Foreign investors are looking keenly at the Burmese market but the legal infrastructure still needs some work
In 1962, 20 years after my grandfather (pictured below) completed his Royal Air Force tour in the country, Burma (since 1989 also known as Myanmar*) fell under military dictatorship. Now, as it emerges from five decades as a centrally planned closed economy, foreign investors are taking increasing notice of the country’s promise.
Its potential is evident in Myanmar’s resource wealth, its geographic position between China and India, and its domestic market of almost 60 million. However, it is the oil and gas sectors that are attracting particular attention.
Some 30 foreign companies are already active in onshore exploration, with others looking to gain a foothold in ongoing bid rounds. US and European sanctions are being relaxed or suspended in response to the encouraging steps being taken by the government towards the National League for Democracy (NLD), media censorship and political prisoners. The regime is also implementing measures to attract inward investment. A key initiative was the enactment of the Foreign Investment Law (FIL) in November 2012.
Just as allied troops found the territory difficult to navigate in the mid-1940s, today’s investors might struggle to find reliable business information and have to overcome poor infrastructure. Other headaches include an overburdened banking system and a widespread skills shortage.
Doubt has also been cast on the approval processes for foreign investment. The FIL aims to increase certainty for investors by, for instance, clarifying the forms of permitted investment, as well as the tax treatment and land rights for such investors. However, the Myanmar Investment Commission (MIC), which oversees foreign investment proposals, is given considerable (some would say excessive) discretion.
Legal advisers are concerned about the apparent absence of a comprehensive regime for enforcing Myanmar-related commercial contacts. The FIL makes explicit the right of investors to agree on a dispute resolution system – onshore or offshore – with their Myanmese counterparties.
However, it is unclear if Myanmar’s domestic court system is capable of resolving such disputes. One concern is the reportedly small number of domestic lawyers and judges with adequate legal training. As for international dispute resolution, Myanmar is not yet a signatory to the New York Convention, an international instrument that provides a regime for the cross-border enforceability of arbitral awards.
Myanmar could go some way to ameliorating investors’ concerns by signing up, a move government ministers have already hinted at. It could also expand on its handful of bilateral investment treaties.
Such measures would provide investors with a level of security and allow the government to update its domestic legislative regime – a mighty task as some of its business laws are little changed since the days of the Burma campaign.
*For ease of reference and without taking a position on the controversy surrounding the country’s name debate, this article refers to the state as Myanmar.