Stephenson Harwood’s Tom Platts, Ben Hickson and Su Wai Phyo report on key changes implemented by the Myanmar government to facilitate much-needed foreign investment in the country’s healthcare sector.
Plenty of excitement remains about Myanmar as an investment destination. Since opening its doors to foreign investment in 2012, the once isolated southeast Asian nation has seen a significant inward flow of foreign capital, establishing it as one of the fastest growing economies across ASEAN. In the second quarter of this year, the Myanmar Investment Commission (MIC) authorised US$3 billion of investment across 93 projects in the jurisdiction. Healthcare is a key sector enjoying particular focus, not only because improvement of healthcare for the country’s 56 million inhabitants is a key government policy objective, but also because of the diverse investment opportunities afforded to private investors given the vast untapped potential of this underdeveloped market.
Importantly, the MIC recognises the need to promote the healthcare sector. It has designated certain health services (including hospital service, medical laboratory service, traditional medicine hospital service and private clinic service), production of medicines and production of medical equipment and supplies, as well as related research, as what it calls investment promoted sectors. These will enjoy particular benefits under the Myanmar Investment Law.
There is huge demand for investment, including significant opportunities for foreign investors. Basic healthcare is lagging in Myanmar, with preventable diseases such as malaria, acute respiratory infections and diarrhoea among the top causes of death.
The country is faced with increasing rates of both communicable and non-communicable diseases and an alarmingly high rate of maternal mortality. Hospital care, clinics and diagnostic facilities remain overstretched and in acute need of modernisation. Despite increased public expenditure and the recent influx of investment in private healthcare, this has largely been concentrated in Yangon, Mandalay and Nay Pyi Taw, leaving Tier 2 cities and rural areas (where 70% of the population live) undeveloped.
With rising public health awareness and growing purchasing power among the expanding middle/upper class, demand for healthcare continues to grow. The privileged seek medical care in neighbouring Thailand and Singapore. Investment in the pharmaceutical industry is also key. The quality of available medication varies greatly, much being imported from India, China and Thailand, with significant challenges posed by parallel imports and counterfeit products. Myanmar needs to be less reliant on offshore manufacturing, and to improve the quality and regulation of available medication. With the increase in private medical insurance, opportunities abound for investors.
The government is to be commended for significantly increasing the allocation of state financing to healthcare.
According to the Oxford Business Report, the budget for this fiscal year allocated US$790 million to the sector, up from US$624 million last year – an increase of 12.2%. As highlighted in Myanmar’s National Health Plan 2017-21, however, health spending remains low by global and regional standards, representing just over 5% of its total budget and roughly 1% of GDP. Heavy reliance on private sector development of the healthcare sector will continue.
Myanmar actively encourages foreign investment in capital intensive healthcare projects.
Even before recent investment regulations designated healthcare activities as promoted sectors, likely to enjoy investment incentives including corporate tax breaks, private hospitals, clinics and related capital intensive investments received similar incentives as MIC-approved projects – Indonesia’s Lippo Group partnered with First Myanmar Investment in 2015 to establish Pun Hlaing Siloam Hospitals and recently Mitsubishi partnered with Capital Diamond Star Group and Yee Shin Holdings to develop a US$90 million 300-bed hospital in Yangon.
Historically, certain business activities in Myanmar have been closed to foreign investors, including import/export and trading (distribution and retail). Until recently only 100% locally owned companies were eligible for the necessary licences to import/export and retail medical equipment and pharmaceuticals. Foreign participation was heavily dependent on local partners.
The Ministry of Commerce’s “Notification 36/2017” (June 2017) relaxed the prohibition on foreign trading, allowing 100% foreign-owned companies to distribute and retail certain limited categories of products, including certain hospital equipment. Foreign investors may now establish 100% foreign-owned companies in Myanmar to trade and retail certain hospital equipment to the domestic market and obtain import licences. Given the growth of private hospitals and clinics and the historical lack of investment in medical equipment, this liberalisation affords foreign investors welcome opportunities to modernise medical equipment across the country.
In addition to the recent legislative changes that facilitated significant developments in Myanmar’s healthcare sector, further welcome changes are in the pipeline.
The draft New Companies Law, expected to be passed soon to replace the more than a century old Companies Act, will further assist development of the sector. If enacted in its current draft form, this is expected to allow foreign investors to hold up to 35% of the ownership of a local Myanmar company, without the company losing benefits exclusive to local Myanmar companies. This is likely to foster in particular growth in small to medium enterprises, including in healthcare. Of key importance particularly for the pharmaceutical sector, are recent developments to put in place long-awaited intellectual property law protection. Understandably, much investment in the healthcare sector will remain subject to regulatory restrictions which investors need to navigate with care. For example, in addition to requisite approvals from the Food and Drug Administration and Ministry of Health and Sports for investment in a broad range of healthcare-related activities, additional approvals are required in certain instances, such as the approval of the Ministry of Home Affairs for the manufacture and distribution of certain medicines.
Stephenson Harwood has recently opened its newest office in Yangon, Myanmar which brings the total number of offices in the wider Asia region to ten. Tom Platts, corporate partner and head of the Myanmar practice, and his team have advised leading healthcare companies on a range of healthcare related investments into Myanmar.
Should you wish to speak to someone about expanding your business to Myanmar, please contact Tom Platts at tom.platts@shlegal.com or Helen Rhind-Hufnagel at helen.rhind-hufnagel@shlegal.com.
