The year 2012 has seen a remarkable change of fortunes for the Republic of the Union of Myanmar. In April, by-elections held for 46 parliamentary seats were widely regarded as vital for the country's transition from half a century of military rule, and a key component of the state's 2003 “Roadmap to Democracy.” President Thein Sein's willingness to embrace reform has catalyzed an ease in economic sanctions imposed by the EU, Canada and the US.
International opinion suggests that Myanmar's isolation from the West is gradually drawing to an end. An abundance of under-exploited (or un-exploited) natural resources – including teak, oil and gas, gemstones and precious metals – has brought the country onto the foreign investment radar.
As with any frontier economy, however, the potential hazards of investing in Myanmar are not insignificant. Any investor wanting to partake in the latest Asian “gold rush” would do well to identify these risks and consider precautions to mitigate their downside.
The Road Ahead
Myanmar has taken its first formative steps towards democratization. Headline events such as the release of figurehead Aung San Suu Kyi from house arrest in 2010, and her election to the House of Representatives in 2012, have been complemented by the release of other less prominent political prisoners.
New legislation has been tabled allowing peaceful protest and the formation of unions. Plans are underway to subscribe to the increasingly prominent Extractive Industries Transparency Initiative, seen as a significant means of curing the country's endemic corruption.
Political reform has been coupled with efforts to modernize Myanmar's economy, although this too is in its infancy. An International Monetary Fund (IMF) mission in November 2012 concluded that the institution of a managed floating exchange rate and relaxed restrictions on private banking have been noticeable factors in accelerating growth and keeping inflation in check.
The Foreign Investment Law enacted on 2 November 2012 is expected to set the tone for first movers investing in Myanmar. While the government has yet to release an official English translation, unofficial indications are that the Myanmar Investment Commission (MIC) will have a broad discretion to allow foreign ownership of investment ventures to be at any level. The MIC will also have the discretion to dictate the minimum investment amount for a venture.
Foreign investors should take comfort from a mandated five-year tax holiday, and an apparent state guarantee against nationalization. New foreign investment rules are expected to build upon this legislation before the end of January 2013.
Sanctions – Are They Really Gone?
While it is true to say that in general terms Western countries have relaxed their stance on trade with and investment in Myanmar, there exists a number of carve-outs of which investors should be aware.
It is important to note that in the vast majority of cases, countries have suspended rather than completely removed sanctions against Myanmar. The possibility of reinstating sanctions will likely serve as a chief incentive for Mr. Thein Sein's government to sustain and develop the reform process.
The Position in Europe, the United States & Canada
The EU has had a sanctions regime in place against Myanmar since 1996. Its policy has tightened successively in the past five years, following reactions to the state's violent suppression of political protest and Aung San Suu Kyi's extended house arrest.
European sanctions included:
- a comprehensive ban on imports of a wide range of products (including coal, timber and certain metals) from Myanmar, and investment in these industries;
- a prohibition on exporting certain equipment, especially armaments, or providing certain services to targeted industries in Myanmar; and
- asset freezes on all persons designated as involved in impeding Myanmar's transition to democracy.
On May 14, 2012, the vast majority of the EU's import, export and investment sanctions were suspended until April 30, 2013. A prohibition on the supply of equipment which could be used for internal repression and the arms embargo were not suspended. Targeted asset freezes also remain on selected individuals.
The US has been the foremost proponent of sanctions on Myanmar, having first imposed an arms embargo on the country in 1993. Restrictions on imports and investment, with a focus on gemstones, have ramped up over the past decade. The Office of Foreign Assets Control (OFAC) has been the chief administrator of the sanctions regime.