investment in myanmar and vietnam

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INVESTING AND DOING BUSINESS IN MYANMAR

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Agenda:

• An Introduction to Myanmar

• Investment in Myanmar • Why choose Myanmar?

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First impressions from Myanmar

Confucius never arrived!

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Myanmar at Glance: • Official Name: Republic of the Union

of Myanmar • Location: South East Asia • Neighbors: Bangladesh, China, Laos,

India and Thailand • Area: 676,578 Km2 • Capital: Naypyidaw • Largest city: Yangon (Rangoon) • Currency: Kyat (MMK) (01 USD =

1029.50 MMK) • Language: Burmese • Population: 61 million

MYANMAR IN 2014

GDP US$ 60 billion

GDP per capita US$ 910

GDP Growth 7.8 %

Inflation 6.6 %

Cumulative FDI as of Dec 2014

859 approved projects with a value at US$52.84 billion

Import turnover (2012)

US$ 17,670 million

Export turnover (2012)

US$ 9,203 million

Labor force 31.4 million

Minimum wage No general minimum wage Public sector: US$48.6/month Laborer: About US$1.94/day

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MYANMAR: Opportunities and Challenges

Recent democratic reform with new Union Government headed by President Thein Sein in March 2011

International sanctions are lifted and foreign firms eye on Myanmar

GDP growth rate is projected to average around 6 per cent per year until 2020, with GDP doubling to $124 billion by 2020

Myanmar has all the elements required to create another Asian economic miracle

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MYANMAR: Challenges

• The challenges of Myanmar: US$1,500 : Average productivity of a worker in Myanmar

today, about 70% below that of benchmark Asian countries 4 years of average schooling in Myanmar 10 million additional people to absorb in Myanmar large

cities by 2030 US$650 billion: Total investment needed by 2030 to support

growth potential, US$320 billion in infrastructure alone Election in November: Everybody is “on hold” until the

outcome of election

Source: McKinsey&Company

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MYANMAR: Opportunities Potential to achieve US$ 200 billion+ GDP in 2020, over four times

as high as today With spending potentially tripling from US$ 35 billion to US$ 100

billion, an estimated 10 million member of the consuming in 2030 from 2.5 million in 2010

Potential to create more than 10 million additional non-agricultural jobs by 2030

500 million people living in countries bordering Myanmar and the closest parts of China and India, a huge potential market

Source: McKinsey&Company

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INVESTMENT IN MYANMAR

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INVESTMENT IN MYANMAR - Introduction • With its natural and human resources and cultural and national heritage Myanmar

represents excellent potential for business investment.

• Myanmar welcomes foreign investments in all forms. The Government is intending to maintain good and strong economic relationship with all countries, all foreign organizations and individuals.

• An untapped market- rich in natural resources with a young population and a high number of English speakers.

• A fertile and resource-rich country strategically located in the heart of Asia, one of the world’s largest growing economic regions.

• Firms involved in precious stone, agricultural products or other industries may find Myanmar a fascinating place to begin developing longer term interests.

• Significant legal reforms aiming to improve investment climate:

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STRATEGIC INVESTMENTS: Most promising sectors • Construction and infrastructure: knowing that poor infrastructure may hold the country back,

Myanmar’s Government has accorded high priority to infrastructure development projects - such as roads, railways, bridges, ports facilities, airports, electric power, irrigation networks, communication systems, private schools construction, private hospitals, etc.

• ELECTRICITY/ENERGY: only about 15% to 20% of the total population are accessible to the electric power supply, and the rest have to rely on conventional natural resources… ELECTRICITY IS CRITICAL TO THE COUNTRY‘S DEVELOPMENT!

• Oil and gas: rich of oil and gas reserves, mostly unexploited, offering great opportunity for international bidders. World’s largest hydrocarbons companies such as Chevron, BP, Woodside, Shell, ConocoPhillips, ExxonMobil all expressed interest in entering Myanmar .

• Telecommunication: with population of over 60 million peoples, telecommunication is one of the most promising and lucrative industry.

• Mining: Myanmar is rich in mineral resources and minerals of potential importance are copper, gold, lead, zinc, silver, tin and tungsten, antimony, chromium and nickel. In terms of mineral potential, Myanmar ranks high among Asian countries, but mineral resources are very much under-utilized

• Other: forestry, agricultural, tourism.

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Form of Foreign Investment • Under the recent Foreign Investment Law 2012, foreigners are now

allowed to set up companies fully owned by them (whether this company was incorporated in Myanmar or abroad), or go into joint venture with any Myanmar citizen or the government of Myanmar!

• Any company with one or more foreign shareholders is classified as a Foreign Company, thus subject to Foreign Investment Law rather than Myanmar Companies Act (1914)

• Possibility of establishing a Special Company created under the Special Company Act of 1950 (where part of the equity belongs to the State)

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Form of Foreign Investment (cont.) • A foreign investor may incorporate in Myanmar a 100% foreign owned

company permitted by the Myanmar Investment Commission!

• A foreign company may establish a place of business or carry on business in Myanmar as a branch of a foreign incorporated company: by first apply for a Permit to Trade from the Ministry of National Planning and Economic Development.

• A foreign investor can join with any individual, firm, company, co-operative or state-owned enterprise from Myanmar to establish a joint venture either as a partnership firm or a limited company on the basis of a joint venture contract (ratio of foreign capital is now decided by the JV parties)

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Form of Foreign Investment (cont.) • Foreign companies with business relations or investment projects in

Myanmar may apply to set up representative offices in Myanmar (this being a common practice for banks).

• In contrast with a branch, a Representative Office of a company incorporated outside Myanmar is not allowed to perform direct commercial or revenue generating activities in Myanmar.

• However, it is permitted to liaise with its head office and collect data useful for the head office.

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General Types of Companies • Private Limited Liability Company

• Public Limited Liability Company

• Sole Proprietorship

• Company Limited by Guarantee with Share Capital

• Company Limited by Guarantee without Share Capital

• General Partnership

• Branch of a Foreign Company

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Capital requirement

• Minimum capital required to register for a Permit to Trade: Kyats 133,333,333 for an industrial company (~US$120,312) Kyats 66,666,666 for a trading company (~US$60,156) Kyats 40,000,000 for a service company (~US$36,094)

Note: Fifty percent (50%) of the prescribed capital must be brought in as foreign currency before the

Permit to Trade is issued and the balance 50% must be remitted within 30 days prior to the date of renewal of Permit to Trade

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Restriction • Activities prohibited by the Myanmar Foreign Investment Law:

Business which can affect the traditional culture and customs of the national races within Myanmar

Business which can affect public health Business which can affect the environment and eco-system Importation of hazardous or poisonous wastes into the country Business which produce or use hazardous chemicals under international agreements Production or manufacturing work or services which are activities reserved for citizens The importation of technologies, medicines or utensils/paraphernalia without relevant

permits, or not designated for use Agricultural investment and plantation and cultivation for long and short terms which can be

performed by citizens Livestock breeding which can be performed by citizens Marine fishing which can be performed by citizens Foreign investment activities within 10 miles from boundary/borders between neighboring

nations of Myanmar, except in State economic zones approved by the Myanmar Government

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Restriction (Cont.) • There are 21 economic activities which are prohibited.

• Notable ones include:

Manufacturing and related services of arms and ammunition for the national defense. Economic activities which is deemed to deteriorate the watershed or catchment protection forests,

religious places, traditional belief, pasture land, shifting cultivation farms and water resources Installation of factory in Myanmar utilizing of the imported wastes Management of natural forests Prospecting, exploration and production of jade/gem stones Production of minerals by medium scale and small scale Administration of Electric Power System Trading of Electric Power Inspection of Electrical Works Exploitation of minerals including gold in the revering and water way Air Navigation Services Pilotage Services Joint Printing and Broadcasting Service

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Restriction (Cont.) • 42 economic activities allowed only in the form of joint venture with Myanmar

citizens. • Notable ones include:

Production and Distribution of hybrid seeds, high-yield seeds and local seeds Manufacturing and marketing of grain products such as biscuits, wafers, noodles, macaroni,

vermicelli, spaghetti and other cereals related food products; of all kinds of confectionery including those of sweets, cocoa, and chocolate

Distilling, blending, rectifying, bottling and marketing of all kinds of spirits beverages and non-beverages

Prospecting, exploration and production of Industrial minerals and metallic mineral Large scale production of minerals Construction related to develop rail/road links such as bridges, highways, bypass, subways etc Establishment of international standard golf courses and resorts; Establishment , sales and lease of residential apartments /condominiums; office/commercial

buildings Domestic/International Air Transport Service Tourism business

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Investment Guarantee • Enterprises operating under the Foreign Investment Law have the State

guarantee against nationalization and expropriation.

• Guarantee is subject to an exception if the nationalization or expropriation is in the natural interest, in which case the investor is to be compensated for the market value of the investment.

• Government also guarantees that investment will not be terminated during the permitted term, and foreign capital will be transferred to investors upon the expiration of the term of the investment contract.

• Myanmar has investment protection agreements with China, India, Kuwait, Laos, the Philippines, Thailand and Vietnam.

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New Competition Law

• Adopted on 24 February 2015 as a result of more than 2-year negotiations and integration into ASEAN

• Implementing rules and regulations are not in place yet

• Prohibited acts: – Anti-competitive acts – Monopolization of markets – Collaboration among businesses – Unfair trade practice

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WHY CHOOSE MYANMAR?

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WTO ANALYSIS OF LIBERALIZATION OF MARKET ACCESS: MYANMAR IS AT SAME

LEVEL WITH INDIA – NOT TOO BAD?

• *Typical restrictions: number of opened sectors, JV requirement, limits on foreign-owned shares, permission requirement

Country Limitation of market access*


Malaysia medium Myanmar high Indonesia medium Cambodia medium

Philippines medium Laos medium Singapore low India high Thailand medium China medium Brunei high Vietnam low

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WHY CHOOSE MYANMAR?

• Myanmar: Last untapped market in Asia with full of potential to become new FDI hub

• BUT it depends on commitments on institutional reforms!!!!

• OPEN OR ISOLATED? • MODERN OR CONSERVATIVE?

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WHY CHOOSE MYANMAR? • Myanmar is the founding member of WTO that means WTO

service sector commitment : Unbound • HOWEVER: Myanmar is a member of the ASEAN Economic

Community (AEC), which will become reality on 01st January 2016. • Myanmar has made substantial commitments on additional

sectors in accordance with the AEC. Major sectors include: Professional Services

Computer and Related Services Research and Development

Services Rental/Leasing Services without

Operator Distribution services Education services

Communication services Telecommunication services Audiovisual services Construction and engineering-

related services Environmental services Healthcare services

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INVESTING AND DOING BUSINESS IN VIETNAM

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AGENDA:

• VIETNAM 2014 ECONOMY AT A GLANCE

• INTEGRATION INTO THE WORLD ECONOMY

• INVESTING IN VIETNAM • CONCLUSION – VIETNAM WILL BE THE NEXT

ASEAN TIGER

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Vietnam 2014 Economy at a glance • GDP: US$187.5 billion • GDP per capita: US$2,028 • GDP Growth: 5.98 % • Inflation: 4.09% • Population: About 90.73

million • Labor force aged 15 and above:

54.48 million • Total export and import

turnover: : US$ $298 billion • Minimum wage: VND 2.7

million (US$ 147) per month (Jan 2015)

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Vietnam has the fastest-growing middle and affluent class in the region (Boston Consulting Group)

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Vietnam’s international integration • WTO’s 150th member since 2007 • Members of all important world’s economic

organizations: World Bank, International Monetary Fund, ASEAN (Association of South East Asian Nations), AFTA (Asia Free Trade Area), APEC (Asia Pacific Economic Conference) and WCO (World Customs Organization)

• Signing around 20 FTAs with other countries, including strategic partners such as Japan, the US, India, and EU. Most notable FTAs currently in negotiation are the TPP and the EU- Vietnam FTA.

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Trans- Pacific Partnership Agreement (TPP) • Parties: Australia, Brunei, Chile, Canada, Japan, Malaysia, Mexico, New

Zealand, Peru, Singapore, United States, Vietnam • Vietnam will enjoy strong economic and trade expansion. Vietnam’s

GDP would add an additional increase of 13.6% to the baseline scenario.

• Vietnam is expected to gain significantly from the TPP’s considerable plans for tariff and duty reduction

• Vietnam’s export will enjoy the agreement’s great benefits when the US and Japan are one of the biggest partners of Vietnam, especially the garment and textiles sector

• Export to the US would increase by 13-20% a year until 2017, fetching total export of US$25-30 billions

• The foreign businesses are planning to enter Vietnam in preparation for a post-TPP business climate.

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EU – Vietnam Free Trade Agreement • Vietnam’s annual economic expansions rate may grow an additional 15%

every year (said Tomaso Andreatta, representative of the European Business Association in Vietnam (EuroCham), at the Vietnam Business Forum 2014)

• Tariffs for most of Vietnamese export product to the EU will gradually reduce to 0% and Vietnam’s export to EU is expected to grow about 35% for next few years

• The real wages of skilled laborers may increase by up to 12% while real salary of common workers may rise by 13%

• The EVFTA is the legal framework for a more stable relationship in bilateral trade for Vietnam when competing in the international market

• The EVFTA will generate greater effects, e.g. increased quality of investment flows from EU, acceleration of the process of sharing expertise and transfer of green technology and the creation of more employment activities

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ASEAN Economic Community (AEC) • AEC members: Brunei Darussalam, Cambodia, Indonesia, Lao

PDR, Malaysia, Myanmar, Philippines, Singapore, Thailand, and Viet Nam

• GDP: US$2311.3 billion (2012) • GDP per capita: US$3748.4 (2012) • Population: 620 million, 60% under the age of 35 • AEC % of world GDP: ~3.3% • AEC % of world population: 9% • AEC’s merchandise exports: US$1.2 trillion - ~54% of total

ASEAN GDP and 7% of global exports • If ASEAN were one economy, it would be the 7th largest in the

world – 4th largest by 2050 if growth trends continue

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Investing in Vietnam

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WTO ANALYSIS OF LIBERALIZATION OF MARKET ACCESS

Vietnam ties in first place with Singapore

• *Typical restrictions: number of opened sectors, JV requirement, limits on foreign-owned shares, permission requirement

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Malaysia medium Myanmar high Indonesia medium Cambodia medium

Philippines medium Laos medium Singapore low India high Thailand medium China medium Brunei high Vietnam low

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Investment environment in Vietnam • Main governing laws: Investment Law, Enterprise Law and their

implementing documents • Forms of doing investment in Vietnam:

– Economic entity establishment; – Business cooperation contract: a contractual arrangement

between two or more investors without creating a legal entity – Public-Private Partnership; a contractual agreement

between competent state authorities and investors, an enterprise project in order to implement an investment project;

– purchase of shares or capital contribution.

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Investment environment in Vietnam • Forms of enterprises in Vietnam – Limited liability company: members are liable to the extent of their

capital contributed – Shareholding Company: charter capital (authorized share capital) is

divided into shares and members are liable to the extent of their capital contributed

– Partnership: established between two or more partners; – Business Cooperation Contract: an agreement without constituting a

legal entity and each party is individually responsible for paying taxes. – Branch: a branch of a foreign company permitted to conduct

commercial activities – Representative Office: represents the parent company, no actual

business operations. A suitable tool for market research 37

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DEFINITION OF FOREIGN INVESTOR

• New Investment Law: Very simple definition!

Foreign investor is any foreign individual or organization incorporated under foreign law doing

business investment activities in Vietnam

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FOREIGN INVESTORS – WHO ARE THEY?

• Foreign nationals and foreign corporate entities • Defined by the 51% capital ratio:

– Company with 51% or more charter capital owned by foreign investors (F1 company); or

– Company with 51% or more charter capital owned by F1 company (F2 company); or

– Company with 51% or more charter capital owned by F1 company and F2 company

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• Prohibited business activities: – Trade in the narcotic substances as specified; – Trade in the chemicals and minerals as specified; – Trade in specimens of wild flora and fauna as specified in Appendix

1 of Convention on International Trade in Endangered Species of Wild Fauna and Flora; specimens of rare and/or endangered species of wild fauna and flora as specified;

– Prostitution; – Human trafficking; trade in human tissues and body parts; – Business pertaining to human cloning.

• Freedom to conduct business activities not prohibited by law less risk in doing business

PROHIBITED BUSINESS ACTIVITIES

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INVESTMENT PROCEDURE

• 2 separate steps: Application for Investment Registration Certificate (“IRC”) and Application for Enterprise Registration Certificate (“ERC”) Step 1: IRC – IRCs for projects required to obtain preliminary approval of the National

Assembly/ People’s Committee are issued within 05 working days upon issuance of such approval

– For other projects, IRCs are issued within 15 days (instead of 35 days as in the old law) upon receipt of the application dossier

• Step 2: ERC – Submit an application dossier to the licensing authority upon issuance of

the IRC – ERCs are issued within 03 working days upon receipt of the application

dossier 41

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M&A PROCEDURES FOR FOREIGN INVESTORS • Appears to be simple!!! Only registration required, no more IRC

Satisfying the requirements for investment Submitting application dossier Assessment by the licensing authority and decision making after 15 days

• Subjects: foreign investors making investment in conditional business activities

applicable for foreign investors; F1 Company, F2 Company or F3 Company holding 51% or more of the

targeted economic enterprise as a result of the M&A Exclusion: Company other than F1 Company, F2 Company and F3 Company:

Registration to amend the ERC (for LLCs) Notification of the change in foreign shareholders (for JSCs) The change will be effected within 03 working days

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Outlook for Vietnam’s economy in 2015 In 2015, Vietnam is expected with a brighter economic

situation: Macro economy and monetary policy will remain

stable The inflation will be under control, estimated rate of

4% 2015’s GDP is estimated to rise from 6.2%

Exports, especially FDI manufacturing companies, will push the growth of Vietnam’s economy in 2015

Continued stronger reform of institutional and administrative procedures to improve investment environment

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VIETNAM – THE NEXT ASEAN TIGER • Manufacturing companies like Samsung Electronics

Company and Intel Corporation coming to ASEAN • Foreign investment in manufacturing sector diverting from

China to Vietnam • Vietnam being the biggest exporter to the U.S. from ASEAN • Disbursed foreign investment in Vietnam reached $12.35

billion in 2014, an increase of 7.4% from 2013 and compared with $2.4 billion in 2000

• Vietnam is in negotiation for TPP and has reached in-principle conclusion of negotiation for the EU-Vietnam FTA

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Questions & Answers

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Thank you very much! OLIVER MASSMANN

Managing Partner – Duane Morris Vietnam LLC Member of the Supervisory Board of PetroVietnam Corporation

Duane Morris Vietnam Duane Morris Myanmar Pacific Place, Unit V1307/08, 13th Floor, No. 10 Phoyazar Street, 15 Ward, 83B Ly Thuong Kiet, Hoan Kiem Dist Baukhtaw Yankin Township Hanoi, Vietnam Yangon Suite, Myanmar

Contact email:

[email protected]

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