Legal experts at law firms still on the ground in Myanmar are cautious about the future of the country, with further sanctions designed to send a message to the military more likely to place greenfield foreign investment in jeopardy.
Myanmar declared a state of emergency on 1 February 2021 for up to one year under order No. 1/2021. During this period, the commander-in-chief of the defence services, Min Aung Hlaing, is in charge of the state, while vice president U Myint Swe serves temporarily as president.
Since then, business and companies have been closely monitoring developments in the country that may impact international businesses with interests or operations.
Julian Barendse, a counsel at Myanmar Legal MHM, expected that investors would be seeking reassurance that there would be a transparent, stable and predictable environment in which to conduct business during the term of the order.
“Recent assurances by the commander-in-chief that there would be no change in government policy may provide some comfort to investors,” Barendse told Asia Business Law Journal.
“However, it will be important for the Myanmar government to demonstrate its commitment to preserve investors’ existing rights, including under agreements with Myanmar government parties entered into prior to the order, and to take a transparent approach to regulation, including preserving existing laws and transparently publishing future laws.”
Since the order, Barendse said he had seen delays in the operations of government agencies, including those responsible for issuing permits and other authorisations for projects, adding that companies should take this into account for short to medium-term projects, in addition to the ongoing covid-19 situation, and restrictions on movement and gatherings of more than five people.
If a contract in Myanmar cannot be performed due to such circumstances, Barendse advised concerned parties to consider whether a force majeure clause is applicable, or alternatively, “if it is possible to avoid performance of the contract on the grounds of frustration under section 56 of the Contract Act of Myanmar. Many businesses have already considered these options in response to the ongoing covid-19 situation.”
DFDL Myanmar’s partner and managing director, William Greenlee, has seen a downturn in foreign investment. “Some current projects have already been halted, while some projects have seen international investors pull out,” said Greenlee.
One of the most public examples is that of Japan’s Kirin, which put an end to its joint venture relationship and exited Myanmar. “Should things continue, we may see more such high-profile exits from Myanmar,” he said.
For most companies, according to Greenlee, there is a big reputational concern, and they do not want to be seen as doing business with Myanmar during the political crisis. Nevertheless, there have been no expropriations, and recent reports from the military leaders suggested that foreign investment would be promoted the same way as it had in the past.
“The liberalised foreign investment laws and regulations are still in force, and we have not seen any changes in relevant commercial legal frameworks,” said Greenlee. “Therefore, in terms of a narrow legal analysis and legal risk, we do not at this moment see a material risk.”
Lucy Wayne, managing director at Lucy Wayne & Associates, said the state of emergency in Myanmar would exacerbate an already difficult legal market, in addition to the normal market risks involved in investing in a developing economy.
“Investors have not been able to come to Myanmar due to covid-19 flight and visa restrictions,” said Wayne. “The potential instability within the government will cause foreign investors to rethink their plans.”
For existing investors and suppliers, Wayne said that disruptions to business channels and markets were the main concern. If recent events led to severe sanctions being imposed, then foreign businesses would almost certainly withdraw.
“If sanctions are not widely imposed, then some business may remain, but will need to restructure to mitigate risks,” she said. “The question for existing investors, therefore, is whether the clear opportunities in Myanmar will outweigh the increasing risk.”
In terms of possible sanctions, Barendse said the terms announced by the US and other major economies would be an important consideration for international investors as they evaluated their investments in Myanmar.
“As of 16 February 2021, such announced sanctions have been targeted and focused on Myanmar military leaders and military entities, rather than wider sanctions, as were in place prior to the reforms undertaken in Myanmar in 2011,” he said.
However, Barendse explained that the implications of the unexpected recent developments were still unclear, and he expected that foreign investors were taking a “wait and see” approach in relation to their existing investments and operations, and potential new projects.
“Whether foreign investors withdraw from Myanmar, or halt new investments, may depend on the perception of the risks of investing in Myanmar during the short to medium term, including whether they perceive that there is a transparent, stable and predictable environment in which to conduct business, and the extent of new international sanctions that are applied.”
DFDL’s Greenlee agreed that any sanctions would negatively impact foreign investment, however, he hoped such sanctions would be focused, and thus limit their impact, and not depress commercial activity generally.
“2021 was expected to be a great year in Myanmar – the year for significant foreign investment in large-scale infrastructural, energy and other projects,” said Greenlee. “Recent events are casting serious doubt on such expectations.”
Wayne expressed similar concerns. “Since Lucy Wayne & Associates first opened in Myanmar, from 1995 to 2002, when it had to leave due to sanctions, and then reopened in 2014 to date, we would look to history for some guidance on how to proceed, and are not as optimistic as we would like to be,” she said.