Summary: Welcome to the first edition of BLP's monthly Myanmar update in 2017. We have distilled the top news items into this first summary 'speed read' of the year.

1.Update: Myanmar Investment Rules

Further to our update in our November/December 2016 postcard, the draft Myanmar Investment Rules have been released and the Directorate of Investment and Company Administration (DICA) conducted the first public consultation to collect feedback. BLP is supporting the government in this drafting process.

Chris Hughes, Managing Partner of BLP’s Yangon office recently presented on the current draft rules at a public consultation meeting. Topics of particular interest included:

  • The broader coverage of the law and how it will regulate foreign investments in strategic and restricted areas;
  • the criteria in determining which projects need prior approval from the Myanmar Investment Commission and which investments will be eligible to apply for tax and other investment incentives;
  • the creation of investor support and grievance handling units and what the role of such bodies will be;
  • the role role of State and Regional Governments in the investment approval process; and
  • the measures being put in place to enhance transparency and responsible business conduct.

The consultation was held at the Union of Myanmar Federation of Chambers of Commerce and Industry as was well attended by members from civil society groups and the business community and included a lengthy 1.5 hour Q&A session.

U Aung Naing Oo, the Director General of DICA gave an update on the Government processes which are occurring in parallel and indicated that the list of business activities which are eligible for tax incentives is expected to be released in the next few weeks and that the list of geographical zones in the country which determine the length of the income tax holiday is also close to being finalised.

View a copy of Tranche 2.

2.Update: Myanmar Companies Law

The new Myanmar Companies Law was approved at a Cabinet meeting on 5 January and has been submitted to the Pyithu Hluttaw for final approval, according to DICA Director General, U Aung Naing Oo. The new Myanmar Companies Law was also published in The Mirror Daily on 14 January 2017.

When the new Myanmar Companies Law is finally approved and in force, the opportunities available in Myanmar for investment activities by foreign entities will increase significantly which is a welcome development. Foreign investors will be permitted to hold shares in Myanmar companies and companies with foreign ownership will no longer be automatically subjected to different treatment. The changes will also enable foreign investors to purchase shares on the Yangon Stock Exchange (YSX), which in turn is expected to aid the development of the YSX as a trading platform by opening it up to more institutional investors.

As mentioned in our November/December 2016 postcard, members of the BLP team were engaged to undertake the drafting of the new Myanmar Companies Law and lead the consultation process. See our review of the Myanmar Companies Law and how it may affect your company.

3.Publication of draft Law Concerning Foreigners

The draft Law Concerning Foreigners was published in local newspaper The Mirror Daily on 3 December 2016. It will, if enacted, repeal the Foreigners Act 1864, the Registration of Foreigners Act 1940, the Registration of Foreigners (Extension) Act 1949 and the Foreigners (Extension) Act 1949. The law includes provisions which govern, amongst others, Foreigner Registration Certificate requirements, as well as obligations of foreigners and landlords providing accommodation to foreigners. The current requirement for foreigners staying in Myanmar for 90 consecutive days to apply for a Foreigner Registration Certificate will continue to apply under the new law. In addition, landlords providing private accommodation to foreigners are required to provide the relevant registrar with personal, passport and travel details of the foreigner.

While the draft Law Concerning Foreigners will not be applicable to certain foreign government officials or individuals related to multilateral organisations (such as foreign diplomats, embassy staff and certain individuals related to the United Nations), it will affect a considerable number of foreigners who fall outside these exempted classes. The draft laws have provoked some nervousness among the business communities about increasing the restrictions on foreign staff and representations to amend some of the more burdensome elements of the proposed laws are being made. Critics of the laws consider that this stage of its development it is to Myanmar’s advantage to attract more skilled foreign labour into the country and to adopt a more open approach. We will monitor and report on developments as the laws go through Parliament.

4.Yangon's new development master plan 2040

The Japan International Cooperation Agency (JICA) first drafted a 2040 master plan for Yangon’s development in 2012. In order to address changing conditions in Yangon, JICA began amending the master plan last year and completed the update at the end of 2016 before submitting its summary report to the Yangon Government.

The updated master plan includes proposed interim measures to be adopted by each of 2020, 2025 and 2035, with 41 projects recommended by JICA to be given priority and commenced in the short term by 2020. JICA has also expressed willingness to support these priority plans which relate to strategic urban development and which are subject to reviews and updates to be conducted every 5 years.

To address the worsening traffic conditions which have been noticeable since JICA’s original 2012 master plan, 96 projects and “nine strategic actions” have been proposed for urban transport development by the master plan. The Yangon Region government has already adopted a JICA suggestion in its implementation of the modern bus system called BRT Lite. Through public-private partnerships, the Yangon Region Transport Authority (YRTA) is expanding this system to new routes. JICA’s updated master plan was also supported by the YRTA and the Yangon City Development Committee.

The regional minister of electricity, industry and transportation, Daw Nilar Kyaw, commented that the Yangon Region government needs to consider suggestions contained in plans for the city’s development being prepared by other agencies before deciding which of JICA’s proposals to adopt. The regional government is also in talks with KOICA, France’s Agence Française de Développement and the UK’s Department for International Development on various projects that may be integrated into a single Yangon 2040 master plan. Coordination of these various initiatives is welcome and will hopefully lead to more effective implementation and use of partner resources.

5.Lifting of restrictions imposed on joint-venture trading companies

As part of its gradual easing of restrictions on trading in recent years, the Ministry of Commerce has removed limits on the amount of funds that foreign-local joint-venture trading companies can use in their operations.

Prior to the removal of such limits, such joint-venture trading companies would be required to declare to the CBM the amount of monies they intended to remit into Myanmar in respect of their business. This amount would then be used by the Ministry of Commerce to determine the limit to be imposed on the joint-venture trading company’s trading volume.

It is envisaged that the abolition of the limits by the Ministry of Commerce will improve trade and facilitate the operations of joint-venture trading companies involving foreign partners in Myanmar.

Previous relaxations of restrictions on trading by the Ministry of Commerce include the lifting of restrictions on the importation of various classes of goods and commodities, such as certain agricultural products, hospital equipment and construction materials.

6.Mining Rules to be presented to government

The government is to review the recently drafted Mining Rules by the end of January 2017, according to officials from the Department of Mines. This new set of rules will supplement the 1994 Mining Law which was amended by President U Thein Sein’s administration in 2015.

The 2015 amendments included changes to the way in which profits are apportioned between the government and mining companies, as well as the introduction of a more sophisticated mining permit system. They also permitted foreign investment through joint ventures with local companies.

The purpose of the Mining Rules is to add an extra layer of detail and to address any uncertainty arising out of the amendments made in 2015, such as regulating the social and environmental impact of mining activities. When the Mining Rules come into operation, foreign investors involved in mining will need to be mindful of the further clarified requirements and practices with which their mining operations will need to comply in future years.

7.Myanmar awards fourth telecoms licence

On 12 January 2017, a joint venture between the military-run Viettel (Vietnam) and two Myanmar companies was granted the 4th and final telecoms licence in Myanmar. The joint venture will be called Myanmar National Tele & Communications Co. Ltd, with 51% owned by two local companies (Star High Public Company (28%) and Myanmar National Telecom Holding Public (23%)) and the remaining 49% by Viettel.

After a protracted selection process, there is widespread hope that this new operator will herald a expansion of telecommunication across rural parts of the country and an expectation that this will have a positive knock-on effect on aspects of the transport, healthcare and education sectors. The joint venture represents a second Myanmar-majority telecoms operator active in the market.

The combination of companies is particularly intriguing given the military control of both the Vietnamese party and Star High Public Company.

8.Yangon Stock Exchange (YSX) update

First Private Bank (FPB) has become the fourth company to list on the Yangon Stock Exchange (YSX). FPB becomes part of a small but growing group of companies to trade on the YSX along with First Myanmar Investment, Myanmar Citizens Bank and Myanmar Thilawa SEZ Holdings Public Limited.

FPB had to satisfy certain requirements before listing, such as disclosing several years’ worth of financial results and setting out its plans for the coming years.

The bank’s management has raised concerns that its listed status could attract “speculators and illegal black money”, matters over which it previously had control as a private company. As a listed company, it will no longer be able to carry out background checks on potential shareholders.

FPB lays claim to having the oldest banking licence in Myanmar, stretching back to 1992. Since that date it has established 32 branches across the country and in the disclosures made ahead of listing on the YSX, has outlined plans to expand further this year with a particular focus on smaller towns to enable wider access to financial services.

9.Central Bank issues reminder on the use of Kyat

On 3 January 2017, the Central Bank of Myanmar (CBM) reissued an instruction, first issued in May 2015, that Myanmar’s official local currency - the Kyat - should be used in all local transactions. The CBM’s notice stated that the use of foreign currency for payment/receipt for goods and services within Myanmar results in increased dollar demand, which causes destabilisation of the foreign exchange rate. The CBM also confirmed that there should be no discrimination between different sectors and that use of the Kyat should be applied across the whole economy. A quote carried by the Myanmar Times from an anonymous senior official in the foreign exchange management department suggested that the instruction had not been widely heeded when initially released, necessitating the further reminder this month.

CBM regulations require Myanmar importers engaged in international transactions to present the relevant amount of Kyat to a local bank which will then make the purchase of the foreign currency on their behalf. Such importers should not be purchasing foreign currencies themselves to enable payments. However, due to a US dollar shortage (which remains the most common currency for international transactions in Myanmar), lenders are currently unable to meet the demand for such services. The CBM’s daily auctions of dollars are also insufficient to meet the demands as the economy is heavily reliant on imports across various sectors. The CBM is aware that such circumstances force many importers to seek dollars through informal means which exacerbates the problem. The situation has contributed to the volatile foreign exchange rate - the CBM’s official reference rate moved more than 5% in less than 3 weeks in December 2016, reaching a record high of K1330 to US $1 on 13 December – and it appears that, beyond the re-issue of the instruction, further regulation or instructions will be required to properly tackle the increased dollar demand issue.

The Union of Myanmar Federation of Chamber of Commerce and Industry (UMFCCI) also sent its recommendations to minimise the fluctuation-driven impacts to the government at the end of last month. These recommendations include the following five core areas: strengthening monetary policy, attracting more foreign income, improving Kyat demand, recommendations for trading, and long-term processes.

10.Central Bank to crack down on illegal foreign accounts

The CBM issued an instruction requiring details of all overseas foreign currency accounts (including the account balance) belonging to “board of directors, advisors and officials related to” commercial lenders to be disclosed to it by 15 December 2016. The regulator’s directive also required banks to notify their customers that any foreign bank account must be reported to the CBM. The CBM’s particular focus appears to be foreign bank accounts opened prior to such accounts becoming legal under the 2012 Foreign Exchange Management Law

However, while most commercial lenders are willing to comply with the directive, doubts about effective compliance being achievable have been raised with some banks suggesting that – absent full disclosure by the relevant account holder - compliance would be impossible on the basis that the banks would be unable to determine with certainty, which of its officers held accounts at other Myanmar or foreign banks.

This directive comes amidst criticism of the CBM for failing to control the rapid rise in the US dollar exchange rate. The weak flow of export earnings into Myanmar remains a factor behind the rise in exchange rate to the detriment of the Kyat and the authorities have been urged to monitor the repatriation and retention of foreign exchange earnings in the Myanmar banking system.