Forum on 2013 Foreign Investment Rules and Regulations

Recently, a  series of economic forums have been taking place at Mingalar Hall, Union of Myanmar Chambers of Commerce and Industry (UMFCCI). I had a chance to participate in Singapore-based Kelvin Chia's forum on ' Presentation on 2013 Foreign Investment Rules and Regulations' on 6 Feb 2013.

It was probably premature to organize such a  forum as the Foreign Investment Rules and Regulations (FIRR)) were announced only a few days ago. However,   Kelvin Chia Yangon Ltd, being the oldest foreign legal consultancy in Myanmar, took  the opportunity to stimulate the potential international  investors.

It seemed a bit strange for foreign and Myanmar business communities that two notifications regarding FIRR have been promulgated at the same time, by Myanmar Investment Commission (MIC) and the  Ministry of National Planning and Economic Development.

However, these two notifications are more or less oriented to labor intensive and value adding industries and every business feels that it is more business friendly than 1988 Foreign Investment Law (FIL). Fortunately there are fewer deadlocks and  there are potential openings even in the prohibited sectors if an investor can show really interest and prove mutual benefits. The most important relief for local entrepreneurs is that there would be less impact on local businesses as there are more opportunities to launch Joint Venture business.

However, the local tourism sector feels that their businesses should only be confined to local entrepreneurs as the locals have the right to make use of all Myanmar's heritages. The sector is not happy at allowing 80% maximum investment for foreign players and wants to limit the foreign tour operator's participation. They also pointed out that there are many Myanmar Tour operators with "shadow" foreign capitals.

In the question and answer session, Kelvin stressed that the rules require two to three layers to reach to MIC and are less business friendly, which could eventually end up in delays while implementing a project.

I feel that it is untimely to make such comments because these two notifications are  only on paper and nobody knows what will happen when it is put into operation.

I am not arguing that there are no issues at all. Being a promoter of many foreign investment proposals, we experienced lots of bureaucracy within the concerned Ministry's administrative body and the conservative mind-sets of responsible personnel at mid and senior levels. All their fears become red tapes in undertaking the process. So I would suggest government officials to be confident in their works so long as they have clear mind. I would urge the authority concerned to kindly review the number of steps and documents needed to complete the whole process and make some changes. The new FIRR mentions that "one stop" service will be provided to speed up potential investment. I have no idea why they would delay implementing such an innovative idea. We should open "one stop" service offices  immediately in Nay Pyi Taw, Yangon and Mandalay.

 In fact, it may take time but hopefully not long, to surmount all these shortcomings. I do agreed with Kelvin that when submitting proposal there are two to three layers to get to MIC and also on top of that there is the chicken or egg issue which completely frustrates potential investors.  I hope within a very short time all these issues will be solved for the benefit of our country.

Urgent need to adopt national rice policy

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Today if you look into Myanmar rice industry there are 3 distinct unsolved issues; ie: financial support or working capital to farmers, pricing and national rice policy.

Credit or working capital :

Annually, under the increase of production cost, rice farmers have been encountering difficulty in obtaining sufficient credit from official sources that they have to more or less partially depend on informal sources. In fact they are accessed to government loans from MADB  but not sufficient for the whole process of rice production therefore, they have to depend on informal credit with various interest rates. Presently, there is only one government bank MADB and has been providing loans to farmers operating under more than 200 outlets in more than 300 townships throughout the country. In 2013, the amount has been increased to 100000 MMK. Recent unconfirmed news, revealed that MADB will go public. In Harvard Kennedy School paper, it also pointed out that functions of MRDB should also be strengthened and upgraded to commercially oriented financial institution. It also suggested that to build a robust and diversified credit system.

It is suggested that credit extended by the " Leading Companies" should not be treated as normal provision of credit sources. It should be treated as under the process of  ' contract farming ' especially for niche quality rice for exclusive markets internally or externally.

 Moreover, foreign donors are also interested in micro financing for rural people. We need to look for possibilities to create a vibrant credit system with external foreign loans to start the initial stage and once it is fully and successfully operational we can pay back the loans.

Therefore, in the context of the rice stock policy, a portion of how financial support can be extended to rice farmers in long term should be prioritized. Actually this area has been neglected and less prioritized in the past and now it is the time to get new approach of credit system to rice farmers.

Pricing :

There has been a controversial issue between authority and stakeholders that if guaranteed procurement price has been set for a particular year, and if the price goes down beyond guaranteed price, government will have to oblige to procure paddy if farmers want to sell their production. On the other hand, setting up of  rice guaranteed price in particular year does not necessarily mean that government has to buy with guaranteed price. Because since 2009, (actually MAPT ceased buying paddy since 2003) government has no involvement in operations of rice procurement and marketing and therefore setting the guaranteed price is not correlated with obligation to buy but it is set for the purpose of stabilization of price. In that case who's going to buy with guaranteed price ?

National Rice policy

Who will look after the rice stock ? This is a serious question. Someone would say of course MRF should focus on national rice stock. Cos there is no governmental institution to look after the rice after post harvest. In that case, what is the role of government institutions? Should the private sector bear all the responsibility on their shoulders ? In fact, government institutions are gradually losing the control on rice, the major food commodity. Why do they have less focus on rice?  Because there is no concrete policy on rice. Are we go for hybrid rice? I think in most of the rice growing countries only 15-20% of the total production is hybrid rice.  In China alone because of its immense population its about 60%. Are our Myanmar farmers really thinking positive in growing hybrid rice ? Propaganda to grow hybrid rice, seasonal credit is limited, land is limited; you can see the conflict. How dare you organize to farmers you all must put the hybrid rice in your farms ?Where are the roles of traditional rice varieties such as Special Emata, Zeeya, Paw Sann Hmwe, Khut Cho etc:? Why Myamar rice has problems with quality whenever it is exported? Previously, it is believed that private sector had capacity to undertake processing of quality rice, but it is obvious that even in low grade rice( 25% ) some exporters encountered complaints from international buyers. All these are rooted from lagging of proper rice policy in the country.

When look into other rice producing countries OR rice importing countries even in the ASEAN, almost all the major players are all government institutions. NFA (Philippines), BULOG (Indonesia), BERNAS(Malaysia),  FCI( India), VINA FOOD I n II (Vietnam) and Warehousing Corporation(Thailand) etc: they all are government agencies representing the respective countries. Rice stock is solely handled by these government agencies or in some cases the private.

In order to handle the rice stock properly and systematically we should think about forming a Commission or Board or Authority with new objectives in line with the Rice Stock Policy. Such Institution should be constituted under the Ministry of Agriculture and Irrigation or Ministry of Commerce or formed with President's decree of Board of National Rice Stock  or National Rice Stock Commission. The institution will not carry out the actual operations but with the strength of its staff who are oriented in operational research and analysis would able to carry out the research and laid down some principles on supervising and control of  national rice stock in line with the rice stock policy. It is strongly supported the establishment of new agency or institution to manage the national rice stock properly.

 The following are the outlines on some of the issues and areas of focus to be considered when drafting National Rice Policy .

(a)            financial support (robust credit system)

(b)            setting up of guaranteed price

(c)            right to pledge land only to banks for credits

(d)            right to confiscate farmer's land by banks if they defaulted

(e)            contract farming ( niche products only with leading companies)

(f)            input subsidies

(g)            mechanization support

(h)            climate risks (possibility of insurance)

(i)            stock availability and demand

(j)            market infrastructure

(k)            investment

(l)            quality seeds production

Chicken or egg dilemma

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Which came first the egg or the chicken ? You're left asking yourself: Which came first?

In fact, we are not going to discourse on how life and universe in general began.

But I am going to shed some light on facilitating the dealing process  between investors and the authority.

Recently, a respectable potential investors rushed to my office, scratching his head, he said,

" you may have some solution to my issue. I spoke with a concerned official at MIC and he informed that when submitting investment proposal land lease agreement must be included." He went on " So I went back to concerned Ministry and local authority to ask how to make a land lease agreement for my  project. Both of them mentioned that they need MIC approval, and without that they can't move any further". It's a chicken or egg issue! What am I going to do ? Just advise me."

I said " Cool down Mr Chairman, there might be some solution to this. I would settle this after discussing with authority. Please give me time one or two days."

 I drove down to Nay Pyi Taw and discussed with senior officials from the concerned Ministries. And the fact is they were not aware of this issue either.  After some constructive discussions I came back with solution to this.

I  called the Chairman and he was pleased to come to my office. I said, " I have the a solution to  chicken or egg issue. MIC will accept your investment proposal together with draft land lease agreement, without signature from both sides. And in turn you have to approach to the concerned Ministry and request for draft land lease agreement. Each Ministry has been informed on this. But you have to make sure about the rates, Land use premium even though it is a draft. It means before submitting to MIC everything must be settle with the ministry. So I hope this could cool down your headache " I said.

After the enactment of new Foreign Direct Investment Law, more and more potential investors have been rushing into Myanmar. In the changed backdrop, from the authority's perspective, deciding where to start is often a complex argument.  It's important first to clarify what you want to achieve, and then find the most appropriate way to get there.  The procedures of submitting project proposal process to MIC  are get simplified accordingly. Now we know which one to start with.

MIC = Myanmar Investment Commission