The government’s decision to enact a new FDI law in March 2013, coupled with the country's ascension to the ‘New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards’ in April 2013, led Myanmar’s business environment to be ranked by Maplecroft’s 2014 Legal and Regulatory Environment Risk Atlas (LRERA) as the “most improved” environment globally in 2013.
In its fifth annual LRERA, which monitors the ease of doing business in 173 countries, the global risk analytics company Maplecroft found that although grand corruption remains a pervasive challenge when doing business in Myanmar, the government’s steps to implement internationally recognised legal frameworks means that foreign investors can expect greater legal protections as they will be able to resolve local disputes through international arbitration channels. And although the country’s local jurisdiction, which is still characterised as extremely risky for foreign investors, remains heavily influenced by the vested interests of leading figures in the military government, Myanmar’s recent ascension to the Multilateral Investment Guarantee Agency in October 2013 was a significant indicator that the government was likely to implement measures to strengthen Myanmar’s rule of law and its legal institutions over the coming year.
Myanmar’s Directorate of Company and Investment Administration’s (DICA) move to overhaul its company registration process, has been a boon for the government. Previously, new foreign firms were required to seek a ‘temporary permit’ before being registered on Myanmar’s tax payments system – a process that took up to a year – now they cam receive their final documentation, including a permit to trade, as soon as they register. According to DICA, FDI has grown by 500% between 2012 and 2014, and a rise in company registrations has resulted in the creation of more than 20,000 new jobs.
Senegal was highlighted by LRERA as another 'high risk' country that had taken significant steps forward in improving its doing business environment. It rose from 28th in 2013 to 51st in 2014 in the most “extreme” risk category. Other countries that made steady progress include Guatemala, which moved from 32nd to 61st place; Mozambique which rose from 40th to 71st; and Rwanda, which went from 66th to 101st place.
Substantive changes made by all these countries’ governments in improving their legal environments, including strengthening their corporate governance mechanisms and reducing regulatory hurdles, such as making their respective regulatory environments less bureaucratic, encouraged substantial increases FDI in all countries last year.
While gains in these frontier economies have been considerable, regulatory challenges have increased in other larger emerging economies such as China and India, which slipped in the LRERA rankings. According to Maplecroft, both countries’ governments have fallen short of reforming fundamental weaknesses in their legal environments, thus their corporate governance mechanisms remain weak. Additionally, increasing risks of regime instability in Cambodia and Vietnam mean that companies operating in both countries face a high risk of undergoing a “societally forced regime change. Legal structures in China, India, Cambodia and Vietnam have all been deemed “high risk”.
The world’s most industrialised economies are expected by the LRERA to maintain their lead as offering the most favourable legal and regulatory environments, with Denmark and New Zealand ranked as having the safest regulatory environments for investors. In contrast, Somalia’s, North Korea’s, and Turkmenistan’s legal institutions have been characterised as posing the most “extreme” risks to foreign investors this year.