Having keen observer and participant in the Myanmar’s transition since socio political changes commencing in 2011, it came as no surprise to those that know me, when I wrote a number of articles on the importance of sound Corporate Governance. As a serial entrepreneur, Myanmar represented a frontier market that was open for investment with a promise of good returns. A key risk to Myanmar as it transitioned to a parliamentary democracy was the lack of sound corporate governance and an integrated legal system. However I have a recently somewhat diminished belief in the economic miracle that awaits Myanmar.
The reasons for this belief  is, driven by the strong economic growth in the lead up to the 2016 elections, coupled with a significant increase in direct foreign investment up 2015. There has also been the improvement in key international measures on the progress of Myanmar’s socio economic standing. Whilst still needing improvement, it is noteworthy to see improvements in the measures of: Press Freedom, Peace, Economic Growth and decreasing poverty.
However, there are a number of concerns that point to Myanmar presenting as a potential investment risk. Please note that these observations are based my experience in trying to get infrastructure projects off the ground. My observations can be grouped under the banners of: investor friendly, sound corporate governance and skill set needed to create sustainable local economy. Under all three banners, current indicators suggest that there has been a reduction in investor confidence in the country. The single biggest indicator being the reduction in foreign investment flow into the country coupled with an increasing trade deficit.
There are a number of issues that tarnish the investor friendly tag needed by Myanmar. Since the election, Myanmar has become a country that is more difficult to do business in. These include:
Lengthy delays in approvals and decision making as there is a disconnect between bureaucrats and Government,
State of flux with legislative changes, particularly around the MIC rules and process. This is particularly acute when there are investment applications made under the FIL rules versus those under the new MIL, with suggestions that those made under the old rules are being neglected. Recent personal experience supports this when told by the MIC that an application could only be processed if lodged in the new format – the application was lodged late 2016 but the new regulations came into effect April 2017. This after a two year period of preparation, consultation etc.
Whilst the new investment approval rules make no distinction between local / foreign, the thresholds of local / foreign ownership before new MIC approvals are required on a project, become problematic. From an investor point of view, this introduces sovereign risk considerations.
Following on from the issue of investor attractiveness, is the need for an Administration to have sound corporate governance practices. As a reminder, this creates a set of transparent set of rules, regulations and controls that aligns public and economic interests. The audit and control systems ensure efficiency and protection of community concerns.
After 50 years of isolation, the task of realigning governance principles was going to be difficult. Myanmar had a reputation for being corrupt, made easy by a legal system that lacked coherence. Driven by different interest groups / government departments, created a plethora of silo driven laws, rules and regulations, many of which contradicted each other.
There has been a concerted effort to improve the legal framework, creating the perception that it is moving in the right direction. However, changing the law does not automatically mean that there is a transparent and open process.
Myanmar’s pro-investment laws fail to reflect what happens in reality. Although a company can open in Myanmar by investing $50,000 for a service-based business or $150,000 for a manufacturing business, the approval process is not transparent. The MIC, an organ of government has to approve every investment that requires a MIC permit under section 36 of the law, which means broadly large projects and / or environmental approval.Investors can only apply for MIC endorsements for land rights or tax incentives. This process also involves getting approvals from a number of department heads, such as Environment, and may require as much as 12 departments getting involved. More at issue is there does not seem to be a transparent set of standards / criteria by which applications are approved. A recent example is the approval for an Offshore Supply Base given to two Companies in Ayeyarwady, located next to each other.
This confirms the World Bank’s most recent “Ease of Doing Business Index” in which it rates Myanmar the worst place to do business in Asia. It gives the country a ranking of 170 out of 190 countries. It may well be that it is too early for the new rules to have had an impact, but it does present a challenge to government.
Finally, another reason to second-guess a decision to invest in Myanmar is that foreigners can’t own private property. Even though the 2016 Condominium Law allows foreigners to own up to 40 percent of the floor space in a single condominium, this law has still not been enacted.
In conclusion, Myanmar’s location gives it a great opportunity to take advantage of investment associated with China’s One Belt One Road. The opportunity lies not only in infrastructure funds, but bigger investment that will come with industry and manufacturing activity. Investment funds are available, but the opportunity cost of investing in Myanmar is high. The new MIC must open markets but ensure that there is:
Transparency,
Rule of Law,
Stability
At present, making a financial return off a Myanmar investment takes considerably more time and effort than investing in Cambodia, Laosor Mongolia, where growth rates are similarly high but the bureaucracy is more navigable.
Revised Version