Despite Myanmar being the “final frontier” for investments there are some sombre obstacles that foreign investors are bound to face as they prepare to pour in their money in the formerly-shunned Southeast Asian nation. The first hurdle comes when they apply to get an MIC Permit, an investment licence issued by the Myanmar Investment Commission that can command a significant amount of resources from the investors.
“The whole process of evaluation by the MIC is frontloaded. Everything is checked at the beginning of the process, such as land use, approvals from other ministries, environmental issues, capitalisation and the coherency of the financial projections. That makes for slow progress,” Edwin Vanderbruggen, a partner at VDB Loi, one of Myanmar’s leading law and advisory firms, told Myanmar Business Today.
“Some investors are poorly prepared. They underestimate the process.”
VDB Loi, in a recent client briefing note, elaborated some common mistakes investors make, which in turn leads to spending a lot of time and wasting valuable resources.
Not checking land use rights
“The MIC will verify at an early stage whether an investor has the right to use the land they plan to use. Whether it’s a plot of land they plan to build something on, a warehouse they sublease, or a terrain they will use as a plantation, the MIC will verify the legal merits of their use, which includes the lease agreement, the master lease (if any) and the land rights holder’s title (for lack of a better word) documentation,” Edwin wrote in the briefing note.
He said that for the investor to check everything in advance sounds straightforward enough, but it isn’t.
“Land due diligence is one of the toughest things to do in Myanmar, for various reasons. First of all, the land law is (mostly) quite dated, it is scattered across many different laws and regulations, and there are massive gaps between theory and practice. Secondly, land owners are often, for one reason or another, reluctant to produce copies of their documents for inspection,” Edwin wrote.
Finally, in some cases, misunderstandings of laws and regulations by local land owners surface when the MIC gets involved, he added.
Financial projections do not meet MIC
“MIC have no time to familiarise themselves with each individual applicant’s way of presenting the cash flow statement, capital expenditures, or loan repayment schedule. Our firm learned early on that to save time, you need to follow the structure the MIC likes to see,” Edwin said.
If the financial projections are prepared by the people that directly liaise with the MIC and who have experience in doing so, investors again save precious time and costs, he added.
Edwin said MIC keeps an increasingly close watch on the financing of investment projects, particularly to make sure that sufficient capital (equity) is used.
Although the 2012 Foreign Investment Law does not impose any minimum capital or debt-to equity restrictions, the MIC can set the policy by requiring applicants for an MIC Permit to increase the proposed capital of a project before granting its approval.
“Until now, our experience has been that the ratio the MIC agrees to will depend on the nature or business sector of the project and its particular financial planning.”
Other ministry approval
Edwin said many investors think that the MIC is “a kind of onestop service.”
“In reality, investors almost always need to secure approvals from other relevant ministries before the MIC process can proceed, or sometimes even before it can be started. A thorough understanding of the internal workings of the government is a prerequisite to complete the MIC process swiftly.”
Running out of time
The problem of running out of time is more a miscalculation than a mistake as such, but it “is a potential deal killer,” Edwin said.
“Very often, investors have had to take on commitments to local partners, customers or the government based on overly optimistic timeframes to get operational.
“The best way to speed up the process is to use a highly responsive team resident in Nay Pyi Taw to keep in contact with the relevant Ministries on a daily basis. Depending on the situation, clients should also consider setting up the company before completing the MIC process so that some essential preparations, such as opening bank accounts and applying for an Importer/Exporter Card can already be completed.”