Tue 28 Aug 2012
Filed under: Business / Trade,News
Despite glowing predictions of becoming a “rising star” in Asia, Myanmar has generated more uncertainty than optimism when it comes to its much-delayed foreign investment code.
The saga has dragged on for more than eight months, since president Thein Sein promised a liberal new foreign investment regime late last year, and his industry minister (who also heads the Myanmar Investment Commission, the body overseeing foreign investment) just weeks later announced key points at the World Economic Forum in Davos.
An initial draft included provisions designed to entice foreign investors, including some that domestic critics said were way too generous, including 10-year tax exemption periods and liberal foreign ownership conditions.
That document has been progressively watered down as restrictions have been introduced. Among the amendments are a $5m minimum requirement on foreign investments, a 49 per cent maximum for foreign equity in joint ventures and restrictions on foreign investment – including curbs in some cases of 35 per cent investment – in designated sectors including agriculture, some services, food processing, and livestock and fisheries.
There have been high expectations of imminent passage of the new code in each of parliament’s three sessions since the original announcements.
But driven by fears among local business and, undoubtedly, the influence of established “cronies” who benefit from the status quo, a growing number of lawmakers have leapt in to block or propose modifications of the code. Domestic companies, meanwhile, through the country’s combined chambers of commerce and industry, have lobbied vigorously against concessions to foreign investors.
Local executives complain – perhaps understandably – that they are already at a disadvantage compared with large, experienced western companies with ample capital and superior technology. Any concession to such companies, they argue, will further tilt the playing field against the locals.
The result has been a slow-growing backlash over the very notion of foreign investment incentives. It has been cloaked in opaque – at times secret – parliamentary debates and consultations. Frequent redrafting of the law has led to multiple draft versions – to the point where one official admitted last week to beyondbrics, “I don’t even know which version is the current one.”
The latest amendments – read “tinkerings” – in the proposed draft FIL in parliament’s powerful lower house included requirements and restrictions that could actually deter many foreign companies from entering the country, say economists and some officials.
Sean Turnell, an economics professor at Australia’s Macquarie University who has studied Myanmar’s economy and investment environment, said: “I have watched this law become less and less liberal, less and less open, with each draft.. The new law is fast becoming the ‘No Foreign Investment Law.’”
To top it off, even Soe Thane, the industry minister and MIC chief , has criticised the draft law: “This $5m requirement is very discouraging for SMEs (small to medium enterprises), and SMEs are the only investors interested in Myanmar now,” he told local media.
“The existing law is better than the new draft with its amendments,” he added. Maybe so, but given that a new investment code is in the works, few foreign businesses that have joined the so-called “gold rush” to examine investment opportunities in Myanmar are keen to commit funds in an uncertain legal environment.
The current session of Myanmar’s parliament is in its final days. If the legislation passes the lower house in time, it will go to the upper house for approval and then to president Thein Sein, officials say.
But the intensity of debate suggests it could be delayed yet again. If so, it could be another six weeks before parliament returns to it.
At least, say some Yangon-based analysts, the to-ing and fro-ing can be welcomed at one level. “What we are seeing is democracy in action – overall it’s a vast improvement on the authoritarian environment we faced just 18 months ago,” said one local diplomat. That is, unless you’re a foreign business executive who wants to build a large factory and set up operations in Myanmar.