Trade & Investment

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From The Report: Myanmar 2017

Although Myanmar remains in trade deficit, its trade balance has been improving in recent months. The
trade deficit stood at $1.11bn in the first quarter of 2015 and fell to $945.7m in the same period of 2016,
highlighting the impact rising exports are having on trade growth, and painting a brighter picture for long-
term trade trends.

This chapter contains interviews with Le Luong Minh, ASEAN Secretary- General; Cecilia Malmstrm,
European Commissioner for Trade; Vivek Pathak, Director for East Asia and the Pacific, International
Finance Corporation; U Thura Ko Ko, Managing Director, YGA Capital and Local Representative, Texas
Pacific Group; and Peter Beynon, Chairman, British Chamber of Commerce Myanmar.

http://www.oxfordbusinessgroup.com/overview/making-progress-renewed-focus-leading-major-
improvements-trade

Myanmar renews focus on trade

In recent years trade and investment in Myanmar have soared, buoyed by ongoing efforts to liberalise the
economy and a successful political transition in November 2015 that saw the National League for
Democracy (NLD) become the countrys first civilian-led government elected to power in modern
history. Political reforms have brought significant economic benefits, as the US government moved to lift
burdensome sanctions that had weighed on investor sentiment and trade growth.

With the administration now moving to implement a host of domestic reforms, loosen internal trade
restrictions and draft a new investment law, growth is expected to resume apace following a slowdown
during the election year. Although port congestion and undeveloped road networks continue to pose
problems, plans to channel billions of dollars into new infrastructure are already paying off, bolstered by
the development of new special economic zones (SEZs), which should ensure the country remains on an
upwards trajectory in 2017.

Government Oversight

Oversight of trade and investment in Myanmar spans a broad range of government ministries and
departments, but responsibility for policy is largely concentrated in the Ministry of National Planning and
Economic Development, which manages the countrys primary investment promotion agency, the
Directorate of Investment and Company Administration (DICA), and the Ministry of Commerce (MoC).
The MoC, which also oversees the Department of Trade, supports the national transformation into a
market-oriented economy by encouraging private sector participation, expanding international trade and
setting policy for foreign companies operating in the country.

Meanwhile, the Myanmar Investment Commission (MIC), a government body formed in the early 1990s,
is responsible for approving major local and foreign investments. In June 2016 the Presidents Office
announced it had re-formed the MIC, after dissolving the previous body in March 2016. The new
commission will be chaired by U Kyaw Win, minister of planning and finance, while U Than Myint,
minister of commerce, was named its vice-president. U Aung Naing Oo, who served as MIC secretary
under the previous government, has retained his position. The move was welcomed by investors, who had
been waiting 10 weeks for project approval, with the MIC reporting that 100 proposals, largely within the
garment and fishery products manufacturing segments, had been submitted between April and June of
2016.

Legal Framework

Foreign investment procedures and regulations are largely encapsulated in three pieces of legislation: the
Myanmar Investment Law (MIL) 2016, which replaced the 2012 Foreign Investment Law (FIL), the
Myanmar Citizen Investment Law (2013) and the SEZ Law, which was promulgated in 2014. Foreign
investment can take the form of 100% foreign-owned investment companies, joint ventures (JVs) and
public-private JV contracts with the Myanmar government, which have been a popular model for
infrastructure and real estate projects. The government has also set percentage caps on investments in
certain areas.

These restricted areas include: businesses using hazardous chemicals, or activities that may affect public
health or cause environmental damage; and any activity which could significantly affect the national
economy, social interest or security. Parliamentary approval is required before permits are granted.
Foreign investment caps in a JV with a local company or citizen range between 50% and 80% of total
equity in a number of restricted sectors, including infrastructure, construction, residential and commercial
real estate, and aviation.

Foreign investment is similarly prohibited in the defence and electrical utilities sectors, as well as small-
and medium-scale mining, and Myanmar-language sectors. The tax exemptions will vary by geography,
with media. Foreign nationals are allowed to own property following the January 2016 passage of the
Condominium Law, but only under strict conditions. They are now permitted to purchase up to 40% of a
condominium apartment block, provided the units are on the sixth floor or above (see Real Estate
chapter).

The application process for either a JV or wholly foreign-owned entity is nearly identical, according to
multinational law firm Baker McKenzie. This involves lodging a complete application with the DICA,
which jointly with the recently-established MIC oversees foreign investment in the country. Within
several days, the DICA will issue a temporary certificate of incorporation or registration and a trade
permit after receiving complete documents and activities in terms of capital injection and administrative
functions within three days. Duration of that certificate is six months for foreign companies.

Sez Law

Meanwhile, the SEZ Law outlines investor incentives on offer at three SEZs operating in Myanmar:
Thilawa, the one that is most developed and is closest to the commercial capital of Yangon; Kyaukpyu in
Rakhine State, which is under development by Chinas CITIC Corporation; and Dawei, which on
completion will become one of the largest industrial parks in South-east Asia (see Industry & Retail
chapter).

Referring to the FIL and SEZ Law (the former of which was repealed in October 2016), Baker McKenzie
noted that while there is some variation between the investment incentives offered under these two
regimes, they are primarily identical. Each of them provides long-term leases, corporate-income-tax
relief, import-duty relief and protection against expropriation. Unlike the FIL, however, the SEZ Law
extends maximum foreign lease limits from 70 years (50 years with two 10-year extensions) to 75 years
(50 years with one 25-year extension), according to international consultancy KPMG. The regulations
governing land leases remain largely unchanged under the MIL, though some alterations to the tax
incentive scheme have been made.

New Investment Law

Signed into law by the president on October 18, 2016, the MIL combines the Myanmar Citizens
Investment Law, which regulates local investment, with the FIL, which is now repealed, and was drafted
in partnership with the International Finance Corporation. Implementing regulations are expected by
April 2017, meaning some delays with licensing may be experienced before that time.

The MIL includes provisions to reduce the number of investment projects that must get a permit from the
MIC by introducing an endorsement procedure for projects that are not considered strategic or capital-
intensive or that do not have a significant impact on the environment or local community. The new law
also introduces strategic tax benefits that are better tailored for specific projects and sectors a departure
from the previous procedure of issuing blanket tax benefits for any MIC project.
Tax exemptions will now vary by geography, with three zones offering tax holidays of seven, five and
three years based on the level of development of the area; the least-developed areas attract the longest
exemptions. Another key change in the MIL is the removal of local employment rules, giving foreign
companies more flexibility in their hiring practices.

In July 2016 U Aung Naing Oo, who is also director-general of the DICA, told local daily Eleven that the
government is also planning to release a new domestic and foreign investment policy, which is expected
to intensify efforts to channel foreign direct investment (FDI) into labour-intensive industries.
Investment Rising

Local and domestic investment has soared in Myanmar in recent years. The Central Statistical
Organisation (CSO) reported that between 1994 and February 2016, 1121 local enterprises with an
investment value of MMK8.05trn ($6.5bn) have been established. Domestic investment has maintained
steady momentum although their total value fell from $1.13bn in FY 2013/14 to $455m in 2014/15
and surged to $1.27bn during the first nine months of 2015/16 (fiscal years start in April). According to
the CSO, the real estate, hotel and tourism, and transport sectors were the most popular for domestic
investment during 2014/15, comprising 38.81%, 16.77% and 13.4% of total annual investment,
respectively. Domestic investment has since risen to 1207 projects worth a combined $7.9bn, dominated
by $2.35bn in manufacturing, $1.65bn in transport and $694.84m in real estate.

FDI inflows have also surged. The DICA reported that approved foreign investments rose from $329.58m
in 2009/10 to just under $20bn in 2010/11, driven by $10.18bn in oil and gas investments. Approved
investments moderated to $4.64bn in 2011/12 and fell to $1.42bn in 2012/13, although they have since
regained momentum, rising to $4.1bn in 2013/14 and nearly doubling to $8.01bn in 2014/15. Singapore
was the leading investor in 2014/15, accounting for 53.64% of total investments, followed by the UK 9%
and Hong Kong with 7.8%. China and Thailand have been the two largest foreign investors in Myanmar
since 1989, according to the CSO.

FDI has continued on an upward trajectory despite the uncertainty that accompanied the election in late
2015, with approved investment hitting $9.48bn during FY 2015/16, its highest level since 2010. This can
be partially attributed to the MICs move to approve 48 projects in March 2016 the final month of the
fiscal year and immediately before the NLD took power compared to an average of 10 project approvals
at any monthly meeting. Between April 1 and August 31, 2016, the total value of approved FDI stood at
$701m, according to the DICA, with the government targeting $8bn of FDI for 2016/17. The DICA
reported that total FDI stood at $64.4bn as of August 2016, led by $22.4bn in oil and gas, $19.68bn in
power and $6.92bn of manufacturing investments.

Trade Growth

Trade volumes in Myanmar have soared over the past decade, with the European Commission (EC)
reporting that total trade rose by 32.8%, 28.1% and 24.5% in 2010, 2011 and 2012, respectively, from
12.37bn to 19.72bn over that period. Trade continued recording double-digit growth in 2013 and 2014,
increasing by 18% and 51.8%, respectively, to reach a total value of 35.32bn in 2014. Import growth has
driven growing trade volumes, as well as an expanding trade deficit, and the EC reported that imports to
Myanmar rose by 47.8%, 31.4% and 34.8% in 2010, 2011 and 2012, respectively, to hit 13.29bn, before
moderating to 16.1%, 19.2% and 20.1% in 2013, 2014 and 2015, respectively.
Export growth, while robust, has been more uneven, with the EC reporting that total annual exports
increased by 14.8%, 23% and 7.5% in 2010, 2011 and 2012, respectively, to total 6.43bn in 2012.
Exports surged in 2013 and 2014, rising by 22% and a whopping 115.7%, respectively, although they fell
by 32.7% in 2015 to end the year at 11.4bn, which the World Bank attributed to agricultural supply
shocks and declining commodity prices, driving total trade volumes down by 5.2% to 33.48bn.

The MoC, meanwhile, reported that total export revenues rose from $8.97bn in 2012/13 to $11.2bn in
2013/14 and $12.52bn in 2014/15, before contracting to $11.14bn in 2015/16. Export revenues stood at
$5.69bn between April and September 2016, according to the ministry. Imports increased for four
consecutive years to 2016, according to MoC data, rising from $9.07bn in 2012/13 to $13.76bn in
2013/14, $16.63bn in 2014/15 and $16.58bn in 2015/16. Total imports stood at $7.44bn during the first
six months of the 2016/17 fiscal year. IMPORT/EXPORT BASE: Myanmars major exports, according to
the CSO, are agricultural products, including rice, matpe beans, maize, green mung beans and sesame
seeds. The country is one of the top global exporters of beans and pulses, exporting more than 1m tonnes
worth $1bn annually. Agricultural processing is one of the catalysts that this country can use to propel
itself into the future, Mark Bedingham, president and CEO of Singapore Myanmar Investco, told OBG.
The sheer variety of environment and potential that the country has in agriculture cannot be ignored, but
to tap this, it must develop value-added processing to its portfolio.

Myanmars main manufactured product exports are natural gas and textiles. Its largest mineral export is
jade, and the country is one of the worlds largest producers of high-quality, sought-after jadeite. Global
Witness, a non-government organisation that focuses on corruption and environmental concerns, reported
in 2015 that the total value of jade mined in Myanmar could be as high as $31bn annually. However, it
added that much of this is lost to smuggling and corruption (see Mining chapter).

Major imports to the country include capital goods such as machinery, transport equipment, base metals,
intermediate goods like refined mineral oil, edible vegetable oil and hydrogenated oil, and consumer
goods. CSO data shows that imports of capital goods rose from $4.02bn in 2012/13 to $6.12bn in 2013/14
and $7.61bn in 2014/15. Intermediate goods also recorded consecutive annual growth, totalling $3.03bn,
$4.4bn and $5.01bn, respectively, over the same period. Consumer goods imports doubled between
2012/13 and 2014/15, rising from $2.02bn to $4.02bn, although they moderated to $2.88bn during the
first 11 months of the 2015/16 fiscal year.

Trade Partners

According to the CSO, China is Myanmars largest trading partner, accounting for 37.3% of its export
market in 2014/15, followed by Thailand (32.2%), Singapore (6.1%), India (6%) and Japan (4.4%). In
Myanmars import market, China comprised a 30.2% share in 2014/15, followed by Singapore (24.9%),
Japan (10.5%), Thailand (10.1%) and Malaysia (4.5%). In terms of total trade, EC data shwo Myanmars
top trade partners in 2015 were China, with 13.6bn, or about 41% of the total, followed by Thailand,
with 6.99bn, or 20.9%, Singapore, with 2.53bn, or 7.6%, and Japan, with 1.77bn, or 5.3%.

Manufactured products comprised the largest portion of exports from Myanmar in 2014/15, according to
the CSO, with a total value of $6.23bn, followed by agricultural products ($2.92bn) and mineral products
($1.47bn). The mix remained largely the same during the first 11 months of the 2015/16 fiscal year, with
manufacturing exports reaching $5bn, around half of the total, followed by agricultural exports ($2.35bn,
or 23.4%) and mineral products ($938.5m, or 9.3%). In addition to growing bilateral ties with the US,
Myanmar is moving to expand regional trade agreements with its Asian neighbours, having already
signed bilateral investment treaties with China, India, Israel, Japan, South Korea, Laos, the Philippines,
Thailand and Vietnam, according to the UN Conference on Trade and Development.

In July 2016, for example, officials in attendance at the seventh Thailand-Myanmar Joint Trade
Commission meeting announced that their governments had targeted boosting bilateral trade to between
$10bn and $12bn in 2017. To support these efforts, the two nations have built five border trade zones,
including Mae Se in Kayah State, which was expected to be completed by the end of 2016. South Korean
trade officials also visited Myanmar in July 2016, announcing plans to strengthen trade with the country
after the Korea Trade-Investment Promotion Agency assisted Myanmar in drawing up a strategy for
investment promotion in 2012.

Asean Integration

Perhaps most significantly, the launch of a single market under the ASEAN Economic Community
expected in 2018 following a three-year grace period for Cambodia, Laos, Myanmar and Vietnam could
have a major impact on agricultural trade in Myanmar. In July 2016 the Myanmar Times reported on
farmers concerns that cheap imports will drive local producers out of business. Noting that rice
smuggling is already a major challenge for farmers in the Tanintharyi region, U Myint San, director of the
Myanmar Research Centre for Economic Development, told the newspaper that once the 5% tax levied on
agricultural products is eliminated, production of key agricultural goods including rice, beans, pulses and
fish could suffer in the wake of rising competition and imports.
Trade Liberalisation

As economic liberalisation and new free trade agreements advance, the NLD administration is making
bold moves to boost value-added exports, launching a 100-day plan in April 2016 in support of a five-
year strategy targeting $11.1bn in exports for FY 2016/17, and a threefold expansion by 2021/22. Several
developments will support this growth, including a host of trade liberalisation policies implemented
domestically over the course of 2016. Prior to 2015, foreign firms were strictly prohibited from
undertaking retail or wholesale activities under MoC regulations.

However, the ministry announced in November 2015 that foreign firms are permitted to enter into a JV
with local companies to retail or wholesale five types of product, including medical and agricultural
supplies. This liberalisation was extended to construction materials in August 2016.

The MoC plans to reduce the number of goods requiring an import licence from 570 to 303, announcing
in July 2016 that it is working on a list of 267 goods that will have import licence requirements lifted.
Plans are also in the works to remove export bans on a list of items that could include Niger seed oil,
mustard seed and oil, and sunflower products. Perhaps most significant, however, has been the US
governments move to bring an end to a host of sanctions, many of which have been in place since the
1980s. Among these was a ban on the import and export of goods through ports and airports, which was
lifted for six months in December 2015 (see analysis).

Transport Woes

Despite these positive developments, Myanmars trade imbalance continues to pose a problem to future
growth. Rising trade volumes, combined with limited port infrastructure and equipment, inefficient cargo
handling processes and a limited draught at the countrys main port facilities in Yangon, as well as a long
and complex Cutoms process, have created bottlenecks. These are exacerbated by operators reluctance to
use Yangons Asia World Port Terminal, with many Asia World-related companies remaining under US
sanctions.

In June 2016 shipping and trade news site JOC.com reported that traffic jams at Yangons port facilities
had left some vessels waiting up to 11 days to make call, following a challenging May 2016 when wait
times reached as long as 16 days. The delays were caused by a spike in imports that kicked off in the
beginning of April 2016, including large quantities of construction materials for multiple infrastructure
projects. With imports vastly outnumbering exports in 2016, landside costs for shipping lines rose and a
number moved to introduce new fees aimed at addressing a build-up of empty containers, including
Singapore-based MCC Transport and Japans Mitsui O.S.K. Lines. Although the country is working with
the private sector to address the issue by forming a working group that includes port owners and terminal
operators, development of new port facilities at the countrys three SEZs will likely offer the most viable
long-term solution to congestion challenges (see Industry & Retail chapter). Elsewhere, transport system
upgrades are already having an effect on cross-border trade as Myanmar moves to expand bilateral ties
with Thailand, China and, in the longer term, India.

For example, upgrades to a 50-km stretch of highway between Myawaddy and Thailands Kawkareik led
to a 40% increase in cross-border trade immediately following completion of the works in September
2015, according to a March 2016 report from the Nikkei Asian Review. Several new projects to upgrade
and build new links to China and India by rail and road are also under way, which could bolster cross-
border trade and help Myanmar to become a major ASEAN economic centre in the coming years,
according to the Nikkei Asian Review, (see Transport chapter).

Trade Deficit Declining

As the US continues to ease sanctions and economic liberalisation progresses, the NLD has overseen
rising trade volumes since coming to power. At a July 2016 press conference U Yan Naing Tun, director-
general of the MoCs Department of Trade, announced that foreign trade rose by almost $400m year-on-
year (y-o-y) to $6bn during the first three months of FY 2016/17. Of this, maritime trade accounted for
the majority at $4.44bn, followed by $1.55bn in overland border trade.

Total first-quarter exports increased by $287m y-o-y to $2.53bn in the same period, while imports were
up by $112m y-o-y to reach $3.48bn. Maritime trade was in deficit during the period, recording $1.57bn
of exports against $2.89bn of exports, although border trade was in the black, with $964m of exports
against $595m of imports.

Outlook

Although Myanmar remains in trade deficit, its trade balance has been improving in recent months, and in
August 2016 the MoC reported that in the first quarter of 2016 exports rose by $261.7m y-o-y to reach
$2.48bn, while total international trade volumes increased to $5.9bn, a 6.5% gain, with imports growing
by $95.2m to $3.42bn, for a trade deficit of $945.7m. The trade deficit stood at $1.11bn in the first quarter
of 2015, highlighting the impact rising exports are having on trade growth, and painting a brighter picture
for long-term trade trends.
Investment is also set to rise in the coming years, bolstered by the promulgation of the MIL, ongoing
developments at the countrys three SEZs and surging infrastructure investment, which should reduce
transport and logistics costs. Although low global oil and commodities prices will likely continue to pose
challenges to new investment and export revenues, the countrys considerable untapped potential,
supportive government policy and emphasis on export-oriented development should keep both trade and
investment on a strong long-term growth path.

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improvements-trade

New law to reform Myanmar's investment framework

In a move to further liberalise its business environment and improve investor certainty, the government of
Myanmar recently promulgated the new Myanmar Investment Law (MIL), which was drafted by the
countrys primary investment oversight entity, the Myanmar Investment Commission (MIC).

Although regulations outlining the laws provisions and implementation have not yet been released, the
laws enactment will transform Myanmars current investment framework, merging regulations for
foreign and domestic investors into a single law, as well as setting new project approval processes, tax
incentives and land use regulations aimed at bolstering flagging foreign direct investment (FDI) inflows.

Historic Development

Myanmars modern legal framework for foreign investment dates back to Foreign Investment Law (FIL)
of 1988, which permitted foreigners to own 100% of certain businesses without the need for a local
partner although foreign ownership restrictions were extended to any sectors deemed sensitive,
including agriculture, prior to 2012. Although the FIL did not define long-term land leases, they were
generally capped at 30 years, with two five-year extensions permitted per lease.

A total of $7.6bn of FDI was recorded between FY 1988/89 and 2003/04, according to the investment
promotion body, the Directorate of Investment and Company Administration (DICA).

In November 2012 former President U Thein Sein approved the countrys new FIL, following months of
parliamentary wrangling, allowing overseas firms to fully own ventures in previously restricted sectors, in
addition to offering tax breaks and long-term land leases. Land acquisition has been one of the most
significant obstacles to new FDI in the country.
The new law represented a critical component of economic liberalisation, with Reuters reporting that
most major companies were waiting to see the legislation prior to committing funds to new projects.

2012 Change

A previous draft of the law stipulated that foreign ownership of businesses operating in sensitive sectors
would be capped at 50%, with the law requiring that foreigners investing in a start-up joint venture must
hold at least a 35% stake in the company. However, the final version permitted joint ventures between
foreigners and Myanmar citizens, or government entities, with partners able to determine the stake ratio
themselves. Another article of the law stated that the MIC can permit foreign investors into restricted
sectors provided the project is in the national interest, and receives government approval. The law also
permitted foreigners to lease land from the government of authorised private owners for up to 50 years,
with each lease able to be extended twice, by 10 years each time.

The new FIL also granted tax holidays to foreign firms for the first five years of operation, as well as
other forms of tax relief, provided the income be reinvested in the business within one year. Foreign
manufacturing companies, for example, were permitted tax relief of up to 50% on profits from exports.
Under the original FIL, tax holidays were set at three years.

Fdi Inflows

The 2012 FIL supported a surge of recent foreign investment, with DICA reporting that the value of
approved FDI jumped from $1.42bn in FY 2012/13 to $4.1bn in FY 2013/14, a 189% increase. Approved
foreign investment nearly doubled in FY 2014/15 to hit $8.01bn, and rose a further 18.4% to reach
$9.48bn in FY 2015/16.

FDI inflows have moderated recently, however, with DICA revising its original target of $8bn of FDI
inflows in FY 2016/17 to $6bn 36% lower than 2015/16 levels and reporting that total inflows stood
at just $3.29bn at the end of November 2016, with four months to go before the end of the financial year.

U Aung Naing Oo, director-general of DICA, told local media in December 2016 that the directorate was
reviewing 52 new projects valued at close to $3bn, which would allow the country to surpass its annual
foreign investment target.

New Investment Law

Lawmakers have actively sought to further reform FDI legislation since 2012, and on September 28,
2016, Pyithu Hluttaw, or the Peoples Assembly, approved the Myanmar Investment Law 2016 (MIL),
followed by the Amyotha Hluttaw (House of Nationalities) on October 5. On October 18, 2016, President
U Htin Kyaw signed the MIL into law. The MIL will come into force at the start of FY 2017/18, which
begins in April 2017.

The law departs from previous legislation, most notably by combining previously separated local and
foreign investment regulations, and replacing the 2012 FIL and the Myanmar Citizens Investment Law of
2013. The new law put an end to Myanmars status as the only ASEAN member with separate investment
laws for citizens and foreigners, in addition to establishing a new approval process with the MIC,
updating tax holidays and investment incentives, and further expanding foreign access to leased land.
Under the MIL, investors must apply for an MIC permit if the proposed project is considered strategic for
the country, is capital-intensive, has the potential to impact the environment or local community, uses
state-owned land and building, or involves restricted activities. The commission is also permitted to refer
projects to the National Assembly if it determines that a proposed venture would have a significant impact
on the security, economic condition, environment and national interest of Myanmar. Each project must be
approved on a case-by-case basis.

As noted in a November 2016 analysis by international law firm Herbert Smith Freehills, the new law
does not define what qualifies as a strategic project, and does not specify under which circumstances
additional National Assembly approval could be required for a project. Additionally, the MIL does not
specify which projects will require an MIC permit.

Mic Endorsement

In a welcome development, however, the MIL stipulates that investments which do not require an MIC
permit can apply for an MIC endorsement, which will help investors seeking long-term leases, tax
exemptions and other incentives.

The MIC will review applications and grant approval if the investment complies with relevant laws and
regulations. According to professional services firm Dezan Shira & Associates, an MIC endorsement is
expected to involve a simpler and more streamlined process confirming the project is merely in
compliance, rather than benefitting national interest. Lack of specific regulations are a challenge,
however. Government approvals must be in place prior to seeking MIC endorsement, although investors
had usually sought any such approvals with the assistance of the MIC under its permit application
process.

Incentives & Land Use

Importantly for investors in large-scale and labour-intensive projects, the MIL also establishes a
classification system under which tax incentives will be granted. Targeting critical industries and
underdeveloped regions, the law classifies the countrys least-developed areas as zone 1, offering seven-
year tax holidays for any zone 1 project. Areas at a midway point of development are classified as zone 2,
and offer five-year tax holidays, while well-developed zone 3 regions offer three-year holidays. Further
incentives are offered for investment in priority sectors, or labour-intensive industries including
manufacturing, infrastructure development, agriculture and food processing. Land leasing regulations
were also reformed, with foreign investors now permitted to lease land directly from private owners, and
potentially able to access longer leases than the 50+10+10 standard in underdeveloped regions.

The MIL stipulates that the government will not nationalise a company or impose any measures which
effectively result in its expropriation, except in circumstances where it is in the public interest, in a non-
discriminating manor, or upon payment of fair and adequate compensation. Local employee requirements
have also been notably relaxed.

Potential Impact

Although the new law requires further clarity, the potential benefits of the MIL are significant. In addition
to enhancing investor certainty, land use reform measures will boost development of supportive
infrastructure, and should offer new employment opportunities to surrounding communities. A unified
framework for foreign and domestic investors also brings the country more in line with international
standards, and should remove disparity between the two investor classes.

Coinciding with the US governments recent decisions to remove the majority of sanctions imposed on
the country, the law demonstrates the governments commitment to economic liberalisation and stable
political transition, in addition to supporting growth in the manufacturing sector. Executive regulations
for the law will further enhance the countrys investment attractiveness, and should help the country
bolster its FDI inflows in FY 2017/18 and beyond.

Removal of most US economic sanctions against Myanmar unleashes economic potential

The business environment is set for dramatic improvements after several burdensome trade restrictions
were lifted in 2016. Most notable for foreign investors was the US governments move to end sanctions
on seven state-owned companies and three state-owned banks, with US President Barack Obama
promising to further ease sanctions, even as a number of new companies were added to the sanctions list.
Domestic trade restrictions are also loosening, with the Ministry of Commerce (MoC) announcing plans
to allow foreign-local joint ventures (JVs) to buy and sell construction materials for the first time, a move
expected to improve the quality of new projects and reduce smuggling. Although stakeholders continue to
await further improvements, including opening up machinery trading to foreign firms, these developments
are expected to lead to an influx of new foreign investment, particularly from Western investors.

Democratic Reforms

The US government imposed a number of damaging trade sanctions on Myanmar following a military
crackdown on protestors in 1988, including a ban on the export of financial services, as well as freezing
the assets of certain institutions. Sanctions were intensified in subsequent years and included a ban on
both investment and imports, severely affecting economic growth and investment in the country. The
situation began to shift in 2009 under the Obama administration, which maintained sanctions but
announced a willingness to open high-level discussions with the countrys State Peace and Development
Council. Hillary Clinton, then secretary of state, visited Myanmar on a goodwill mission in 2011, meeting
with former President U Thein Sein, announcing plans to boost humanitarian aid and remove sanctions
prohibiting assistance from the IMF and World Bank.

Unthawin

Ties between the two countries improved further in 2012, when Washington announced plans to re-
establish an office of the US Agency for International Development in Yangon and moved to relax some
bans on the export of US financial services and new investment, simultaneously naming its first
ambassador to the country in 23 years. Two landmark visits then followed, including President Obamas
November 2012 trip to Yangon the first visit to the country by a sitting US president which was
reciprocated when President Thein Sein travelled to Washington in May 2013. President Obama returned
to Myanmar again in 2014 for the East Asia Summit, where he re-iterated US support for a peaceful
political transition.
In December 2015 the US government announced it would temporarily allow all shipments to go through
its ports and airports for six months, after reports emerged that major US banks including Citigroup, Bank
of America and PNC Financial, as well as third-country financial institutions, were avoiding providing
trade finance to exporters due to the fact that Asia World Port Terminal, one of the countrys largest
shipping terminals, is controlled by a US-blacklisted businessman. The policy shift allowed banks to
finance shipments through blacklisted trade hubs, although banks were still barred from dealing directly
with banned companies and individuals. US officials told Reuters in December 2015 that they would
likely extend the six-month relief period, though no further news has been announced since then.

Sanctions Lifted

The US government has moved to lift a number of sanctions in recent months, beginning in May 2016,
when the Office of Foreign Assets Control at the US Department of Treasury (DoT) announced it had
removed seven state-owned enterprises and three state-owned banks from its Specially Designated
Nationals (SDN) list, following the landslide election victory of the National League for Democracy
(NLD), led by Daw Aung San Suu Kyi. The companies include Myanmar Timber Enterprise, Myanmar
Pearl Enterprise, Myanmar Gem Enterprise, No.1 Mining Enterprise, No. 2 Mining Enterprise, No. 3
Mining Enterprise and the Co-operative Export-Import Enterprise. The three de-listed banks included
Myanma Economic Bank, Myanmar Foreign Trade Bank and Myanma Investment and Commercial
Bank.

The Myanmar Times reported in May 2016 that the US treasury department simultaneously added six
companies to the SDN list. All were majority-owned by either local business tycoon Steven Law, whose
father was blacklisted by the US for alleged involvement in drug dealing, or Asia World Company, the
countrys largest conglomerate, of which Law is managing director. These sanctions were subsequently
lifted the following October, with the signing of an executive order by then-President Barack Obama
permitting the removal of selected Myanmar nationals and their business interests from the SDN list.

Trade Support

Further positive developments came in July 2016, when Ben Rhodes, assistant to the US president and
deputy national security advisor, visited Myanmar to announce that the US will pledge $21m to improve
trade and economic governance in the country. Speaking at Yangon University, Rhodes told audience
members that the government will continue to focus on assisting Myanmar with its political transition,
while it has identified strengthening the agricultural sector and improvements to the business climate as
particularly critical priorities. In addition to this assistance, Rhodes said the US is also considering
increasing military-to-military cooperation; military ownership of land, assets and businesses had long
been considered a sticking point between the two governments. Areas of cooperation could include
exchanges, outreach and support for humanitarian assistance and disaster relief.

Perhaps most significantly for long-term trade growth, President Obama announced in September 2016
that he had written to Congress for approval to add Myanmar to the countrys Generalised System of
Preferences list, which would exempt US-bound exports from high import taxes, another significant trade
restriction. Although the US continues to maintain a blacklist of roughly 100 companies and individuals
with links to the former military government or known criminal ties, in addition to a ban on the trade of
jade and rubies, President Obamas most recent announcement bodes well for long-term export growth,
particularly in the agriculture, textiles and furniture manufacturing segments.
Impac

Growing diplomatic and trade ties with the US have had a dramatic impact on Myanmars economy, with
a number of global powers including the EU, Australia and Japan following suit in dropping many
economic sanctions. Major multinational companies have also moved to invest in areas such as the food
and beverages sector (see Industry & Retail chapter), retail chains, mining, energy and real estate.

Lending, trade and investment have also soared in the years since 2012, when the World Bank allocated
$245m in credit and grant funding for the country, the first international loan Myanmar had received in 25
years. The US committed $170m to support a peaceful political transition in the same year. Japan signed a
$504m soft loan agreement with Myanmar in 2013, its first such facility in 26 years, in addition to
forgiving around $5bn in debt.

Trade between the US and Myanmar stood at $400m in 2015, according to the IMF, while total foreign
investment in the country hit $9bn during fiscal year 2015/16, which ends in March. In 2013 global
consultancy McKinsey reported that Myanmars economy could grow from $45bn in 2010 to $200bn in
2030, while the de-listing of banks in May 2016, combined with regulatory changes permitting more
transactions with designated Myanmar-based financial firms, left few external restrictions on lending and
borrowing in the country, opening the door for domestic reforms and new foreign investment.

Domestic Reforms

The new administration has also moved to improve the business climate through trade liberalisation. The
construction industry, which has long suffered from counterfeit, low-quality materials and rampant
smuggling, welcomed the MoCs July 2016 announcement that the government had opened onshore trade
of construction materials to foreign-local JVs for the first time. Until 2015 foreign companies had been
banned from import and export activities, which were tightly controlled by a small group of firms. In
November 2015, however, the government began allowing foreign players access to onshore trade,
though such activities were limited to agricultural and medical equipment, and entailed partnering with a
local company.

The decision demonstrates Myanmars commitment to World Trade Organisation (WTO) policies and
bodes well for future liberalisation. The country has been a member of the WTO since 1995, and despite
the 20-year gap between its joining the organisation and implementing its policies, the government is
expected to further loosen trade restrictions in the future, particularly those on heavy machinery, having
opened the country to automobile imports in 2011.

The MoC expects the move to reduce incidence of low-quality, counterfeit and smuggled construction
materials, which have had a negative impact on the construction industry. It reported that licences for
materials trading will be awarded to JVs provided they obtain permission, meet the relevant local-foreign
shareholding ratio requirement, trade using only foreign currencies brought in by official channels, submit
a bank statement and appropriate documentation to the Directorate of Investment of Company
Administration when applying for an importer/ exporter registration certificate, and comply with all
relevant department standards. The removal of these restrictions demonstrates the countrys commitment
to trade liberalisation and investment promotion, according to a July 2016 analysis by law firm Tilleke &
Gibbons. While the exact types of materials permitted for trade had not been released as of December
2016, construction growth and building standards should show a marked improvement as a result.
Le Luong Minh, ASEAN Secretary-General, on cooperation and partnership between ASEAN, the US
and the EU: Interview

Le Luong Minh, ASEAN Secretary-General, on cooperation and partnership between ASEAN, the
US and the EU: Interview

LE LUONG MINH: Significant progress has been made in ASEAN-US Dialogue Relations, particularly
with the elevation of our alliance to a strategic partnership in November 2015 and the successful
convening of the ASEAN-US special leaders summit in California in 2016. Besides these milestones,
good progress has also been made in the implementation of the ASEAN-US Plan of Action 2016-20.
ASEAN appreciates the continued support of the US to ASEAN Economic Community (AEC) building
across all three pillars and through ASEAN-led mechanisms such as the East Asia Summit, the ASEAN
Regional Forum, the ASEAN Defence Ministers Meeting-Plus and the Expanded ASEAN Maritime
Forum in promoting regional stability, peace, security and prosperity. ASEAN and the US will celebrate
the 40th anniversary of ASEAN-US Dialogue Relations in 2017.

Emphasis has been placed by the leaders from both sides on strengthening the dialogue relations at the
strategic level and on stepping up cooperation in several aspects including: i) promoting ASEAN
centrality and rules-based order and in the regional architecture; ii) combatting non-traditional security
challenges such as non-proliferation, terrorism, violent extremism, drug trafficking, maritime security,
illegal fishing, cybercrime, human trafficking, irregular migration and climate change; iii) advancing
economic cooperation through the ASEAN-US Connect and the ASEAN Connectivity through Trade and
Investment Programme; and furthering ASEAN connectivity through trade and investment; iv) nurturing
leadership and capacity building in youth and women through on-going programmes such as the Youth
Southeast Asian Leaders Initiative and the ASEAN-US Progress Programme; and v) continuing support
for AEC building and integration efforts through the implementation of the MPAC 2025 and IAI Work
Plan III. The adoption in 2007 of the Nuremberg Declaration on an EU-ASEAN Enhanced Partnership
was an important milestone in ASEAN-EU dialogue relations, which have since grown and were further
strengthened in 2012 with the adoption of the Bandar Seri Begawan plan of action.

In 2017 there will also be another important milestone, as ASEAN and the EU will celebrate the 40th
anniversary of ASEAN-EU dialogue relations. Additionally, at the 21st ASEAN-EU Ministerial Meeting
in Bangkok in October 2016, ministers from both sides highlighted the need to: i) accelerate efforts
towards a strategic partnership between and beyond ASEAN and the EU by strengthening trade,
connectivity, energy, research and development cooperation; ii) enhance strategic connectivity between
ASEAN and the EU through more effective land, sea and air links; iii) promote economic partnership and
trade and investment in both regions; and reaffirm the commitment to the region-to-region ASEAN-EU
Free Trade Agreement; iv) strengthening people-to-people contacts; v) promote cooperation on education,
and encourage the mobility of students and academics between ASEAN and EU education institutions.

How can firms make full use of the AEC?

MINH: A notable addition to the AEC 2025 Blueprint is the inclusion of a section on strengthening the
role of the private sector. Going forward, businesses will be encouraged to provide feedback and
comments on AEC initiatives as well as more structured participation in ASEANs work, for the most
part through coordination with the ASEAN Business Advisory Council. Additionally, a related aspect
being looked into is improving outreach to businesses on the various commitments, initiatives and
facilities that are targeted to benefit economic sectors. Often, businesses are less aware of developments
in the AEC. More efforts are needed at both national and regional levels, and direct online facilities for
firms are available.

Cecilia Malmstrm, European Commissioner for Trade, on growing investment opportunities in

ASEAN: Interview

Interview: Cecilia Malmstrm

What steps can be taken to ensure that current EU-ASEAN free trade agreement (FTA)
negotiations do not end in another impasse?

CECILIA MALMSTRM: During the 13th ASEAN Economic Ministers-EU Trade Commissioner
Consultations held in Kuala Lumpur on April 26, 2015, all parties agreed that events had moved on since
the negotiations had been put on hold, and there was a need on both sides to take stock of these
developments. Senior officials reported to ministers in Chiang Mai on March 3, and ministers asked them
to intensify their work to assess the state of ASEAN economic integration, the progress in negotiations for
bilateral FTAs between the EU and individual ASEAN countries, and how a regionto-region FTA could
add value, building on bilateral FTAs, notably those FTAs between the EU and Singapore and the EU and
Vietnam. I believe this stock-taking exercise is crucial in order to reach a mutual understanding and
agreement on how best to make progress toward achieving an ambitious and comprehensive region-to-
region EU-ASEAN FTA.

Where do you see the greatest opportunities for European investors moving forward?

MALMSTRM: As ASEAN economies develop and their populations become more educated and
skilled, they are gradually progressing towards greater value-added sectors, including high-end
manufacturing, as well as services and knowledge-based industries. Although the traditional sectors
receiving foreign direct investment (FDI) such as electronics will continue to do so in the short to
medium term, albeit to a lesser extent, I would envisage that these new sectors are likely to attract more
FDI, given the positive prospects for growth they represent and government incentives to promote these
investments. This is a global trend, and I believe ASEAN is uniquely positioned to take best advantage of
it, given its strategic location, the quality and education of its labour force and the drive for innovation. I
am convinced that European investors will remain at the forefront in supporting this shift by channelling
their investments towards these higher-growth sectors. Integration in global value chains is also
increasingly driving investment decisions, and through participation in trade initiatives like the
Information Technology Agreement and a future Environmental Goods Agreement, ASEAN countries
can further strengthen their position in this regard. There are also clearly new trade and investment
opportunities that will result from freer trade in the region, for instance through the Trans-Pacific
Partnership (TPP), in which four ASEAN countries participate and other ASEAN members have
expressed interest, as well as through the Regional Comprehensive Economic Partnership (RCEP)
negotiations, which both represent a commitment to encourage trade through further liberalisation. These
are signals that ASEAN is maturing as a trading bloc as it enters into new economic relationships with
others through the TPP, the RCEP, and the bilateral FTAs between ASEAN members and the EU.

While much progress has been made towards ASEAN integration, what should the bloc prioritise in
terms of rules, procedures and standards?

MALMSTRM: Each regional economic integration process has its own specific dynamics and
particularities which are best understood and addressed by the countries of the region themselves. This is
why the priorities for increasing economic integration and removing or reducing non-tariff barriers have
to be identified and implemented by the countries concerned. In this respect, we can offer the EUs own
experience over 50 years in order to achieve a single market. It is a gradual, step-by-step process which
involved much trial and error, is never fully accomplished and needs constant review and modification. It
has been an evolution rather than a revolution.

Peter Beynon, Chairman, British Chamber of Commerce Myanmar, on the countrys current
investment climate: Interview

Interview: Peter Beynon

As Myanmar continues to carry out reforms, what key areas can the country improve upon to
promote investment?

PETER BEYNON: Myanmar is currently engaged in a dynamic process of transition to a democratic,

market-led economy from one that has spent 50 years isolated from the international business community.
This has left the country with the advantage of being a blank canvas for investors. At the same time, it has
the disadvantage of infrastructure and a regulatory environment that are ill suited to the modern world.
The nascent National League for Democracy (NLD) administration faces a daunting task: to address the
multitude of critical issues that have been brought to their attention in reports provided by the various
government and independent advisory bodies that have arrived in the country since 2012.

For the business community, the key strategies for promoting investment are to address the top-four
factors identified by the World Banks Doing Business report namely, access to finance, access to
land, access to utilities and access to human capital. On top of this, I would also add the development of
the rule of law under a transparent, independent and credible judiciary. All five of these issues need to be
embraced by the state to achieve positive traction.

There is little that can be fixed in the short term that will lead to an immediate improvement in these four
areas, as each will take some time to resolve. From a business perspective, the liberalisation of the
markets would help spur longer-term development. This would mean accepting foreign capital and
competition in many markets in Myanmar that currently have either restricted access or no access at all.
Equally, appointing an independent, functional judiciary to oversee the legal environment would also be
an essential step forward.

In what ways has the easing of US-imposed sanctions affected the appetite of investors looking to
enter the Myanmar market?

BEYNON: In October 2016 then-President Barack Obama signed the decree lifting all significant
sanctions against Myanmar that had previously inhibited US nationals from undertaking trade and
investment in the country. The signing of the decree also resulted in the removal of the blacklist status
that had been applied to selected Myanmar nationals and their business interests.

The resultant new environment has substantially eased the way for international trade and investment, and
has provided a greater choice of business partners. These are all very positive changes for the future of
investment in the country, and the move has been welcomed by the business community at large.

The most immediate positive affect of the removal of the sanctions has been the easing of complex
impediments that had previously been applied to international remittances involving Myanmar in the
global banking system.

How would you rate the ability of the Central Bank of Myanmar (CBM) to manage currency and
fiscal volatility during this period?

BEYNON: The CBM is in its infancy as an institution independent from the government. It is widely
acknowledged that the CBM is deficient in the tools and in-house expertise required to manage currency
and fiscal volatility. To meet these shortfalls, various international agencies have provided professional
guidance and expertise.

The CBM will face a large number of challenges in the years ahead, and the speed at which it can build
the infrastructure of human capital expertise and a portfolio of fiscal tools to manage the economy will be
essential to ensure success.

U Thura Ko Ko, Managing Director, YGA Capital; and Local Representative, Texas Pacific Group, on
the countrys development and the role of small and medium-sized enterprises (SMEs): Interview

U Thura Ko Ko, Managing Director, YGA Capital; and Local Representative, Texas Pacific Group,
on the countrys development and the role of small and medium-sized enterprises (SMEs):
Interview

Interview: U Thura Ko Ko

Decades of sanctions have held Myanmar back economically. What factors do you expect to
enhance the countrys development?

U THURA KO KO: You have to make a distinction. Sanctions have held back certain trade and
investment activities, and certain businesses particularly those linked to the military economic entities
but we must be clear that it was not just sanctions but decades of, effectively, bad policy. To figure out
what it is we need to do to bridge that gap, we need to further discover what exactly it was that caused us
to fall behind.

There has been huge underinvestment in infrastructure and long-term human capital, particularly in
education and health care. When you close an economy off and proceed to come up with artificial costs
and command economy planning, you stall the economy and never achieve market prices. Because of
this, the average entrepreneur is unable to make decisions based on market figures. When that happens
you introduce inefficiencies, and of course when you close the border it is no longer possible to export or
do a whole host of other things. When you couple that with the inability to rely on the rule of law, it ends
up being every person for him or herself.
We also must recognise the timing as well. When China, for example, suddenly closed its borders and
communism came about, it was during a time when the world economy was not as fast-paced in terms of
technology and innovation. Their eventual revolution was huge but the rest of the world was just
chugging along at a reasonable speed. However, when it happened to Myanmar the globe was progressing
at a different pace. Thailand went through a terrible financial crisis in the mid-1990s, but prior to that the
country had already begun to spend on all the aforementioned economic aspects; likewise for Vietnam. At
a time when we were closed, our neighbours shot up. They were able to use innovations like mobile
phone technology, the internet and so forth. We are decades behind on education. Case in point, when I
went to university in London and graduated in 1995 there were one or two sponsored scholars from the
Central Bank of Thailand. Imagine the capacity the country has built up over the last 20 years.

In your opinion, what measures need to be taken so that SMEs can capitalise on the expansion of
Myanmars growing economy?

THURA KO KO: SMEs need to figure out what their role is. If you are not going to be able to compete,
then maybe look at being a supplier. The big companies will continue to need as much help as possible
from SMEs until they develop an entire supply chain. The more City Mart branches there are, the more
they are going to need SMEs. They will need help with logistics and packaging and so on. Our country is
essentially a collection of a bunch of micro-markets, and SMEs can service those better because we do
not have the infrastructure that can connect the entire country fluidly. The market dynamics in Lashio will
be very different than those in Yangon.

There is still a lot SMEs can do. Fundamentally, what is holding them back is capital. I do not think
capital is flowing across our economy as well as it should. Major reform of the banking sector, including
micro-lending, is a must. SMEs struggle to make returns on what little capital they have. For example,
most of the lending institutions rely heavily on stable medium- to long-term deposits. We do now have
more bank branches open and people find it easier to deposit. However, there is little incentive to deposit
when the interest rate is 8% and inflation is between 8% and 10%. I think the whole interest rate dynamic
needs to be relaxed. That is not easy to do, as when you introduce a market element to any tariff or
interest rate you get winners and losers. Those who are smarter, have more capital and can operate more
efficiently will be able to provide the best services at the lowest interest rates

Vivek Pathak, Director for East Asia and the Pacific, International Finance Corporation (IFC), on
funding energy projects and attracting foreign investment: Interview

Interview: Vivek Pathak

What priorities has the IFC identified in financing the expansion of Myanmars national grid?

VIVEK PATHAK: Only about a third of Myanmars population has access to the electricity grid. The
existing gas-fired power plants, which supply about 30% of the countrys power generation, are obsolete
and inefficient. Expanding access to electricity is crucial to Myanmars long-term growth and job
creation. To help Myanmar meet growing domestic power demands, IFC plans to invest in an energy mix
of hydropower, solar and liquefied natural gas.

We believe that hydropower will play a critical role in facilitating Myanmars energy security, but hydro
projects need to consider environmental and social impacts on affected communities. IFC is helping the
government undertake a strategic environmental assessment that will help in risk assessment and in
determining which projects to pursue. The government will need $2bn per annum by 2030 to help the
sector meet power demands while maintaining economic growth rates. To meet this level of investment,
the public and private sectors, as well as local and international organisations, need to work together.
Well-structured public-private partnerships (PPPs) provide such opportunities.

In 2014 IFC worked with the Ministry of Electric Power and Energy to choose an independent power
producer (IPP) to implement a greenfield 225-MW combined-cycle gas turbine plant in the Mandalay
region. Together with other international lenders, we will invest up to $75m to support this first
competitively bid IPP in Myanmar. IFC is also helping transform the state-operated Yangon Electricity
Supply Corporation into a commercially viable corporate entity.

What influence will refined corporate governance have on the countrys economic development?

PATHAK: Developing a strong private sector is critical to unlocking Myanmars economic potential and
attracting much-needed foreign direct investment, which stands at less than one-third of Thailands by
comparison. One of the keys to unlocking this potential will be a strong private sector, which can attract
much needed foreign investment to fuel this expansion. In developing a strong private sector, it is crucial
that firms in Myanmar adopt high standards of corporate governance in order to remain competitive and
to attract foreign investment. Eventual entry into the ASEAN community further hastens the need to raise
governance standards. Numerous studies have shown that investors have greater confidence in companies
with good governance and in markets that are backed by sound legal and regulatory regimes. For
example, one regional study showed that both firm-level improvements to governance and country-level
investor protections in Asia can reduce the cost of capital. Thus, Myanmar companies need to raise their
corporate governance levels to become more competitive and attractive to investors.

How can the banking sector develop further and better serve the Myanmar economy?

PATHAK: The banking sector is still in the early stages of development in Myanmar and needs to grow
quickly to sufficiently serve the growing economy. It would also benefit from further expanding access to
financial products and services, while, importantly, improving their quality and depth as well. Installing
internal core banking systems is the first step to solving the access issue, and it should be a priority for all
banks. The Central Bank of Myanmar should install a national electronic infrastructure for real-time
settlement of interbank payments and retail payments. Together, these modernised systems will pave the
way for an increase in the number of alternative delivery channels, such as ATMs, and point-of-sale
outlets. Improving access to finance, especially for smaller businesses, is another area of extreme
importance.