MYANMAR: An Introduction to General Business Law

Myanmar is the second largest country in South-East Asia and a member of the Association of Southeast Asian Nations (ASEAN), strategically located at the crossroads of Asia and sharing borders with China, India, Bangladesh, Laos and Thailand. Together, these countries account for about one fifth of the global gross domestic product (GDP).

The total area of Myanmar is 676,578 square kilometres, which accounts for 13.5% of the entire South-East Asian region. Its total population is approximately 54 million, or 8% of the total population of South-East Asia as of 2020.

The nominal GDP of Myanmar is ranked 89th in the world (IMF 2023). In 2020, the agriculture, forestry and fishery industries accounted for 22.5% of Myanmar’s GDP, while the manufacturing industry accounted for 8.4%. The tertiary industry, which includes the wholesale, retail and real estate industries, accounts for approximately two thirds of the total GDP in Myanmar.

Myanmar is rich in natural resources, including oil and gas, various minerals, precious stones and gems, timber and forest products, as well as hydropower potential. It further benefits from its young labour force, which is characterised by a relatively low wage level, and the country’s almost unhindered access to other markets in the region due to its membership in the ASEAN. Myanmar is further classified as a developing nation, which entitles it to enjoy the European Union tariff preferences under the Generalised System of Preferences. These tariff preferences offer Myanmar trade benefits, including reduced tariffs on exports to the European Union.

Uncertainty Weighing on Myanmar’s Economy 

In 2011, after Myanmar’s military stepped aside and a quasi-civilian government was installed, the country embarked on a comprehensive reform process to overhaul its legal framework and simplify doing business, increase transparency and strengthen the rule of law. These reform efforts were largely halted following the declaration of a state of emergency on 1 February 2021. The political events that have taken place in Myanmar since February 2021 will continue to impact on Myanmar’s economy, at least in the medium term.

Despite some industries showing signs of resilience and gradual economic recovery (estimated at 3% for the fiscal year ending September 2023), economic activity continues to be adversely affected by internal conflicts, electricity shortages and changing rules and regulations. The per capita GDP is expected to remain at approximately 13% below its pre-COVID-19 level. The depreciation of the Myanmar kyat, combined with high inflation rates and ongoing logistics constraints, has caused import costs to rise sharply.

Sustainable economic recovery from the COVID-19 pandemic and the political events that took place in the country since February 2021 is likely to be constrained by international sanctions, as well as macroeconomic and regulatory uncertainty. Frequent changes to rules and regulations result in uncertainty concerning access to foreign exchange and imports, reduce confidence in payment systems and delay customs processes.

Banking and Financial Trends in Myanmar 

Arguably the most significant recent developments in Myanmar took place in the banking and finance sector, particularly in respect of the country’s foreign exchange management. In April 2022, the Central Bank of Myanmar imposed requirements concerning the use of foreign currency and instructed that the foreign currency income of Myanmar residents must be deposited in licensed banks and converted into Myanmar kyat.

Furthermore, any transfer of foreign currency from Myanmar to abroad requires prior approval from the Foreign Exchange Supervisory Committee. The instructions of the Central Bank to suspend transactions related to the repayment of offshore loans by Myanmar companies are also notable in this context.

While the initial instructions have been modified and clarified throughout 2022 and 2023, and exemptions were issued for certain entities and organisations, the Central Bank’s reintroduction of a fixed official exchange rate for the Myanmar kyat and the continuing restrictions on the use of foreign exchange have resulted in a resurgence of informal financial services in Myanmar.

Myanmar’s financial sector was further affected by the country’s addition to the category of “high-risk jurisdictions subject to a call for action” on 21 October 2022, commonly known as the “blacklist” of the Financial Action Task Force (FATF). As a consequence, countries and financial institutions are advised to apply enhanced due diligence to business relations and transactions with Myanmar.

In addition, cross-border transactions are becoming more difficult, with several clearing agents ceasing or limiting the clearance of USD transfers to and from Myanmar, and large commercial banks restricting financial transactions with Myanmar citizens and companies. The recent permission to use Thai baht and Chinse yuan for cross-border transactions suggests a further shift of banking transactions to alternative financial hubs.

Other notable developments pertain to the Regional Comprehensive Economic Partnership Agreement, which came into force in Myanmar on 4 March 2022, and the relaxation of restrictions on foreign investment into non-bank financial institutions. In a directive issued in July 2022, the Central Bank set out the requirements for foreign financial institutions to establish wholly owned non-bank financial institutions in Myanmar.

Legislation

Legislative changes include the implementation of Myanmar's new IP laws, the liberalisation of the financial sector, allowing foreign investments into non-bank financial institutions, the formalisation of the e-commerce sector and the recent increase of the nationwide minimum wage.

Hurdles and Difficulties

In addition to the adverse effects of the FATF blacklisting, the Central Bank restrictions on foreign exchange transactions and limitations on imports, investors are advised to take measures to comply with the international sanctions imposed before and since the declaration of the state of emergency, and to ensure responsible business in the country.

Comprehensive due diligence is required not only for new and existing investments in Myanmar and transactions with Myanmar businesses, but also for any potential divestment of operations to ensure a responsible exit from the country.