After the First Year: Navigating the Myanmar Economy Under the NLD Government
Co-authored by Erin Murphy and Tom Platts
Myanmar has been one of the “hottest” topics of conversation in the context of Southeast Asia “strategic growth opportunity” for several years now. As with all emerging markets, there have been ups and downs in the investment cycle – which to an extent have been ‘book-ended’ by political issues – and numerous companies, large and small, are considering whether this is now the time to invest. Many of the investment challenges have come into stark view following the one year anniversary of the National League for Democracy’s (NLD) administration; economic forecasts indicate that foreign investment may drop as much as 30% this year, and rumors suggest that some companies may divest or otherwise seek a market exit. Myanmar’s frontier economy certainly has its challenges, as all frontier and emerging economies do, but these challenges can be abated by the right combination of high investment standards, compliance and a well-informed anticipation of local and international legal and regulatory change, along with a contribution to capacity building and an understanding of sound investment and economic principles.
Numbers and predictions do not always tell the whole story, and they can certainly be convenient headlines for those looking to by-pass an emerging market like Myanmar. The drop in FDI can be somewhat attributed to the lack of major tender offers in the past year, and new significant infrastructure projects coming on-line. The former Union Solidarity and Development Party (USDP) government scrambled to kick-start Myanmar’s re-emergence and undertook airport, telecommunication, special economic zone, and oil and gas tenders which contributed significantly to the country’s foreign direct investment (FDI) numbers. The NLD government, so far, has not offered tenders of this magnitude but has slowly approved new projects including those it initially suspended early in its tenure, and has signed memoranda of understandings and other agreements with foreign governments for economic development projects. In order to attract more investment while demonstrating government transparency, the NLD should consider offering public tenders with clear guidelines and expectations. Development agencies, foreign governments, and neutral corporate entities, including law firms and multi-national corporations, can assist the government in all aspects of the process, including assessing submissions, communicating with proposers, and implementing guidelines.
The NLD government has of late been accused of being too slow in enacting legislation, particularly related to foreign business, failing to address the lack of rule of law, and being opaque on its economic priorities. It has also tasked itself to draft, rewrite, and enact an ambitious legislative agenda. The new Companies Act is a case in point. At a time when investors are looking for some certainty surrounding the threshold for potential direct investment opportunities in domestic businesses, the position remains unclear and there is talk around Yangon and Nay Pyi Taw of a significantly protracted time period for its implementation. Additionally, it has become clear that capacity issues continue to inhibit this government and efforts to provide training and resources are needed to help all sides develop the country.
Despite these challenges, Inle Advisory Group (IAG) still firmly believes in “first mover advantage” in this economy and bringing a comprehensive and value-laden corporate package to the market, which includes high transparency and anti-corruption standards, emphasis on taking the time to understand Myanmar and its economy, and working on shared goals for development and business growth. Tom Platts, Head of international law firm Stephenson Harwood‘s Myanmar practice, and a new member of IAG’s Board of Advisors, shares this sentiment and strongly believes that the Myanmar market will continue to expand in the next few years notwithstanding the obvious challenges – with levels of foreign direct investment increasing, enhanced transparency and a clearer legal and regulatory framework for investment. Platts notes that strong country knowledge is vital, both in Myanmar and across the ASEAN region. He has stated, “I welcome the opportunity to join the IAG Board of Advisors, sitting among fellow professionals with a genuine in-depth knowledge of Myanmar and a passion for assisting businesses in their strategic evaluation of one of the most-talked about emerging markets in the world. Over the years, we have got to know the team at IAG, and have been hugely impressed by their knowledge of the jurisdiction, and their understanding of the socio-political, economic, and legal issues facing investors.”
Platts concurs with IAG’s bullish outlook for the Myanmar market. Indeed, Stephenson Harwood has announced that it will be opening its Yangon office later this year which will allow their top-tier Myanmar practice to further service existing and new clients of the firm. Both IAG and Stephenson Harwood are well-placed to see the opportunities, identify the challenges, and help successfully navigate their respective clients through any legislative and regulatory changes or difficulties in this exciting and dynamic environment.
The timing to invest in the Myanmar market is not ideal for every sector, but the long-term gains for many investors are now. Â Our confidence is buoyed by recent comments made at the May 2017 World Economic Forum. GE’s Vice Chairman John Rice said Myanmar’s technological advances were an example of how quickly a country can develop in a short space of time. Many business leaders are optimistic about the country’s future and believe, if managed correctly, Myanmar will enjoy significant economic growth. In IAG’s view, markets like Myanmar offer exciting and “once-in-a-lifetime” investment opportunities but do require more careful thought and consideration of both the investment strategy and impact on the ground.
Stephenson Harwood is a global law firm with a network of offices around the world. The firm has been working for international businesses, development banks, financial buyers and domestic Myanmar conglomerates for a number of years – acting on some of the largest commercial market-entries, strategic joint ventures and M&A opportunities across sectors including agriculture, automotive, aviation, consumer goods, energy and resources, financial services, mining, oil and gas, power, real estate, shipping and telecommunications.
Inle Advisory Group, Stephenson Harwood, and Kroll co-authored a piece on President Obama’s lifting of sanctions in 2016. A link to the analysis and implications can be found here: http://www.shlegal.com/docs/default-source/news-insights-documents/09_16_myanmar_bulletin.pdf?sfvrsn=0
For more information on Tom Platts and Inle Advisory Group’s Board of Advisors, please visit the following link: http://inleadvisorygroup.com/expertise-2/