Business law experts in Myanmar have welcomed the liberalising impact of the country’s new Companies Law, which is expected to increase transparency and improve corporate governance in the garment sector.
With the Myanmar Garment Manufacturers Association (MGMA) stressing in a briefing note the growing importance of clothing exports to the national economy – US$2.7bn worth of garment products were exported in 2017, up from $900m in 2015 – the impact of the new law on the clothing sector will be watched closely. It took effect on 1 August.
Speaking to just-style, Vicky Bowman, director of the Myanmar Centre for Responsible Business (MCRB), says the reform “reflects a global shift towards more transparency and corporate governance.”
Noting the Myanmar’s garment industry’s export orientation, she points to how the new law has removed a requirement for foreign firms to obtain a permit to trade in the country. Additionally, it has opened the door to more foreign investment – a key issue for Myanmar’s growing clothing sector – by allowing foreign capital to acquire up to 35% ownership in Myanmar companies.
Bowman also underlines how the law provides a more robust corporate governance framework for a set of directors’ duties and responsibilities for companies.
In a report, Pwint Thit Sa, meaning ‘new blooms,’ the MCRB has ranked major Myanmar companies in terms of their disclosure of information ranging from corporate culture, governance and reporting patterns. Clothing companies did not figure prominently in the report’s top 29 companies.
Also boosting transparency will be a new online registry associated with the reforms established by the Government’s Directorate of Investment and Company Administration (DICA). Companies have until 1 February to register and declare information about their operations and ownership, or they will be dissolved.
Another key element of the new Companies Act, highlighted by Nishant Choudhary, co-chair of legal advisory group of the European Chamber of Commerce in Myanmar (EuroCham), is how the law has removed a requirement for companies to have and log set business objectives, enabling them to expand their activities without regulatory approval.
Choudhary told just-style: “The flexibility of the company’s constitution with no mandatory business objectives is another feature that will open the door to increased investment.”
For instance, most of Myanmar’s garment factories have operated as cut-make-pack manufacturers, but with this liberalisation, companies will be able to more easily expand into making accessories, footwear, or handbag production, for instance, enabling them to exploit demand and tap available investment.
Vice-chair of the British Chamber of Commerce in Myanmar, Kate Baillie, welcomes the abolition of “the need for companies to have objects, which removes the risk of companies being ‘ultra vires’ of their constitution…” She is also optimistic about the end to the demand to obtain a permit to trade, “which removes a layer of regulation.”
Reform of Myanmar company law was well overdue, with the new act replacing a colonial-era Burma Companies Act (later renamed the Myanmar Companies Act), which was initially passed in 1914.
While the new law has removed many of its restrictions, more work needs to be done. Foreign investors are still impeded from owning physical property or leasing land for more than one year, although longer leases can be discussed with regulators.
Moreover, Bowman says more work is needed to boost beneficial ownership disclosure laws in Myanmar, with regulators taking a “risk management approach” in validating suspicious company registrations. However, she stresses, to create a taskforce of competent officers able to handle this will take time. Another regulatory shortfall is on data protection and regulating how companies store information and keep it safe.
Also, concerns about enforcement remain. Myanmar’s complex web of laws and regulations not only often overlap, but their enforcement is unpredictable, Baillie warns. “Additionally, the enforcement of laws through Myanmar’s court system is prone to bribery and discrimination, due, in part, to a significantly under resourced and poorly trained judiciary.”
Unless these issues are addressed, foreign investors will not feel wholly confident that their legal rights can be enforced, despite the encouraging framework boosting effective compliance and corporate governance in the new Companies Law.