Although the traditional Burmese New Year actually falls in April, many U.S. companies are turning a new page on their calendars with thoughts of the new opportunities that await in the rapidly-opening southeast Asian nation. This past year, this blog tracked the reduction of restrictions imposed on Burma by the United States. To round out 2012 and kick off 2013, we present a few New Year’s resolutions that U.S. companies may consider as they approach a country offering great potential growth but pitted with potential legal challenges.
Resolve to get the name right (hint: you will probably be ok using either name). In 1989, the ruling government changed the country’s name from Burma to Myanmar but a number of countries, including the United States, declined to recognize the new name. While the U.S. State Department fact sheet still lists the name of the country as Burma, some folks in Washington believe official policy may change. Even President Obama recently called the country Myanmar during talks with the country’s president, Thein Sein. The situation can be confusing but, in fact, the names are two forms of the same word in the local language and noted political reformer, Aung San Suu Kyi, stated that one should use whatever name for the country comes more naturally.
Resolve to get in country. Travel access to Burma is not simple, but it is not impossible. Business leaders who can get feet on the ground, lay eyes on the country, meet potential transaction partners in person, and experience first hand Burma’s cultural complexities, may avoid two major potential problems: misjudging the local law, and doing business with the wrong people, both discussed below.
Resolve to learn the local legal landscape. Local Burmese law on foreign investment is changing nearly as rapidly as U.S. law on investment in Burma. On November 2, 2012 a sweeping Burmese Foreign Investment Law (“FIL”) was finalized and signed by President Sein. The implementing regulations will not take effect for ninety days, but when they do, the changes under the FIL should be substantial and the benefits for foreign investors significant. Noteworthy points in the FIL include:
- No set minimum capital requirements. Unlike earlier drafts of the FIL, which required US$5 million minimum capital from foreign investors, the final legislation contains no fixed minimum, allowing joint venture partners to agree on their own amounts, subject to review by the Myanmar Investment Counsel.
- 100% foreign ownership of businesses allowed. Foreign entities may own all of a company organized to do business in Burma or may form joint ventures with local partners and agree on any ownership percentage the partners choose. This provision does not apply to companies working in restricted or prohibited sectors of the Burmese economy. Those sectors will be designated by the Myanmar Investment Council or are already restricted by other laws such as the State-Owned Economic Enterprises Law, which restricts foreign ownership in the oil and gas, telecommunications, banking, and insurance sectors.
- Five year income tax exemption. To encourage foreign investment, the FIL grants an exemption from income tax to companies providing goods or services for five years. The law also includes tax breaks on imported tools and equipment for establishing or expanding a business, as well as on raw materials imported for use in commercial production.
Resolve to be cautious in matters of local law. While the announcement of the FIL was well received in the global business community, companies must understand that the legal system in the country is still struggling. The legal system in Burma is opaque at best; the institutions and infrastructure that support law enforcement and recourse to legal protections are not well developed; bribery is endemic to the country’s bureaucracy; and there is an almost complete lack of rule of law in certain parts of the country.
Resolve to know your transaction partners. Although U.S. restrictions on business in Burma have been reduced in the past year, targeted sanctions remain in place. For instance, the Specially Designated Nationals List maintained by the U.S. Treasury Department’s Office of Foreign Assets Control still contains nearly a hundred names of persons or companies in Burma involved in the banking, transportation, energy, and other sectors.
Happy New Year! As with any new investment, the more one knows ahead of time, the safer one can feel about making the investment. Burma, or Myanmar, as you prefer, promises new resources and untapped markets for businesses around the world. Companies that are best able to understand the nuances of the country, its culture and law, its potential and perils, will be best positioned to have a happy New Year in 2013.