As the country looks to attract foreign money to boost the economy, a sketchy and opaque legal system makes investors think twice
One year after the National League for Democracy ‘s landslide win in Myanmar’s historical elections, many were hoping the country would witness an economic boom, helped by a new international image. State Counselor Aung San Suu Kyi cleaned up the country’s troubled past in September when President Barack Obama announced the lifting of remaining US sanctions. A month later, a new Investment Law was ready to hit Parliament. But even so, all the lights are not green and the economy will have a hard time meeting expectations.
The country’s opening in 2011 under the semi-civilian government of President Thein Sein breathed welcome life into the economy, with growth reaching 8.5% in 2013-2014. But the initial euphoria has since given way to more temperate expectations at the extent of the structural hurdles that remain became clear.
“This country is not a particularly attractive place to invest in in the current economic climate since companies are risk averse and this is a high-risk market,” said Vicky Bowman, founder of the Myanmar Center for Responsible Business.
“Investing in any developing jurisdiction like this inevitably involves more risk and more complications than investing in a developed jurisdiction like Hong Kong or Singapore,” adds Robert San Pe, a partner in the Hong Kong office of Gibson, Dunn & Crutcher LLP, who is of Anglo-Myanmar heritage and served as senior adviser on legal affairs to Aung San Suu Kyi.
The key to the problem pretty much lies in a dusty legal system, which makes it a positive ordeal for foreign companies to enter the country. Laws are old, sometimes dating back to colonial times, and are challenging to understand, when they make any sense at all. First thing is to assess it properly, then to find an accurate translation.
For Vicky Bowman, “the first step when investing responsibly is to obey the law. But when laws are so opaque and uncertain, that’s a real challenge for companies.”
Theory and practice
There is a large gap between theory and practice, between knowing the law and enforcing it. According to the initial World Bank Investment Climate Assessment, an obscure legal environment coupled with corruption makes the interaction between firms and the government challenging.
Strolling through the streets of Yangon, it is not unusual to stumble upon an old, crumbling colonial-era office building inside of which is hiding a functioning arm of the government. It’s as if it was trapped in some time long-past, while outside the country is racing into the modern era.
Lack of capacity in administrative organs is severe, often resulting in random enforcement and unpredictable interactions with officials. While foreign investors come equipped with a set of lawyers, government officials tend to have little knowledge of the law. More than five decades of military rule produced civil servants keener to avoid decisions so as to not get into trouble.
“Even once you do have access to the written law, then you still need to deal with different government ministries and, in the past, it was not really the law that mattered, it was the practice of those different ministries or each individual civil servant with whom you were dealing. The current government is working to address that disconnect, but it will take time,” Pe adds.
On top of that, corruption remains endemic, as the World Bank Enterprise Survey 2014 suggests. Getting an operating or import license or dealing with officials on some transactions may still demand a bribe at some point. Given the long reach of anti-graft laws such as the Foreign and Corrupt Practices Act in the US and Britain’s Bribery Act, together with prosecutors’ zeal for enforcing them, that has become a real impediment to foreign investment.
“The key to success of a business is the trust, which can be earned only through doing things properly. We should let the world know we’re doing business in the right manner,” Aung San Suu Kyi told the Myanmar Entrepreneurship Summit in September, according to Mizzima magazine. “To put it in a nutshell, we need to be free from corruption.”
Despite the NLD government’s promises to tackle the issue, the informal transactions known as “tea money” are deeply rooted in a junta system with low-paid civil servants, many of whom relied on a patron-client relationship to make ends meet.
“The current government has set a strong tone from the top when it comes to combating corruption – there are now notice boards at government ministries making clear that gifts cannot be accepted. However, corruption has been endemic here for decades and it will obviously take time to eradicate it,” Robert San Pe explains.
As the NLD government is taking up on the arduous task of making sense of it all, there is no doubts that recent efforts undertaken like the drafting of the new Investment Law are a step in the right direction toward holding the promises of development and growth.