Doing Business In... 2021

Last Updated July 14, 2021

Myanmar

Trends and Developments


Authors



SCM Legal is a leading independent firm in Myanmar owned and operated by the team that prepared Myanmar’s new Companies Law and Investment Rules. The firm provides practical, correct and creative advice and insights to help investors succeed in a challenging market. SCM Legal practises Myanmar, English and Australian laws, and is led by a diverse partner team with magic circle and global law firm backgrounds, and over 30 years' combined experience in Myanmar. The firm covers all areas of Myanmar commercial law and has completed transactions in almost all sectors, with real depth in the telecommunications, financial services, consumer goods, government, real estate and manufacturing sectors. It also provides a range of other corporate services, including company formation and administration, accounts and payroll services, and translations.

Overview

Doing business in Myanmar has its challenges in any given year. However, in 2021 it is about navigating two new and imposing constraints: the re-assumption of political power by the military following the coup in February and a devastating third wave of COVID-19.

The safety and security of people are paramount concerns. The financial system is heading towards crisis. The internet and communications have been significantly disrupted (and not in a good way!). Targeted sanctions are being applied. Economic output has dropped and new projects have been shelved. Entering, leaving and moving around the country is difficult. Government decision-making is slower and less predictable. The rule of law has suffered further setbacks.

It is of no surprise that many overseas investors have started heading for the door, while others hunker down, waiting to see how the political crisis may resolve. A smaller number continue to evaluate new opportunities amidst the turmoil. But whether electing to leave, stay or try something new in Myanmar, experienced, on-the-ground legal and corporate support is even more essential. Unfortunately, another legacy of COVID and the political situation is that far fewer international professional service providers remain in the country. SCM Legal is keeping calm and carrying on, and these are the authors' thoughts on doing business in Myanmar right now.

Operating Challenges in Myanmar

Where to start? Few investors and managers have had to operate in conditions such as those being experienced now. The safety and security of people and assets is key. The military government continues to seek to assert control through force, whilst the visible opposition to military rule has become smaller but more militant. Effective systems and procedures for protecting staff – including limiting their movements – are key.

COVID is now rampant in Myanmar and the health systems cannot cope. Vaccination programmes of the scale needed are a long way off and lockdowns are not containing the spread. Protecting and supporting staff and their families is a key business concern.

The financial system is in near crisis. Banking services have been dramatically reduced, with strict limits on withdrawals, and cash is in very short supply. Digital financial services have been badly impacted and the availability of credit is low, which will, in turn, affect economic output. Sending money out of Myanmar is extremely difficult, with much stricter oversight by the Central Bank, harming international trade and commerce. Confidence in the system is rock bottom and finding legitimate and effective ways to move money is key.

Internet shutdowns and other communications disruptions have had a huge impact on business. Privacy and data security concerns have been magnified. With health and safety concerns requiring many people to work remotely – and many foreign managers leaving to work from offshore – staying online is essential to staying operational.

Entering and leaving Myanmar, and moving freely around the country, is subject to much stricter control. This impacts staff rotation and mobility plans. Many businesses that withdrew their expatriate staff are facing lengthy delays in receiving approvals to send in replacement staff, and the continuing absence of senior staff on the ground is now compromising the operations and integrity of some businesses.

Many businesses operate in tightly regulated sectors, while all businesses need to engage with regulators to a greater extent than in most other jurisdictions. Compliance and government relations efforts are significantly more challenging as a result of the coup and now the third wave of COVID, with government capacity dramatically reduced. This impacts everything from routine matters such as tax administration and visa processing to fundamental issues such as investment and transaction approvals. Finding a way to move applications through the system and get things done is more difficult than ever.

As hard as well-established and resourced foreign investors are finding these operational challenges, their local Myanmar staff, partners, suppliers and customers are almost certainly finding it harder. Many foreign businesses are highly dependent on their Myanmar partners in the value chain, so finding new ways of working with them, and accommodating their additional challenges and constraints, is also key.

Dignified Exits from Myanmar

Many investors have determined that continuing to do business in the current environment is no longer viable. Exiting an investment in an orderly and responsible way is not a straightforward task. A range of government interactions and approvals is necessary, staff need to be made redundant, premises closed, assets disposed of, suppliers paid, contracts terminated or transferred and entities wound up and funds repatriated. All of this is never easy, and is that much harder again with senior management offshore, a banking system in crisis, government services not functioning well, regulatory decision-making less predictable and the legal framework for winding up still inoperative. Practical solutions need to be found.

Restructuring and Hunkering Down in Myanmar

The majority of larger investors in Myanmar are continuing to adopt a “wait and see” approach, operating as best they can, sometimes in caretaker mode with business plans in suspense. The severity of the downturn has meant that many of these investors have had to make or consider significant changes to their operations and reductions in their cost base, including redundancy programmes and other restructuring activities. Many compliance and practical issues arise when implementing these operational changes, as well as reputational considerations. With the adverse changes to the regulatory and legal environment, and heightened expectations placed on some foreign-owned employers, developing and implementing workable restructuring plans to get through the current crisis is a complex task.

Investing in Myanmar

While investor sentiment is well down on previous years, some investors have identified opportunities to invest or expand. One of the leading mobile telecommunications network operators is in the process of changing hands, for example, and new investments and M&A activity are occurring across a few sectors. While the risk profile for investment and doing business has generally worsened, and regulatory processes have become slower and less predictable, the ability to move quickly in making opportunistic investments provides a real advantage to those who are active. Investors who are able to size up and manage current risks, and develop practical solutions to execute deals and new investments, may be rewarded in the longer term – but this should be done with eyes wide open and the benefit of local insight and support.

Rule of Law and Law Reform in Myanmar

Myanmar had embraced an ambitious business law reform programme over most of the past ten years. A new Companies Law, Investment Law, Financial Institutions Law, Insolvency Law, Competition Law and many others were enacted, often with support from multilateral and other development partners and foreign expertise. The implementation and impact of these laws was mixed, and much was left to do (including in the development of institutions to support the rule of law, and in the capacity of regulators to administer them); however, on the whole, there had been marked improvements in the regulatory environment for doing business.

That progress has largely been arrested since the military reassumed power in February 2021, and administration of the law has become less predictable as the government has changed many personnel in senior positions, adopted new policies and suffered the impact of ongoing industrial action and now the COVID outbreak. Patience, experience and effective working relationships with key officials are therefore more important than ever to doing business in Myanmar.

Environmental, Social and Governance (ESG) Considerations and Responsible Business in Myanmar

Driven largely by an active development sector, and a growing awareness of the importance and benefit of responsible business conduct by some larger corporate investors and business associations, the focus on ESG considerations when doing business in Myanmar was becoming more apparent. Conditions have become much more difficult for investors who are focused on this. One example of the changing conditions is the increased sensitivity around doing business with military-owned entities, or businesses or people who do business with military-owned entities. The imposition of targeted sanctions against some of these entities by the EU and some foreign governments has given further impetus to these considerations, as have the consumer and other stakeholder movements that have sprung up domestically and internationally to oppose doing any business that may benefit the military.

Verifying that none of your business partners, customers or suppliers have military links is not a straightforward task, however, with no reliable and accessible information sources to disclose this. Investors are therefore having to undertake more comprehensive due diligence exercises throughout their value chains, including by adopting contractual provisions to enable discovery and auditing of ownership information from their partners. This type of due diligence is very hard to complete offshore, so finding a qualified and effective local adviser is necessary.

Legal and Professional Services in Myanmar

The unfavourable economic conditions, political instability, and health and safety risks that are now a fact of life in Myanmar have prompted an exodus of foreign professionals from Myanmar and the closure of some firms. However, these unprecedented conditions mean that having an experienced, effective, internationally qualified advisory firm on the ground to support your business is more important than ever. SCM Legal has had to respond to clients’ challenges by undertaking a much broader range of legal and corporate services than before, and the firm will continue to evolve to meet the challenges of doing business in Myanmar in the post-COVID, post-coup environment.

SCM Legal

#16-05 Sule Square
221 Sule Pagoda Rd
Kyauktada Township
Yangon Yangon
Myanmar

+95 979 575 8272

office@scm-legal.com www.scm-legal.com
Author Business Card

Trends and Development

Authors



SCM Legal is a leading independent firm in Myanmar owned and operated by the team that prepared Myanmar’s new Companies Law and Investment Rules. The firm provides practical, correct and creative advice and insights to help investors succeed in a challenging market. SCM Legal practises Myanmar, English and Australian laws, and is led by a diverse partner team with magic circle and global law firm backgrounds, and over 30 years' combined experience in Myanmar. The firm covers all areas of Myanmar commercial law and has completed transactions in almost all sectors, with real depth in the telecommunications, financial services, consumer goods, government, real estate and manufacturing sectors. It also provides a range of other corporate services, including company formation and administration, accounts and payroll services, and translations.

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