Opportunities in the Golden Land of Myanmar

Myanmar is a country rich in precious stones, oil, natural gas and other mineral resources. It is the world's largest exporter of teak and a principal source of jade, pearls, rubies and sapphires. With a population of over 54.5 million and 676,578 square km, it is the world's 24th most populous country, the world's 40th largest country and the second largest in Southeast Asia. The 2011/12 GDP of Myanmar is estimated at US$89 billion with growth of 5.9% which reveals an improvement from the GDP of US$82.7 billion and an annual rate of 5.5% recorded for 2010/11. The economy of Myanmar grew by 6.5% in 2012/13 and is expected to expand by 6.8% in 2013/14.

GDP composition by sector in 2010/11 consisted of services (42%), agriculture (including farming, fishing and forestry) (39%) and Industry (19%). The most productive sectors will continue to be in extractive industries, especially in oil and gas, mining and timber. Natural gas yielded the highest export earnings for 2011/12 at 29% compared to export of minerals which amount to 26% of total export earnings. Other areas such as manufacturing, tourism and services are still in the early stage of development due to the poor infrastructure, unpredictable trade policies, under-developed human resources and political and macroeconomic instability.

While total approved foreign direct investment (FDI) into Myanmar stood at US$36.1 billion for 2001/12, total actual FDI inflows was only US$2.7 billion, generally as a result of circuitous contractual arrangements and difficulties with foreign currency arrangements. The top three sectors with highest approved FDI are power (40.3%), oil and gas (38.3%), and mining (7.8%).

Permitted Foreign Investments

There are various opportunities for foreign investment into the sectors of power generation, oil & gas, agriculture, hospitality, tourism, garment manufacturing and financial services. Based on the MIC Notification No. 1/89 of 30 May 1989, foreign investments classified into nine sectors are allowed for foreign investment such as:

  • Agriculture and irrigation
  • Livestock and fishery
  • Forestry
  • Mining
  • Power
  • Oil and gas
  • Industry involving food stuffs, textile, personal goods, household goods, leather products and similar products, transport equipment, building materials, pulp and paper, chemicals, chemical products and pharmaceuticals, iron and steel and machinery and plant
  • Construction
  • Transportation and communications

However, there are 12 economic activities prohibited under the State-owned Economic Enterprises Law.

  • Extraction and sale of teak
  • Cultivation & conservation of forest plantations
  • Exploration, extractions and sale of petroleum and natural gas and production of products of the same
  • Exploration, extractions and export of pearls, jade and precious stones
  • Breeding and production of fish and prawns in fisheries that are reserved for research
  • Postal and telecommunication services
  • Air and railway transport services
  • Banking and insurance services
  • Broadcasting and television services
  • Exploration, extraction and export of metals
  • Electricity generating services
  • Manufacture of products relating to security and defence

Business Structures

Foreign investors may establish business presence in Myanmar in various forms:

  • Limited Liability Company (Private or Public),
  • Branch company or representative office of a company incorporated outside Myanmar,
  • Sole proprietorship, or
  • Partnership or joint venture with a citizen, private company, cooperative society or State Owned Economic enterprise (SEE)

A foreign entity may also enter into production sharing contract with SEE for exploration, extraction and sale of petroleum and natural gas and mining operations.

A private limited liability company is required to have at least 2 shareholders with a cap at 50 members while a public limited liability company is required to have at least 7 shareholders. Companies registered under Myanmar Companies Act (CA) and Myanmar Foreign Investment Law (MFIL) have different capital requirements and entitlements to tax incentives. MFIL registered companies are subject to higher minimum foreign capital of US$500,000 and US$300,000 for manufacturing and service companies respectively. On the other hand, US$150,000 and US$50,000 are imposed for CA registered companies. Minimum foreign shareholding in a joint venture is 35% of total equity capital.

Tax Incentives

Since April 2012, Myanmar’s corporate tax has been reduced from 30% to 25%, another move to enhance business environment in the country. While both CA and MFIL registered companies are subjected to same corporate tax rate of 25%, MFIL registered companies engaged in production of goods or services are further granted exemption from income tax for up to three consecutive years subject to consent of Myanmar Investment Commission.

Foreign investors and manufacturers located in the Special Economic Zones (SEZs) will enjoy pioneer tax exemptions and incentives, including an initial five-year 100% tax exemption, followed by 50% tax relief for the next five years; and waiver of import duties on raw materials and equipment as well as value-added tax on commercial tax.

Opportunities in the Near Future

The new government of Myanmar is undertaking a series of political and economic reforms to improve its business environment. One such example is the launch of the Foreign Investment Law in November 2012 which is expected to provide clearer guidelines on land usage, local labour requirements and foreign equity participation. Myanmar can expect promising growth on the basis of continuous political reforms and substantial capital inflows to develop infrastructure and increase export capability.

Myanmar is likely to follow other resource-rich frontier markets such as Mongolia and Kazakhstan, where investment are channelled into commodity extraction and infrastructure building required to get production to market. This certainly presents numerous greenfield opportunities across the entire infrastructure spectrum from constructing road network, railways, port, oil & gas pipelines, power plants to airports. One such example is the Dawei Special Industrial Zone which is expected to develop around US$8.6 billion worth of infrastructure projects such as deep-sea port, resort complex, industrial estate, coal-based power plant, rail and pipeline links.

With Myanmar remaining as a commodities-driven market in the coming years, oil and gas will feature prominently as productive capacity moves up the value chain into processing and refining. While Asian oil and gas player such as Malaysia’s Petronas and Thailand’s PTT Exploration and Production are dominating this sector, controlled by Myanmar Oil & Gas Enterprise, Western competitors may enter the market as international sanctions are lifted.

As Myanmar progresses along the path towards political and economic development, tourism is poised to become the most promising of all industries. Total tourist arrival has swelled from 800,000 in 2011 to 1.1 million in 2012. This is estimated to soar to 1.8 million in 2013. Yet to reach the government’s target of 7.5 million total international arrivals by 2020, a lot more effort is needed to boost tourism infrastructure such as expanding airport capacity and developing new hotel properties to meet the rising demand. Hence, it is also likely to see local developers collaborating with foreign investors through management contracts or joint ventures.

Special Economic Zones are created for foreign investors to set up manufacturing bases to export products internationally. The first three SEZs will be set up in Thilawa, Kyaukphyu and Dawei. It is believed that the manufacturing sector will grow as foreign businesses seek to take advantage of attractive tax exemptions and the low cost labour.

While Myanmar presents many potentially attractive opportunities, there remain infrastructural challenges, sanctions, policy risks and regulatory restrictions to be overcome by investors making the entry. Western investment is greatly impeded in view of the sanctions and this leads to shortage of funds to develop infrastructure. With the underdeveloped financial system, project financing and trade financing are relatively limited. In addition, investors should be aware of the restrictions in foreign exchange dealings which hinders the repatriation of funds out of Myanmar.

Notwithstanding the promising outlook, it is wise to navigate this golden land of opportunities with caution and with sound advice from local counsel and financial experts. This will help you identify the appropriate investment strategy, understand the tax exposure, avoid pitfalls relating to regulations and maximise your investment returns. There is yet to be complete freedom in the repatriation of funds out of Myanmar, especially so with restrictions in foreign exchange dealings. Project financing and trade financing are also limited with an underdeveloped financial system. 

If you wish to have discussion on this topic, please approach our directors for further information

Ms. Kristin Kim
Corporate Advisory Director
DID 6536 8852

Mr. Loh Ji Kin
Corporate Advisory Director
DID 6597 7295

Quarter 4 2013