EXECUTIVE SUMMARY
On February 1, the Burmese military seized power in a coup d’état that reversed much of the economic progress of recent years. The military’s incompetence in addition to a brutal crackdown on peaceful protests that destabilized the country’s security situation created a sharp deterioration in the investment climate.
The economy is projected to contract by at least 10 percent, according to the World Bank. The civil disobedience movement and general strikes organized across the country to oppose the military coup and protest the increasing violence have significantly reduced Burma’s commercial activity. Many routine services that businesses require like customs, ports, and banks were not fully operational as of April 2021. Access to U.S. dollars is limited.
The military regime’s suspensions of internet and other telecommunications service have curtailed access to information and also seriously hindered routine business operations. Commercial international flights remain banned, ostensibly due to the COVID-19 pandemic. Some foreign companies have temporarily suspended operations, invoked force majeure to exit existing investments, and evacuated foreign national staff. There is a lack of rule of law, random violence by regime forces, and arbitrary detentions of businesspersons without charges.
Companies invested in the market face a heightened reputational risk. There is also the potential for the military regime to expropriate property or nationalize private companies particularly in the financial and telecommunication sectors. In response to the coup, the U.S. government has imposed targeted sanctions, suspended our Trade and Investment Framework Agreement, and instituted more stringent export controls. Investors should exercise extreme caution and conduct heightened due diligence when considering new investments in this market.
Openness To, and Restrictions Upon, Foreign Investment
Policies Towards Foreign Direct Investment
Although the military regime has told investors and foreign chambers of commerce it welcomes foreign investment, its actions have undercut recent efforts to improve the enabling environment for investment. Many foreign investors have withdrawn from the market, evacuated foreign national employees, or suspended their operations in Burma.
The 2016 Myanmar Investment Law (MIL) and the 2018 Companies Law continue to govern treatment of foreign investment. The MIL includes a “negative list” of prohibited and restricted sectors for foreign investment. The Companies Law implemented in August 1, 2018 permits foreign investment of up to 35 percent in domestic companies— which also opened the stock exchange to limited foreign participation.
The Directorate for Investment and Company Administration (DICA), which is part of the Ministry of Investment and Foreign Economic Relations (MIFER) serves as Burma’s investment promotion agency. However, following the coup, DICA has limited operations because of staff participation in the civil disobedience movement. Previously, DICA encouraged and facilitated foreign investment by providing information, fostering networks between investors, and providing market advice to potential investors.
The government maintains a private sector advisory forum with the Union of Myanmar Chamber of Commerce and Industry, which principally includes domestic businesses. However, military authorities have summoned business leaders for command appearances rather than conduct voluntary consultations. The U.S. Trade Representative suspended the U.S.-Myanmar Trade and Investment Framework in March 2021. Foreign Chambers of Commerce have limited interactions with the military regime following the coup.
Limits on Foreign Control and Right to Private Ownership and Establishment
Generally, foreign and domestic private entities have the right to establish and own business enterprises and engage in remunerative activity with some sectoral exceptions. Under Article 42 of the Myanmar Investment Law, the Burmese government restricts investment in certain sectors. Some sectors are only open to government or domestic investors. Other sectors require foreign investors to set up a joint-venture with a citizen of Burma or citizen-owned entity or obtain a recommendation from the relevant ministries.
The State-Owned Economic Enterprises Law, enacted in March 1989, stipulates that SOEs have the sole right to carry out a range of economic activities in certain sectors, including teak extraction, oil and gas, banking and insurance, and electricity generation. However, in practice many of these areas have been opened to private sector investment. For instance, the 2016 Rail Transportation Enterprise Law allows foreign and local businesses to make certain investments in railways, including in the form of public-private partnerships.
The Myanmar Investment Commission (MIC), “in the interest of the State,” can also make exceptions to the State-Owned Enterprises Law. The MIC has routinely granted exceptions, including through joint ventures or special licenses in the areas of insurance, mining, petroleum and natural gas extraction, telecommunications, radio and television broadcasting, and air transport services, although whether such exceptions will continue to be granted after the coup is unclear.
As one of their key functions, the Directorate of Investment and Company Administration (DICA) and the MIC are responsible for screening and approving inbound foreign investment to ensure it does not pose a risk to national security, as well as to make a determination that such investment sufficiently furthers Burma’s growth and development.