2013 Investment Climate Statement
Bureau of Economic and Business Affairs
March 2013

Openness To, and Restrictions Upon, Foreign Investment

On November 3, 2012 President Thein Sein signed into law a new Foreign Investment Law (FIL). Most observers view the new law as a positive, pro-business step in the right direction, especially when compared to earlier protectionist versions of the law which had emerged during 2012. The FIL restricts foreign investment in only a limited number of sectors, such as small and medium businesses that can only be operated by a Burmese national (details forthcoming in the implementing regulations). The FIL has no minimum capital requirement for foreign ownership, except for joint ventures in restricted sectors, although individual ownership requirements can be established by the Myanmar Investment Commission (MIC) (see below). Given the lack of specificity with regard to restricted sectors and the wide-ranging discretionary authority the FIL gives to the MIC, however, crucial details will emerge only FIL’s implementing regulations. The FIL’s implementing regulations will be promulgated in February 2013. We expect the implementing regulations to specify the criteria for determining whether an investment is subject to review by the MIC, and if mandatory filing with the MIC is required for all foreign investors.

The stated objectives of the FIL are as follows:

  • To support the extraction and export of the rich natural resources of the state for the benefit of the people;
  • The creation and accumulation of jobs for the people;
  • The development of human resources;
  • The development of infrastructure such as banking and finance, modern roads, interstate highways, production of electricity and energy, and modern information technology;
  • Transportation of rail, water and air via an international standard to enable citizens to do business throughout the world;
  • The advent of businesses and investments which are in line with established international practices and norms.

According to the State-Owned Economic Enterprises Law, enacted in March 1989 and still in effect today, state-owned enterprises have the sole right to carry out the following economic activities:

  • extraction of teak and sale of the same in the country and abroad;
  • cultivation and conservation of forest plantations, with the exception of village-owned firewood plantations cultivated by the villagers for their personal use;
  • exploration, extraction, sale, and production of petroleum and natural gas;
  • exploration, extraction, and export of pearls, jade, and precious stones;
  • breeding and production of fish and prawns in fisheries that have been reserved for research by the government;
  • postal and telecommunications services;
  • air transport and railway transport services;
  • banking and insurance services;
  • broadcasting and television services;
  • exploration, extraction, and exports of metals;
  • electricity generating services, other than those permitted by law to private and cooperative electricity generating services; and
  • manufacturing of products relating to security and defense.

The Myanmar Investment Commission (MIC), "in the interest of the State", can make exceptions to this law. In the past, the MIC has routinely granted numerous exceptions including through joint ventures or special licenses in the areas of banking (for domestic investors only), mining, petroleum and natural gas extraction, telecommunications, radio and television broadcasting, and air transport services. As with all major political and economic decisions, this discretionary authority is usually exercised only after the Cabinet’s approval.

Investment approvals are made on a case-by-case basis, although the new FIL implementing regulations may limit this discretionary authority by introducing more standard operating procedures. Potential investors must work through the MIC. Interested foreign investors must submit proposals through the MIC, which obtains the final approval from U Soe Thein, Chairman of the MIC and a Minister of the President’s Office. Although the MIC currently has no power to protect foreign companies, there is no evidence that the MIC discriminates against foreign investors. The Commission’s powers and procedures are not clearly delineated in the new FIL, a deficiency which the implementing regulations might address. Bureaucratic red tape, arbitrary regulation changes, and endemic government corruption, however, continue to pose serious obstacles for all potential investors. Foreigners who invest in local companies or through nominees have no legal standing to enforce their rights. The new FIL also neglects to state that foreign investors will receive fair and equitable treatment in Burma; again, this may be addressed in the implementing regulations.

Once licensed, foreign firms may register their companies locally, use their permits to obtain resident visas, lease cars and real estate, and obtain new import and export licenses from the Ministry of Commerce.

As of January 1, 2012, the government no longer taxes overseas remittances. However, due to the government’s past practice of taxing such remittances, many overseas workers continue to remit their money home through informal money transfer networks (aka the "hundi" system). Banks began introducing remittance services during 2012 but the volume of such formal transfer remains low, according to local bank managers.

In June 2006, the Ministry of Finance and Revenue issued a notification for levying tax on profits gained by the sale and transfer assets of companies conducting business in oil and gas sector at the following rates:

Profit Tax rate

(a) Up to $100 million 40%

(b) Between $100 and $150 million 45%

(c) Over $150 million 50%

These tax rates remained the same in 2012.

For other businesses, the government abolished the separate profit tax, first introduced in 1976, on September 30, 2011 with effect from the beginning of the 2011 fiscal year. The top income and corporate tax rates are 30 percent.

The Burmese armed forces are involved in many commercial activities via the Union of Myanmar Economic Holdings, Ltd. (UMEHL) and the Myanmar Economic Corporation (MEC). Foreign firms have in the past reported that an affiliation with UMEHL or MEC helped them receive the proper business permits when setting up a joint venture. Nonetheless, entering into business with UMEHL or MEC does not guarantee success for foreign partners. Some investors report that their Burmese military partners can make unreasonable demands, provide no cost-sharing, and sometimes muscle out the foreign investor after an investment becomes profitable. Under General License No. 17 issued by the Department of Treasury’s Office of Foreign Assets Control (OFAC) on July 11, 2012, U.S. businesses are not allowed to invest or enter into an agreement with the Burmese Ministry of Defense or any state or non-state armed group; or any entity in which any of the above own a 50 percent or greater interest.

In November 2005, the government moved Burma's administrative capital to the newly-constructed town of Nay Pyi Taw, located in a remote valley about 230 miles north of Rangoon. All official transactions, including import/export licenses, must be approved in Nay Pyi Taw. Although the majority of import/export procedures have not changed, the time required for obtaining licenses has decreased since mid-2011 from approximately two weeks to 2-3 days for most items. Since 2010 most exports permits have been issued in Rangoon; import permits are issued in both Nay Pyi Taw and Rangoon, with wait times ranging from approximately 2-3 days in most cases to a maximum of one week in some cases.

If a scroll bar appears below the following table, swipe the table to move left/right of the dashed line.

Measure

Year

Index/Ranking

TI Corruption Index

2012

172/174

Heritage Economic Freedom

2012

173/179

MCC Gov’t Effectiveness

FY2013

9%

MCC Rule of Law

FY2013

13%

MCC Control of Corruption

FY2013

2%

MCC Fiscal Policy

FY2013

23%

MCC Trade Policy

FY2013

75%

MCC Regulatory Quality

FY2013

5%

MCC Business Start Up

FY2013

n/a

MCC Land Rights Access

FY2013

n/a

MCC Natural Resource Mgmt

FY2013

42%

Conversion and Transfer Policies

In past years, foreign investors have encountered difficulties in legally transferring their net profits abroad. Companies generally unloaded their kyat earnings as quickly as possible. In addition, U.S. sanctions imposed in 2003 prohibited the export or re-export of financial services to Burma, which eliminated dollar denominated transactions and essentially cut off Burma from the world’s financial system. However, there have been several major changes to the financial and banking system in Burma over the last year, including:

In October of 2011, the Central Bank of Myanmar allowed 11 domestic banks to exchange foreign currency and allowed these banks to conduct international currency transactions in April 2012. Under current Burmese law, foreign banks are not allowed to operate in Burma, although they are allowed to set up representational offices to explore the market. In 2012, a number of foreign banks set up representational offices in Rangoon.

In the past, Burma had multiple exchange rates with a grossly overvalued official rate of 6 kyat to the dollar. On April 2, 2012, Burma’s multiple exchange rates were abolished and the Central Bank of Myanmar established a managed float of the Burmese kyat with an initial auction at 818 kyat per one U.S. dollar. In the subsequent nine months of the managed float, the Central Bank has allowed the currency to depreciate, with the kyat hitting a low of 885 kyat / dollar in July 2012; as of January 2013, the rate stands around 852 kyat / dollar.

In July, the United States Department of Treasury issued General License No. 16, which authorizes the export or re-export of financial services to Burma. The General License does not apply to the Burmese Ministry of Defense or any state or non-state armed group, or any entity in which the foregoing own a 50 percent or greater interest. Over the last six months of 2012, Burma slowly re-connected to the world’s financial system, and U.S. payments companies such as Western Union, Visa, and MasterCard all entered the market. As of December 2012, two Burmese banks have ATMs which allow withdrawals from Visa and MasterCard holders.

According to the new Foreign Investment Law passed in November 2012, foreign investors have the right of remittance of foreign currency. Foreign investors are allowed to remit foreign currency overseas through banks which are authorized to conduct foreign banking business at the prevailing exchange rate.

In practice, the transfer of money in or out of Burma has been difficult, as many international banks have been slow to update their internal prohibitions on conducting businesses in Burma given the long history of U.S. and European sanctions that had isolated the sector. Despite the absence of any legal impediment, it appears that some U.S. banks are still refusing to conduct money transfers to and from Burma.

The recent changes are leading to a rapid expansion of the formal banking sector, with significant growth in deposits, lending, and new bank branches. Post estimates that total bank deposits by the end of September 2012 were over $10 billion, up from approximately $7.6 billion at the end of 2011, according to official figures published by Burma’s Central Statistical Organization. Despite recent reforms, however, Burma’s banks continue to face a number of significant regulatory restrictions that limit the growth of deposits and lending. As these limits are eased in the coming months and years, prompting further growth, the GOB will need to address weaknesses in the country’s supervisory and regulatory framework and in the internal business practices of private and government-linked banks.

Expropriation and Compensation

According to Article 28 of new Foreign Investment Law passed in November 2012, foreign investments approved by the Myanmar Investment Commission will not be nationalized during the term of their investment. In addition, the law guarantees that the GOB will not terminate an investment enterprise without reasonable cause, and on upon expiry of the contract, the GOB guarantees an investor the withdrawal of foreign capital in the foreign currency in which the investment was made.

Aside from the possibility of outright expropriation by the Government of Burma, private businesses have been subject to predatory practices by regime-linked cronies. Given the extremely weak rule of law in Burma and the pervasive and powerful system of patronage, larger and more well-connected entities have generally been able to muscle out smaller competitors by denying access to markets, forcing the sale of assets, or otherwise disrupting business operations. However, public scrutiny of businesses is beginning to increase, due to a more free and vibrant local press and an increasingly energetic Parliament, and beginning to limit – or at least reduce the overt exercise of –such practices.

Dispute Settlement

According to Article 43 of the new Foreign Investment Law passed in November 2012, when disputes cannot be settled amicably between the parties concerned, the dispute should be settled according to the provisions of the contract or in accordance with Burmese law if the contact contains no dispute settlement provisions. However, as the law has only recently been passed and its implementing regulations remain to be issued, foreign investors have not been able to verify the disputes settlement provision in practice.

In the past, private and foreign companies suffered major disadvantages in disputes with GOB and quasi-governmental entities. Foreign investors generally prefer to use the 1944 Arbitration Act, which allows for international arbitration. The Burmese government usually tried to stipulate local arbitration in all contracts it signed with foreign investors. In the past, the former regime closely controlled the legal system in Burma.

Courts are neither independent nor impartial, so local arbitration is not reliable. Companies facing adverse administrative decisions have no recourse. Burma is not a member of the International Center for the Settlement of Investment Disputes, nor is it a party to the New York Convention. However, government officials are beginning to discuss and to signal their interest in signing on to the New York Convention.

The Attorney General's Office and the Supreme Court ostensibly control the legal system in Burma, but neither body is independent of the government. Burmese criminal and civil laws are modeled on British law introduced during the colonial period, which ended in 1948. Every township, state, and division has its own law officers and judges. Following the transfer of power to a civilian government in March 2011, the regional military commanders and military authorities at the township, state, and divisional level no longer have supreme de facto authority over judicial decisions at the local and state/division level, although they still wield considerable influence that varies from region to region.

There is no bankruptcy law in Burma.

Foreign companies have the right to bring cases to and defend themselves in local courts. As the courts are tightly controlled, foreign investors involved in conflicts with the government are unlikely to receive compensation.

Performance Requirements/Incentives

According to Article 27 of the November 2012 Foreign Investment Law , in order to promote foreign investment the GOB will grant new investors a five year tax holiday with an option for further exemption if the enterprise is “beneficial to the State.” The new Foreign Investment Law also details several other exemptions and reliefs such as a three year exemption on custom duties and the relief from commercial tax for goods produced for export. In addition, Article 27 (j) grants an exemption from customs duty or other internal taxes for any machinery or equipment, or materials imported in order to expand the business.

According to Article 24 of the new Foreign Investment Law, for new foreign investment funded enterprises must have Burmese citizens comprise 25% of their total skilled employees/workforce by the first two years of operating, 50% by the subsequent two years, and 75% by the third two-year period. However, the law does grant the Myanmar Investment Commission power to extend the time limit to employ Burmese workers for “knowledge-based business.”

Any enterprise operating under the FIL or the Myanmar Companies Act must pay income tax at a 25 percent tax rate effective on April 1, 2012. Withholding tax on royalties and interest is 15 percent for resident foreigners and 20 percent for non-resident foreigners. Tax collection in Burma is, in practice, extremely lax, but foreign investors are an easy target for cash-strapped tax authorities. The Burmese fiscal year ends March 31; tax returns are due by June 30.

Right to Private Ownership and Establishment

By law, foreigners may not purchase and own land or condominiums in Burma, and – until September 2011 – could only rent property on a short-term basis, with leases typically limited to one year. However, according to Article 31 of the new Foreign Investment Law , foreign investors may, depending on the type and value of investment, lease land for a period of up to 50 years and renewable for a further two 10-year periods.

It is important to stress that the foreign entity must first obtain permission from the MIC in order to lease land in Burma. In addition, a private entity can establish, buy, sell, and own a business only with the review and approval of the MIC.

Most real estate transactions in Burma require cash, although banks have begun limited introduction of a consumer lending product that resembles a mortgage loan. Regular bank loans are difficult to obtain and are not available directly to foreigners.

Protection of Property Rights

On paper, Burma has a legal system which protects and facilitates the acquisition and disposition of property such as land and buildings. However, judicial decisions are often made through personal relationships or bribes, resulting in a judicial process that is corrupt and unfair. Burma also suffers from an antiquated legal system and outdated legislation; many laws are vague and often subject to manipulation. A lack of rule of law and an ineffective, corrupt judiciary pose major challenges for U.S. private sector constituents looking to do business in Burma. Furthermore, local entities may engage in deceptive, coercive activities by bribing local judges or using personal connections to obtain favorable judgments.

Burma does not have adequate IPR protection. Patent, trademark, and copyright laws and regulations are all deficient in regulation and enforcement. After Burma joined ASEAN in 1997, it agreed to modernize its intellectual property laws in accordance with the ASEAN Framework Agreement on Intellectual Property Cooperation. A Committee for IPR Implementation, established in July 2004, has worked toward approval of a new law, with assistance from the World Intellectual Property Organization, which Burma joined in 2001. The GOB has completed the draft of the new IPR law, but has not yet submitted it to Parliament for approval. The World Trade Organization (WTO) has delayed required implementation of the TRIPS Agreement for Least Developed Nations until 2013.

The registration of patents and designs in Burma is still governed by the Indian Patents and Designs Act of 1911, enacted under British colonial rule.

The piracy of music CDs, video CDs, CD-ROMS, DVDs, books, software, and product designs is evident nationwide, especially in border regions and in the two major urban centers of Rangoon and Mandalay. Most consumers of IT products in Burma, both in the private sector and in government, use pirated software. Given the small number of local customers, poor state of the economy, and lack of infrastructure (e.g., unreliable electricity for manufacturing), piracy does not have a significant adverse impact on U.S. products.

Burma has no trademark law, although trademark registration is possible. Some firms place caution notices in local newspapers to declare ownership of their trademarks. After publication, the owners can take criminal and/or civil action against trademark infringers. Title to a trademark depends on use of the trademark in connection with goods sold in Burma. The British colonial government published a Copyright Act in 1914, but neither the colonial government nor the GOB ever instituted a means to register copyrights. Thus, there is no legal protection in Burma for foreign copyrights.

Transparency of the Regulatory System

Burma lacks regulatory and legal transparency. Though the current Thein Sein government that took office in March 2011 has made initial efforts to become more transparent, in the past all existing regulations, including those covering foreign investment, import-export procedures, licensing, and foreign exchange, were subject to change with no advance or written notice. The government continues to issue new regulations or laws with no advance notice and little if any opportunity for review or comment by domestic or foreign market participants.

However, in 2012 the GOB published new regulations and laws much more frequently than in 2011 in government-run newspapers as well as in "The Burma Gazette."

Burma's written health, environmental, tax, and labor laws do not impose a major burden on investment. However, the unpredictable nature of the regulatory and legal situation – and irregular enforcement of existing laws -- makes investment in Burma extremely challenging without good and well-connected local legal advice. See the Preface and Openness to Foreign Investment section for further details of the legal and regulatory system.

Efficient Capital Markets and Portfolio Investment

Burma has extremely small equity and debt markets (off-limits to foreigners), and average citizens do not have portfolio investments. Banks are the primary buyers of government bonds issued by the Central Bank of Myanmar (CBM), which has established a fledgling bond market auction system. The CBM issues Government Treasury Bonds with maturities of 2, 3, and 5 years. There is one stock exchange, the Myanmar Securities Exchange Center (MSEC), a joint venture of Myanmar Economic Bank and Japan’s Daiwa Institute of Research, which operates largely in name only and also conducts over-the-counter trading of government bonds. The CBM signed an MOU in 2012 with the Tokyo Stock Exchange and Daiwa Securities Group to set up a real stock exchange by 2015. A few Burmese companies sell bonds privately on a very small scale. Private companies, whether foreign or domestically controlled, are generally small in size. Usually, a small number of people or entities, often within the same family, closely hold the business shares. There is no securities law, although draft legislation is being considered within the government.

Please see the “Conversion and Transfer Policies” section for an overview of Burma’s banking sector.

International accounting firms PriceWaterhouseCoopers and KPMG both opened offices in Burma in 2012.

Competition from State-Owned Enterprises (SOEs)

Private enterprises do not compete on the same terms and conditions as SOEs. The GOB reserves for – or requires joint ventures with – SOEs in many lucrative sectors and sectors deemed sensitive. Corporate governance of SOEs is not transparent, and they are not required by law to publicly release annual reports. Burmese SOEs are inefficient and not likely to be able to compete with the private sector, especially foreign companies, on a level playing field. SOEs are active in the following sectors: agriculture and irrigation, banking, communications, construction, electricity, oil/gas, airlines, mining, and railways.

The GOB also requires that SOEs use only state-owned banks for their financial transactions.

However, during 2012 the GOB began taking steps to reduce SOEs’ reliance on government support and to make them more competitive through joint ventures. This included reducing budget subsidies for financing the raw material requirements of SOEs. The GOB also continued efforts to privatize or lease enterprises and real estate properties to both foreign and domestic investors. Additional tenders for the sale or lease of SOEs and properties are expected during 2013.

Burma does not have a sovereign wealth fund.

Corporate Social Responsibility (CSR)

Burma does not have a deep awareness of Corporate Social Responsibility (CSR) due to the long history of U.S. and European sanctions and lack of exposure to Western business practices. Many private companies are owned by foreign nationals from China, South Korea, Japan or ASEAN countries, and while some individual owners may practice some form of CSR, such practices are largely absent in the Burmese market. In addition, there is no evidence that the GOB enforces domestic laws with regard to labor or employment rights, given the lack of rule of law in Burma. A number of U.S. companies are actively incorporating CSR as an integral part of their entry (or pre-entry) strategy for Burma.

The GOB does not have in place corporate governance, accounting, or executive compensation standards.

Burma is a deeply religious country with the majority of its residence practicing the Buddhist religion which holds that one may increase one’s standing in the cycle of reincarnation by “making merit” through acts of charity. As a result, some Burmese business owners, including so-called cronies, often donate money, build schools, hospitals, low-rent apartments or even pay above the market wage as a result of their Buddhist faith. In addition, since 2011 Burmese civil society organizations have become more vocal in protesting against companies or government sponsored projects which they view as violating environmental or social standards. For example, in response to civil society’s opposition for environmental reasons to a planned Chinese dam in Myitsone, President Thein Sein suspended the project in September 2011.

Political Violence

Over a period of years, Burma has experienced sporadic bombing attacks. In April 2010, a series of explosions among a crowd of revelers at a Water Festival celebration in Rangoon killed at least ten people and wounded as many as 170. In June 2011, bombings targeted a variety of local facilities, including government offices, public restrooms, a public phone booth, markets, and in one instance a train traveling from Mandalay to Rangoon. There have been several small explosions in Rangoon and other Burmese cities as recently as June 2012, and authorities regularly claim to discover such devices at various locations throughout Burma. In most cases, no groups claim responsibility and no one is arrested after the bombings. There is no indication that these attacks targeted U.S. citizens or U.S. interests.

For decades, there has been anti-government insurgent activity in various locations, particularly near Burma's borders. In April 2012, a handmade grenade bomb went off and killed an immigration officer at a checkpoint at Muse, a city on the border with China in Burma’s north. These border areas have seen sporadic fighting between government forces and insurgent groups throughout the past 50 years.

In 2012, the U.S. Embassy in Rangoon issued cautions to U.S. citizens to avoid travel to Kachin and Rakhine States because of escalating violence in these areas. In Kachin State, in northern Burma on the border of China, armed clashes between the Kachin Independence Army (KIA) and the Burmese Army have been ongoing since June 2011 and have reportedly displaced up to 100,000 people. The violence continues to affect civilians; on April 29, 2012, an improvised explosive device exploded on a passenger train bound for Myitkyina, the capital of Kachin State and injured two people. In Rakhine State, situated on the border of Bangladesh in southwest Burma, sectarian violence in June and again in October 2012 left many local residents dead and hundreds homeless. Violence between Buddhists and Muslims was centered around Rakhine State’s capital, Sittwe, and in other northern areas of Rakhine State.

For the latest security information, U.S. citizens living and traveling abroad should regularly monitor the Department of State’s Consular Affairs website at http://travel.state.gov, where the current Worldwide Caution, Travel Alerts, Travel Warnings and health-information resources can be found.

Corruption

Corruption is endemic in Burma. Many economists and businesspeople consider corruption the most serious barrier to investment and commerce in Burma. Due to a complex and capricious regulatory/legal environment and extremely low government salaries, rent-seeking activities are ubiquitous. From the smallest transactions to the largest, little can be accomplished without paying bribes. In its 2012 Corruption Perceptions Index, Transparency International rated Burma fifth worst in the world (after Somalia, North Korea, Afghanistan and Somalia).

Since 1948, corruption is officially a crime that can carry a jail term. However, in the past, the ruling generals applied the anti-corruption statute only when they wanted to take action against a rival or an official who had become an embarrassment. Most citizens view corruption as a normal practice and requirement for survival. The major areas where investors run into corruption are when seeking investment permission, in the taxation process, when applying for import and export licenses, and when negotiating land and real estate leases.

Bilateral Investment Agreements

Burma has signed several bilateral investment agreements, also known as "Protection and Promotion of Investment" agreements, with the Philippines, China, Laos, Vietnam, Thailand, Kuwait and India. These agreements have had little impact on enhancing incoming investment from other countries in the region. Investment treaty discussions are still underway with Korea, and Japan began discussions with Burma in 2012 on a bilateral investment protection treaty. Burma has bilateral trade agreements with the Republic of Korea, China, Thailand, Bangladesh, India, Pakistan, Vietnam, Laos, Philippines, and Malaysia in the Asian region, as well as with a number of Eastern European countries.

OPIC and Other Investment Insurance Programs

OPIC programs are not yet available for Burma. Burma is not a member of the World Bank's Multilateral Investment Guarantee Agency (MIGA).

Labor

Until March 2012, independent labor unions were illegal in Burma, and workers were not allowed to organize, negotiate, or in any other legal way exercise control over their working conditions. However, in October 2011, the GOB passed the Labor Organization Law, which legalized the formation of trade unions and allows workers to go on strike for the first time in Burma’s modern history. The Labor Organization Law took effect in March 2012 and the law’s implementation was followed by at least 50 separate collective bargaining actions from March through May 2012, with sporadic strikes throughout the remainder of the year. Trade unions began to form in March 2012, and as of December, roughly 400 enterprise level unions have been formed in a variety of industries ranging from garments/textiles to agriculture to heavy industry. Though the passage of the Labor Organization Law has engendered a nascent labor movement in Burma, due to the former suppression of the labor movement, there is a very low level of awareness of labor issues among workers, employers, and even government officials.

Although government regulations set a minimum employment age, wage rate, and maximum work hours, managers do not uniformly observe these regulations, especially in the private sector. In 2009, the Ministry of Finance and Revenue set the minimum wage at 1000 kyat (roughly $1.17) per day. The Ministry of Finance and Revenue raised government salaries on January 1, 2010 but did not revise the minimum wage for other workers. An average worker in Burma earns about 1500 kyat (roughly $1.76) per day, although this amount can be more or less depending on the type of work and whether it is in urban or rural areas.

Burma's labor costs are very low, even when compared to most of its Southeast Asian neighbors. Older Burmese, particularly those over 65 years of age, are generally well-educated, but the lack of investment in education by the GOB and the repeated closing of Burmese universities over the past 20 years have taken a toll on the country's young. Skilled labor and managerial staff are in high demand and short supply, leading to high turnover. Most in the 15-39 year old demographic group lack technical skills and English proficiency. Many older educated Burmese studied English in mission schools during the British colonial and early independence period. The military nationalized schools in 1964 and discouraged the teaching of English in favor of Burmese.

The GOB has utilized forced labor in its construction and commercial enterprises and for porterage and military building. These labor practices are inconsistent with Burma's obligations under ILO Conventions 29 and 87. In March 2012, the GOB passed the Ward or Village Tract Administration Law which defines, prohibits and criminalizes the use of forced labor in Burma, and simultaneously repealed an old colonial era law that had sanctioned the practice. The ILO imposed sanctions against Burma in 2000 but in June of 2012 suspended its sanctions in recognition of the progress on forced labor by the Thein Sein government. The ILO continues to work with the Burmese Government on forced labor issues under the Supplementary Understanding on Forced Labor which was signed in February 2007 and renewed in January 2012. The United States strongly supports ILO activities in Burma.

Although the government does not publish unemployment figures, anecdotal evidence indicates a high level of unemployment and underemployment in formal, non-agricultural sectors. The IMF estimates a 4.02% unemployment rate in 2012.

Foreign Trade Zones/Free Ports

The government has set aside 19 "industrial zones," large tracts of land surrounding Rangoon, Mandalay, and other major cities. These areas are, however, merely zoned for industrial use. They do not come with any special services or investment incentives. The GOB has developed a draft industrial zone law, which has not yet been publicly released.

There are three Special Economic Zones (SEZs) in Burma. Two (one in Dawei in Tanintharyi Division, and one at Kyauk Phyu off the western coast of Rakhine State) are being developed as deep sea ports. Kyauk Phyu and Dawei are at the very early stages of development. Thailand-based Italian-Thai Development Public Company Limited (ITD) is the project developer of the Dawei SEZ. The third is the Thilawa SEZ on the outskirts of Rangoon, which already hosts port facilities that can accommodate larger vessels and container throughput than can the inner ports of Rangoon.

Burma enacted a Special Economic Zone (SEZ) Law in January 2011. The SEZ Law includes the following incentives for investors:

(a) Investors may apply for income tax exemption on the proceeds of export sales for the first five years from the day of commencement of production or service;

(b) Investors may apply for fifty percent relief on income tax rate stipulated under existing Law for the second five years on proceeds from export sales; and

(c) For the third five-year period, if the profits obtained from export sales are re-invested, the investor may apply for fifty percent relief on the income tax rate stipulated under existing Law on the invested profits.

Shortly after enacting the SEZ Law, the GOB also enacted separate laws for the Dawei SEZ in the southeastern Tanintharyi Division (near the border with Thailand) which appears to substantially mirror the SEZ Law.

Foreign Direct Investment Statistics

Investment figures compiled by the Burmese government include only investments approved by the Myanmar Investment Commission, only a fraction of which go forward. No statistics exist for disinvestment. The figures do not appear to include many small and medium Chinese investments.

Based on data available at the end of December 2012, cumulative foreign direct investment approved by the MIC totaled 529 projects, valued at $41.49 billion. This is 2.5 percent higher than the cumulative total listed at the end of November 2011, $ 40.4 billion.

According to the latest GOB statistics, FDI approvals for Burmese FY 2011-2012 (April-March) totaled $4644.460 million, compared with FDI approvals of $19998.965 million in FY 2010-2011. Total FDI approvals for April-September 2012 totaled $398.41 million and the leading sectors for this fiscal year, thus far, have been power ($193.778 million), oil and gas ($118.900 million), manufacturing ($75.157 million), and agriculture ($9.650 million).

The vast majority of approved new investment since 1997 has come from Asian countries. Western countries have largely stayed away from the Burmese market, largely due to the abysmal investment climate, including an absence of rule of law, economic mismanagement, and endemic corruption. Also serving to block foreign investment were economic sanctions (now largely lifted or suspended) levied by a number of Western governments including Australia, the United Kingdom, the European Union, and the United States. There was no new U.S. investment after 1997 when the U.S. government imposed an investment ban.

However, in 2012, the United States, the United Kingdom, the European Union, Australia, all eased their bans on investment in Burma. On July 11, 2012 the United States Department of Treasury issued General License No. 17 which authorizes new U.S. investment in Burma. The General License allows new investment in all sectors with the exception of investment with the Burmese Ministry of Defense, state or non-state armed groups (which includes the military), or entities owned by the foregoing. Moreover, the core legal authorities underlying the U.S. sanctions remain in place. U.S. persons are still prohibited from dealing with blocked persons, including both listed Specially Designated Nationals (SDNs) as well as any entities 50 percent or more owned by an SDN. The Treasury Department’s Office of Foreign Assets Control (OFAC) publishes a list of SDNs available at www.treasury.gov/resource-center/sanctions/SDN-List/Pages/default.aspx.

The United States remains concerned about the protection of human rights, corruption, and the role of the military in the Burmese economy and as such requires all new U.S. investment in excess of $500,000 to be subject to certain reporting requirements available at http://www.humanrights.gov/2012/07/11/burmaresponsibleinvestment/. There are several components to these reporting requirements. Investors will be required to file reports with the State Department on an annual basis, to include a version of the report that the Department will make publicly available, consistent with relevant U.S. law. Key information that companies will report on include information regarding policies and procedures with respect to human rights, workers’ rights, environmental stewardship, land acquisitions, arrangements with security service providers, and, aggregate annual payments exceeding $10,000 to Burmese government entities, including state-owned enterprises. The purpose of the public report is to promote greater transparency and encourage civil society to partner with our companies toward responsible investment. The above reporting requirements apply to any new investment, whatever corporate form it might take.

In addition, individuals or entities undertaking new investment pursuant to an agreement, or pursuant to the exercise of rights under such an agreement, that is entered into with the Myanma Oil and Gas Enterprise (MOGE) must notify the State Department within 60 days of their new investment.

According to GOB statistics for 2012, in stock terms, the United States is the ninth largest foreign investor in Burma, with 15 approved projects totaling $243.6 million. All such investments occurred prior to the 1997 imposition of U.S. sanctions and were grandfathered under the law. Pre-May 1997 U.S. investments are largely concentrated in oil and natural gas exploration.

Major non-U.S. foreign investors in Burma are concentrated in resource extraction and include: Petronas (Malaysia), Total (France), PTTEP (Thailand), Shin Satellite (Thailand), Keppel Land (Singapore), Daewoo (South Korea), China National Construction and Agricultural Machinery Import and Export Co. (PRC), Gas Authority of India Ltd. (GAIL) (India), CNPC (PRC) and the China International Trust and Investment Corporation (PRC).

Government statistics do not report external investments made by Burmese companies. However, there is anecdotal information that some wealthy Burmese individuals and small family businesses have made investments in China and in neighboring ASEAN countries, especially Singapore.

FOREIGN INVESTMENT APPROVALS AS OF 12/31/2012

BY SECTOR

(Millions of US Dollars)

If a scroll bar appears below the following table, swipe the table to move left/right of the dashed line.

Sr.
No

Particulars

Permitted Enterprises

No.

Approved
Amount

%

1

Power

5

19067.498

45.95

2

Oil and Gas

113

14181.972

34.18

3

Mining

67

2829.694

6.82

4

Manufacturing

216

1910.778

4.61

5

Hotel and Tourism

46

1364.811

3.29

6

Real Estate

19

1056.453

2.55

7

Livestock & Fisheries

26

329.958

0.80

8

Transport & Communication

16

313.906

0.76

9

Industrial Estate

3

193.113

0.47

10

Agriculture

9

182.751

0.44

11

Construction

2

37.767

0.09

12

Other Services

7

24.692

0.06

Total

529

41493.393

100.00

CUMULATIVE FOREIGN INVESTMENT APPROVALS AS OF 12/31/2012

BY COUNTRY

(Millions of US Dollars)

If a scroll bar appears below the following table, swipe the table to move left/right of the dashed line.

Sr.
No

Particulars

Permitted Enterprises

No.

Approved
Amount

%

1

China

41

14167.943

34.15

2

Thailand

61

9568.093

23.06

3

Hong Kong

43

6374.36

15.36

4

Republic of Korea

74

2976.73

7.17

5

U.K*

54

2799.185

6.75

6

Singapore

78

1858.83

4.48

7

Malaysia

43

1031.285

2.49

8

France

2

469.000

1.13

9

Vietnam

5

349.796

0.84

10

India

8

273.500

0.66

11

Japan

31

259.860

0.63

12

The Netherlands

7

249.136

0.60

13

U.S.A

15

243.565

0.59

14

Indonesia

12

241.497

0.58

15

Philippines

2

146.667

0.35

16

Russia Federation

2

94.000

0.23

17

Australia

14

82.080

0.20

18

Austria

2

72.500

0.17

19

Panama

2

55.101

0.13

20

United Arab Emirates

1

41.000

0.10

21

Canada

15

40.791

0.10

22

Mauritius

2

30.575

0.07

23

Germany

2

17.500

0.04

24

Republic of Liberia**

2

14.600

0.04

25

Denmark

1

13.370

0.03

26

Cyprus

1

5.250

0.01

27

Macau

2

4.400

0.01

28

Switzerland

1

3.382

0.01

29

Brunei Darussalam

1

3.040

0.01

30

Bangladesh

2

2.957

0.01

31

Israel

1

2.400

0.01

32

Sri Lanka

1

1.000

0.00

Total

529

41493.393

100.00

*Inclusive of enterprises incorporated in British Virgin Islands, Bermuda, and the Cayman Islands.

**The name and promoter and principal organization changed from Singapore to Republic of Liberia.

Contact information for the MIC:

Chairman
Myanmar Investment Commission
Office No.32, Nay Pyi Taw
Myanmar
Tel: 067-406075, 067-406342, 067-406122 (Director General)
Contact: U Aung Naing Oo, Director General, Directorate of Investment and Company Administration (DICA)

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