Summary: Welcome to the latest edition of BLP's monthly Myanmar update. We have distilled the top 10 news items into this 'speed read'. Please get in touch for more information.
1. Daw Aung San Suu Kyi visits the UK and the US
In her first trip outside Asia as State Counsellor and Foreign Minister Daw Aung San Suu Kyi visited the UK on 12 September 2016 for bilateral discussions with British Prime Minister Theresa May. Theresa May said that the new government will continue to promote relations and cooperation with Myanmar and will hold a trade and investment forum in November in London to boost bilateral trade and investment.
This was followed by a visit to the US on 14 September 2016, where President Obama announced that the US will lift the majority of remaining sanctions in place against Myanmar. To help ensure that the full impact of this decision was felt, President Obama also reportedly encouraged Daw Aung San Suu Kyi to continue the reform program and improve the investment climate, resulting in the acceleration of the introduction of the new Investment Law to Parliament, as discussed below.
Myanmar will also be added to the US’ Generalised System of Preferences, a list which exempts countries from high import taxes. However, some sanctions will remain, including those against companies and individuals with links to the former military junta, as well as imports of jade and rubies. This final sanctions lift follows a gradual programme of easing that started in 2011 and opens the door to significant new investment from the US and other countries which were indirectly impacted. For more detail and analysis, please see our article 'A new phase in development begins with the lifting of US sanctions against Myanmar'.
2. Peacekeeping efforts - Panglong Peace Conference and Rakhine State Commission
The peace process, more so than economic or other matters, had been the main focus of the government in its first few months in office. The process reached an important milestone this month, with the holding of the inaugural 21st Century Panglong Union Peace Conference over several days from 31 August 2016. 800 participants from government, ethnic armed groups, political parties and the Myanmar military (the Tatmadaw) attended the conference. Participants took turns to present papers (there were 73 presentations) on their political vision at the 4-day event. Although no significant consensus was reached, the event was widely lauded as a first significant step towards national reconciliation and peace. The next Panglong conference is scheduled in 6 months’ time.
Further, the Advisory Commission on Rakhine State (Commission) held its inaugural session on 5 September 2016, which was attended by Daw Suu, and the Commission’s chair, Kofi Annan. The Commission was formed on 24 August 2016 to explore solutions to the conflict between nationalist Buddhists and the Muslim population who identify themselves as ethnic “Rohingya” people in the Rakhine State. Chaired by Kofi Annan, the nine-member Commission comprises 3 international and 6 national persons who are highly experienced, respected and neutral. The Commission will consult with the relevant parties and submit a report on its findings to the government via the State Counsellor, not later than 12 months after its formation.
3. Update on the Myanmar Investment Law
A new draft of the Myanmar investment law (MIL), released on 16 September 2016, has now been approved by Parliament. The MIL consolidates and replaces the Foreign Investment Law 2012 and Myanmar Citizens Investment Law 2013, and is aimed at creating a better environment for investors and a more even playing field for local and foreign investors.
Summary of key changes:
- Tax Exemption: Investors will no longer receive an automatic five-year corporate income tax exemption on their projects, and the discretionary tax incentives that most projects received will now be more targeted. The MIC will have the discretion to grant income tax exemptions of up to 7 years based on the nature of the project and the geographical location. This will have both a public financial management benefit and be a tool to promote inclusive development by incentivising projects of national significance and/or in regional areas.
- Lease periods: Investors with an MIC permit or the simplified MIC investment certificate will have the right to enter into long term leases from private land or building owners or from government entities. Lease periods may be for up to a maximum initial period of 50 years, with 2 ten-year extensions thereafter. MIC may grant longer lease periods in less developed regions of Myanmar.
- MIC approval process: The coverage of the law is wider than the current Foreign Investment Law, with most direct investments of any size or type being covered. As is currently the case, larger and strategic projects and investments in restricted/regulated areas will need to go through the detailed MIC permitting process however in other cases Investors will only have to seek an investment certificate, which is expected to be a simplified, more automatic process. With this will come the right to have long-term leases of land and some other benefits and protections.
The new Investment Law will be a welcome step in improving the investment climate in Myanmar, providing investment protections and benefits to a much wider range of investments while allowing for a much more strategic use of incentives. The law itself is fairly general in parts, however, with detailed implementing regulations still required to give it full effect. These are expected to be developed over the coming months.
4. MIC relaxes policy relating to long term office leases
Under current laws, foreign investors are effectively prohibited from having ownership interests in Myanmar land. The main exception to this is if the MIC permits an investor to enter into a long-term lease. Until now, the MIC has confined these approvals to leases of industrial land, infrastructure sites and major property development projects. Long-term office leases, for example, weren’t being approved, meaning that foreign companies could only take one year leases over office space. This has slowed development in that sector as developers have found it difficult to raise finance without the more stable cash flows that these long-term leases provide, and tenants were reluctant to spend money on fitting out their space with such limited tenure.
However with the new Investment Law coming closer we understand that the MIC may be further liberalising its policy. The MIC has indicated to us that foreign investors can now seek approval to enter into long-term leases of commercial real estate, such as office buildings, in cases where either the investor, or the building itself, is covered by an MIC permit. The new Investment Law will give an even stronger legal basis for this, which is good news for developers, tenants and property financiers alike.
5. Construction sector update
Further to our August postcard, the Yangon City Development Committee (YCDC) has now completed inspection of 55 buildings and are making preparations to inspect the remaining 130 buildings. Among the buildings inspected, 43 buildings have been given the green light to restart construction and 12 projects will require design changes. The design changes include modifying drainage systems, car park requirements, location of generators and transformers, and also, seeking approval from ministries that own land adjacent to the project.
During the Chief Minister’s address to a VIP audience in London recently, the Chief Minister discussed YCDC’s review of construction projects in Yangon and indicated that as part of the Yangon Regional Government’s (YRG) broader development agenda, the YRG are looking at:
- developing policy and procedures for systemic grant of building permits in Yangon;
- upgrading existing wet markets and exploring whether multi-storied buildings can be built to house such wet markets and car parks;
- upgrading the 29 industrial zones to ensure electricity supply, water supply and proper waste treatment; and
- upgrading bus, train and water taxis along the Yangon River.
Better planning laws and building and environmental standards and more transparent assessment procedures are to be welcomed. Yangon has some fine heritage and other attributes which could make it a great city to live in and visit but an increasing population, poor infrastructure, incomplete regulations and uncertain processes have hampered good urban redevelopment and expansion. Improved regulations and predictable decision making will help to change this.
6. Electricity Sector Update
BLP chaired the recent Power Southeast Asian Conference in Yangon on 6/7 September, where Myanmar’s acute power shortage was discussed extensively. Various electrification solutions were proposed and a recurring theme was the critical need for a coherent policy framework that takes into account sustainability, affordability and security of supply. Renewable solutions, including off-grid projects, featured heavily as a real economically viable alternative to thermal power generation and one that did not require significantly heavy investment into transmission and distribution networks. LNG was also mentioned as a possible interim solution to address this electrification crisis before Myanmar’s offshore reserves come on stream.
This event also coincided with the announcement by the Business Sector Implementation and Development Central Committee, under the Myanmar Oil and Gas Enterprise of the Ministry of Electricity and Energy, that it is seeking private sector participation in the implementation of bulk import and re-gasification of LNG projects. Interested foreign companies may submit a non-binding letter of expression of interest, together with the following documents:
- Article of Association
- Memorandum of Association
- Certificate of Incorporation
- Latest Audited Annual Report; and
- Company's track record in bulk LNG import and/or regasification.
The closing date for submission is 28 October 2016, 4.30 p.m.
7. Public transport reform
As part of the public transport reform to reduce traffic congestion in Yangon, the YRG is planning to consolidate 350 bus lines to around 50. Firms are also being encouraged to set up public-private partnerships (PPPs) to operate these bus lines. Application for the PPP closed on 31 August 2016. The Yangon Transport Authority Group announced that it has received up to 21 applications, but that not all applicants will be considered. Smaller companies that lack funds will be grouped together with larger companies. The YRG hopes the new bus lines will be up and running in November 2016.
Based on the Asian Development Bank’s Myanmar Transport Sector Policy Note published on 26 August 2016, Myanmar needs US$60 billion in transport infrastructure investment over the next 14 years to modernise its roads and rail systems to make them safer and more efficient. We expect that there will be future opportunities for foreign investors to help develop Myanmar’s transport infrastructure.
8. International Gateway Services
On 8 September 2016, the Ministry of Transport and Communication issued the Guidelines on Provision of International Gateway Services (Guidelines). The Guidelines provide a regulatory framework for provision of international telecommunication services through construction and operation of network facilities in Myanmar. An applicant needs to hold an Network Facilities Services (Individual) licence to be eligible to apply under the Guidelines, currently there are approximately 40 telecom companies which hold the necessary licence.
The Guidelines aim to prevent anti-competitive behaviour and require the licensee to allow access and interconnection to other networks. A USD500,000 bank guarantee needs to be issued in favour of the regulator, this can be drawn upon if the licensee does not fulfil its quality of service obligations.
With a number of telecom investors looking at establishing cross border connections by landing subsea cables, laying terrestrial cable and by constructing teleports, we expect there to be a number of applicants for providing International Gateway Services. Having among the highest bandwidth costs in the region, adding competition into the market will bring down prices and increase network resilience.
9. Myanmar Centre for Responsible Business publishes third transparency report
The Myanmar Centre for Responsible Business (MCRB) recently published its third Transparency in Myanmar Enterprises (TiME)/Pwint Thit Sa report.
To promote greater business transparency, the report reviewed 100 of the biggest Myanmar companies’ websites and graded them on what they disclose about their corporate governance and business practices. The results show that that the top performers in 2015 continue to be the most transparent, increasing the amount of publicly available information and including new areas of disclosure in financial data, grievance mechanisms, and environmental and social impact assessments. However, 34 of the 100 companies surveyed still had no website, and 45 of the 100 companies either did not have fully operating websites or provided little to no disclosure.
MCRB director Ms. Vicky Bowman hopes that the existing authorities like the Yangon Stock Exchange and incoming legislation under the new Myanmar Companies Act will further encourage greater transparency.
10. Report on Euro-money Conference
The 5th Annual Euromoney Myanmar Global Investment Forum was held on 14-15 September 2016 with over 1300 delegates participating, including a number of new parliamentarians alongside foreign and Myanmar business leaders. U Kyaw Win, Minister of Planning and Finance opened the conference and indicated that both politically and economically, he believed that 2016 will be a “transformative year for Myanmar”. Other Ministers and senior Government officials spoke and developments (and challenges) across many sectors were discussed, including energy, infrastructure, finance, agriculture and real estate.
A recurrent theme was the need for the Government to both communicate and act on its economic reform agenda to help stimulate investment. Investors were generally positive about opportunities in Myanmar following the success of the elections last year, and noted that finance was available to drive these, supported by strong commitments from multi-lateral agencies such as the World Bank and Asian Development Bank and other development partners. However many observed that swift action on the regulatory framework (and capacity building to ensure full implementation of those reforms) was needed to bring more bankable projects to market. The need for large scale investment in critical infrastructure, improved conditions for financing and skills development were emphasised.