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Mining in Myanmar and Vietnam-
How to get it right !
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Agenda:
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Doing Business in Myanmar and Vietnam • The Country at a Glance • A Comparative Snapshot • Myanmar v. Vietnam: Same same but different
Investing in Myanmar and Vietnam • Myanmar v. Vietnam in the Battle for Foreign
Investments • Investment and Mining Regulatory Framework
Government Procurement and Bidding
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Myanmar at a Glance • Official Name: Republic of the Union of
Myanmar • Location: South East Asia • Neighbors: Bangladesh, China, Laos, India
and Thailand • Area: 676,578 Km2 • Capital: Naypyidaw • Largest city: Yangon (Rangoon) • Currency: Kyat (MMK) (01 USD = 968
MMK) • Language: Burmese • Population: 53.3 million
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Vietnam at a Glance
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• Official Name: Socialist Republic of Vietnam
• Location: South East Asia • Neighbors: China, Cambodia and Laos • Area: 331,688 Km2 • Coastline: 3,260 Km • Capital: Hanoi • Largest city: Ho Chi Minh City (Saigon) • Currency: Vietnamese Dong (VND) (01
USD = 21075 VND) • Language: Vietnamese • Population: 90.388 million
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Myanmar v. Vietnam: A Comparative Snapshot 2013 Myanmar Vietnam
GDP US$ 53.1 billion US$170.4 billion
GDP per capita US$ 835 US$1,890
2013 GDP Growth 7.5 % 5.42 % Inflation 5.8 % 6.04% FDI US$ 4.1 billion US$22 billion Import turnover US$ 12.53 million US$ 132.2 million
Export turnover US$ 10.23 million US$ 131.3 million
Labor force 31.8 million 51.69 million
Minimum wage No general minimum wage Public sector: S$56.8 Laborer: About US$2.3/day
VND 2.7 million (US$ 128) per month (Jan 2014)
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Myanmar v. Vietnam: A Comparative Snapshot Infrastructure Myanmar Vietnam
Port Poor Fair
Train Fair Fair
Airway Poor Fair Road Poor Fair
General Poor Fair
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Level of Education Myanmar Vietnam
Average of Schooling (in years) 4 10.4
Public Spending on Education (% of GDP) 1.26% 1.8%
College Level Education (% of population) 11.5% 18.67%
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Myanmar v. Vietnam: Same same but different • Myanmar v. Vietnam: Same same
Both are located in South East Asia and have a strategic location: A bridge between South and South East Asia
Myanmar’s current economic situation is similar to that of Vietnam 18 years ago: Outdated legal system and excess of bureaucratic administration
Myanmar and Vietnam have the same internal problems, e.g high rate of corruption, underground economy that makes up most of transactions and is out of control
Both have young population, mostly at working age Both have abundant natural resources, especially oil and gas
and huge potential in development of agricultural economy
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Myanmar v. Vietnam: Same same but different • Myanmar v. Vietnam: What’s the difference?
Myanmar is with 89% Buddhists a real Buddhist country, while 81.69% of Vietnamese are non-religious
Different legislation: Myanmar’s system is based on Common Law while Vietnam’s system is similar to a civil law jurisdiction
NOTABLY, Confucius never arrived in Myanmar!!!
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Investing in Myanmar and Vietnam
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Myanmar v. Vietnam in the Battle for Foreign Investments
• Advantages of Vietnam: Vietnam’s economy has developed 20 years earlier than
Myanmar’s one Current situation of infrastructure and human resources
of Vietnam is better than those of Myanmar • Advantages of Myanmar: Myanmar: Last untapped market in Asia Myanmar can take opportunities when FDI enterprises
losing faith in Vietnam economy to become new FDI hub
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Myanmar v. Vietnam in the Battle for Foreign Investments
• Can Myanmar become a next Asia tiger? Recent democratic reform with new Union Government headed by
President Thein Sein in March 2011 Issuance of new Foreign Investment Law (FIL) in November 2012
with detailed guidelines issued in Jan 2013 to ease the investment procedures and gives more investment incentives
International sanctions are lifted and foreign firms keep eye on Myanmar
Myanmar has all the elements required to create another Asian economic miracle
GDP growth rate is projected to average around 6 per cent per year until 2020, with GDP doubling to $124 billion by 2020
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Myanmar v. Vietnam in the Battle for Foreign Investments
• Will Vietnam still be a FDI good destination? Even though sharply dropped FDI and current cautious economy BUT Japanese investors keep coming to Vietnam and emerging wave of
M&A from ASEAN investors Move of production factories from Japanese and Korean giant industrial
firms into Vietnam New investment wave coming? Expected after signing Free Trade
Agreement (FTA) with the EU and Trans Pacific Partnership (TPP) with the US, Australia and other member countries. FTA and TPP are a big chance for Vietnam to attract more FDI and to engage globally
• Why Vietnam needs TPP?
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Myanmar v. Vietnam: Who wins? • WTO analysis of liberation of market access:
Vietnam ties in first place with Singapore
• *Typical restrictions: number of opened sectors, JV requirement, limits on foreign-owned shares, permission requirement
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Country Limitation of market access*
Country Limitation of market access*
Malaysia medium Myanmar high Indonesia medium Cambodia medium
Philippines medium Laos medium Singapore low India high Thailand medium China medium Brunei high Vietnam low
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Myanmar v. Vietnam: Who wins? • Remember:
Myanmar a founding member of WTO that means WTO service sector commitment => Unbound
Vietnam is the 150th WTO member and the other 149 members demand high level commitments => Better and higher market access and service sector commitments
⇒ Myanmar must move fast on concluding free trade agreements
• Myanmar v. Vietnam: Who wins? DEPENDS ON COMMITMENTS ON INSTITUTIONAL REFORMS OF
BOTH MYANMAR AND VIETNAM!!!! • OPEN OR ISOLATED?
• MODERN OR CONSERVATIVE?
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Investment and Mining Regulatory Framework in Myanmar and Vietnam
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Investment Regulatory Framework in Myanmar • Myanmar Foreign Investment Law (“MFIL”) 2012
Replaces previous MFIL 1988 New improved investment incentives offered to foreign investors Restrictions on foreign investment on certain business activities Regulatory authority: Myanmar Investment Commission (“MIC”)
• Myanmar Foreign Investment Rules (Jan 2013) Myanmar Foreign Investment Rules (Notification No. 11 of 2013) released in
January 2013 Foreign ownership in restricted business activities now allowed up to 80% MIC given more authority as government body Directorate of Investment and Company Administration (“DICA”) given
more power over foreign investments
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Investment Regulatory Framework in Myanmar
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MYANMAR COMPANIES ACT 1914
• 100% foreign-owned or JV with Myanmar entity
• Minimum of 2 shareholders • Minimum capital requirements US$150,000 for Manufacturing-
related business US$50,000 for Service-related
business
MYANMAR FOREIGN INVESTMENT LAW 2012 • 100% foreign-owned or JV with
Myanmar entity • Minimum capital requirements
may be determined by Myanmar Investment Commission (“MIC”)
• Due diligence conducted by MIC on the Investor – experience, financial standing and on investment project
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Investment Regulatory Framework in Myanmar • General Types of Companies: Private Limited Liability Company; Public
Limited Liability Company; Sole Proprietorship; Company Limited by Guarantee with Share Capital; Company Limited by Guarantee without Share Capital; General Partnership; Branch of a Foreign Company
• Capital requirement: Minimum capital required to register for a Permit to Trade: About USD 138,199 for an industrial company About USD 69,000 for a trading company About USD 41,460 for a service company
Note: Fifty percent (50%) of the prescribed capital must be brought in as foreign currency before the Permit to Trade is issued and the balance 50% must be remitted within 30 days prior to the date of renewal of Permit to Trade
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Investment Regulatory Framework in Myanmar
• Mining Regulatory Framework : Mining operations in Myanmar are regulated by the 1994 Mines
Law, the 1996 Mines Rules and their implementing guidelines According to the 1989 State-Owned Economic Enterprises Law,
exploration, extraction and sale of minerals is a state monopoly. But, the Myanmar Ministry of Mines has the power to grant
exploration and production licenses to local and foreign private companies
Local and foreign private companies must enter into a production sharing contract with state-owned Mining Enterprise No. 1, No. 2 or No. 3
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Investment Regulatory Framework in Myanmar • How to Access the Market:
Small and medium-scale mineral production is prohibited under Foreign Investment Rules
Prospecting, exploration and production of industrial minerals and metallic minerals or large-scale production of minerals are allowed in a joint venture under Notification 1/2013
Production and marketing of rare earths, strategic minerals, radioactive minerals; manufacturing and marketing of gems, jewelry and finished products (statues, carvings) is allowed in a joint venture under Notification 1/2013
Business which can cause great effect on the conditions of security and the economic, environmental and social interests of the Union and its citizens” is required for parliamentary approval under Foreign Investment Law
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Investment Regulatory Framework in Myanmar
• Mining Regulatory Framework : • Licenses: 02 separate licenses obtained for each mineral: Exploration
License and Production License: Exploration License: It is required to sign an agreement for the
exploration and feasibility study with Department of Geological Survey and Mineral Exploration and receive the approval for the use of land before the Ministry of Mines issue the Exploration License
Production License: Production License will be possibly obtained if feasibility study after exploration proves the production at commercial scale.
Before obtaining Production License, the investor must sign production sharing contract with Mining Enterprise No. 1, No. 2 or No. 3 and obtain MIC permit
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Investment and Mining Regulatory Framework in Vietnam
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Investment Regulatory Framework in Vietnam • Investment Legislation Reform
Vietnam is actively working to better its’ legal framework, especially simplifying administrative procedures in the fields, in order to attract more foreign investment in the coming time
2014 proves to be a crucial year as a long set of new laws will come up: New Law on Enterprises is under drafting session which promises solutions
for many issues during the implementation of the current Law Law on Investment is under review too and it may be in line with the Law on
Enterprises New decree on PPP which would repeal the Prime Minister’s pilot decision
may be soon passed but the first draft was not really sophisticated and it needs substantial revision
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Investment Regulatory Framework in Vietnam • How to Access the Market:
Establishing a corporate vehicle in Vietnam (100% foreign owned or joint venture with Vietnamese partners) or cooperating with Vietnamese partners without establishing any corporate vehicle under business cooperation contracts.
Forms of Enterprises: LLC, JSC, Partnership and Private Company.
Vietnam’s WTO commitments provide foreign ownership restrictions in many service sectors. Market access to “unbound sectors” is subject to discretionary judgment of licensing authorities.
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Investment Regulatory Framework in Vietnam • Mining Regulatory Framework:
No access and capital limitation on foreign investor under the applicable mineral law. The foreign firm may apply for 100% owned capital mining project. But the foreign investor must satisfy with the licensing requirements!!!
The investment project for mineral exploration and mining must comply with the master plan (if not, required an in-principal approval issued by the Prime Minister) and the environmental protection laws
Enterprises with foreign owned capital which have been granted (i) investment certificate (“IC”) and (ii) mineral licenses may actively explore for minerals, mine and process minerals based on the specific rights granted in the relevant licenses.
Foreign enterprises which have established ROs or branches in Vietnam and have obtained the appropriate mineral license may explore for minerals.
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Investment Regulatory Framework in Vietnam • Mining Regulatory Framework: Licenses: 02 separate licenses obtained for each activity undertaken during a
commercial scale mining project: (i) Exploration license and (ii) Mining license Exploration license: License term of 48 months, possibly extended for
further 48 months. The exploration license is exclusive in respect of the granted area and is transferable under certain conditions: the issuance conditions, receipt of issuer approval and payment of assignment tax
Mining license: Mining license is issued at the same time as, or subsequent to, the IC issue. License duration is determined on the basis of the feasibility study submitted in the IC application dossier, but cannot exceed 30 years, possibly extended for several time
Mineral export: The laws does not have any restriction but the master plan provides the restriction on the export of certain minerals pursuant to that plan. Under Directive 02/2012 of the Prime Minister, export of raw minerals are now strictly prohibited
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Government Procurement and Bidding
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Government Procurement and Bidding • Public procurement is one of the sectors most susceptible to corruption
• Officials in charge of equipment purchase contracts can solicit for kickbacks or personal commissions
• The number of competitive tenders in the total value of awarded government procurement contracts in Vietnam declined significantly
• Who benefits from corruption and non-transparency in government procurement in Vietnam? Chinese contractors!
90% of power, mining, manufacturing, ferrous and chemical projects of state-owned companies in Vietnam are awarded to Chinese contractors.
The Chinese cheap loans and low-quality technology are the major concerns in Vietnam
• Government procurement in Myanmar: Same same with Vietnam
• But Myanmar has stricter controls and more transparencies
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Government Procurement and Bidding • HOW TO REACT WITH YOUR HANDS CLEAN?
IN THE SHORT TERM:
Forming partnership with subsidiaries or well-connected companies of major state-owned companies (where possible) for bidding.
Taking advantages of the business associations and foreign diplomatic organizations.
IN THE LONGER TERM:
Taking advantage of the negotiations of the free trade agreements to require Myanmar and Vietnam to comply with major principles on government procurement and bidding under WTO’s Agreement on Government Procurement (“WTO’s GPA”).
Creating more pressure for Myanmar and Vietnam to join WTO’s GPA. This should also be a prerequisite for development aid of the US, the EU, Australia for Myanmar and Vietnam!
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DUANE MORRIS VIETNAM LLC
Thank you very much!
Duane Morris Vietnam Duane Morris Myanmar Pacific Place, Unit V1307/08, 13th Floor, No. 10 Phoyazar Street, 15 Ward, 83B Ly Thuong Kiet, Hoan Kiem Dist Baukhtaw Yankin Township Hanoi, Vietnam Yangon Suite, Myanmar
Contact email:
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