AN ISSUE that foreign investors often struggle with in Myanmar is the inability to import and sell their products directly.
Currently, it is common for foreign entities to have a local agent that imports and distributes their products in the market.
When a management team situated outside Myanmar feels that there is a suitably large market, they would generally set up an entity to assist the local importer with its marketing activities.
While there is no legislative restriction on granting import licences to these foreign companies to bring in goods directly, this has become the modus operandi for Myanmar regulators over the years.
However, last year, the authorities announced that they would allow foreign and local joint ventures to obtain import licences in various areas such as seeds, medical equipment, fertilisers and construction materials.
Much of these were responses to needs within the market to alleviate local supply issues and improve the lives of millions of farmers.
Availability, price and restrictions on land use are just some of the gripes of not only local businessmen but also foreign investors.
First, banks in Myanmar, including branches of foreign banks, usually require collateral before lending to businesses. As foreigners cannot own land in Myanmar, most investments such as in the construction of a manufacturing plant would be undertaken on land leased either from the state or from individuals.
However, banks cannot assume the lease in the event of a default, without specific investment approvals. This severely curtails the ability to lend.
Some countries with similar restrictions on foreign land ownership have set up procedures allowing banks to dispose of the collateral.
Another important issue that creates many obstacles for investors is the documentation that is available for proof of ownership of land.
Myanmar today has several types of land ownership. However, over the years many plots have changed hands, quite often more than once. More important, it is common that many transfers were never registered for myriad reasons.
Thus when investors looked to lease land or form a JV with local partners that would be contributing land to the JV, many landowners would not be able to provide documentation that proved they were the legal owners of the land. Many would only have the sales contract they had signed with the previous owner, which may not be the registered owner of the land as they had bought it from someone else.
Title or deed searches at registries can be similarly fruitless, as many of the transfers were never registered.
This combined with the multiple transfers of title make it highly unlikely that investors would be able to verify the ownership of land even before considering submitting an investment application to the Myanmar Investment Commission.
A few years back, Myanmar adopted an earlier version of the International Financial Reporting Standards to update its financial accounting requirements.
This made it much easier for foreign investors familiar with these standards to continue with their practices from their home countries – with a few exceptions.
However, when many foreign investors look to form JVs and examine in greater detail the financial statements of potential partners, they realise that most employed the more simplified requirements for small and medium-sized enterprises under the Myanmar Financial Reporting Standards (MFRS).
Even then, the documents supporting the financial reports are often lacking and it is really difficult to assess the value of the Myanmar partner’s entity and its corresponding assets.
Foreign-Myanmar JVs that have been established recently have generally been able to adopt MFRS in full through the use of head-office resources as well as the hiring of consultants to ensure that the accounting systems and processes are appropriately set up so that continued maintenance and upkeep is made simpler.
However, many local companies continue to struggle with these issues, especially if they are trying to raise funds or undertake borrowings from banks.
Myanmar has adapted to be more business-friendly and will likely continue to evolve under the current administration.
Although there have been some hiccups and slowdowns in approving investments over the first months of this new administration, it has shown that it is willing to listen to sensible advice and adopt sound, sustainable, business-friendly practices.
This is the final article in a two-part series. Thomas Chan is tax executive director at KPMG in Myanmar.