Insight Into New Investment Opportunities in Myanmar and the Myanmar-EU Investment Protection Agreement
On the horizon, there are potentially exciting new opportunities for foreign investors in Myanmar as there has been a push to develop investment in its labour-intensive industries. Additionally, European investors may see new and more secured doors open as negotiations are underway on the Myanmar-European Union Investment Protection Agreement. However, with its fast growth there are those who question whether Myanmar’s legal and judicial infrastructure is prepared for the heavier intake of foreign investment. We had a chance to speak with Rory Lang from Duane Morris & Selvam (Myanmar) Limited about these new developments and issues, and here is what he had to say.
Conventus Law: A new proposal (the “Proposal”) by the Directorate of Investment and Company Administration (“DICA”) and the Myanmar Investment Commission (“MIC”) aims to prioritise labour-intensive industries, agricultural industries and other infrastructural projects for foreign direct investment. Up until now, the oil and gas sector has benefited the most from foreign investment. How will the Proposal by the DICA incentivize foreign companies to invest in the areas prioritised in the Proposal?
Duane Morris & Selvam LLP: First, just to give you some background on this Proposal and how it came about. There is no one single new Proposal per say, instead DICA and the MIC have recently implemented a series of new internal working policies and Notification 26/2016 (“Notification 26”).
Background on the Proposal
This all started in March 2016 with the MIC publication of Notification 26 on prohibited and restricted activities for foreign investment which repeals (cancels) Notification 49/2014 (the old regulation dealing with restricted activities). Notification 26 provides changes to the old regulation. Foreign investors in specific sectors no longer requiring a joint venture with Myanmar citizens for: production and distribution of hybrid seeds; production and propagation of high-yield seeds and local seeds; manufacturing of rubber and rubber products; and ecotourism. Now, these can all be 100% foreign-owned, without any Myanmar citizen equity participation. Notification 26 also allows the MIC broader discretion to prohibit or allow foreign ownership of companies conducting economic activities which the MIC considers should require ministry approval.
A new policy has been set by the MIC and DICA promoting beneficial cooperation between the public and private sectors for projects that will benefit Myanmar’s development. This policy supports land and capital investments opportunities which will allow foreign investors to prioritize infrastructure and agriculture projects in the areas of: transportation, energy, manufacturing, power generation, mining and oil and gas.
Prioritising Labour Intensive Industries
New internal working policies and Notification 26 coupled together aim to attract foreign direct investment into Myanmar by prioritising labour intensive industries such as: agriculture; and infrastructure projects. The Myanmar Government is also hoping to increase investment in farming, grain purification, agricultural equipment manufacturing and finished products manufacturing.
These changes seek to address the 2016 fall in foreign direct investment which has been largely attributed to investor uncertainty during the first free and general election in Myanmar in over fifty years. Foreign direct investment into Myanmar this fiscal year is estimated to be worth US $2 billion less than in the same period last year. The Myanmar Government is inviting foreign companies to make investment in areas where employment will be created for Myanmar citizens. This is a win-win situation for both the foreign investor and the Myanmar Government. The foreign investor can develop its business, while jobs are created for the Myanmar public.
Incentivising Foreign Investment
DICA and the MIC can assist and incentivize more foreign companies to invest by making investment into Myanmar easier. For example, it presently takes the MIC at least six months depending on the size of the project to grant a foreign investor an investment permit (MIC Permit), which allows the investor to get its project underway and: enter into a long term lease; obtain tax holidays; customs duty relief and exemption on imported machines and other equipment used during the period of construction of the business. The MIC Permit application process involves submission of a lengthy MIC proposal dossier; scrutiny by the MIC proposal dossier and numerous follow up meetings. Making it easier for foreign investors would entail the MIC cutting back on the red tape and streamlining approval processes so it is more efficient.
CL: Are the incentives realistically sufficient or is more needed?
DMS: More incentives are not particularly needed. However, there could be improved industry specific reforms for the agricultural, infrastructure and oil and gas sectors. For example, these three sectors could all benefit from the ability to freely import/export their equipment, machinery and produce to assist their projects. For instance, certain business sectors, such as agriculture and import/export activities are considered “trading” under Myanmar law and the problem is that this is only reserved for local companies.
CL: Is Myanmar’s legal and judicial infrastructure prepared for a heavier intake of foreign investment? More specifically, is the law developed enough to put investors on notice of their legal obligations; are regulators able to monitor and prevent abuse by foreign investors; and is the country capable of redressing grievances brought by foreign investors?
DMS: The legal and judicial infrastructure in Myanmar is at a stage where it can cater for a heavier intake of foreign investment. I wouldn’t say Myanmar is putting the cart before the horse so to speak.
Like Singapore and Australia, Myanmar’s legal system is originally based on English common law. Myanmar legislation includes thirteen volumes of codified laws enacted between 1841 to 1954, known as the Burma Code, in addition to numerous special laws, notifications, rules and regulations enacted from time to time. However, what distinguishes the Myanmar legal system is that it is a combination of colonial era English common law, traditional Myanmar customary law and modern Myanmar legislation. The result is a collection of rules and regulations that often overlap and, at times, offer contradictory or inadequate guidance. Which can be a sense of frustration for investors and lawyers on the-ground. As the country reforms, so does its legal system. In the month of January 2016, an astonishing twenty new laws were passed.
The Myanmar Contract Act 1872 is certainly capable of putting investors on notice and has similar contractual principles that exist in developed legal jurisdictions. Most vitiating factors at English common law generally apply allowing termination of a contract in Myanmar. Grounds stipulating the right to terminate a contract will usually and should be set out expressly in the termination clause in the contract.
Preventing Abuses by Foreign Investors
In relation to preventing abuse by foreign investors, the President’s Office has issued a new set of guidelines (the “Guidelines”) for the acceptance of gifts to Myanmar’s public servants. The Guidelines have been introduced to provide clarity for dealing with Myanmar civil servants on when the giving of, or receipt of a gift is permissible or is in fact bribery. The Guidelines are an extension of Myanmar’s Anti-Corruption Law, passed by the Pyidaungsu Hluttaw (Myanmar’s Parliament) in August 2013. The intention of the Anti-Corruption Law is to “eradicate bribery as a national cause.” The Anti-Corruption Law provides a framework for a Presidential Commission to investigate cases of bribery, and to examine the assets of public officials on its own initiative.
The literal text of the Guidelines forbids public officials from accepting any gift from a person or organisation which has been offered or given to the public official on account of their official position. The Guidelines prescribe commentary on particular situations where it is forbidden to accept gifts. Such situations include where the gift giver is: demanding a benefit from which the public servant has authority; doing business with an agency under the supervision of the official; from a person or company which has benefited from an act which the civil servant has the responsibility for; and where a person or organisation has benefited from not doing an act which the public official has responsibility over.
Civil servants have also been instructed not to demand gifts and are obligated to inform their respective superior officers immediately about the offer of any gift, whether it is accepted or rejected. However, there is some notable exceptions where the value of the individual gift is less than 25,000 MMK (multiple gifts from the same individual or organization cannot exceed 100,000 MMK per year); gifts given on account of a familial or personal relationship; and where gifts have a value not exceeding 100,000 MMK given on special occasions such as Christmas or Thadingyut.
Ability to Redress Grievances by Foreign Investors
Myanmar is capable of redressing grievances brought by foreign investors, however, I would advocate offshore arbitration in Singapore in favor of litigation in Myanmar.
The Union Judiciary Law 2010 prescribes the structure and operating guidelines for Myanmar’s court system. The hierarchy of courts is the Supreme Court at the top, followed by the High Courts of the Regions and States, the District Courts and Courts of Self-Administered Divisions and Zones, and at the bottom, the Township Courts and other courts specially constituted by law. The Supreme Court holds jurisdiction of cases involving treaties, regional disputes, piracy and other matters as determined by law, while a separate Constitutional Tribunal is responsible for constitutional disputes and vetting laws passed by Parliament.
On 5 January 2016, the Myanmar Union Parliament adopted a new Arbitration Law (Union Law No. 5/2016) (the 2016 Arbitration Act). This provides a domestic legal framework to fully implement and comply with the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards of 1958 (the New York Convention), which Myanmar signed and ratified in 2013. Under the New York Convention, arbitral awards issued in a country party to the New York Convention should be automatically recognized and enforceable in other countries that have signed the same, subject to certain, limited defences.
The 2016 Arbitration Act, which is perceived as a positive step toward encouraging foreign investment in Myanmar, will replace Myanmar’s Arbitration Act of 1944, which laid out a framework for domestic arbitration but not international arbitration. Despite the passage of the 2016 Arbitration Act, however, additional steps still need to occur for a smooth enforcement of international arbitration awards, such as Myanmar courts updating and/or introducing new rules and procedures and training judges about the process of enforcing such awards.
CL: Once the Myanmar-European Union Investment Protection Agreement (“Agreement”) is signed, it is predicted that Myanmar will see a significant uptick in investment from European Union countries in the coming years.
What are some of the key guarantees in the Agreement that will attract more investment, and how reliable are the assurances made under these guarantees? Further, why does this agreement make a difference for EU investors?
DMS: My understanding is that the Myanmar-European Union Investment Protection Agreement (“Agreement”) is aimed at improving the protection and fair treatment of investors and attracting investments into Myanmar and the EU. DICA has already predicted that the Agreement will attract increased foreign direct investment which will in turn create jobs for Myanmar citizens. Personally, I think it is hard to predict whether the Agreement will see an uptick in investment from EU countries in the coming years, however, historically, EU investors are generally more risk adverse, so this may be the case.
The Agreement is predicted to boost EU investor confidence in Myanmar, which is important considering the UK is the fourth-largest source of approved investment into Myanmar since 1988, with a total of $3.4 billion, or 7% of the total, according to DICA figures. The next two largest investors are the Netherlands in eighth spot with $747 million, and France in eleventh with $537 million.
The Agreement is not publicly available at present considering that it still under negotiation and is expected to be signed in June 2016, so I can’t go into too much detail on the guarantees or how reliable the assurances made under these guarantees are. What I can tell you is there are a broad number of points contained in the agreement, which currently spans seven chapters and the Agreement will:
1. set up a legally binding level of protection for private investment in Myanmar and all 28 EU member states (as there is no single member with an existing investor protection agreement with Myanmar);
2. protects Myanmar investors who wish to enter the European markets;
3. offers EU investors key guarantees in their relationship with Myanmar;
4. provide guarantees to companies that their investments will be treated fairly and on an equal footing to other investors;
5. creates legal certainty and predictability for companies and helps to attract and maintain foreign direct investment to underpin Myanmar’s development.
It is hard to predict how reliable the assurances made under these guarantees will be until negotiations are complete and public version of the Agreement is circulated.
There are presently reservations that these guarantees will be met in Myanmar. Already 518 civil society organizations and 53 organizations from Lands in Our Hand network and various other civil society organizations expressed their concerns about investment protection about the Agreement in a letter dated 14 January 2016 to the EU Commissioner for Trade. The civil society organisations have argued that:
1. Myanmar is still at its very early stages of political reform and democratisation and introducing the Agreement at this stage will: “severely endanger [Myanmar’s] prospects for democracy and sustainable peace;”
2. The question of whether Myanmar wants the Agreement is still largely unanswered;
3. Myanmar needs to learn from other countries that are revisiting their Investment Protection Agreements because these have proven to hinder national development goals, as in the case of Indonesia where a new mining law that would generate more revenue for the State and generate more jobs was challenged several times by foreign investors, claiming up to billions in compensation out of the public budget.
For further information, please contact:
Rory Lang, Duane Morris & Selvam