New investment law will make it easier to do business in Myanmar: MIC

With the new investment law sailing through both houses of parliament this month, formal approval appears imminent, as a signature from the President's Office is all that is required to see it passed. The Myanmar Times sat down with Myanmar Investment Commission secretary U Aung Naing Oo this week to discuss what the new law means for both foreign and local businesses and how the MIC plans to direct investment towards particular sectors and specific parts of the country.
How will the new investment law make it easier for foreign investment?

If you look at the new law there are actually two categories. One is MIC’s permitted business and the other one is MIC’s approved businesses. The idea is that if you also look at our previous, 2012 foreign investment law, all investment needs to be approved by the MIC. Anyone who wants to do business in Myanmar had to submit a proposal to Myanmar Investment Commission, regardless of whether it is a small business or a big business. And that would take a long time, because of the procedures. We would also need to consult with the different government agencies and that also took a long time. So in order to obtain a permit from the Myanmar Investment Commission it takes, maybe, around three months. It was very costly for inventors who had to consult with law firms in preparation of their proposal to make sure. Also they need to consult and discuss with the ministries for the ministries consent.
So our idea is, after the propagation and the enactment of the rules for the new investment law, the procedures will be much easier, for not only foreign investors but for local investors as well.
Only a few proposals will be screened and permitted by the Myanmar Investment Commission. Some of the businesses will be approved by state and regional governments. Some big business will be approved by the Myanmar Investment Commission. The idea is to grant easier access for business.

There were concerns from local business that Myanmar’s investment laws favour foreign investors. How does the new law address these concerns?
Actually this is one of the reasons why we have merged two investment laws into one. Previously, we had two laws for investment. One is for Myanmar citizens and one is for foreign investors. What was happening was that foreigners thought that our Myanmar citizens law favoured local businesses and also the local business community thought that the Myanmar Investment Commission was in favour of foreigners. They both thought that there was no fair competition between local and foreign businesses. Therefore, having one law makes it easier for us, and also for foreigners and the local business community. At the time of the propagation of the 2012 foreign investment law there were a lot of concerns from the local business community, because they thought that an influx of FDI meant the collapse of their businesses. We tried to make it more secure for both of them by setting up some rules and also releasing notifications. But this law is a single law, not only for foreigners but also for local businesses.
If you look at the new investment law, we have some reservations for local SMEs and local businesses. So the law makes it very secure for local investors as well.

What‘s an example of that?
If you look at, for example, land lease, according to the new investment law foreigners can lease the land either from the government or from the private owner for initially 50 years, and it can be extended two times. It is the same situation that existed in the previous law, but we have some reservations for the Myanmar business community. The MIC can consider better lease privileges for Myanmar businesses. So this is one of the privileges for local businesses. And if you look at one section of the investment law, we reserve some special treatment or special privileges for local SMEs, so the government can provide better support to local SMEs for their development, in terms of training, in terms of providing some technical support and market access. So they are some of the reservations for the local business community.

What are the sectors that the government is trying to encourage foreign investment into and how will the investment law enable this?
If you look at one of the provisions in the new law, especially the incentives, the government or the MIC will not allow all investment in Myanmar to enjoy corporate income tax holidays. We will allow only promoted sectors to enjoy corporate income tax holidays and it depends on the location of their businesses – from three years to seven years. Promoted sectors will be set by the government in accordance with the law. We haven’t yet set which sectors will be the promoted sectors. But definitely, number one, will be manufacturing, particularly labour intensive manufacturing will be in the list of promoted sectors. Number two is infrastructure development. Private investment in infrastructure will be in the list of promoted sectors. Agriculture and food processing will also be included. About 70 percent of Myanmar’s population is either directly or indirectly involved in agriculture so we have to promote agriculture for foreign investment. We have also already made a public announcement to say that the MIC will promote investment into industrial zones across the country.
So those will probably be in the list of promoted sectors, but it totally depends on the government policy. So the government might also consider other areas apart from the areas that I have explained.

Is there an understanding of what regions and states investment will be encouraged into?
We will consider incentives based on the development of different sates and regions. There will be different incentives for corporate income tax, but it will be up to the discussions in parliament.
If we focus only, however, on the states and regions it will not be effective. In any given region or state there are different levels of development, from one township to another. Therefore we should not consider solely the states and regions as a whole, but we need to consider development of areas within the states and regions. If you look at Sagaing Region, for example, some areas in Sagaing Region are much more developed than northern parts of Sagaing Region, so we must treat them differently, with different incentives. Therefore, when the new law is enacted it’s not based on the states and regions – it is totally based on the area of investment.
We will discuss this with the governments of the different states and regions, to understand which areas they want MIC to direct investment to understand which areas are developed or underdeveloped or they want to develop.

So while you are attempting to remove a lot of red tape, it sounds like there is still potential for a lot of bureaucracy involved in the decision making. Is it in danger of becoming too cumbersome?
I have to say yes and no. This is a very new initiative, and we have to reduce a lot of the red tape and simplify procedures, which we are not familiar with. And also the state and regional governments are very new, so they don’t have a lot of experience and exposure in decision-making or screening investment. So that can be a bit cumbersome for us because we need to educate the state and regional governments and to educate the local business community on how they can make use of the investment law. And also, we have to draft the rules to ensure the law progresses well, we have to consult with the state and regional governments for many areas and we have to consult with the ministries for setting up the promoted sectors. So that can be a bit cumbersome for us.
But it is really good for the business community for us to do all this. There will be less red tape, easier access for business in Myanmar and it will help to develop the economy.
So I have to say yes for us, but no for the business community.

This law seemed to pass through parliament fairly quickly. You’re already moving on to the corporate law. Things seem to be moving fast. This can be challenging also how do you manage this?
Actually, we expected to complete the whole process of the enactment of the new investment law by the end of 2016. But thanks to the leadership of the Lady [State Counsellor Daw Aung San Suu Kyi] the process has been completed earlier than expected, which is really good for us because the government will have more time for promotion of the law. Yes, we have another law that is also important, which is the companies law. Those two laws are really important for implementing better business in the country. Now the investment law is in place we have go through the process of drafting rules and go through the process of release of notifications and many other things.
But the companies law, I think we will be able to submit the law to the parliament in the upcoming sessions so that the company law will be ready to be exercised by the end of this financial year, before the end of March 2017. Our idea is to complete all the legal framework improvement process before the end of this financial year. We will then be able to exercise all the new laws and new regulations by the beginning of the 2017-2018 financial year.

In the past there has been tension between the MIC and the ministries about who has authority over what. How is this being addressed now?
One of the key considerations of the new law and the government is to streamline the procedures and make everything more simplified for foreign investors. Therefore, while we draft the new rules for the new investment law, we will thoroughly consult with the ministries. We will try to reduce the communication with the ministries once an investor applies to the MIC or to the state or regional governments.
So according to the new law there are a few areas of restrictions. Number one is that some businesses will be totally reserved for the state. So no foreign or local investors will be allowed to do business in the place of these state-run businesses. Number two is we will ask foreign investors to set up joint ventures with local partners. And number three is we will ask the investor, either foreigners or local businesses, to seek approval from a ministry. Without the ministry’s approval those businesses will not be permitted.
What I mean is, we are trying to make a clear demarcation between the ministries and the MIC. As long as the businesses are under the jurisdiction of the MIC, we won’t consult with the ministry. MIC will decide for itself on a business’s establishment. Likewise, we will make it understood to the state and regional government that they can also decide for themselves for businesses in their respective regions and states. There will only be a few cases where it will need to be screened and we will need to consult with the line ministry.
One of the big problems for foreign or local investors nowadays for their business is it takes a long time to consult and get green lights from the ministries. Some ministries are quite fast and some ministries are quite slow. So it takes too long for a foreign investor, therefore we are trying to reduce the communication with the ministries as much as possible.

Is there going to be changes regarding certain sectors that can and can’t be wholly foreign owned?
Yes, the MIC will make that announcement subsequent to the release of rules for foreign investment for the investment law. So we will clearly identify which business needs a joint venture with a local partner, which business will not be allowed to foreign investors. But apart from the businesses in this list, all businesses will be allowed for foreign investment 100 percent. We will try to have as few restrictions as possible for foreign investors. We need to consult with the ministries, local business community and government agencies before this list is decided. We are trying to have all this completed by March 2017.

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This interview has been edited for length and clarity.
Source>MyanmarTimes