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Logo of Phnom Penh Post newspaper Phnom Penh Post - Cambodia and Myanmar: differing paths to a market economy

Cambodia and Myanmar: differing paths to a market economy

IT is no secret that most countries in the Mekong region compete vigorously to attract

foreign investment to hasten economic development. Recently, for example, officials

at the highest levels of the Cambodian government met with prospective investors

at the Economist Roundtable forum. Cambodia and other nations have announced to the

world that they are "open for business."

One country with which Cambodia must increasingly compete for foreign investment

is Myanmar. While both countries have embarked on the road to market economies, the

following comparison of the rules governing foreign investment in each country shows

that Cambodia has selected a more direct route.

Background and Sources of Law

Unlike Cambodia, the Myanmar system of government is not a parliamentary democracy.

The country is ruled by the State Law and Order Restoration Council (SLORC) which

consists of high-ranking military officers who assumed power in 1988. In 1990, the

National League for Democracy, led by Aung San Suu Kyi, emerged victorious in parliamentary

elections. SLORC has not acknowledged this victory and remains in power.

A British colony until 1948, Myanmar's legal system is based on British common law.

Despite twenty-six years of socialist experiment beginning in 1962, many of the commercial

laws of Myanmar in effect today are little changed from the British period. As in

Cambodia, the Myanmar legal system and many of its laws are currently being revised

to reflect changes in the economic philosophy of the country and its reintegration

into the world economy.

Sectors Open for Investment

Cambodia's private economic sector is far more advanced than in Myanmar. Through

its state-owned economic enterprises (SEEs), the government of Myanmar directly participates

as competitors in a significant portion of the economy. For example, SEEs are involved

in the food, paper and chemical, pharmaceutical, ceramics and textile industries.

In addition, a foreign investor must receive approval from the appropriate ministry

to engage in a very long list of activities, many of which would generally not warrant

significant government intervention in other free market economies.

Investment Procedures

Foreign investment in Myanmar is governed largely by the Foreign Investment Law (FIL),

enacted in 1988 and the Myanmar Companies Act, much of which dates back to 1913.

The FIL established the Myanmar Investment Commission (MIC) to be an investment center

for foreigners similar to the Council for the Development of Cambodia (CDC). In addition,

the FIL provides for a variety of investment incentives for qualifying investors.

Foreign investors desiring to invest in Myanmar under the FIL must comply with application

procedures established by the MIC. Reports indicate that the MIC process generally

takes two to three months from the time the fully completed application is submitted.

It is not necessary in all cases for foreign investors to obtain a permit under the

FIL. Indeed, the FIL criteria are somewhat rigorous and many investors may not qualify.

In some economic sectors, it is possible to proceed without an FIL permit by obtaining

a "Permit to Trade" under the Myanmar Companies Act. In Cambodia, an analogous

course would be to seek company registration directly from the Ministry of Commerce

without involvement of the CDC. Investment incentives, however, are not available

to investors who do not obtain a permit under the FIL, just as no incentives may

be granted to a company that has not been licensed by the CDC in Cambodia.

Investment Guarantees and Incentives

Both Myanmar and Cambodia make available under their respective investment laws

certain guarantees and incentives for qualifying investors. In Myanmar, guarantees

to all investors include:

  • exemption from income tax for the first three years of the investment.
  • no nationalization.
  • the right to repatriate the investor's share of foreign currency upon termination

    of the investment.

In Cambodia investors are guaranteed:

  • no nationalization adversely affecting the property of investors.
  • no price controls on products or services produced by licensed investors.
  • remittance of foreign currencies abroad.

The three-year exemption from income tax granted to all licensed investors in

Myanmar is very attractive to many investors. However, the lack of restrictions on

foreign currency remittance in Cambodia may be equally important to other investors.

Each country also offers a long list of other investment incentives that may be

granted. In Myanmar, such incentives include:

  • exemption from corporate income tax on profits re-invested in the business within

    one year.

  • three year loss carry-forward.
  • exemption from corporate income tax beyond the three years guaranteed to all.
  • exemption from import duties on machinery, equipment and materials imported for

    use in the investment.

Maximum discretionary investment incentives available to foreign investors

in Cambodia include the following:

  • nine percent corporate income tax.
  • eight year exemption from corporate income tax.
  • five year loss carry-forward.
  • exemption from import duties for certain projects for specified periods.
  • tax free repatriation of profits.
  • tax free distribution of dividends and profits.
  • Land Ownership

Neither Cambodia or Myanmar permit foreigners to own land. In Cambodia, however,

foreigners may own up to 49 per cent of a legal entity that owns land. In Myanmar,

there can be no foreign equity participation whatsoever.

Similarly, foreigners may enter into renewable long term leases of real property

of up to seventy years in Cambodia. Under the laws of Myanmar, investors with permits

under the FIL may lease government-owned land for up to thirty years. Otherwise,

foreigners may not lease land for more than one year.

Foreign Exchange Controls

Cambodia does not limit the amount of hard currency that an investor may remove from

the country. In Myanmar, investors without a permit under the FIL face significant

restrictions in repatriating their profits. Moreover, for certain purposes, the government

clings to an official rate of approximately 5.8 Myanmar kyat to the US dollar compared

to a prevailing market rate of approximately 130 kyat/dollar.

The currency situation in Myanmar is changing, however. The government has issued

Foreign Exchange Certificates (FECs) which may be exchanged for kyat at or near the

market rate. Citizens of Myanmar are legally entitled to hold FECs. In addition,

foreigners may exchange FECs for dollars.

Overall, a foreign investor faces a more restrictive investment environment in Myanmar

than in Cambodia. This is probably not surprising, in view of the much greater extent

to which the Myanmar government participates directly in the economy of the nation

through the SEEs. Cambodia has chosen to take a speedier, more direct path to a free

market economy and its investment laws and environment reflect that choice.

- (Darryl S. Vhugen is a visiting lawyer from Seattle, Washington, currently

working in association with Dirksen Flipse Doran and Le. DFDL is an international

law firm with regional offices in Vientiane, Phnom Penh and Ho Chi Minh City.)



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