By Chris Devonshire-Ellis
Partner, Dezan Shira & Associates
Partner, Dezan Shira & Associates
Part Five in our series comparing ASEAN nation business costs with China.
Myanmar remains an enigmatic country – one of the
largest and most populated in Asia but also one of its poorest and least
understood. It remains a country that has largely stood still for
seventy years – hardly any infrastructure of note was developed in the
country since the end of WWII. However, its admission into ASEAN, as
well as an emerging sense of liberalization is slowly projecting Myanmar
back onto the world stage. Infrastructure issues remain problematic
however; communications of any sort are practically non-existent outside
of the main cities, and even electricity and access to clean water
remains awkward. As a result, although the country does attract a great
deal of political and romantic imagery that will no doubt stand it in
good stead in future years, Myanmar essentially remains a country
invested in either by large MNC’s with deep pockets, or entrepreneurial
traders and light manufacturers.
RELATED: The Cost of Business in Vietnam Compared With China
Of the MNC’s with deep pockets, these can be split
into two camps: resources driven – mainly from China and infrastructure
developers – mainly from the West. Pockets of tribal insurgency still
exist in Myanmar which can also make access and trade potentially
tricky. Nonetheless, if there are ties that bind your commerce to
Myanmar, it can be accessed as a market. However, it is not a
destination for the fainthearted or inexperienced.
Crucially, Myanmar also acts as a buffer state
between China and India. If that can be strategically exploited, then
Myanmar could certainly rise to become an Asian Tiger in its own right
within the next 25 years. But today, it remains somewhat backwards and
with an emphasis on small holding agricultural and aquaculture
industries, with raw oil and gas products also being largely exploited
for export at the big ticket end. In between, there is very little
mid-level commerce.
Myanmar is targeted to come into ASEAN economic union
compliance at the end of this year, which will see certain parts of its
economy open up to investment and import duties on various products
scrapped. However, there is some uncertainty as to whether the country
will be able to meet this deadline.
Meanwhile, Myanmar enjoys good trade relations with the following countries:
In terms of trade, the top five products exported by
Myanmar are Petroleum Gas (42%), Rough Wood (11%), Dried Legumes (10%),
Non-Knit Men’s Coats (2.9%), and Rubber (2.8%). The country’s top five
imports are Iron Structures (6.3%), Cars (5.3%), Refined Petroleum
(4.6%), Delivery Trucks (4.1%), and Palm Oil (4.0%).
Myanmar is feeling its way around the bilateral
Double-Taxation Agreement (DTA) arena and is starting to develop more
treaty arrangements with other countries. To date these are limited to
specific agreements with its ASEAN partners Malaysia, Singapore,
Thailand, and Vietnam, in addition to India and the United Kingdom.
These may be viewed here.
We can compare Myanmar and China in terms of average operational costs as follows:
Myanmar Foreign Investment Law
The following investment vehicles are available to investors in Myanmar:
- 100% Foreign-owned Company
- A limited liability company that is 100 percent
owned by the foreign investor. However, there are certain controlled
industries where private investment is still not allowed.
- Branch Office
- A branch office is allowed to perform as a manufacturing or a service company.
- Joint Venture
- Set up between one or more foreign investors and
local investors. Foreign investors can set up their business either as a
limited liability company or as a partnership. There are certain
special sectors that require investors to set up a partnership with a
Myanmar citizen or company.
- Representative Office (RO)
- An RO can only collaborate with the head office and collect useful data for the company, but is not permitted to act in direct commercial or revenue generating activities.
Additional requirements
Businesses requiring substantial investment, such as
manufacturing, construction, or mining, need to register under the
Myanmar Foreign Investment Law (MFIL); foreign trade companies and
service providers are able to register under the Myanmar Companies Act
(MCA). In general, 100 percent foreign owned companies and joint
ventures with the Myanmar government can be registered under the MFIL.
Businesses registering under the Myanmar Companies Act (MCA) do not have
to apply for the Myanmar Investment Commission’s (MIC’s) Permit.
The minimum share capital requirement varies from
case to case depending on the business activities of the investments. In
general, the minimum share capital for foreign investors needs to be
more than 35 percent.
The law states that for companies registering under
the Myanmar Foreign Investment Law (MFIL), the minimum specified capital
requirement is US$500,000. However, in reality the minimum share
capital is determined on a case-by-case basis by the Myanmar Investment
Commission (MIC) – businesses are often required to invest between
US$1,000,000 to US$2,000,000.
For companies registering under the Myanmar Companies
Act (MCA), the minimum rate tends to be much lower, with the minimum
share capital being US$150,000 for a manufacturing company or US$50,000
for a service company.
If a company wishes to engage in import/export
activities, it must first obtain an importer/exporter card (EI card).
Currently, only companies with operations in the manufacturing and
industrial sectors are able to obtain an EI Card. Additionally, an
import/export License is required for each importing/exporting activity
for each good that is to be imported/exported. The EI License must be
issued in advance of shipping the good.
Professional Resources
As mentioned, Myanmar remains undeveloped and its
infrastructure is fairly poor. Japan has invested in a significant
special economic development zone – Thilwa – just south of Rangoon, and
this is expected to provide tax breaks and other incentives. Two other
zones are being built, at Dawei and Kyaukpyu, however none are expected
to be operational until the end of this year at the earliest.
Myanmar has a very basic banking and financial
infrastructure and it can be difficult to transfer capital around or to
arrange remittances both in and out of the country. However, there are
numerous Asian and International banks operating representative offices
and some limited activity branches in the country. A full list can be
seen here.
Summary
Myanmar, although enigmatic, remains largely the
preserve of MNC’s or rock and roll traders, although some light
manufacturing capacity is leeching in from China, Singapore, and
Thailand. Issues to be resolved are the ASEAN compliance at the end of
2015, and the timely opening of the proposed development zones. More
government liberalization is still required on foreign investment and
trading laws and certainly with infrastructure. Nonetheless, experienced
investors with an eye on China, India, and ASEAN may well be able to
make a business case for Myanmar given its geographical location and
currently low overheads. Local knowledge and assistance in this country
are key, and while business opportunities in the country will certainly
not be dull, they could also – for those early enough to break into the
market – offer enough potential to later develop into significant
businesses.
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Links to the other articles in this series are as follows:
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Chris Devonshire-Ellis is the Founding Partner of Dezan Shira & Associates.
The practice has been operational in Asia since 1992 and assists
foreign investors establish and maintain their operations throughout
China, ASEAN and India. The firm possesses 28 Asian offices with a staff
of 800, and has an Alliance office in Kuala Lumpur. Please visit http://www.dezshira.com and look out for Myanmar updates on the ASEAN Briefing website or on Linked In.
Chris can be followed on Twitter at @CDE_Asia.
Ref;http://www.aseanbriefing.com/news/2015/04/21/the-cost-of-business-in-myanmar-compared-with-china.html
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