Myanmar Investment Law Fight Spurs ADB Warning: Southeast Asia
Myanmar President Thein Sein is moving to counter lawmakers who inserted protectionist elements in a foreign investment bill that may impede overseas companies just as the U.S. and European Union ease sanctions.
Thein Sein’s administration is pushing back against a draft passed by Myanmar’s 440-member Lower House last month, Finance Ministry adviser Than Lwin said by phone yesterday. The draft law raises the minimum threshold for investing in the country and caps ownership at 49 percent in some sectors, according to a report by Singapore-based Vriens & Partners, which advises companies looking to invest in Myanmar.
“It will create a lot of problems for Myanmar if they want to compete with Cambodia, Laos, Thailand, the Philippines or others,” Alfredo Perdiguero, the Asian Development Bank’s principal economist on Myanmar, said by phone yesterday. “They have really watered down the law to a point where we think it’s too weak.”
The debate reflects misgivings among local businesses concerned at losing out to foreign companies as Myanmar opens up following a shift to democracy that has attracted Coca-Cola Co. (KO) and MasterCard Inc. The ADB last month said Myanmar’s economy may grow as much as 8 percent per year if it continues taking steps to increase trade and attract investment.
“What you see here is a lobbying effort by local industry with the lower house of parliament that clearly doesn’t reflect the opinion of the president and the key economic ministers,” said Hans Vriens, managing partner of Vriens & Partners. “I expect this draft will see substantial changes. I can’t think of any country in Southeast Asia with the exception of Singapore where the government is so keen to attract foreign companies to invest and build up the economy as Myanmar.”
$5 Million Minimum
The requirement for foreign companies to spend a minimum of $5 million might stifle investment in the tourism industry, where jobs can be created quickly, Vriens said. Myanmar attracted 816,369 tourists last year, compared with about 19 million in neighboring Thailand, according to government statistics.
The draft caps foreign ownership at 49 percent for joint ventures in restricted sectors, which include agriculture and fisheries, and mandates parliamentary approval for “investments of a very large size.” It also requires 75 percent of employees to be Myanmar citizens after six years, down from 15 years in an earlier version.
Than Lwin, who is also deputy chairman of Kanbawza Bank Ltd. and a member of the National Economic and Social Advisory Council, said the government would aim to remove the $5 million requirement among other clauses.
“We are still discussing how we can do away with these protectionist clauses,” he said. “On the whole we are trying to move toward more incentives for foreign investors. If you put in more protectionist measures, you wouldn’t expect any significant FDI coming in.”
President Barack Obama in July authorized U.S. companies to invest in Myanmar for the first time in about 15 years. Thein Sein met Secretary of State Hillary Clinton at a July 13 business forum in Phnom Penh, Cambodia, that included representatives from Google Inc. (GOOG), Goldman Sachs Group Inc., Boeing Co. and General Motors Co.
MasterCard this month became the first payments network to issue a license to a Myanmar bank as the country moves to integrate with the global financial system. The company plans to set up an office in the country once credit card usage becomes more widespread, according to Vicky Bindra, MasterCard’s president for Asia-Pacific, the Middle East and Africa.
“It’s very difficult to predict how long it will take, but it will happen, that’s for sure,” he said by phone on Sept. 5. “It could be anywhere from five to 10 years depending on how much support there is from the government.”
Debate over the investment law was delayed as parliament moved to impeach members of the Constitutional Tribunal over a ruling that lawmakers said favored the executive over the legislative branch. The case showed parliament was “flexing its muscles,” said Derek Tonkin, former British ambassador to Thailand, Vietnam and Laos and chairman of Network Myanmar, which promotes reconciliation in the country.
“They are anxious to show their mettle, to show that they really are independent,” Tonkin said. “The president has a very difficult choice” on whether to delay consideration of the bill or push for changes now, he said.
Thein Sein took power last year after his party won an election that ended about five decades of direct military rule. Since taking office, he dismantled a fixed exchange rate, eased media censorship and held talks with opponents such as former political prisoner Aung San Suu Kyi.
Total foreign direct investment in Myanmar between 2005 and 2010 amounted to $3.8 billion, most of it in the oil and gas, power and mining sectors, according to the ADB. The country’s low-cost labor and strategic location next to China and India are among draws for investors, it said last month.
Concerns over the foreign investment law are largely limited to companies based in the U.S. and EU, said Andrew Rickards, chief executive officer of Yoma Strategic Holdings Ltd. (YOMA), a Singapore-based developer of properties in Myanmar.
“If you think how quickly the country has come from being pretty much closed to the open debate we are now having, you will see how far the country has come and that what we are now seeing is some ‘fine tuning,’” he said by e-mail. “The over- riding sentiment from the top is that the country still needs foreign investment to develop.”
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