No one likes being late to a good party and law firms are making a beeline for what they feel is Southeast Asia’s most happening bash.

In 2012, a quick count showed three law firms opened in Myanmar, 2013 had at least eleven, and in 2014, there were at least seven by July. The law firms of course, have good reason to be there.

“Since the start of our operations in Myanmar in 2012, we have witnessed a steady increase in the number of foreign investors in Myanmar,” says Nicolas Audier, managing partner of Audier & Partners (A&P), which launched in Myanmar in November 2012.

A&P had opened in Myanmar largely because the firm’s international clients in Vietnam wanted support for expansion of their projects into Myanmar, he says.

Audier however, adds that Myanmar’s recent political and economic reforms that democratised the government and eased restrictions on foreign investors, made setting up in the country logical.

Law firms can advise on projects in Myanmar from regional offices in Southeast Asia. However, an increasing number of firms are now taking the plunge and opening in Yangon, Myanmar’s biggest city.

Baker & McKenzie, for example, had first tapped into Myanmar in 2012 by establishing a Myanmar centre in its Bangkok office. In August 2012, it hired Myanmar-qualified lawyer Saw Yu Win as senior counsel, who joined the centre’s three Thai partners who were leading the firm’s Myanmar initiative.

In February, Baker & McKenzie opened its Yangon office.

“With [a] presence on ground, we have more direct and real time information,” says Rachel Eng, joint managing partner of Singapore’s WongPartnership, which opened in Yangon in June.

“We continue to work on projects, build on momentum; it has been generally positive,” says Eng.

Myanmar was a former British colony and gained independence in 1948. However, it fell to a military coup in 1961 and was closed to the world till 2011, when the military junta was dissolved and replaced by a quasi-civilian government fronted by incumbent president Thein Sein.

Before it was closed off by the Tatmadaw (the Myanmar military), Myanmar was the world’s largest rice exporter, produced up to 75 percent of the world’s teak, and also supplied oil through the Burmah Oil Company.

In November 2012, the government passed a new investment law which allows overseas firms to fully own ventures, get longer land leases, enjoy longer tax breaks depending on the investment, and participate in tax relief on export profit.

Law firms know that Myanmar needs them now, as the country struggles with outdated legislation and a “legal vacuum” caused by the absence of certain laws.

“A combination of the fact that Myanmar lacks the legal environment for business, together with the great potential for growth in the future, is the main driving factor for law firms to open offices in the country,” says Eric Eungyong Yang, partner at Korean firm Yulchon, which opened its Yangon office in July this year.

Singapore’s Joseph Tan Jude Benny, for example, was appointed as a consultant to Myanmar’s Ministry of Transport in March 2013. “It is very exciting to assist in rewriting maritime laws of Myanmar,” says Jude Benny, founding partner of the firm, which opened its Yangon office in August 2013.

“There is a compelling case for being in Myanmar, both from a business as well as legal standpoint,” says Eric Rose, lead director of Herzfeld Rubin Meyer & Rose (HRMR), which opened in Myanmar in July 2013, and is an affiliate firm of New York’s Herzfeld & Rubin (H&R) P.C.

Rose says his firm’s lawyers are helping Myanmar change its laws and adopt the rule of law, providing pro-bono activities to defend the rights of Myanmar citizens, and advising U.S. government entities.

He compares Myanmar to Romania in the early 90s, which was also, upon H&R’s launch there, newly open for U.S. businesses. “They both have large, literate populations. In both cases, they also were or are countries starting with a low GDP/capita basis,” he says.

Though Myanmar has many reasons that tempt investors and global multinationals, some are obvious, as the country emerges from half a century of economic slumber.

Myanmar also has the potential to be an important regional logistics base, being bordered by China and Thailand and being close to India.

Myanmar has a “high need for infrastructure development, an incredible wealth of natural resources, and a strong and relatively inexpensive workforce,” says Rose.

The spotlight is currently on the country’s telecommunications sector after Norway’s Telenor ASA and Qatar’s Ooredo QSC won a tight bidding contest last year to build telecom networks in a country where only 10 percent of the 65 million population uses mobile phones.

Under the Tatmadaw, prices of SIM cards which allow connection to a mobile network were kept artificially high to limit communication. Data-enabled SIM cards were priced at $250 as recently as April.

Earlier this year, a consortium formed by Japanese telecommunications operator KDDI and trading house Sumitomo Corp partnered with state-owned Myanma Posts and Telecommunications (MPT) to invest $2 billion over the next decade with the aim of developing and operating fixed and mobile phone networks in Myanmar.

Telecommunications aside, a modern financial system, power plants, roads, railways, oil refineries, ports and real estate compete for the top spot in Myanmar’s extensive to-do list.

“Myanmar is widely regarded as the last sizeable economy in Asia that remains markedly underdeveloped and untapped,” says Lisa Theng, managing partner of Singapore’s Colin Ng & Partners (CNP), which has been in Myanmar since January in association with domestic firm Fame Myanmar Co.

Banking is set to be the country’s next sector in focus, as modern financial infrastructure is required to keep pace with Myanmar’s rapid progress.

“In the coming months, we plan to give special focus to the banking and finance sector as the Central Bank of Myanmar is poised to grant up to 10 licences to foreign banks by September for operating in the investment banking sector,” says Audier.

So far, about 25 banks have applied for these licences.

“Myanmar is doing many things already, but one area to improve is the banking system to facilitate flow of money into and out of the country,” says JTJB’s Benny.

Myanmar, which is also rich in oil, natural gas, jade, gem stones and other mineral resources, has taken small but significant steps to start monetising its resources.

In September, the country invited private companies to jointly build tin smelting and refining plants, which would add value to Myanmar’s mineral exports. The country currently supplies almost all of China’s tin ore import needs.

And in a significant plus for the country’s energy industry, Myanmar has awarded 20 offshore oil and gas exploration tenders to industry heavyweights Royal Dutch Shell PLC, ConocoPhillips and Total SA, in addition to other international and domestic energy firms.

International winners of the tenders will have to work with at least one local partner, and invest at least $3 billion after production sharing contracts are signed with the Myanmar Oil and Gas Enterprise (MOGE), according to tender regulations.

CNP’s Theng says her firm’s focus in Myanmar would be on corporate and commercial transactions as an increase in foreign investment will create demand for legal work in these transactions.

Theng says that for the coming year, her firm will also focus on finance, infrastructure and construction and corporate real estate matters in Myanmar.

In the past two years, companies as diverse as Nestle, General Electric and ANZ have announced plans to begin or expand existing operations in Myanmar.

Challenges ahead

While there are opportunities, law firms also know they have their work cut out for them.

Lack of regulatory clarity and undrafted legislation do give firms a clear reason to be in Myanmar, but they are also the main pain points for firms and their clients, in addition to the country’s lack of physical infrastructure and a weak financial system.

“There is a ‘legal vacuum’ due to the lack of detailed regulations and the need to consider the ‘unwritten policies’ of various ministries,” says A&P’s Audier.

To get around the “legal vacuum,” Audier says one solution is to meet an officer from the relevant administration to get a practical answer, but it is not easy.

“The process for making appointments with officers who have sufficient knowledge combined with decision making power is time consuming and often requires a trip to Naypyidaw, the administrative capital located 200 miles away from Yangon, in order to progress the file,” he says.

Naypyidaw, and its largest city Yangon, are more than 200 miles apart.

“Yangon has historically been the business centre and, therefore, it makes sense for lawyers that serve businesses to be located where their clients are,” says WongPartnership’s Eng. “However, as the country and economy continue to open, law firms may well open offices in the capital too.”

Even for existing law, JTJB’s Benny says that there is “uncertain interpretation of existing law” in Myanmar, which has been untouched for more than 30 years.

“Interpretation given to these laws today is fraught with uncertainty,” says Benny. “There can be something in writing, but its application is uncertain because there is no precedent.”

Yulchon’s Yang reinforces this view when he says: “The biggest challenge is the lack of clarity and interpretation of law. We also note that lack of case precedents and guidance sometimes makes a project difficult to implement.”

HRMR’s Rose also says that the country’s tax system is outdated and a lack of transparency in company registrar’s records and registration of land ownership makes conducting due diligence difficult.

Then there is the lingering cloud of U.S. sanctions, particularly for U.S. investors and companies.

“The U.S. sanctions regime against Myanmar is still in place; covered by five laws and at least five executive orders,” says Rose. “Most of the sanctions have been suspended by the president, but can be reinstated on short notice.”

He adds that besides the Tatmadaw and its controlled business entities, U.S. companies and individuals are barred from dealing with Myanmar entities and individuals on the U.S. Office of Foreign Assets Control’s Specially Designated Nationals list.

U.S. companies and individuals also have to report investments exceeding $500,000 in Myanmar, certain payments to the government, and dealings with the national oil and gas company among other requirements, which puts a disproportionate burden on SMEs’ investing in Myanmar, says Rose.

Law firms also find it challenging to hire domestic legal talent in Myanmar able to perform work of  international standards, though firms also recognise that clients require specialised local skills.

“For 30 years, they had no exposure at an international level. International players need work done to international standards,” says Murali Pany, managing partner of JTJB.

“Since the economy has only recently opened up after many years of being closed, there is a shortage of lawyers experienced in handling commercial work. The country has good lawyers, but they tend to concentrate only on dispute matters,” says Eng.

A&P’s Audier says the ideal scenario was to recruit Myanmar senior legal consultants who have gained professional experience in overseas markets, citing Singapore and Australia as examples.

However, with Myanmar’s general elections coming up next year, it’s understandable some players and large multinationals are waiting a little longer to see whether Myanmar’s allure of long-term business is permanent or might be reversed.

“These are early days, so let’s see how the market pans out. There are elections next year, everyone is watching this space,” says Eng.

Yet, there are definite opportunities and rewards for players who are able to get it right.

“Businesses recognise that an investment environment takes time to create and there will invariably be challenges along the way. So patience is necessary, as well as a long-term view,” says Eng.

She adds that besides the new foreign investment law, the Myanmar government continues to provide more clarity and implementation details for investors.

The new law had gone back and forth between the legislative and executive branches since March before getting approved in November.

It was seen as a tussle between a government eager to attract foreign investment, tycoons determined to protect their monopolies, and small domestic businesses that did not want to be shut out.

The new law did not specify any stake ratio for joint ventures between foreigners and Myanmar citizens or the government, dropping the old requirement that foreigners had to hold at least 35 percent of any start-up joint venture.

Foreigners can fully own businesses, but there may be restrictions in some sectors deemed sensitive including farming and agriculture.

The new law also allowed foreign investors to lease land from the government or authorised private owners for up to 50 years, depending on the type and size of the investment, with the lease being extendable twice for up to 10 years each time.

Under the old law, leases were for 30-year terms, extendable for two periods of five years each.

The new legislation guarantees that an enterprise formed under this law will not be nationalised during the contract term or its extension.

The new law also extends the tax holiday for foreign firms to the first five years of operation versus three years under the old law.

And foreign companies involved in manufacturing in Myanmar may also be entitled to a 50 percent tax relief on export profit if reinvested in the business within a year.

“A significant number of French SMEs involved in high-tech sectors are betting on Myanmar. This positive trend, together with the progress made recently by certain ministries in welcoming foreign investment in Myanmar, gives us very good grounds for optimism for the future of foreign investment in Myanmar,” says A&P’s Audier.

Japan in focus

Although much foreign investment has been into Myanmar’s oil and gas industry so far, with China and Thailand leading at $14.19 billion and $9.98 billion respectively, the spotlight is now firmly on Japan, Myanmar’s largest aid donor, as the world’s third-largest economy pursues a broader strategy for Myanmar.

The two countries had signed an investment treaty in December last year to enhance transparency, provide greater protection, and a stable legal environment for investors.

Last year, Japan also waived off part of Myanmar’s $5.74 billion debt, and granted a fresh loan of $574 million to partly fund the construction of Thilawa, a 2400-hectare special economic zone to the southeast of Yangon.

The Myanmar Japan Thilawa Development (MJTD), a joint venture between Japan and Myanmar, is developing and managing the special economic zone, and is currently inviting companies to set up shop in a 189-hectare section, the development’s first phase.

Mitsubishi Corp, Marubeni Corp, Sumito Corp and the Japan International Cooperation Agency (JICA) comprise the Japanese side and own 49 percent of the joint venture developing Thilawa.

U.S. beverage can and container producer Ball and Japanese auto parts maker Koyo Radiator decided in early June to build plants in Thilawa. There are reports that major automakers and food companies too have announced plans to commence production there.

Myanmar revised its special economic zone law in January for Thilawa, which is now expected to minimise the number of sectoral regulations and extend tax holiday terms as investment incentives.

As Japan contends with the dual headwinds of a slowing economy and an ageing population, several Japanese companies including financial and industrial giants Mitsui and Itochu, and engineering and electronics heavyweights including Toyota, Mitsubishi, Toshiba, Hitachi and Panasonic have also expanded into Myanmar.

Japan is also lending another $3.2 billion to build another special economic zone and deep-sea port in the southern Myanmar city of Dawei, which will be developed into Southeast Asia’s largest industrial complex.

The Bank of Tokyo-Mitsubishi UFJ, Sumitomo Mitsui Banking Corp and Mizuho Bank also applied to Myanmar’s government for banking licences in July. Analysts expect at least one or two of these Japanese banks to obtain licences.

In winning the partnership with Myanma Posts and Telecommunications, Japan’s KDDI-Sumito consortium beat France’s Orange and Singapore’s SingTel.

Table: Openings in Myanmar in the last two years