As Myanmar steps back onto the world stage with renewed vigour, living in the country during these exciting times is like being in a live-action movie. Every day brings new challenges, new developments and new opportunities.
But underneath the glitz and glamour of visits from heads of state, hosting the SEA Games, and openings of offices of multinational corporations investing in droves is an administration that has been labouring quietly to support all these changes.
Just looking at the first few months in 2014 alone, parliament has passed the new Special Economic Zone (SEZ) Act, the Consumer Protection Act and the Union Tax Act of 2014, to name just a few.
The market is also keenly awaiting several more key legislative and regulatory reforms that will be important to drive the economy forward.
These include the detailed SEZ rules, a condominium law, updates to the Myanmar Foreign Investment Law and changes in relation to the financial institutions law.
A good example is the banking liberalisation, which widely expected to happen soon. The opening up of parts of the banking sector to foreign banks will help provide finance for much of the infrastructure development and foreign investment the economy needs. More importantly, it would also help the longer-term development of the financial services market within Myanmar.
However, many pieces will need to be put together at the base of the pyramid first.
For a start, monitoring systems and regulations need to be put in place and/or upgraded to meet the challenges of a modern financial market that is well integrated with the overall economy.
Moreover, as many loans are going to be denominated in foreign currency and costs of funding would be dependent on international funding costs, the banks entering the Myanmar market as well as well established local banks will need to be able to hedge both their interest-rate costs as well as foreign-currency risks. However, prior to the offering of such services, legislation to regulate such a market and its participants will be needed.
With the “know your client” and anti-money laundering requirements that banking sector participants face, a lot of information is collected, processed and stored. Over time, other regulators will need to adopt privacy regulations to ensure the data obtained by banks will not be misused.
On a different note, there has been steady progress in other areas to modernise rules and regulations. A good example is the recent rationalisation of commercial taxes introduced on April 1 this year.
In the past, the tax rates applicable to each type of product and service were contained in seven different schedules. As the economy matures rapidly, the types of products and services that would need to be added to these schedules will increase exponentially. To mitigate this issue, the legislature simplified the commercial tax system to two main schedules of exceptions. All other goods and services would then be taxable at the rate of 5%.
While there will always be more detailed questions about how new legislation is implemented, the consistent and clear direction in which the legislation is heading demonstrates legislators’ ability to forge a common vision and to make the necessary changes together.
From a foreign investor’s perspective, what does this all mean? Amid gasps of “this is Myanmar”, we are quietly optimistic as the country metamorphoses right in front of our eyes on a daily basis.
While everyone agrees that political and economic risk remains a challenging area, the administration that has guided the recent growth spurt with a steady hand has been a welcome contrast.
With the key agenda of increasing investor confidence by ensuring the gradual increase in transparency and reliability of the administration, we look forward to seeing more investors in Myanmar partnering with local enterprises on an inclusive growth path.
Yasuhide Fujii is the managing partner of KPMG in Myanmar