MYANMAR - OPEN FOR BUSINESS? - Holman Fenwick Willan

MYANMAR - OPEN FOR BUSINESS? - Holman Fenwick Willan

MYANMAR - OPEN FOR BUSINESS? - Holman Fenwick Willan


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Has resource rich Myanmar come in

from the cold?

The recent elections in Myanmar appear to

have provided a watershed in the country’s

challenging political landscape. The last 12

months have seen its government embark on

a wide-ranging programme of economic and

political reforms, prompting the first visit by a

US Secretary of State in more than 50 years.

Has the time come for Myanmar to open

its doors to new foreign investment? Will

foreign investors now set their sights on the

considerable resource opportunities on offer in

this new political environment?

The following briefing discusses the

opportunities, as well as the potential risks and

pitfalls, facing foreign investors.

Are the doors now open?

For over five decades, Myanmar suffered

from the effects of international isolation and

economic stagnation. Having been one of

Asia’s wealthiest nations at the time of its

independence in 1948, by 2011 Myanmar had

slumped to one of Asia’s poorest.

Following the recent general election (the first in

20 years), the country appears to have signalled

a change in attitude. In spite of allegations of

electoral fraud and a boycott by Aung San Suu

Kyi’s National League for Democracy, the result

was hailed by the government as a significant

step in the transition to civilian democracy.

The government’s promise of economic and

political reforms appears to be holding true.

2011 has witnessed significant political and

economic developments: the release of political

prisoners; the announcement by Aung San Suu

Kyi that she will stand for election to parliament;

new laws allowing peaceful protests and the

formation of unions; anti-corruption initiatives;

policies aimed at lifting restrictions on the

flow of foreign investment; and exchange rate


Myanmar sanctions – the current regime

Since the early 1990’s, Myanmar has been the target of sanctions by the

United States, the EU and Canada.

United States

The US first imposed an arms embargo on Myanmar in 1993, widening it four

years later to include all new investment. In 2003, the Myanmar Freedom and

Democracy Act was passed, banning all imports, with the exception of teak

and gems that had been processed in a third country. The Act also restricted

the export of financial services, froze the assets of some financial institutions

and extended visa restrictions on officials.

The Tom Lantos Block Act of 2008 imposed a specific ban on jadeite and



In 1996, the EU imposed sanctions that included a ban on the sale or transfer

of weapons, visa restrictions on officials and a freeze on officials’ overseas

assets. It also suspended all bilateral aid, other than humanitarian assistance.

Further sanctions were imposed in 2007, following the violent suppression of

anti-government protests, including a ban on imports of gems, timbers and

metals. These were again tightened in 2009, following the extension of Aung

San Suu Kyi’s house arrest.


Canada imposed sanctions on Myanmar in 2007, which banned imports

and exports, apart from humanitarian goods. The assets of Myanmarese

citizens connected to the government were frozen. Canada also outlawed the

provision of financial services and technical data to Myanmar.


Asian countries have been against imposing sanctions on Myanmar.

However, of the major economies only China, India and South Korea have

actively invested in the country.

In addition, the Association of

South East Asian Nation’s (ASEAN)

decision in November 2011 to allow

Myanmar to take on the leadership

of the 10 member bloc in 2014, was

widely seen as an endorsement of

the country’s progress, a move that

was followed in December 2011 by

a visit by Hillary Clinton. Among the

encouraging messages of support

02 International Commerce

was the pledge that the US was

“prepared to walk the path of reform

[with Myanmar]” and would be

“prepared to go further if reforms

maintain their momentum”. Such

diplomatic language has led to

speculation by commentators of a

relaxation of the sanctions currently

in place, in turn ending decades of

western isolation.

First mover advantage?

Myanmar’s resource reserves provide

the country with significant economic

potential. For those companies willing

to take the risk, the potential rewards

may be substantial.

Myanmar possesses an abundant

supply of natural resources (see

side panel). According to Myanmar

government officials, the country

has the world’s 10th largest natural

gas reserves, estimated at over 90

trillion cubic feet, and whilst many

commentators dispute the accuracy

of these figures, the presence of

French and US energy companies,

despite the continuing sanctions

in place, clearly indicates the

seriousness with which Myanmar’s

oil and gas reserves are being taken.

Myanmar is also endowed with

other significant resources, including

timber, minerals, precious stones,

fisheries and agricultural products.

Additionally, Myanmar finds itself well

placed geographically, which should

allow it to take economic advantage

due to its proximity to strong Asian

economies. Lodged between South

East Asia, India and China, the

country is situated at the heart of

the world’s key growth economies.

With the targeted investment in

infrastructure, specifically in areas

such as rail, road and pipelines,

together with its deep sea ports,

situated as they are on the Indian

Ocean, Myanmar has the potential to

emerge as a vital link in the region’s

economic activity. Furthermore, with

a population of 53 million people,

Myanmar has a large workforce

with strong prospects for domestic



• Expected to rise by 5.5% in


• $82.72 billion (PPP) (2011).

Exports: $9.5 billion (2011)

• Commodities: natural gas,

wood products, pulses, beans,

fish, rice, clothing, jade and


• Partners: Thailand 38.3%, India

20.8%, China 12.9%.

Imports: $5.4 billion (2011)

• Commodities: fabric,

petroleum products,

fertilizer, plastics, machinery,

transport equipment, cement,

construction materials, crude

oil, food products, edible oil.

• Partners: China 38.9%,

Thailand 23.2%, Singapore


Source: CIA, The World Factbook.

However, years of western isolation

means that Myanmar lags far behind

its neighbours in many core economic

sectors, such as construction and

telecommunications. This lack of

development, together with the

absence of any significant local

competitors, presents foreign

companies with an opportunity to fill

the void.

Can risk be rewarded?

Despite the strides which have been

taken and the Government’s apparent

eagerness to continue with the pace

of change, investors still have a

number of reasons to be cautious,

especially in the short term:

• Regulatory uncertainty: among

the biggest concerns for any

foreign company looking to

invest in a developing economy

is its regulatory framework.

Myanmar lacks a responsive,

transparent and accountable

regulatory framework and

this creates a challenging

environment for setting up

How can new participants considering Myanmar protect themselves?

• Ensure a thorough due diligence process is undertaken.

• Consider a local partner with a strong JV Agreement – particularly when

dealing with pre-emption rights and political risk.

• Contemplate political risk insurance or other mitigating strategies.

• Regardless of the jurisdiction, adopt western governance positions.

• Seek legal/accountancy advice early on.

• When investigating resource assets, look to independent and widely

recognised experts to substantiate them accurately.

• Always consider the least attractive outcome from the outset and plan


businesses. Moreover, predicting

the ultimate shape regulation will

take following the transformation

from a command economy is

extremely difficult. Specifically,

in relation to foreign investors,

it remains unclear what rights,

protections and tax incentives

will be offered – however, similar

concerns have been raised in

other newly emerging economies.

• Government inefficiency and

corruption: Myanmar was

recently ranked as the world’s

2nd most corrupt country behind

Somalia. Not only does this

make the practicalities of doing

business extremely difficult,

but also potentially illegal for

companies covered by antibribery

legislation with extraterritorial

reach (see, UK Bribery

Act 2010).

• Infrastructure: Myanmar’s

infrastructure has suffered from

years of neglect, an example of

which is the rail network, which

remains relatively untouched

since independence in 1948.

To lay the foundations of

growth, significant investment

will have to be made in areas

such as transport, energy and


• Workforce: despite possessing

a relatively large and cost

competitive workforce, a

significant proportion of it

possess little to no experience of

modern technology and business


• Exchange rate: Myanmar has

an official exchange rate and an

unofficial black market, exchange

rate. Recently, at the request of

International Commerce 03

its central bank, the International

Monetary Fund sent a team to

Myanmar to advise on unifying

the exchange rates, as well as

lifting restrictions on international

payments and transfers.

• Sanctions: sanctions by western

nations remain in force. Whilst

many commentators speculate

that these will soon be removed,

this will ultimately depend on the

pace of change that the country

is able to achieve.

• Risk of rollback: although

the signals from the new

Government support the view

that it is committed to political

and economic reform, the path

to a full democracy and a thriving

market economy is one with no

guarantee as to the end result,

and it remains to be seen how

far the present Government

intends to go with its reforms.

For example, in 2008 a new

constitution was introduced,

effectively entrenching the

primacy of the military.

Accordingly, a quarter of seats in

both parliamentary chambers are

now reserved for the military and

three key ministerial posts for

serving generals (interior, defence

and board affairs).

The potential opportunities and

rewards for foreign companies

willing to invest in Myanmar are

considerable. Already, the effects

of political and economic reforms

are being felt, as investors seek

a foothold in the country: foreign

investment jumped from $300 million

in 2009-10, to $20 billion in 2010-

11. However, whilst the outlook

is positive and exciting, given the

new ground that is being trodden,

investors would be wise to take a

cautious approach before diving in.

For more information, please contact

Brian Gordon, Partner, on +65 6305

9533 or brian.gordon@hfw.com, or

James Donoghue, Partner, on

+61 (0)8 9422 4705 or

james.donoghue@hfw.com, or your

usual contact at HFW.

Lawyers for international commerce hfw.com


Friary Court, 65 Crutched Friars

London EC3N 2AE

T: +44 (0)20 7264 8000

F: +44 (0)20 7264 8888

© 2012 Holman Fenwick Willan LLP. All rights reserved

For more information,

please also contact:

Chris Swart

London Partner

T: +44 (0)20 7264 8211


Robert Follie

Paris Partner

T: +33 (0)1 44 94 40 50


Konstantinos Adamantopoulos

Brussels Partner

T: +32 2 535 7861


Jeremy Davies

Geneva Partner

T: +41 (0)22 322 4810


Edward Newitt

Dubai Partner

T: +971 4 423 0555


Brian Gordon

Singapore Partner

T: +65 6305 9533


Henry Fung

Shanghai and Hong Kong Partner

T: +852 3983 7777


James Donoghue

Perth Partner

T: +61 (0)8 9422 4705


Chris Lockwood

Melbourne Partner

T: +61 (0)3 8601 4508


Jeremy Shebson

São Paulo Partner

T: +55 (11) 3179 2903


Whilst every care has been taken to ensure the accuracy of this information at the time of publication, the information is intended as guidance only. It should not be

considered as legal advice.

Holman Fenwick Willan LLP is the Data Controller for any data that it holds about you. To correct your personal details or change your mailing preferences please

contact Craig Martin on +44 (0)20 7264 8109 or email craig.martin@hfw.com

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