U.S. Companies Skirting Myanmar Sanctions Fuel Record Investment

U.S. companies registering in Singapore to skirt sanctions on Myanmar helped the city state trump China as the country’s number one investor this year, Myanmar’s deputy finance minister said.

“Some of the U.S companies register in Singapore as a Singapore company and come and invest in our country,” Maung Maung Thein said in an interview at the Myanmar Securities Exchange Center in Yangon on Nov. 14. “That is why Singapore takes over China.” They declined to identify the companies.

While President Barack Obama in 2012 authorized U.S. companies to invest in Myanmar for the first time since 1997, he has continued to block ventures with businesses connected to the country’s former junta. In May he extended some sanctions under the National Emergencies Act, which bars U.S. individuals and companies from investing or doing business with people with links to the army’s repression of the democracy movement since the mid-1990s.

Wedged between China and India, the country of 53 million is transitioning to democracy from military rule, with elections set for next year. Obama, who visited opposition leader Aung San Suu Kyi at her home in Yangon last week, said Myanmar’s steps toward democracy are far from complete.

“It’s clear how much hard work remains to be done and that many difficult choices still lie ahead,” Obama said.

Myanmar’s capital Naypyidaw was host last week to the summits of the Association of South East Asian Nations and East Asia attended by Obama and leaders from China, India, Russia and Japan.

Off Limits
The U.S. Treasury lists hundreds of companies that are off limits to U.S. investors. Among those individuals who have had their names removed from the list are President Thein Sein and parliament speaker Shwe Mann, former junta members who have been at the forefront of the new government’s reform efforts.

The criteria for removal include cutting ties to the military and demonstrating transparent business practices, and requests are assessed on a case-by-case basis, according to the Treasury Department’s website.

Violating terms of the U.S. sanctions can result in civil penalties of $250,000 or twice the amount of the illegal transaction, as well as criminal penalties of as much as $1 million and imprisonment for up to 20 years, according to the Treasury Department.

Spokespeople at the Accounting & Corporate Regulatory Authority and the American Chamber of Commerce in Singapore weren’t immediately able to comment when contacted by phone and e-mail.

Foreign Investment
A U.S. official pushed back on the contention that Singapore has surpassed China as Myanmar’s number one investor because of U.S. companies looking to skirt sanctions. The official attributed the decline of Chinese investment to the desire by Myanmar to diversify. Singapore is also an attractive place for the U.S. and other foreign countries to register because of its functioning political, legal and financial systems, the official said.

Direct foreign investment in Myanmar this year will rise by about a quarter to more than $5 billion, a record, Thein said, predicting a similar pace of growth in 2015. Investment into Myanmar has surged from less than $2 million a year in 1989 when the country opened to foreign investment, he said.

Most of the investment went into telecommunications and “early industries,” such as food stuffs and textiles, Thein said. Myanmar is attempting to develop its manufacturing base, which is still half the size of Vietnam’s. The country wants to expand into auto-assembly with a view to domestic and export markets and is in talks with several countries, he said, declining to be more specific.

“We have to adopt our own model based on the experience of other countries,” Thein said.

Growth Potential
Myanmar needs more than $170 billion of foreign capital to meet its investment requirements of $650 billion to achieve its long-term growth potential, according to a report by McKinsey & Co. published in June last year.

Japan’s Nissan Motor Co. (7201) will be the first global automaker to start producing from a plant in the Bago region, north of Yangon, in 2015, creating 300 jobs, according to the company’s website.

Myanmar is in talks with ratings companies with a view to obtaining a credit rating to help its money raising efforts, Thein said.

“We will not get it overnight,” he said. “It might be 2015 or 2016. Three years at the most. We have to try hard. It is very important.”

Myanmar granted licenses to nine overseas lenders in October including Oversea-Chinese Banking Corp. (OCBC), Australia & New Zealand Banking Group Ltd. (ANZ) and Malayan Banking Bhd. (MAY), in a move that Moody’s Investors Service said supported the country’s creditworthiness by improving access to capital.

Stock Exchange
Thein said Myanmar won’t follow the example of Laos, which sold its debut sovereign notes last year in Thailand, where foreign issuers aren’t required to have a credit rating.

“Our present thought is that we will not go to other market at the moment,” said Thein. “We have our own fundraising plan. We don’t want to raise our funds in other financial markets.”

Myanmar is also developing a stock exchange, which Thein said may be operating by October next year, with the listing requirements for companies expected to be published in the first quarter of 2015.

Source: Bloomberg

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