The process of opening up and liberalizing an economy is never an easy thing. It’s especially hard for Myanmar, a Southeast Asian country which has been closed off from the world until recently. While a stronger rule of law seems to form as the years go by, those looking to buy property or stocks should do extensive due diligence before investing in Myanmar.
There are three key areas where the government has big plans for change. They are the financial incentives for foreign investors, the Myanmar-EU Investment Protection Agreement, and a new stock exchange.
Myanmar is Reducing its Incentives for Investors
Foreign investment is one of the biggest driving forces in shaping up Myanmar’s economy. In order to attract more investment, the government has taken specific sets of measures to improve the investment environment by updating its legal structure and investment law, as well as modernizing its infrastructure.
In particular, with regards to investment, the country has combined two of its investment laws – the Foreign Investment Law and Myanmar Citizens Investment Law.
Investment into the country has been steadily increasing with the majority of the FDI flowing into Myanmar focusing on its natural resources, particularly the hydropower, natural gas, and mining sectors. With actual investment surpassing expectations of the government, it is now concerned that the current incentives being offered has been “excessive”.
Additionally, the government is apprehensive that these attractive incentives could be taken advantage of by “irresponsible” investors. With these things in mind, it is widely expected that, before the year end, the degree of incentives will be greatly reduced.
One of the incentives that are expected to be removed is the tax relief provided to certain imported automobiles, which has immensely brought down the price of vehicles in the country. Also, the government will require an inspection from a non-governmental organization for any duty-free materials brought into the country.
Myanmar-EU Investment Protection Agreement
A legally binding level of protection for private investment in Myanmar and all 28 EU members is nearly complete.
The Myanmar-EU Investment Protection Agreement is expected to be finished by early 2016. Many tough negotiations took place before this point. Early February 2015 year saw the first round of negotiations, with the second round promptly happening in May. The final round is tentatively scheduled for December.
According to U Aung Naing Oo, the director general of Myanmar’s Directorate of Investment and Company Adminstration, the agreement will attract firms with quality ethics that will create jobs, increase exports, and transfer technology and knowledge to the local population. He believes that most of the EU firms are actually perfect matches with the local criteria and that the agreement will go further by also protecting investors from Myanmar who wish to enter the EU market.
The EU currently has a trade surplus with Myanmar. In 2014, net exports from EU were around 494 million euros worth of goods to Myanmar, while only importing 392 million euros worth.
Further analysis into which of the EU countries are the biggest investors into Myanmar reveals that it is the UK leading the race with a large gap from its next competitors, the Netherlands and France.
Stock Exchange to Help Foreigners Investing in Myanmar
In an effort to catch up to its more prosperous neighbors in terms of financial sector development, Myanmar will be seeking to open its very first bourse in December 2015.
The Yangon Stock Exchange (YSX) is currently in its development stages with two Japanese firms, the Daiwa Institute of Research Ltd, which holds a 30.25% stake, and the Japan Exchange Group, with an 18.75% stake. One of the results from this opening was the banning of all over-the-counter [OTC] markets.
The YSX will also be commercially taxed.
However, it’s possible that the tax on transactions could be removed, and a wide range of financial incentives to encourage investment be implemented.
According to the finance ministry, transactions on the YSX will not involve any direct cash transactions – all transactions will be processed via Kanbawza Bank. There will be some security measures put into place as well. For example, any transactions higher than 100 million Kyat (~US$78,000) will obligate the banks involved to inform the financial crime unit and the Central Bank of Myanmar’s anti-money laundering program.
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