Latest Political Development in MyanmarRecent political developments in Myanmar
Invest in Myanmar: Current developments and future prospects
Myanmar has emerged on the radar as one of Asia's last border market after a number of courageous political reform in 2011. Myanmar was an island and oversight provincial state for many years, ruled by a oppressive army regime that destroyed disagreement and took part in the illicit drugs and jewelry trade.
Unsuspected political democracy reform by the junta's junta leadership, culminating in the ascent of Nobel Peace Prize laureate Aung San Suu Kyi in 2015 and the lifting of US stimulus packages in 2016, however, quickly transformed the history of the South East Asia based people. As one of the richest but currently one of the impoverished nations in the area, Myanmar has far from fully exploited its enormous economical potentials, as the inefficient politics and economical policy of the army regimes has hindered the development of the state.
Favourable demographic conditions, a favourable situation and abundant nature reserves - together with the implementation of substantive macroeconomic reform - make Myanmar a fascinating target for adventuresome traders who have not yet been able to enter the world. Despite its fast liberalising political and economical landscapes, however, Myanmar continues to be a frightening target for investments due to the high risk of political unstability, corrupt practices, inadequate law enforcements and logistic obstruction.
As Myanmar has made significant advances in transforming its political and business environments and is experiencing some of the world's highest levels of GNP expansion, there is a need for significant arrangements for local action by those seeking to penetrate the highly attractive but demanding markets. For Myanmar, the Bank forecasts a 7.
With Myanmar's rich cultural heritage and poor infrastructures - only about 30 per cent of the country's populace have electric power at their disposal - it is anticipated that power and telecoms will be immediate areas of economic upturn. In fact, FDI in crude petroleum and power accounts for around 65 per cent of overall investments, while wireless coverage has already been increased from seven per cent in 2013 to 63 per cent in early 2016.
Myanmar will try to break away from the mineral extraction industry in the mid to long run and evolve the processing industry by using its large and young people. In order to achieve this, the US authorities hope to increase FDI to $140 billion between 2014 and 2030. Myanmar's nearly 54 million people, over 60 per cent of whom are under 35 years of age, immediately have a young, large and as yet unexploited labour force and a potentially significant lower line consumption group.
Myanmar is also perfectly situated in the centre of the most rapidly expanding part of the globe, on the border with China and India, and is part of the 625 million ASEAN block. Myanmar's suffocating army regimes prevented the state from unleashing its hidden commercial opportunities. However, when the state began to open up after years of political reform in 2011, a range of macroeconomic reform followed, especially after Aung San Suu Kyi's National League for Democracy (NLD) took over in 2015.
Myanmar passed the Foreign Investments Act in 2012, which worked alongside the 2013 Myanmar Citizens Investments Act. As a result of criticisms of the inconsistency of the laws and the wish to further tighten investments rules, both have recently been incorporated into the new extensive Law on Investments, which will enter into force in April 2017 to offer a more coherent and up-to-date regulatory overhaul.
While these changes are welcome, the pace of change and the brief life of the recently implemented capital expenditure legislation reflect Myanmar's mature and evolving legislative and regulative framework. The NLD, together with the implementation of the Law on Investments, published a 12-point economy map setting out the New Government's health care system.
This includes the development of more accountability, the privatisation of some state-owned companies and the development of financing schemes to assist small and medium-sized businesses (SMEs). Further actions are the improvement of training and infrastructures, the guarantee of a balance in the development of agriculture and processing, the creation of a just tax system and the protection of IP in order to encourage foreign direct investment.
At the very least, however, they are a further sign of the new government's readiness to implement sweeping macroeconomic reform and encourage foreign direct investment. The Myanmar authorities are due to issue and enact statutes clarifying the Investment Act and further detailing the wider governance of the economy during 2017.
The Myanmar Investment Commission (MIC) and the Directorate of Investment and Company Administration (DICA) recently published a short document describing the provisions of the Investment Act. They are still in the development phase, however, as the authorities are consulting with various interest groups on specific regulations. Developments in the investment law are an indication of the way Myanmar's reform process will work.
By 2017, the World Bank placed Myanmar in 170th place out of 190 countries, an unfortunate 88th for contract enforcement, while Transparency International placed it 147th out of 168 for bribery. While Myanmar is developing its legislative frameworks, it is likely that new law will be implemented and constantly tampered with, especially as the actual enforcement of law may differ from what is in form.
In October 2016, to pay Myanmar for its significant political and economical reform, the US administration lifted long-standing economical penalties urging the army to democratize. With the repeal of the penalties, all 111 persons and corporations on the US Treasury Department's black list were deleted from the US National List, various assets and interests released, the prohibition on imports of jadeit and jewels from the USA lifted and the limitations on bank and finance transactions imposed by the Office of Foreign Assets Control lifted.
Whilst some penalties continue to apply, such as limitations on the sale of weapons and on persons engaged in organised criminality linked to North Korea, the main ones affecting overseas investments have been lifted. Cancellation of US penalties marked an important stage in Myanmar's opening and reforms, as limitations either prevented banks and overseas investments in the U.S. or had such high due care and regulatory expenses that an investor would not be eligible for the risks.
Removing the penalties not only eliminates these additional demands, but also strengthens investors' trust in Myanmar's future viability and outlook. Whilst goods in Myanmar still have to comply with other internationally recognised conventions, such as the Generalised System of Preferences, the lifting of US penalties significantly minimises risks and opens up previously barred possibilities.
While Myanmar has made headway in its transformation to a liberalised economy and democratisation, it will remain a demanding and dangerous border country until 2017. It is important for traders to bear in minds that the process of democratisation is far from complete and that there is no continuous pace of reform, while the political setbacks or stasis are high.
Myanmar's former army régime still has a significant impact on Myanmar's policies, as it has very strong emergencies power and a guarantee parliamentary representation that can hinder constitution reform. Even if the penalties have been lifted, the present and former members of the army are oversized in the business world, either through nepotism or participation in state companies.
It gives a powerful vote to economic interests and means that any prospective trade or even joining forces with a Myanmar based business must undergo appropriate due-diligence to assess the associated risk. That is particularly the case given the continuing fighting in Myanmar, which includes the Rohingya minority's ethnical purge by the regime and possible human rights violations by the army.
A lot of organisations have criticised the US administration for lifting penalties too soon, as the oppression of minority groups and the restriction of the NLD's right to free expression have probably risen rather than declined. Much of the problems that afflicted Myanmar under the country's army rule remain with growing conflicts and growing global condemnations, and the army itself could find its way back to rule if the NLD does not live up to the high political and economic aspirations of the country's population.
Although Myanmar has made significant advances in becoming Asia's next attraction for overseas investments, it is still an erratic border country that holds a tempting prospect alongside significant risk, challenge and people. Dezan Shira is a specialized FDI firm offering management consulting, fiscal consulting and regulatory affairs, bookkeeping, payroll, due-diligence, and auditing to multinational companies that invest in China, Hong Kong, India, Vietnam, Singapore and the ASEAN.
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