On 31 January 2013, the Ministry of National Planning and Economic Development of the Union of Myanmar ("Myanmar") issued Notification Number 11/2013 (the "FIL Rules") providing further clarity to the implementation and scope of Foreign Investment Law No. 21/2012 (the "Foreign Investment Law") which was approved by President Thein Sein in November last year (please refer to our e-bulletin here).
The FIL Rules, which were brought into force within the ninety-day period required by paragraph 56(a) of the Foreign Investment Law, have to date only been issued in the Myanmar language. Stretching to 181 paragraphs across 22 chapters and including 4 schedules, the FIL Rules put more flesh on the bones of the Foreign Investment Law which has been criticised by several commentators for lacking detail and precision.
Inter-play between the FIL Rules and the Foreign Investment Law
The FIL Rules mirror some of the provisions already stated in the Foreign Investment Law - confirming for instance that the Myanmar Investment Commission (the "MIC") (at the appointment of the Union Government) is the body which interprets and oversees the implementation of the Foreign Investment Law and the FIL Rules.
The FIL Rules also repeat the terms of the Foreign Investment Law which provide under paragraphs 9(a) to (c) that, unless prohibited or restricted, foreign investment may be made through either: (i) a 100% foreign-owned entity; (ii) a joint venture ("JV") with a Myanmar citizen or entity, at an ownership ratio to be decided between the parties; or (iii) any "system contained in a contract… approved by both parties".
The FIL Rules and the MIC Notification (more details of which are found below) now elaborate on those business activities in respect of which foreign investment will be: (i) prohibited; (ii) only permitted to be carried out through a JV with a Myanmar citizen or entity; or (iii) only permitted to be carried out subject to specific conditions.
However, from what we understand, the descriptions of these prohibited and restricted businesses are relatively general, which means that a degree of uncertainty will remain. Whether a specific business activity will be prohibited or restricted under the Foreign Investment Law will ultimately be a decision made at the discretion of the MIC, in consultation with relevant Union Government Ministries. Separately, the restrictions on investors in sectors prescribed by the State-Owned Economic Enterprises Law of 1989 will continue to apply for now.
The MIC notification
Whilst the 4 schedules to the FIL Rules set out specific activities in manufacturing and services, agriculture, live-stock breeding and sea-fisheries (amongst other things) which are reserved exclusively for Myanmar citizens and entities (ie. prohibited), the MIC also issued a separate notification on 31 January 2013 pursuant to paragraph 56(b) of the Foreign Investment Law (and so far only available in the Myanmar language and on the website of the Directorate of Investment and Company Administration (the "DICA") at http://www.dica.gov.mm/) which provides further detail as to the specific activities which may fall within each of the three categories of prohibited and restricted businesses mentioned above (the "MIC Notification").
In addition to the 4 schedules to the FIL Rules, we understand that the MIC Notification includes a list of prohibited businesses which covers a number of specific activities and substances which are damaging to the environment along with any activities, including in the: (i) defence sector; (ii) administration of electricity systems or trading of electricity; (iii) conducting of small to medium scale mineral production; (iv) mining of gemstones or metallic minerals; and (v) publishing or media sector.
The FIL Rules now include a foreign ownership limit of 80% in respect of restricted businesses carried out through a JV with a Myanmar citizen or entity - a higher percentage than previously expected.
The MIC Notification identifies restricted businesses as including: (i) the production of common agricultural crops or seeds; (ii) the manufacture and marketing of most food products, any kind of spirits or beer, drinking water, plastics, rubber, leather, paper, certain chemical products and raw materials for medicines and pharmaceuticals; (iii) infrastructure development; (iv) construction; (v) the large-scale exploitation and the production of non-metallic minerals; (vi) the development, sale and rental of residential or office buildings; and (vii) the ownership of private, specialist or traditional medicine hospitals.
A third category of investment activity in the MIC Notification is generally grouped by sector and is subject to conditions imposed by the relevant Union Government Ministries, including the Ministries of Agriculture and Irrigation, Livestock and Fisheries, Environmental Conservation and Forestry, Mines, Industry, Electric Power, Energy, Telecommunications and Information Technology, Health, Construction, Hotels and Tourism and Information. The activities in this category substantially overlap with the restricted businesses mentioned above. In practice, we understand that relevant conditionality may include minimum export provisions and requirements (amongst other things) as regards the employment of local workforce and the use of locally sourced raw materials.
Environmental/social impact assessments
In addition, specific investment activities are now identified in the MIC Notification which will require environmental and social impact assessments ("EIAs" and "SIAs") to be conducted prior to the assessment of each relevant business proposal by the MIC. These will be required in a number of different sectors where the activity may have an impact on the environment. No further detail has yet been provided regarding the content or procedure for conducting the EIAs and SIAs.
Additional procedural details
The FIL Rules set out a number of other details that will be relevant to foreign investment activity (some of which codifies current established practice by the MIC and the DICA). These include provisions relating to (amongst other things):
- The timing of company registration and/or incorporation at the DICA.
- The application and review process for business proposals carried out by the MIC and the establishment of a proposal review group and an inter-department co-ordinating team from within the DICA to assist the MIC with its duties.
- The issuance of the MIC Permit and continuing obligations of foreign investors as regards liaising with the MIC.
- Timeframes and milestones for initiating and completing projects approved by the MIC.
- Certain additional information regarding the usage of foreign currency.
- Dispute resolution, albeit these remain vaguely drafted at the moment.
The way ahead
The issuance of the FIL Rules and the MIC Notification should provide further clarity to Myanmar's broad regulatory framework for foreign investment and may ease some concerns about Myanmar held by overseas investors. The role of the MIC in assessing business proposals and settling conditions to investment should not be under-stated and whilst the combination of the Foreign Investment Law, the FIL Rules and the MIC Notification provides a degree of cohesion to Myanmar's foreign investment regime, early co-ordination with the MIC will be imperative to any would-be investor.
Of course, with certain US sanctions still being in force, and no guarantee that EU and UK sanctions will continue to be suspended after April 2013, investors would do well to continue to exercise caution and take appropriate legal advice when assessing their options in Myanmar. In particular, the legal and judicial procedures for enforcing contracts and protecting rights remain complex and uncertain. Careful investment structuring continues to be of paramount importance.