The New Foreign Direct Investment Law in Burma (Myanmar): The Tiger Sniffs

HiRes(1)Burma’s Hluttaw, or Parliament, passed a new Foreign Direct Investment Law on September 7. Few details on the legislation are yet available, and we have seen only partial translations, although the final version reportedly is preferable to its draft predecessor. President Thein Sein has not yet signed it into law.

From the information available thus far, it is clear, however, that the law is a significant improvement on the version that the lower Hluttaw passed earlier this summer, which would have required foreign investors to make a minimum $5 million investment – which would have been the largest threshold in Southeast Asia. The earlier draft also would have forced foreign companies to take a minority position in enterprises active in certain restricted sectors. Additionally, the older version prohibited foreign firms from investing in small and medium enterprises, and completely barred them from investing in some sectors. Adding insult to injury, Burmese nationals had the right to buy out their business partners at the market rate during the course of the contract.

The bill that passed in September offers at least some improvements. It dropped the $500 million minimum investment requirement, and allows foreign firms to acquire a 50% interest in the restricted sectors. Foreign companies can acquire significantly larger interests in some sectors. Critically, the buy-out clauses were removed. Presumably, some of the other more draconian aspects of the earlier draft have been softened or removed, but this information is not yet available.

The foreign direct investment law indicates the contradictory currents in Burma at the moment. On the one hand, some members of the local business community — and the country’s myriad un- and under-employed workers — are eager for new opportunities. At the same time, some recognize that the opening of the economy will create new winners and losers, and will weaken the advantages that a small and privileged coterie enjoyed due to their political connections.

Burma also has a long and storied history of economic protectionism that remained constant as the country moved over the decades from democracy to military dictatorship. Therefore, it is not altogether surprising that the foreign direct investment law does not resemble that of an Asian tiger starving for outside money, but rather that of a country taking a good, hard, peckish sniff.

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