Myanmar Investment Update: Financial Incentives, Myanmar-EU Investment Protection Agreement, and a New Stock Exchange

By Edward Barbour-Lacey

As Myanmar continues the process of opening up and liberalizing its economy, there have been a number of changes in the level of foreign investment that the country has been receiving. This has occurred in part due to the various new rules and regulations that the government has promulgated in its attempt to improve the country’s business environment.

In order to attract investment, Myanmar’s government has worked to improve its investment atmosphere through such measures as 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.

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Although a range of investment sectors have been opened up within the country, the majority of the FDI flowing into Myanmar continues to focus upon natural resource-based industries, particularly the hydropower, natural gas, and mining sectors.

While investment has steadily continued to pour into the Southeast Asian country, Myanmar’s government has become concerned that the number of investor incentives offered has been “excessive”. Furthermore, the government is concerned that the current incentives could be taken advantage of by “irresponsible” investors. Therefore, it is expected that, by the end of this year, the level of incentives will be reduced.

Among the items expected to be on the chopping block is the tax relief provided to certain imported automobiles – which will be removed. In addition, the government will impose a requirement that the amount of duty-free raw materials brought into the country must be vetted by a non-governmental organization.

According to President Thein Sein’s top economic adviser, Aung Tun Thet, in 2014 Myanmar attracted a record US$8 billion of investment and the country has set an ambitious goal of attracting US$10 billion to $12 billion annually by 2020. According to the Directorate of Investment and Company Administration, FDI worth US$2.9 billion has been approved for the 2015-16 fiscal year.

Myanmar-European Union Investment Protection Agreement

The Myanmar-European Union Investment Protection Agreement is expected to become operational by early 2016. The agreement will set up a legally binding level of protection for private investment in Myanmar and all 28 European Union (EU) members.

The first round of negotiations on the agreement took place in February of this year; the second round occurred in May, the next round is tentatively schedule for December.

According to U Aung Naing Oo, director general of Myanmar’s Directorate of Investment and Company Administration, the increased FDI “creates jobs for [Myanmar] citizens, allows us to export more and will transfer technology to our citizens, but the firms must have quality ethics. We predict we will attract this kind of company. Most EU firms usually match with the local criteria we need.” The agreement will also protect Myanmar investors who wish to enter the European markets.

Currently, the EU has a trade surplus with Myanmar. In 2014, the EU exported around 494 million euros (US$553 million) worth of goods to the country, while only importing 392 million euros worth.

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Since 1998, the United Kingdom has been the fourth largest approved investor into Myanmar, amounting to US$3.4 billion. The Netherlands and France are the next largest European investors, holding the eighth (US$747 million) and eleventh (US$537 million) positions respectively.

New stock exchange planned

Myanmar is also seeking to improve its financial markets. A new bourse, the first of its kind in the country, is scheduled to open in December of this year. The Yangon Stock Exchange (YSX) is being developed in partnership with two Japanese firms, the Daiwa Institute of Research Ltd, which holds a 30.25 percent stake, and the Japan Exchange Group, with an 18.75 percent stake. As a result of the opening of the new exchange, all existing over-the-counter (OTC) markets will be made illegal.

It has been recently announced that all transactions on the soon to be opened YSX will be commercially taxed.

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