Exclusive: Myanmar drafts new foreign investment rules

YANGON Fri Mar 16, 2012 8:26am EDT

A man steps out from a money changer as people walk by in Yangon December 7, 2011. REUTERS/Soe Zeya Tun

A man steps out from a money changer as people walk by in Yangon December 7, 2011.

Credit: Reuters/Soe Zeya Tun

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YANGON (Reuters) - Foreigners will no longer need a local partner to set up businesses in Myanmar and may be granted a five-year tax holiday from the start of commercial operations, according to the draft of a new investment law obtained by Reuters.

The long-awaited new investment regulations, along with plans to float its currency, the kyat, from April mark the boldest economic reforms since resource-rich Myanmar emerged from decades of dictatorship last year, its economy decimated by chronic mismanagement and trade-crippling sanctions.

Its nominally civilian government has begun to court Western investors, who have swarmed into the commercial capital Yangon in recent months ahead of a possible end to U.S. and European sanctions in the former Burma.

The draft law adds to other signs of a remarkable economic liberalization in the long-isolated country. Foreigners, it said, can now either own companies 100 percent or set up a joint venture with Burmese citizens or government departments. Such joint ventures must involve at least 35 percent foreign capital.

Foreign investors can also lease land from the state or from private citizens who have permission to use land, the law says. The initial lease would be for up to 30 years, depending on the type and size of foreign investment, and could be extended twice, for up to 15 years on each occasion.

Foreign firms will not be allowed to employ unskilled foreign workers, and citizens of Myanmar must make up at least 25 percent of their skilled workforce after five years, with companies ensuring the necessary training to achieve that.

The percentage rises to at least 50 percent after 10 years and 75 percent after 15 years.

It also dropped a requirement from previous legislation that products manufactured by foreign firms in Myanmar must be entirely for export. The aim is to provide more for the domestic market to reduce Myanmar's reliance on imports, which are often too expensive for domestic consumers.

NO NATIONALISATION

The draft law goes some way to reassuring investors worried about a reversal of the reforms and the possible seizure of assets.

"The government gives a guarantee that permitted businesses will not be nationalized during the period allowed in the contract or extended in the contract other than by giving compensation based on current prices in the market, in the interest of the general public," it says, according to a Reuters translation.

The law is likely to be approved by parliament during the current session, which is expected to end later in March. The president then has 14 days to either approve it or send it back to parliament, according to the constitution.

The latest reforms will heighten debate over Myanmar's economic potential.

As big as France and Britain combined, the resource-rich country sits strategically between India, China and Southeast Asia with ports on the Indian Ocean and Andaman Sea, all of which have made it a coveted energy-security asset for Beijing's western provinces.

Bordering five countries, Myanmar offers multiple avenues of Asian engagement as U.S. President Barack Obama shifts focus from the wars in Iraq and Afghanistan towards economic growth and security in the Asia-Pacific region.

Half a century of isolation has taken its toll on the former British colony. Barriers to progress are formidable: U.S. and European sanctions, woeful infrastructure, a crippled banking system, a shortage of skilled Burmese as well as weak investment laws.

Some expect sanctions to begin to be lifted if by-elections on April 1, in which Nobel peace laureate Aung San Suu Kyi will run for parliament, are free and fair. A November 2010 general election was widely criticized as a sham.

(Writing by Alan Raybould; Editing by Jason Szep and Sanjeev Miglani)

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