Advising Small and Media Sized Enterprises in Myanmar
Charltons provides focused legal advice to small and medium sized enterprises (SMEs) in Myanmar. SMEs play a crucial role in the economic well-being of developed and developing countries alike. 126,237 or approximately 99.4% of all businesses in Myanmar are classified as SMEs. On average, SMEs in Myanmar account for 50-95% of employment and contribute 30-53% of GDP in ASEAN member states. The Government recognizes that SME entrepreneurship will define the country’s future national economic development. However, international isolation and a lack of private sector investment, among other factors, have left Myanmar playing catch-up with its regional neighbours. Time is of the essence. With the ASEAN Free Trade Area coming into full effect by 2015 SMEs in Myanmar will no longer be able to rely on government tariffs to protect them from overseas competition. By the same token, the opening up of regional markets represents an enormous opportunity for SMEs in Myanmar but only if they are ready and able to meet the new challenges ahead.
In January 2014 the Government published the Small and Medium Sized Enterprises (SME) Development Bill (SME Bill). The SME Bill defines “small enterprises” as those with between K50 million (approximately US$50,000) and K500 million (approximately US$500,000) in capital, or with between 30 -300 employees.
“Medium-size” firms are defined as having between K50 million (approximately US$50,000) and K1 billion (approximately US$1 million) in capital or between 60 and 600 staff.
Pursuant to Chapter 10 of the SME Bill, SME owners need to register their businesses and abide by the law in order to qualifiy for the various incentives contained in the bill. When a company exceeds the SME capital or employee thresholds, it must change its registration details.
SMEs in Myanmar | The Central Committee for SME Development
The Government has recently established a central committee to encourage SME development. The 27-member Central Committee for SME Development (SME Committee) which is chaired by President U Thein Sein has been tasked to formulate and promulgate laws, regulations and procedures to facilitate SME growth. It is also responsible for ensuring that both the government and private banks provide finance to SMEs in Myanmar, and for establishing an SME support networks in both rural and urban areas. Although well intended, it is unlikely that the SME Committee – which will include 20 ministers – will be free of politics. There are already numerous government departments, agencies and institutions promoting SME development in Myanmar. However, to date, a lack of will, inter-ministry cooperation, available finance and meaningful public-private partnerships has meant that in many respects, SMEs in Myanmar have being left to thread their own path.
The SME Committee should recognize the need to establish a semi-state body or authority to implement Government initiatives based on an SME development strategy. It is vital that the SME Committee be allowed to carry out its work free from excessive government interference. SME development requires the existence of institutions and support structures and the participation of a broad range of stakeholders. A properly funded SME state agency should link government departments, private business community, educational and technological institutions. It should also act as a conduit between SMEs and local and international lending institutions.
The development of Myanmar’s inadequate and degraded infrastructure is a national issue, as is the modernisation of the country’s power and telecommunications industries. Progress is both welcome and ongoing. Similarly it will take years for outdated technologies to be replaced and investment in local R&D to bear fruit. However the Government – or rather a new semi-state agency or agencies mandated to support SMEs – could immediately begin helping SMEs in Myanmar overcome a number of the unique challenges they face. Many companies, especially those hoping to target the export market or even foreign residents need to upgrade their products and services to meet international standards. In this respect the state should actively encourage business visitors and the participation of international suppliers in local trade fairs and exhibitions. It should also seek to curb the monopoly of larger enterprises and where applicable, allow SMEs to enter previously restricted markets. The Government must recognise, through both competition and inter-company cooperation, that SMEs promote innovation and skill levels in an economy. Above all else the Government must urgently pursue policies aimed at securing access to finance for the country’s SMEs. Without access to finance, business will not be able to cycle off inefficiency and low productivity which springs from a lack of capital investment. In tandem with tackling bank lending the government must introduce policies and legislation in relation to management best practices management and corporate governance which reflect international norms. An SME state agency should provide assistance and organise seminars, workshops and exhibitions at home and abroad to facilitate the interaction of its own SMEs with their regional counterparts, suppliers and potential clients. At present the Ministry of Industry is responsible for the development of SMEs in Myanmar and has established The Central Department of Small and Medium Enterprises Development.