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Keith Rabin

Keith Rabin

KWR International

Keith W. Rabin serves as President at KWR International, Inc., a consulting firm specializing in the delivery of Asia-focused trade, business and investment development, research…

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Evaluating Changing Investor Attitudes Toward Myanmar

Discussion with James Finch, Managing Partner, DFDL Myanmar, Naypyitaw

Interview by Keith W. Rabin

James Finch

James Finch is a partner in the law firm of DFDL in Myanmar. His experience in the commercial legal field spans four decades and has taken him to the Middle East, Latin America and the Caribbean, where he practiced for extended periods. His work as a partner in the firm of Russin & Vecchi finally brought him to Asia, where he began in the Hanoi office of the firm. In 1996 he became managing partner of the firm's Yangon, Myanmar office. Since then he has had a varied and active practice in Myanmar, with extensive legal work in the energy, power, hard minerals, corporate, tax, aircraft leasing, hotel development, banking and finance fields, to name a few. He is now a partner in the firm of DFDL in Myanmar. He recently opened an office for DFDL in Naypyidaw and was designated as a leading lawyer by Asia Law for 2016. He was named to the Legal Who's Who for both project finance and energy for 2016.

Hello Jim, thanks for speaking with us today. Can you tell us about your background and how you came to be working in Myanmar?

Hey, Keith. It's great to be here. I'm a US lawyer who's been practicing for four decades. Excluding my early years of professional training and some time as a foreign service officer with the US State Department, practically my entire career has been spent doing transactional legal work in developing countries. I started out in the Middle East, in Iran. After the revolution I made New York my base, but worked extensively in Latin America and the Caribbean. I then lived for over five years in the Dominican Republic, with engagements in other countries as well.

During that period I also spent time in Saudi Arabia. In the early 1990s I focused my attention on Asia, starting out in Vietnam. In 1996, my firm at the time opened an office in Myanmar and I came to Yangon to run it. We are still using the company I formed in 1996 for my practice here.

You speak with many investors and companies who have expressed an interest in, or made a decision to enter, the Myanmar market. What are their impressions, what areas are attracting the most interest, what areas do you think are underappreciated and bear more attention?

The impressions of investors have been positive and becoming more so over time. Generally, they've been treated fairly and given substantial access to decision-makers at all levels of government. Investors always tell me they are surprised by the frankness and enthusiasm that Myanmar officials express in connection with their projects. One concern is that big, household-name companies, once here, have had trouble dealing with the confusion and uncertainty created by US sanctions. For example, many existing companies in Myanmar are owned by nominal shareholders. Also, Burmese names are difficult to distinguish for foreigners.

As you know, the Office of Foreign Asset Control of the US government (OFAC) has published a list of specially designated nationals (SDNs) with whom, to summarize, US persons may not deal, on pain of being exposed to stiff penalties. The exact limits on these requirements are unclear and, as mentioned, it's hard to figure out when one is dealing with SDNs. This isn't just a problem for US firms. Companies of all nationalities with affiliates in the US or substantial US markets are prohibited by internal policies from violating the sanctions. This limits the ability of big companies to expand into this market. For some, western banks, for example, who have incurred substantial fines imposed by the US government for alleged violations in other markets, the decision has been made to defer serious investment in Myanmar. By and large, this has been done out of fear of more fines as a result of operations in any nation where sanctions are applicable, rather than concern over Myanmar itself.

To be honest, I think some of the concern about SDNs is overly conservative, because much of the risk can be overcome by careful due diligence. Nonetheless, big companies have conservative policies in connection with such uncertainties and the result, for many, has been a reluctance to invest.

Though investment in traditional extractive industries has always been strong in Myanmar, I'm surprised there hasn't been more mining activity in recent years. There were problems with the old mining law, but there is a new law that addresses a number of these issues. Myanmar, moreover, is known to have vast hard mineral resources.

KWR/ERIA Myanmar Power Development report
To download KWR/ERIA Myanmar Power Development report, click here

Another area, in which I know you are an expert, is power. Of course it is hard to say, but recent numbers suggest that less than 35% of Myanmar's populace is connected to the grid. This has had two results: proliferation of off-grid solutions in great numbers and expansion of investments in projects of 500 MW or more. As to the latter, over the last few years investors have expressed frustration with the slowness of the approval process, but this is changing because of more standardized legal documentation such as power purchase agreements.

Beer Label from 1980s
Beer Label from 1980s Source: KWR International

When I first came to Myanmar in the 1980s, most business came through Thailand and Singapore. Later on China became more dominant. In recent years we have seen an acceleration of interest from Japan, Korea, Australia the EU, US and other markets. Do you see differences in how companies from these countries approach Myanmar that impacts their success, and how do you view the overall environment for foreign investment moving forward?

So far, most investors from foreign countries have been companies large enough to absorb the cost and personnel needed to start anew in Myanmar, where infrastructure, political certainty and expectations of foreign ways and products are all in an early stage. These large companies, for obvious reasons, have closely followed the policies of their own governments toward Myanmar, even if members of their management have privately observed that these policies are not perfect.

What this means is that North American and European countries have tended to be highly invested in the constitutional and democratic processes as they unfold in Myanmar and therefore do not publicly oppose law, regulation and social movements in their own countries that may delay or impede investment and development. Large Chinese companies have taken a more hard-headed view of today's political scene, reflecting the uncertainty with which their government views these changes in what it once viewed as a reliable source of natural resources and political ally on its own border. The result has been that large Chinese companies have focused on cost-effectiveness and results on a much more short-term basis than the western companies.

Other countries in the region have a more nuanced view, especially in light of the fact that during the sanctions era they continued their relationships with Myanmar, often under the "radar net" of the sanctions cast by other countries that were their biggest allies and markets. An example is Japan, which is now heavily involved in foreign aid, development and debt relief to Myanmar. Korea has followed a similar course. Australia, despite its commitment to many other countries' stand on human rights, always worked to keep functioning relations with the government of Myanmar. Accordingly, my sense is that companies from these three countries are heavily invested and proceeding with their operations in Myanmar relative to other countries in which they are invested in the region.

View of Yangon Harbor
View of Yangon Harbor Source: KWR International

Myanmar has largely operated as a trust-based society without reliance on the dispute resolution mechanisms seen in many other markets. While this reliance on trust worked well when projects were smaller and largely between Myanmar nationals, it becomes more of an obstacle when dealing with larger investments and foreigners, even overseas Myanmar who have been away for many years. While Myanmar has made a lot of progress updating laws and regulations, some of which date back to colonial times, it will be some time before these measures are fully adopted and interpreted. How do you view this problem? How important is adoption of the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards?

It is true that much of Myanmar's legal system is antiquated. One of the problems of the legal industry during the "changeover" era, however, has been an opposite issue. New legislation and proposed legislation is being rushed forward, in part as a result of well-intentioned advice from foreign advisors, too fast for the legal system to absorb it in a meaningful way. For example, there are new drafts of statutes that cover foreign investment, company law and corruption for which there is no precedent or practice. It is therefore difficult for foreign investors to determine what is forbidden and what is not.

You've also asked about the New York Convention (the NY Convention) on the Recognition and Enforcement of Foreign Arbitral Awards at an important moment. Myanmar adhered to the NY Convention on April 16, 2013. Under Myanmar practice, the NY Convention couldn't be enforced in Myanmar without implementing legislation. Such legislation was passed on January 15 of this year.

This potentially eliminates the biggest legal obstacle to foreign investment that we encounter in the country-that foreign investors fear "local bias" in the judicial system. The new legislation is based closely on the UNCITRAL model law and now makes it possible for a foreign arbitral award to be enforced in Myanmar courts.

The UNCITRAL model is endorsed by many international experts, but provides a local judge with much discretion in the event he or she thinks the law or public policy of Myanmar is being contravened by a foreign arbitral award. Therefore we will have to wait and see how this works itself out over time.

Map of Myanmar
Source: sagaingfault.info

Myanmar is seen as one of the great investment opportunities of our time due to its geostrategic location, its large base of resources, and the fact it has so much potential growth ahead of it. As a result, many companies are visiting to investigate the opportunities that are emerging. While there intentions are sincere, there is great frustration in Myanmar about those who come and "look, listen, learn and leave" - and among foreigners who allocate time and resources but are then not able to find sufficiently developed projects. This causes them to adopt a "wait and see" approach. How do you view this phenomenon, what are the barriers that prevent market entry, and what can be done to actualize increased investments and transactions?

Many of our clients, particularly large companies, do a lot of homework before investing. This almost always starts with pre-project meetings at the highest levels between officials of the foreign company and government officials in Myanmar.

Many high-level ministerial officials in present-day Myanmar are visionaries and see foreign investment as a key factor to the future of the country. What often happens is that the CEO or other company officials come away from these meetings with a deep sense of satisfaction. The CEO has received a warm, enthusiastic affirmation from his or her counterpart in government to the effect that what the CEO wants to do is not only welcome, but the government will cooperate in any way possible.

Although the CEO understands many things still need to be negotiated, he or she tells subordinates the most important approvals-that of the high officials-have been received and they should proceed immediately. In fact, there is another level of approval necessary for nearly everything in Myanmar-that of official government approvals. When the British organized India in the 19th Century, they established a bureaucracy to act as a buffer between a few hundred British public servants and hundreds of millions of Indian nationals. Myanmar was officially annexed as part of India in 1886 and incorporated into this system. This same mid-level government administration still exists in both India and Myanmar and in Myanmar it has real power.

As a result, when the CEO's subordinates begin the process of obtaining approvals they realize to get the project done they will need significant time and resources to get the necessary approvals and they convey this to the CEO. The CEO often then goes back to the officials with whom he or she met, through embassy officials or subordinates. These representatives are told something to the effect that the Myanmar government is still in favor of the project, but that the company should hire a good lawyer to get the paperwork done. At some point the CEO may become aware there has been no communication about the project between the officials with whom he or she met and the officials in charge of scrutinizing the applications. The result can be disastrous, as the CEO may feel personally affronted. It may come to pass, as you suggest, that the CEO decides to drop the project and have the company leave.

This is unfortunate, because it may follow substantial preliminary investment and effort. And in fact, no affront was meant. The high-level government officials are truly in favor of foreign investment and to new solutions to Myanmar's problems. It is just that their enthusiasm may be perceived by a foreigner as definitive official approval. To overcome this state of affairs I suggest the CEO take his or her local staff and outside advisors to the initial meeting. The CEO should simultaneously ask the high level officials to set up or encourage further meetings with officials at the working level. This will ensure that there is coordination within government and act as a recommendation to the lower-level officials for the CEO's staff and advisors.

ASEAN Member Map
ASEAN Member Map Source: asean-community.au.edu

While there has been a lot of discussion on foreign investment into Myanmar, there are also a number of successful companies and investors within Myanmar itself who are looking expand into the region. The recent formation of the ASEAN Economic Community (AEC) gives further impetus to this trend. How do you view the prospects for Myanmar-sourced investment into other countries in the region?

One of the things about Myanmar's membership in ASEAN is that Myanmar entrepreneurs investing in other ASEAN countries can use the ASEAN Comprehensive Investment Agreement ("ACIA"), a treaty entered into by all ASEAN nations, including Myanmar, on February 26th, 2009. It came into effect on March 29, 2012. ACIA is concerned with protection, promotion and guarantee of investments in the ASEAN nations. ACIA is fully applicable to Myanmar. In accordance with ACIA, Myanmar investors in other ASEAN nations enjoy:

  • National treatment
  • Most favored nation status
  • Significant trade related investment measures
  • Free transfers of funds
  • Dispute resolution for a host of complaints against the host environment, including its government
  • Guarantee against expropriation
  • Protection of investment and compensation
  • Subrogated rights for insurance purposes

ACIA gives Myanmar investors a great opportunity to expand into the ASEAN region on a preferred, protected basis. The problem, however, is not this opportunity, but capital and, to some degree, expertise. The capital available, either as loans or equity, to develop Myanmar is miniscule in comparison to that available in any other country in the region. Until this increases, it will be hard for Myanmar investors to compete with local investors in their own markets.

Yangon International Airport
Source: KWR International

Similarly many companies and investors cite remaining US sanctions as the major obstacle and I imagine you like me, are continually asked in Myanmar when remaining sanctions will be repealed. How do you view the effect of remaining US sanctions? Is it a major limiting factor on foreign investments or is it used as an excuse for a reluctance to deal with other obstacles? What changes are needed and how likely is it that changes will be made?

I've discussed the effects of US sanctions, both real and perceived, above. Assuming that practically everyone in the business community in Myanmar agrees the sanctions should end, I'd like to comment on the likelihood of this and the timing.

First, what are the sanctions? There is a crazy quilt of US regulation surrounding Myanmar, but the two principal sanctions are the SDN list, discussed earlier, and the JADE Act, an act of Congress that prevents jade and rubies from Myanmar being imported into the US. Because the US market for these gems is relatively small by world standards, it has little other than symbolic effect. The vast bulk of these gems, particularly jade, go over the border to China without proper taxation. In fact, these gems are supposed to be sold at auction at the Gem Emporium.

Second, the SDN list does have a chilling effect on foreign investment in Myanmar. One must understand the sanctions have a life of their own in the political arena of the US and that what's happening on the ground in Myanmar is only one factor in whether they are continued. The constitution of the US makes foreign affairs a power that may be exercised by both the executive and legislative branches, namely the president and Congress. Both regularly express the belief that economic sanctions are a viable means of exercising foreign policy and, in particular, that sanctions against Myanmar have worked well. Part of this perception is a political one-US politicians feel the sanctions on Myanmar have been, and are, popular with their constituents. For this reason, it is unlikely Congress or the President will take action to abolish the sanctions soon.

Of course, it is possible to argue the purpose of the sanctions has been overcome by events. When the first sanctions were imposed in 1997, they were for the express purposes of the personal protection of Aung San Suu Kyi (ASSK) and the imposition of democracy in Myanmar. Recently, however, US officials visiting Myanmar have cast the sanctions in a different light, citing them as an important aid to business reform. If ASSK were to advocate the elimination of sanctions it would be an embarrassment to many US politicians to keep them and they would likely be dropped. To date, she has not done so and it is therefore likely that until she does, the SDN list will stay in place, but slowly whittled away.

Individuals on the SDN list may therefore go to OFAC, the office of the US Treasury Department that administers the sanctions, and, through lawyers who are expert in the field, argue they should be taken off either because their identities have been mistaken or their business practices have been reformed. This process is widespread with the OFAC SDN lists for other countries and has already begun for Myanmar.

NLD Flag
NLD Flag Source: New Mandala

Myanmar has just had a historic election, which resulted in a victory for Aung San Suu Kyi and the National League for Democracy (NLD), and a transition is now underway. What does this mean for Myanmar? What changes do you anticipate and what advice are you giving to foreign companies and investors in terms of their business plans?

It's hard for me to add anything to the vast body of writing on the election and changeover. What it means for Myanmar in the present day is that in general the world is more approving. I recently saw an article in a well-known western publication holding up Myanmar as a model of democracy compared to Thailand, now run by a military junta, and Cambodia, de facto run by the same person for many years. How fickle the western press and opinion generated by it can be!

But the practical effect is that policies of developed nations that shunned Myanmar in the past are being forced to be rethought and even replaced. Of course, policies from governments with little stake in Myanmar's development could be changed again in response to real and perceived changes within the country. I have advised clients, however, that now that Myanmar has gone as far as it has to reach out to the developed world, and with such attendant publicity, it will be very embarrassing to the countries who have lauded Myanmar's recent changes to change course yet again by condemning Myanmar as they did in the old days. This will be especially hard for those countries that take credit for Myanmar's recent changes as a result of their own policies such as sanctions against Myanmar. In light of the above, I am expecting that Myanmar's foreign investment and development will grow substantially and consistently over the next decade and advise clients accordingly.

Welcome to Myanmar Sign
Source: KWR International

The US-Myanmar relationship is evolving and we will soon see a new Ambassador being posted to Yangon. You have been in Myanmar for a long time. How do you view the overall US-Myanmar relationship, particularly in respect to business and investment as well as the prospects for future development? What advice would you give to the new Ambassador and what should officials in Washington know about the changes now taking place?

The ambassador is a professional diplomat and knows his business better than I do, despite my early experience as a US Foreign Service officer, of which I am proud. I'd rather talk to everyone-not just the ambassador. There are two ideas that now often occur to me, simply as one who's been on the ground for a long time. One is old and one is new. The old one is Myanmar's geographic position. It is sandwiched between counties that constitute more than half the population of humankind. These countries are in the process of expanding both in territory and economically. They, especially China and India, are in turmoil and Myanmar is one of the world's most strategic pieces of real estate.

The second is new-a sense of national pride. In the old days, well-intentioned criticism from foreigners was received with humility and a sense of humor-even by those at the butt end. Today, despite the vast challenges and the plethora of professionals that have invaded the country with offers of help, there is a sense among the Myanmar people that for some things the Myanmar way should be pursued. Unlike the past, one preaches to the Myanmar people at one's own peril.

Yangon Supermarket
Yangon Supermarket Source: KWR International

Foreign companies entering Myanmar are often tempted to go it alone, either through the establishment of wholly-owned enterprises or ventures with local partners even though they lack extensive knowledge of the country and its environment. What advice do you have for companies and investors who are seeking to develop Myanmar-oriented entry strategies? How important are local partners, relationships and prior knowledge and experience? How easy is it to change and alter a strategy once initiated and under what circumstances does it make sense to proceed on ones own?

Under Notification 49 of 2014, there is a list of activities that may not be carried out by foreign investors without a local partner. They include:

  • production of hybrid or high-yield seeds
  • production of candy
  • distilling alcohol for drinking
  • purified drinking water
  • packaging
  • processing hides
  • manufacturing of paper
  • manufacturing of pharmaceutical raw materials
  • mall and medium production of electricity for sale
  • Development of golf courses
  • development and sales of residential apartments and condos
  • development and sales of commercial real estate
  • domestic and international air transport service
  • fishing and aquaculture
  • forest plantations
  • autical passenger and transport systems
  • hospitals
  • broadcasting
  • storing, transporting and producing oil & gas
  • roducing cigarettes
  • explosives
  • railroads

Items not listed in Notification 49 may be done with or without a local partner.

Doing a deal with a local partner is like getting married. It is easy to get into, hard to get out and there are only a handful of potential local partners that could even consider contributing cash to a joint venture. If a local partner contributes at all, it will more likely be a land grant of some nature or a facility on grant land. There are, of course, restrictions in Myanmar on owning and leasing land by foreigners and companies in which shares are owned by foreigners imposed by the Restriction on Transfer of Immovable Property Act of 1987 (RTIPA). Any such deal should be evaluated to determine if there is a structural way to make sure RTIPA is not violated. For example, could the land or building be leased to the joint venture under the Investment Law, which contains provisions allowing this in spite of the RTIPA? Most importantly, anybody in Myanmar who has been around long enough to have friends in high places also may have made enemies along the way. A thorough due diligence should be conducted to understand the background of the potential partner. In particular, the shareholders and board of directors of any company vehicle the local partner uses should be checked for SDNs. Very little of the information normally required in a due diligence is available from independent, official sources in Myanmar; it must be provided by the potential local partner.

Entrance to Shwedagon Pagoda
Entrance to Shwedagon Pagoda Source: KWR International

The Directorate of Investment and Company Administration (DICA) have been working hard to set up "one-stop" service to make it easier for foreign companies and investors to enter Myanmar, while offering special incentives to those that apply through application to the Myanmar Investment Commission (MIC). How do you view their efforts, what are the differences between applying through DICA or MIC, and what advice would you give both to foreign companies navigating this process and to Myanmar officials seeking to make it easier to promote inward investment?

I want to clarify a couple of points. Application to the MIC for approval under the Investment Law (the Law) is not always mandatory, except in certain cases such as infrastructure, energy and manufacturing deals. Investors want approval of the MIC to get the benefits of the law the MIC administers-the tax holiday, for example. All applicants for approval by the MIC must form a company with DICA, except in the event that the line ministry specifically approves a branch, such as in the case of the Ministry of Energy in connection with production sharing agreements.

What happens in the case of an MIC application is that the application to DICA for a company takes place on a parallel track to that of the MIC approval process. When the MIC approves, the company certificate is issued by DICA. Since approvals under the Law are generally optional as I mentioned above, an applicant can apply directly to DICA for a company and operate without the benefits of the Law. This happens when the investment is too small for the MIC to accept it under the Law and with businesses not considered investments, such as services. And, of course, if one does not register under the Investment Law one does not get the benefits, such as the tax holiday and duty-free importation of equipment and materials for an initial period.

How small is too small, in terms of capital investment? The most recent regulation and notifications pointedly do not say. But the old rules from the superceded Foreign Investment law are still used as informal guidelines and these are, in general, between US$300,000 and $500,000. Both DICA and the MIC are among the best-run agencies of the Myanmar government. It's therefore not so much that they should improve their services, but that the rules should be further streamlined as I'll discuss later.

Road in Shan State
Road in Shan State Source: KWR International

Myanmar has vast needs in terms of physical infrastructure as well as education, agriculture, healthcare and almost every other sector. Vast inflows of foreign capital and expertise are needed, and donor funding will not be enough. We have found one of the main obstacles in trying to entice and facilitate more private sector interest is the lack of tangible information and misconceptions about how to achieve effective market entry as well as needed follow-up support. In large part that was the reason we wrote our guide to "Business and Investment Opportunities in the New Myanmar" and multi-year study of Integrated Energy Development and Rural Electrification in Myanmar. How do you view this challenge and what recommendations would you give to Myanmar's incoming government as to how to meet the challenge of developing increasing and sustainable foreign direct investment and more public-private partnerships?

In the Myanmar of yore, the country was isolated, and there was very little official expertise in the regulation of trade and commerce. Therefore, cumbersome application procedures were set up that presented barriers to foreign business in the country. The purpose was to ensure absolutely that the applicant's documents were without flaw and, ideally, to delay a bit so that some background information on the applicant could be accumulated. The country has changed drastically and one aspect of this has been the sophistication of the technocrats.

Now Myanmar shares much with the developed world, in that the protection of society from the ills of capitalism is much more appropriately centered on the regulation process rather than delaying entry using bureaucracy. There are, moreover, new laws that deal specifically with the ills against which Myanmar society should properly be protected. Examples of these laws are the Anticorruption Law of 2013 and its rules and the Union Tax law of 2016. Although significant steps in streamlining application processes have occurred, there is more to be done.

Launch Ceremony of Yangon Stock Exchange
Launch Ceremony of Yangon Stock Exchange Source: Auerbach Grayson

Myanmar recently announced the launch of the Yangon Stock Exchange (YSX) as a means to encourage entrepreneurship and to help local companies access capital at least initially from domestic sources. How do you view its prospects? Does Myanmar have the local business culture and support services and infrastructure needed to make this a success? How important will the YSX become as a means to accessing capital for Myanmar companies? What are the implications for foreign companies and investors?

I see the YSX as an important step in the progress of Myanmar's economy. With it the capital raising process will evolve from an informal family-oriented one to one that is much more transparent and favors the best companies.

For the present, however, one drawback is that foreigners and foreign companies will not be allowed to purchase shares on the YSX. One of the biggest problems Myanmar now faces is a lack of funds for its development. These funds can only come to Myanmar in two meaningful ways: loans and equity markets. Although a few foreign banks have been licensed to provide a relatively small amount of loans from outside, there is still an extreme shortage.

As stated above, for now all of the capital raised as equity on the YSX will come from Myanmar parties, and there simply isn't enough capital in their hands to float Myanmar's future development. YSX is capable of helping ameliorate Myanmar's capital shortage, but this won't happen until capital is coming from foreign sources.

Thank you Jim for your time and attention. Look forward to speaking again soon.


This interview is part of an ongoing series highlighting Asia-related business, trade and investment opportunities and issues.


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