Oliver Massmann - Partner of Duane Morris LLP Position paper on Myanmars investment environment Mr.

Oliver Massmann
--------o0o---------

Key challenges faced by the investors in Myanmars investment environment: 1. 2. 3. 4. 5. 6. 7. Lengthy bureaucratic licensing process and high start-up costs. Impractical and very time-consuming procedures for import license approval. Lack of land protection: one year lease limits are not commercially tenable. High restrictions on Myanmar transfers, particularly US domiciled ones, and unreasonable interest rates. Only country in the ASEAN that has two main laws addressing investment matters. Myriad issues and uncertainty around land auctions, tender processes. Ambiguous tax system.

Major recommendations for Myanmar government: We would recommend the Myanmar government to work towards high levels of international integration with bilateral investment protection agreements for the mid-term and a long-term free trade agreement (FTA) with the EU and other trading partners. We similarly encourage the Myanmar government to retain an open investment regime for foreign investment. Any backtracking on liberalization efforts sends a contradictory signal to the EU business community which has monitored the rapid economic reforms in Myanmar with great interest. In detail, we would make the following recommendations: 1. 2. 3. 4. 5. 6. 7. Develop and implement more transparent and less time consuming and bureaucratic licensing processes for investors. Simplify export and import procedures in line with the framework for economic and social reforms. Enhance land protection for lessees by boosting lease terms to a minimum 05 years. Negotiate to drop the restrictions on Myanmar transfers and empower central bank to set reasonable interest rates. Merge the two investment laws to level the playing field between foreign and local firms. Create and publicize a website under the MIC explaining and facilitating tender processes. Develop a tax system more attractive to investment lower the tax burden.

--------o0o--------This paper is owned by its author and copying or using any of its content is not permitted without the written consent of its author. Unauthorized use constitutes a violation of the authors intellectual property rights.

Position paper on Myanmars investment environment I. The Vision for Myanmar:

Historically, Myanmar was the wealthiest country in Southeast Asia and also once the world's largest exporter of rice. It produced 75% of the world's teak and had a highly literate population. But after such a long time being closed off, its now one of the poorest countries in Asia. Everything has changed since Myanmar embarked on a major policy of reforms in 2011 and Myanmar is now a new Asian emerging market. Myanmar has all the elements required to create another Asian economic miracle and Myanmar has full of strong potential, but before realizing that potential, Myanmar has to solve the challenges and impediments hindering to its development. It must seize the opportunity. Myanmar should become what it once was: a country with a transparent and responsible investment and trade policy. II. The Presence of Myanmars investment environment:

Even though Myanmar presents unique opportunities for investment and growth, it is still facing a lot of major challenges, especially with a systemic lack of transparency within the nation's trade policies. We believe that if Myanmar cant resolve a number of pressing challenges and impediments faced by potential investors, it will cease to be attractive and of interest to foreign investors. We note certain of these challenges and impediments as follows: 1. Lengthy bureaucratic licensing process and high start-up costs especially for lease rentals for offices and establishing manufacturing facilities:

Currently, foreign investors face lengthy bureaucratic processes when licensing their businesses. Most investors are facing high start-up costs especially related to office rent and establishing manufacturing facilities. 2. Impractical and very time-consuming procedures for import license approval:

Having line ministries to approve import licenses for every consignment is impractical and very time-consuming and it would be more efficient and trade-friendly to approve imports for a range of goods that the particular company can import for a fixed period (e.g. - 1-2 years). 3. Lack of land protection: Legally only allowed to sign one year lease

Foreigners and foreign owned companies are legally only allowed to sign one year leases (unless they go through the MIC process). This is fraught with danger. An investor cannot feel safe establishing a business in the knowledge that his business location lease might not be renewed the following year. This is a major source of frustration for many operating in Myanmar and is a considerable factor behind dubious straw man joint venture with local individuals and other partners which is not secure or in the interests of the Myanmar government. 4. High restrictions on Myanmar transfers and unreasonable interest rate:

--------o0o--------This paper is owned by its author and copying or using any of its content is not permitted without the written consent of its author. Unauthorized use constitutes a violation of the authors intellectual property rights.

The big banks (particularly the US domiciled ones) have been self-imposing high restrictions on Myanmar transfers. We understand there are limits to what the Myanmar government can do to address this but it is important to recognize the difficulties this causes investors. Moreover, the problems of exchange rate and interest rate under a backward and hard-to-reform financial system are still constraining the development of Myanmars economy. Unreasonable interest rates adversely affect businesses that face relatively high financing costs as a result. 5. Only country in ASEAN that has two laws for investment:

Myanmar is the only country in ASEAN that has two laws for investment. All the rest have one law. In terms of arbitration, the Foreign Investment Law allows investors to settle disputes outside Myanmar but theres no such provision in the Myanmar Citizens Investment Law. A single law could ensure fair and equitable treatment for all and create a more attractive environment for foreign investment, greater protection for both foreign and domestic investors, and measures to streamline and simplify the investment process. 6. Myriad questions around land auctions, tender processes:

There are still myriad questions around land auctions, tender processes. Nobody knows what tenders are ongoing through which ministries and what stage they are at. 7. Ambiguous tax system:

Investors face difficulties complying with the tax system in Myanmar because of problems understanding the rules and procedures. There is very little clarity on taxation and too much caseto-case decision-making power. III. The future Recommendations for Myanmar

In general, we would recommend align Myanmar standards with international best practices to enhance Myanmars competitiveness, pave the way for regional integration and improve the quality of products/level of services for the people of Myanmar. Liberalization efforts will have wide positive effects on the growth of Myanmars economy, and the simplification of conditions for import and export will support the growth of Myanmars SMEs as well as facilitate foreign investment in Myanmar. We hope that the Myanmar government will continue on this liberalization path and continue the gradual removal of all licensing requirements. We would welcome greater involvement and transparency in policy making, and that the Myanmar government should consult with the foreign businesses on planned policy initiatives and draft laws and regulations. We believe that wide consultation with various stakeholders will lead to better and more efficient regulations. Both DICA/MIC need to share a public relations board to ensure that the right messages are getting out there and the questions that are being asked are being properly answered. This could perhaps go right down to being able to explain where a certain bill/draft law is. In keeping with the international practice and the economic reforms, we would suggest Myanmar grant greater independence to the Central Bank of Myanmar. The Central Bank of Myanmar should be free of a government financing role to keep the role of an institution with the task of
--------o0o--------This paper is owned by its author and copying or using any of its content is not permitted without the written consent of its author. Unauthorized use constitutes a violation of the authors intellectual property rights.

price and currency stability and financial sector supervision. However, the Central Bank of Myanmar will only be able to achieve genuine independence if Myanmar gets its fiscal house in order. More specifically, we would recommend that the Myanmar government address these issues as follows: 1. Develop a more transparent and less lengthy bureaucratic licensing process and meanwhile avoid any non-relevant costs, especially for lease rentals for offices and manufacturing facilities. Simplify export and import procedures in line with its framework for economic and social reforms. Either abolish the import licensing requirement entirely or at least convert it to a per importer basis instead of per shipment basis. More land protection for land: increase minimum lease terms to at least 05 years. Negotiate with the big banks to drop their self-imposed restrictions on Myanmar transfers and empower central bank to set reasonable interest rates. Merge the two investment laws to level the playing field between foreign and local firms. Create a website under the MIC to highlight the tender process. Another step would be to appoint an independent, respected observer whose sole task it would be to provide oversight on this process. Offer a tax system more attractive to investment and lower tax burden.

2.

3. 4. 5. 6.

7.

--------o0o---------

Thank you very much for your time. Please do not hesitate to contact Mr. Oliver Massmann under omassmann@duanemorris.com if you have any questions on this paper.

--------o0o--------This paper is owned by its author and copying or using any of its content is not permitted without the written consent of its author. Unauthorized use constitutes a violation of the authors intellectual property rights.