension of US and EU sanctions in May and July of this year which has allowed companies from both regions to invest in Myanmar for the first time since the early 1990s. Myanmar authorities have subsequently sought to streamline procedures and licences for foreign investment, and the passing of a long-awaited law laying down the ground rules of a more favourable foreign investment regime has further evinced the authorities’ willingness to open up the country’s long-restricted market.
Key features of New Foreign Investment Laws
The President signed a revised version of the Foreign Investment Law on 2nd November. The enactment of the law had been delayed to allow the government to push the bill back to the Parliament to lobby for the addition of further investment incentives. Thus the revised version of the law represents a middle ground between the reformist camp pushing for rapid change and local business leaders’ more protectionist tendencies.
Among major changes to the new legislation is the dropping of a proposed US$5m minimum level of foreign investment and the final form law contains the following protections and incentives for foreign investors:
  • foreigners are now permitted to own 100% of businesses without the need for a local partner for activities approved by the Myanmar Investment Commission,
  • where foreign investment is made via a joint venture with a local partner, no minimum or maximum foreign ownership restrictions will be applied, with parties free to agree the nature and size of their respective interests,
  • foreign investors will be able to lease land from the government, or from authorized private owners, for up to 50 years with further options to extend for two further ten year periods,
  • an initial five-year tax exemption for foreign companies,
  • government guarantees against nationalisation, and
  • a mechanism to allow the repatriation of profits.
It is understood that the Myanmar Investment Commission (the body that will oversee the implementation of the Foreign Investment Law) has been awarded discretionary powers to require foreign ownership limits in certain ‘restricted sectors’. It remains to be seen what sectors will be restricted, what the extent of these restrictions will be in practice and when they may come into effect.
Opportunities in Myanmar’s unsaturated market
Even though countries such as China, India, Japan and the ASEAN countries never enacted sanctions against Myanmar and have continued to have some involvement in Myanmar, sanctions from the West in the past decades have limited overall investment into Myanmar.
Mining is the sector likely to receive most interest on the resources front, but oil, gas, gems and timber are also likely to become important. Chinese and Thai firms are already very active in these areas and associated infrastructure projects, such as Daiwei port and other Special Economic Zone projects. Offshore, Myanmar reached an agreement in relation to a dispute with Bangladesh over their maritime claims in the Bay of Bengal, and offered nine offshore oil and gas blocks to the market in spring this year.
The key drivers behind Myanmar’s attractiveness to international investors are the following:
  • Low-cost labour and its high literacy rate: Myanmar claims to have a 91% literacy rate and, as a former British colony, many Myanmar people speak reasonable English,
  • As a consumer of infrastructure: the development of all sorts of infrastructure will be necessary if Myanmar is going to develop its economy at any pace,
  • As a substantial domestic and consumer market: Myanmar’s population is estimated to be about 56 million and presents an attractive market for many multinationals,
  • Natural resources: Myanmar has a wide range of resources ranging from oil and gas through to timber,
  • Favourable foreign investment regime: the reformist government’s efforts should attract foreign investment in order to fuel economic growth, and
  • Strategic location between China and India: sitting in this position should enhance Myanmar’s trading position once it opens up.

Establishing a presence in Myanmar
Western firms including General Electric, Coca Cola, and Microsoft are presently said to be planning their entrance into Myanmar and we are presently advising a number of multinationals who are exploring Myanmar related opportunities. Furthermore, MasterCard in October of this year became the first payments network to issue a license to a Myanmar bank as the country moves to integrate into the global financial system. The company plans to set up an office in the country once credit card usage becomes more widespread.
Risk management is essential
Accurately assessing risks and taking appropriate legal advice will be necessary if investors into Myanmar are successfully going to take advantage of the opportunities now available. Key issues investors should be aware of:
  • how to structure JVs and other business dealings under the new Foreign Investment Law,
  • how to secure land concessions for investment,
  • how to repatriate profits,
  • the continued prevalence of corruption,
  • how to enforce contracts and protect rights, and
  • how best to seek to enforce any arbitral award.
The recent political and economic reforms hopefully represent Myanmar’s initial steps back into the global economic community. Analysts predict that, if successful, Myanmar is headed for 20 to 30 years of dynamic growth. Thus it will be important for companies to ensure that they are positioned well to take advantage of these opportunities and to determine how best to limit risks. Careful investment structuring will be of paramount importance.
Selected Myanmar credentials
Herbert Smith Freehills has advised a large number of international clients on structuring their investments into Myanmar, their potential exposure to sanctions and anti-corruption laws, as well as claims and potential disputes arising from their investments into Myanmar.
Recently, we led a transaction for China Development Bank on its US$900 million covered project finance facility to Daewoo International Corporation, in relation to the development of an offshore natural gas project in Myanmar, which was expected to meet over 7% of China’s future gas needs.



For further information, please contact:
Austin SweeneyPartner, Herbert Smith Freehills



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