Mar 19, 2016

Myanmar Mining to Welcome New Wave of FDI

Recent legislative amendments should help open Myanmar’s mining sector to foreign investment, with more streamlined entry procedures already in place and plans under way to bring regulations in line with international norms.

Among the mechanisms introduced are longer-term mining licences, lower tax rates and changes to the current production-sharing model.

Key amendments

Approved in late 2015 after more than three years of discussion in parliament, the amendments to the 1994 Mining Law have established several major reforms, including changes to the existing production-sharing regime, which had required miners to transfer up to 30 percent of output to the government.

Instead, the law introduces a new mechanism allowing the state to opt for equity interest in projects. While the details of such an arrangement have yet to be clarified, media reports suggest the government is open to contributing project funding in exchange for equity stakes.

New fixed tax rates for minerals have also been set, with gold, platinum and uranium yields facing a 5 percent levy, and silver, copper, tin, nickel and titanium output taxed at 4 percent. Zinc, lead and iron ore will be taxed at 3 percent, while a 2 percent levy on industrial raw minerals and gems will be applied.

While the amendments have already been ratified, some time likely remains before the full weight of the new legislation will be felt by the industry.

The Ministry of Mines is currently overhauling sector guidelines to bring them in line with the new laws, with new draft mining regulations scheduled for release in April.

Stimulating foreign investment

One of the driving forces behind the legislative changes is the government’s goal of stimulating foreign direct investment (FDI) in the country’s mining industry, which has lagged behind other sectors of the economy in attracting overseas funds.

From 1988 through to October 2015, only around $3 billion of FDI was approved for the mining industry, representing less than 5 percent of total FDI inflows over the period. Proponents of the reforms attribute the sector’s legacy of under-investment to the restrictive investment procedures codified in the 1994 Mining Law.

To this end, the new amendments offer streamlined application processes for investment in mining projects, and allow foreign investors to enter into joint ventures with domestic miners to expand small- and medium-scale projects into large-scale operations.

The duration of permits has also been extended. Under the new rules, mining permits for large-scale production can be issued for up to 50 years at a time, with medium-scale developments permitted for up to 15 years.

Challenges ahead

Myanmar’s new government, led by Daw Aung San Suu Kyi’s National League of Democracy party, is likely to face some challenges related to the mining sector upon taking office. State revenues, for example, could ease as a result of lower commodities receipts, as global demand is weakened by the ongoing slowdown in the Chinese economy.

Indeed, Myanmar has cleared the way for its resource sector at a time when mining operations in many other countries are being scaled back.

The new administration will also have to tackle unrest in mineral-rich regions like Kachin State, which is known for its significant jadeite deposits. Mining in disputed regions has generally been limited, and has suffered from lack of oversight, regulatory control and investment.

Resolving conflict in such areas could open the door to greater development and could see a boost in investment, employment and productivity in these regions.

Untapped markets

Calls to develop the extraction industry’s value chain are also on the rise.

Despite its status as major source of jade and other precious stones, Myanmar only generates revenue from the export of raw stones, with domestic earnings on extracted stones equivalent to around 10 percent of the final sale price. Countries like Thailand, which have an established gem cutting and polishing industry, typically pocket the remainder.

“Myanmar is rich in natural resources, but policy does not enable us to leverage this,” Daw Thet Thet Khine, managing director of Golden Palace Gold and Jewellery, told OBG in late 2015. “Thus, neighbouring countries reap the rewards by carrying out value-added services for raw materials from Myanmar.”

Developing a local processing segment and granting licences for the export of finished products could add a crucial value-added link to the supply chain and enable Myanmar to capture regional market share.

Michael Nesbitt is editorial manager for Myanmar at Oxford Business Group (OBG). The views and opinions expressed here are the author’s own and do not necessarily reflect Myanmar Business Today’s editorial opinion.

Source: Myanmar Business Today