Myanmar: the new Asian investment frontier

MasterCard and Visa have already entered the country, together with multinationals such as Nestle, CocaCola, Uniliver, Total and Suzuki.

When Nobel prize laureate Aung San Suu Kyi arrived at the Italian ministry of foreign affairs this week after visiting the Pope, she walked into the room with six little roses in her hair and many question marks over the future of her country of 60m inhabitants. She always calls it by the pre-regime name of Burma, crystallising in five letters her role as opposition leader and her 15 years spent under house arrest.

Only a week before, a delegation of the country’s officials that included foreign minister Wunna Maung Lwin were in the same building to illustrate the economic reforms aimed at attracting much-needed foreign investments into the nation they instead called with the official name of Myanmar.

The different choice of name was echoed in the western suits and ties of the government representatives, followed by the traditional Burmese dress worn by Ms Suu Kyi. “It is easier to change dress than mindset,” she said, stressing that “there are no economic reforms without political reforms”.

So, what’s for foreign investors out there? The pile of papers illustrating the economic measures enacted since 2011 contained the CVs of the delegation, with no intention to hide their links to the military.

Nobody seems to be too bothered either by the call by international observers in the room to link reforms with a fully democratic process. According to a representative of the Organisation for Economic Co-operation and Development, a member of the delegation defined The Lady – Ms Su Kyi - “an inspiration”.

The source of the inspiration, however, warned the international community over the danger of overestimating the democratic opening the country is experiencing and urged to call on the  Myanmar government to change the constitution, which prevents her from running for president as a mother of foreign children. Currently, 25 per cent of seats in Parliament are reserved for the military.

For now, the government has set a target of almost 9 per cent growth by next year, saying it will prioritise poverty reduction, industrialisation, the development of the energy sector, telecommunications, education and the health sector.

MasterCard and Visa have already entered the country, together with multinationals such as Nestle, CocaCola, Uniliver, Total and Suzuki.

Italian energy giant ENI was among the winners of several onshore energy blocks and is already considering  Myanmar  its “new Asian frontier”, thanks to its strategic position and richness in raw materials, especially natural gas.  

“There have been only 150 explorations in the country so far, as much as in the  US  every two days,” ENI ‘s chief executive Paolo Scaroni said during the conference.

“Half of the population has no electricity and there is no economic development without it. Now, after decades of isolation,  Myanmar  could become a bridge between Southern Asia, the Asiatic Southern East and  China,” he added.

The main challenges however relate to uncertainty over future political stability and the possibility to proceed with the creation of a safe business environment. Doubts that have only began to ease following the endorsement in 2011 of the United Nations Guiding Principles on Business and Human Rights.

Myanmar delegation presented its packet of certainties offering a five-year tax holiday, the same rate of income tax between foreigners and  Myanmar  citizens, no taxes on imported machinery or raw material. The government also ticked the box of no nationalisations or expropriations, together with the right to repatriation.

Enough for the multinationals that have already expanded into Myanmar, while the challenges are still significant for smaller enterprises and range from an undeveloped banking system and a lack of capital market, to poor infrastructures and an inadequate insurance system.

In the words of the Myanmar delegation, this is not a nation ready-made for investors, but a bet on the future. A bet that UK investors are already supporting: if China tops the ranking, Britain is the fifth foreign investor and the first Western country, with twenty times the enterprises of the second foreign investor France and some 7 per cent slice of the total cake. 

As more stakeholders take the first steps into post-sanctions Myanmar, the focus ahead of the 2015 elections is not so much if the name, but if the mindset will change and who will benefit most from the forecast economic growth. 


Aung San Suu Kyi during a press conference in Italy. Photo: Getty

Sara Perria is the Assistant Editor for Banking and Payments, VRL Financial News

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Q&A: What are tax credits and how do they work?

All you need to know about the government's plan to cut tax credits.

What are tax credits?

Tax credits are payments made regularly by the state into bank accounts to support families with children, or those who are in low-paid jobs. There are two types of tax credit: the working tax credit and the child tax credit.

What are they for?

To redistribute income to those less able to get by, or to provide for their children, on what they earn.

Are they similar to tax relief?

No. They don’t have much to do with tax. They’re more of a welfare thing. You don’t need to be a taxpayer to receive tax credits. It’s just that, unlike other benefits, they are based on the tax year and paid via the tax office.

Who is eligible?

Anyone aged over 16 (for child tax credits) and over 25 (for working tax credits) who normally lives in the UK can apply for them, depending on their income, the hours they work, whether they have a disability, and whether they pay for childcare.

What are their circumstances?

The more you earn, the less you are likely to receive. Single claimants must work at least 16 hours a week. Let’s take a full-time worker: if you work at least 30 hours a week, you are generally eligible for working tax credits if you earn less than £13,253 a year (if you’re single and don’t have children), or less than £18,023 (jointly as part of a couple without children but working at least 30 hours a week).

And for families?

A family with children and an income below about £32,200 can claim child tax credit. It used to be that the more children you have, the more you are eligible to receive – but George Osborne in his most recent Budget has limited child tax credit to two children.

How much money do you receive?

Again, this depends on your circumstances. The basic payment for a single claimant, or a joint claim by a couple, of working tax credits is £1,940 for the tax year. You can then receive extra, depending on your circumstances. For example, single parents can receive up to an additional £2,010, on top of the basic £1,940 payment; people who work more than 30 hours a week can receive up to an extra £810; and disabled workers up to £2,970. The average award of tax credit is £6,340 per year. Child tax credit claimants get £545 per year as a flat payment, plus £2,780 per child.

How many people claim tax credits?

About 4.5m people – the vast majority of these people (around 4m) have children.

How much does it cost the taxpayer?

The estimation is that they will cost the government £30bn in April 2015/16. That’s around 14 per cent of the £220bn welfare budget, which the Tories have pledged to cut by £12bn.

Who introduced this system?

New Labour. Gordon Brown, when he was Chancellor, developed tax credits in his first term. The system as we know it was established in April 2003.

Why did they do this?

To lift working people out of poverty, and to remove the disincentives to work believed to have been inculcated by welfare. The tax credit system made it more attractive for people depending on benefits to work, and gave those in low-paid jobs a helping hand.

Did it work?

Yes. Tax credits’ biggest achievement was lifting a record number of children out of poverty since the war. The proportion of children living below the poverty line fell from 35 per cent in 1998/9 to 19 per cent in 2012/13.

So what’s the problem?

Well, it’s a bit of a weird system in that it lets companies pay wages that are too low to live on without the state supplementing them. Many also criticise tax credits for allowing the minimum wage – also brought in by New Labour – to stagnate (ie. not keep up with the rate of inflation). David Cameron has called the system of taxing low earners and then handing them some money back via tax credits a “ridiculous merry-go-round”.

Then it’s a good thing to scrap them?

It would be fine if all those low earners and families struggling to get by would be given support in place of tax credits – a living wage, for example.

And that’s why the Tories are introducing a living wage...

That’s what they call it. But it’s not. The Chancellor announced in his most recent Budget a new minimum wage of £7.20 an hour for over-25s, rising to £9 by 2020. He called this the “national living wage” – it’s not, because the current living wage (which is calculated by the Living Wage Foundation, and currently non-compulsory) is already £9.15 in London and £7.85 in the rest of the country.

Will people be better off?

No. Quite the reverse. The IFS has said this slightly higher national minimum wage will not compensate working families who will be subjected to tax credit cuts; it is arithmetically impossible. The IFS director, Paul Johnson, commented: “Unequivocally, tax credit recipients in work will be made worse off by the measures in the Budget on average.” It has been calculated that 3.2m low-paid workers will have their pay packets cut by an average of £1,350 a year.

Could the government change its policy to avoid this?

The Prime Minister and his frontbenchers have been pretty stubborn about pushing on with the plan. In spite of criticism from all angles – the IFS, campaigners, Labour, The Sun – Cameron has ruled out a review of the policy in the Autumn Statement, which is on 25 November. But there is an alternative. The chair of parliament’s Work & Pensions Select Committee and Labour MP Frank Field has proposed what he calls a “cost neutral” tweak to the tax credit cuts.

How would this alternative work?

Currently, if your income is less than £6,420, you will receive the maximum amount of tax credits. That threshold is called the gross income threshold. Field wants to introduce a second gross income threshold of £13,100 (what you earn if you work 35 hours a week on minimum wage). Those earning a salary between those two thresholds would have their tax credits reduced at a slower rate on whatever they earn above £6,420 up to £13,100. The percentage of what you earn above the basic threshold that is deducted from your tax credits is called the taper rate, and it is currently at 41 per cent. In contrast to this plan, the Tories want to halve the income threshold to £3,850 a year and increase the taper rate to 48 per cent once you hit that threshold, which basically means you lose more tax credits, faster, the more you earn.

When will the tax credit cuts come in?

They will be imposed from April next year, barring a u-turn.

Anoosh Chakelian is deputy web editor at the New Statesman.