How to invest in Myanmar, Corporate Structuring and doing business in Myanmar

Frontier investment is not for the meek or mild. There are real threats of police, military or government corruption – banking issues, corporate governance issues, and local resistance to foreign development. If you do find success, you may have your business taken from you forcefully. If you decide to place a market flag in a frontier economy, real power rules.

However difficult frontier investing may be, the upsides can be tremendous. There are unmet needs that entrepreneurs can fulfill. Any emerging economy has problems that need solving – and businesses that can solve those problems can see enormous growth in these markets.

One of the last frontiers in Asia is the large and plentiful country of Myanmar, which has recently opened up to foreign investment in new ways. This article aims to detail:

1. Why investing in Myanmar is attractive
2. How to start a company in Myanmar
3. Tips to investing in Myanmar
4. Interview with an entrepreneur living in Yangon.

Why Myanmar?

For decades the country of Myanmar has been essentially closed off to foreign investment, from much of the west anyway. Make no mistake, Burma does have some wealth generated from exporting oil and natural gas to China, as well as illegal gem trades and other types of smuggling and trafficking activity.

However, 2012 marks the first time when Burma will become ‘open’ to foreigners due to the country showing a willingness to modernize and ease off the military dictatorship which has rocked the country for decades.

Myanmar has incredible mineral, gas and gem deposits, cheap labor, and is located in a key strategic position in South East Asia.

Investing in Myanmar is a highly attractive option for private equity funds, and funds of funds who are attracted by the proposition of high growth potential. While putting your money in Singapore or Hong Kong might be safer, doing business in Myanmar represents a chance to ride the wave of growth.

The country is strategically located directly south of China, sandwiched between India and Bangladesh to the west and Thailand to the East. Certainly, the country is poised for growth, but does that mean you too should jump in on the game?

Too early to tell.

Most research reports point out that the country still maintains a rather restrictive foreign investment policy – and the revised law has been continually stalled. There are also questions as to whether the military will again seize control, or the country will continue its progress towards a capitalist democracy.

5 Tips to invest in Myanmar

#1 Set up the Myanmar Company through an offshore shell

See how to set up a Company in Myanmar – Covered later in this report. If you are going into Myanmar, you need to invest through a company (owned by 2 persons, with at least $50,000) However, due to incomplete and almost non-existent banking in Myanmar, the money can be held in a foreign account. The main shareholder in the Myanmar company could be a Singapore or Hong Kong legal entity – which would provide the company with a chance to potentially lower taxes, maintain a great legal address, and trade more easily with affiliates and suppliers because any disputes could be solved in a more established court system. If your main concern is cost – go with a Hong Kong holding company. If your main concern is reputation, accountability or arbitration – go with a Singapore holding company.

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How to set up a Company in Myanmar

There are a few things required for foreigners who want to invest in Myanmar and start a company.

Firstly, there must be at least 2 persons who are involved in the venture. Both must have their passports endorsed by the Myanmar Embassy.

Each person must show an account balance for 50,000 USD (for service-based companies) and 250,000 USD (for Industrial Companies). This should be certified by the Myanmar Embassy. The Bank account doesn’t need to be in Myanmar (it could be in Singapore, for instance) and can be a corporate account.

If the shareholders of the Burmese company will be a foreign corporation, you must also submit:

• Memorandum and Articles of Association or of Charter
• Annual Report for the last two financial years and Profit and Loss Accounts for the last two financial years
• Appointed letter/ power of attorney for the Authorized Person
• Board of Directors resolution to open a company in Myanmar

All duly notarized and certified by the Myanmar Embassy in the country where the company is incorporated.

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It won’t be easy for investors doing business in Myanmar to find success. However, those who do see profit from the region will most likely be rewarded.

#2 Easy Win and Keep it simple

The best industries for development are ones that can capitalize on the extremely cheap labor available. Labor in neighboring Thailand is normally at least 40-50% higher, and this is considering that much of the unskilled labor in Thailand is comprised of Burmese workers.

Investment reports I have read have repeatedly stated the need to keep industry simple – as anything that requires a supply chain would be much more difficult to implement. The first planned private equity investments have involved: hotels (in Yangon, where there is a shortage of high quality short and long-term stays) special trade zone property, ports, power plants (bad electricity and this is an easy win business) fisheries, mining, gas, and mineral extraction.

According to the CIA, only 10-20% of the roads are paved, and getting around is not easy, thus, those projects located near ports will be the initial choice. Other ideas for investment include helicopter or seaplane flights.

Find a niche where you are a domain expert, where the business can be profitable early. Finding funding for Myanmar has proved difficult for many funds to this point – and although this may change in the future, it is important that the business be profitable from day 1.

#2 Rip, Pivot and jam

A popular strategy for any emerging market investor is to attempt to repeat a process where a past success in another country can be repeated. Thus, if we see that cheap manufacturing in China led to expansive growth when the country began to open in the 80’s, we could rip the cheap manufacturing, pivot to Myanmar, and jam all the way to the bank.

The key is to replicate the prior success that would be pedantic in developed markets but is an obvious easy win in a new country that is underdeveloped. Again, look for a business that has a proven concept elsewhere. Being the first mover to the market is a definite possibility, and if you are fast, you can be up and running quicker than multinational conglomerates which are by nature slower moving entities.

#3 Don’t Count on Transparency

If you put that money in the bank, and when you keep the all-important books – try not to hold money in (Myanmar currency) as trade won’t be facilitated as easily. Better currencies to trade with affiliates are the USD, CHY, SGN, and THB. The tax rate in Myanmar is officially about 25% – but they ranked dead last in the world on government income from taxes. That says something: Myanmar it is an emerging market that doesn’t have the rules, regulations, and transparency of the west. This can be either a hindrance or an advantage to invest in Myanmar, depending on how you play your cards. What is important, however, is not what you know, but who you know.

#4 Know the right people – Be Flexible

Myanmar, like quite frankly many countries in South East Asia, is a country where real power rules. It won’t matter if you hold title to a business if an army general decides it would be better if he owned the business rather than you. Although courts have recently passed laws providing for ‘equal compensation’ if a business is ever commandeered by the government. However, who knows how long, or if you would ever be compensated for the larceny. It’s best to only get involved in a project after you know the players – or if it is large enough that it couldn’t be easily stolen by an unscrupulous general.

#5 Pick the Right Horse

Conventional Wisdom not always right, and most people will try to look for raw materials or labor industries, and for them, this might be the right move. However, you are likely to attract more attention with a mining operation, than a smaller business in the consumer market that flies under the radar, and won’t attract the attention of generals. See this interview below with a current entrepreneur living in the capital of Yangon.

The military controlled most of the industry to this point, with state run enterprises making up most of the economy. There are, however, some entrepreneurs. See this interview from Dawai Capital Markets…Myanmar inside perspective from a Singaporean expat who has lived in Myanmar for 9 years. He owns and runs a Yangon executive residence – Grand Mee Ya Hta

He figures the best investment opportunities in Myanmar may

not be in labour-intensive industries or raw-material exports, but in domestic consumption, at least when

targeted at the right demographic, which is where his activities are focused. Below, we explain why.

Poverty appears endemic, and for the majority of the population this is likely to remain true for many years to come. However, there is a segment of society that is not a part of the military, nor of Myanmar’s commercial elite, but which has nevertheless accumulated significant wealth over the decades of military rule and isolation from the global economy.

The success of this segment is borne out of natural-resources wealth, although due to the closure of the economy to the rest of the world and the totalitarian grasp of the governing regime, this wealth has been kept hidden for decades. As the CIA World Factbook notes, ‘official export figures are grossly underestimated due to the value of timber, gems, narcotics, rice and other products smuggled to Thailand, China and Bangladesh.

Now, as a result of Myanmar’s dramatic change in direction, this wealth is starting to emerge. The most obvious manifestation of this reintroduction of wealth into the economy is the rapid increase in Yangon land values, which would have also been heavily influenced by military and related parties seeking to

legitimise their own wealth. According to a Myanmar Times article on 28 February 2012, land prices in the most sought-after commercial locations of Yangon have increased by 300% over the past three years to about US$1,750 psf, and this has been driven entirely by local demand, as foreigners are not currently allowed to own property in Myanmar.

Of course, for this land investment to benefit the economy and not just be a better store of value than a pad-locked closet, Myanmar’s banking system needs to be rejuvenated to help finance development of these sites… banks have been mismanaged for years, which has been exacerbated by poor and unpredictable regulation, as well as international sanctions on financial transactions.

Financial reform, however, is happening in Myanmar, including the recent floating of the currency, the legalisation of mortgages and auto financing, the introduction of ATMs, and the planned opening of a stock exchange. The US, meanwhile, did in May ease financial sanctions.

According to Mr. Koh, a major destination for this hidden wealth besides property will be any business that supports infrastructure development, and the more mundane the better, such as power cabling for rebuilding the country’s decrepit electricity network, or the basic materials needed to renovate countless dilapidated buildings. What will be avoided are businesses that require skilled labour, due to the collapse in education standards as a result of the closure of schools and universities following the 1988 student-led popular uprising. Aung San Suu Kyi made a related point in her recent trip to Thailand, when she called on foreign companies to invest in training in Myanmar.

The dark side to this story is that the prior necessity to keep wealth hidden has produced an ambivalent attitude toward financial transparency. Whether Myanmar entrepreneurs will be able or even want to change decades of secretive habits for the benefit of foreign investors will have to be proven. Since auditing skills are as absent in Myanmar as any other talent that must be learned in an institution of education, a sign of how rapidly financial transparency is being accepted in the country will be the frequency that foreign accountants are hired.

Can foreigners own Land in Myanmar?

• Foreigners can rent land in Myanmar – the laws have recently made this slightly more attractive. Similar to Thai law in that foreigners can rent land but can’t buy it per se. A proxy or nominee could buy the land for you.
• Foreigners can’t directly own land, and they also can’t directly invest or buy out another business, they have to start from scratch.

Myanmar might be a risky place to put your money – but it is one of the few true emerging economies left in Asia, the others (East Timor, Bhutan, Sri Lanka, Maldives) do not have the natural resources that Myanmar does. Burma is a huge country with a shadowed past, and huge potential. Time will tell if placing money in the country pays dividends.

If you are interested in setting up a company and doing business in Myanmar, email us at [email protected] and we can discuss your goals during a consultation.