Myanmar is set to introduce long-awaited legislation on 1 August that will simplify company registration and enable foreign investors previously barred from participation in domestic companies to hold up to a 35% stake in Myanmar entities. The new Companies Law comes on the heels of the Myanmar Investment Law, which was enacted in April 2017 and merged two investment laws — one applicable to Myanmar nationals, the other to foreigners — into one, thereby creating a more level playing field for all.
These legislative reforms mark a significant step in the country’s ongoing efforts to liberalise the economy, which is still in recovery from decades of isolation and crippling sanctions under the rule of the military regime; free and fair parliamentary elections were finally permitted in 2015, paving the way for a transition to democracy. Furthermore, they highlight concerted efforts to improve the operating environment and, ultimately, attract greater foreign direct investment — particularly from Western investors — many of whom have repeatedly delayed forays into Myanmar, citing amongst other challenges the difficult business environment.
The prospect of an influx of Western capital has, however, been greatly decreased in light of the ongoing humanitarian crisis in the country’s western Rakhine state, where an August 2017 military crackdown forced over 700,000 Rohingya, a predominantly Muslim ethnic minority, to flee to neighbouring Bangladesh. Indeed, the ongoing persecution of the Rohingya and other ethnic minorities — coupled with the Burmese government’s failure to take meaningful steps to resolve the situation and admit to human rights abuses perpetrated by the military — resulted in the suspension late last year of final stage negotiations for an Investment Protection Agreement between Myanmar and the EU. The accord would have provided a more secure investment environment ensuring, amongst other things, protection against expropriation without compensation and a transparent dispute settlement system.
More significantly, the humanitarian crisis has given rise to additional concerns for foreign investors who are already grappling with: pervasive corruption; high levels of red tape; unclear economic policies; and political uncertainty. Western investors are now faced with heightened regulatory and reputational risks in relation to proposed engagements in Myanmar. Both Washington and the EU have indicated that they are considering the reintroduction of targeted sanctions. For now, such measures are likely to be limited to embargoes on the sale of armaments and military cooperation — which the EU has already adopted — as well as visa bans and asset freezes against military officers implicated in the violence. Even so, there is a greater risk of inadvertent association with sanctioned individuals and entities, thus underscoring the need for thorough due diligence on prospective business partners, suppliers, and contractors.
Of equal importance is the need for Western investors to carefully consider: their conduct; the nature of their involvement in Myanmar; and the extent of their interaction with the military which — having retained the right to appoint 25% of the members of the 440 seat Pyithu Hluttaw or House of Representatives — remains hugely influential and operates quasi-autonomously from the Burmese government. Activist shareholders and human rights groups have already stepped up scrutiny of multinational corporations operating in Myanmar, calling on them to either withdraw from the country to avoid complicity in human rights abuses or use their influence with the Burmese government to resolve the crisis. Those particularly vulnerable to reputational damage include: companies with operations in conflict areas such as Rakhine and Shan states; those with interests in sectors closely associated with the military such as mining; and those whose operations could impact local communities.
Armed with an understanding of these risks, foreign investors can significantly mitigate their exposure to reputational damage and regulatory violations by: adhering to international best practices for human rights and anti-corruption risks; performing adequate due diligence and where necessary country risk assessments; and ensuring anti-bribery and corruption programmes are in place.
This thought piece was written by Amelie de Borchgrave, Director Business Intelligence at Menas Associates. To speak to Amelie about the content of this piece or to discuss any due diligence, risk assessment or intelligence gathering requirements, please contact Amelie on:
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