Following New York-based Herzfeld & Rubin PC (H&R), another major law firm, which advised the current government on drafting the new Investment Act and Rules as well as the new Companies Law, has thrown in the towel. Its partner remains “cautiously optimistic” about the market but criticised the delay as a mistake, urging the government to recognise that passing new laws isn’t necessarily the solution. Instead, Nay Pyi Taw should focus on implementation and communications.
London-headquartered Berwin Leighton Paisner (BLP) has decided to close its Yangon office owing to a low flow of local work. Chris Hughes, the office managing partner, and his team of four Myanmar-based lawyers, will be leaving the firm and staying in the country.
This is the second law firm to leave this year after the shutting down of the Myanmar office affiliate of H&R last month. HRMR lead director Eric Rose argued they have no confidence that Myanmar’s economic reforms would recover lost ground after almost two years of stagnation under the National League for Democracy-led government due to the combination of government inaction, the Rakhine crisis and US financial sanctions.
The Myanmar Times sat down with Chris Hughes, managing partner at BLP, to talk about the firm’s departure and the economic landscape.
Mr Hughes attributed the exit to “changing strategic thinking at the global level for the firm”. The change is in part due to the imminent merger with US firm Bryan Cave LLP, which will prompt the company to focus on mature markets. On February 26, Bryan Cave LLP and BLP announced that they are set to merge and launch in April as Bryan Cave Leighton Paisner, with combined revenues of over US$900 million.
Myanmar is “an experiment” for BLP and they had hoped to see a higher level of investment within the relatively short period of experiment.
“Like a lot of western investors in particular who started looking into Myanmar in 2012-14, there was an opportunistic element – it was a frontier market. For an emerging market in a legal services industry, Myanmar represented an opportunity for them to build their brand,” he explained.
Following the trial, the law firm made a “strategic decision” to bow out of this frontier market and concentrate on markets which they have already scaled-up their businesses in the next few years.
However, Mr Hughes and his team will remain in Myanmar and will work closely with the BLP in a market which he feels “cautiously optimistic”.
We have made a decision to stay on. We are cautiously optimistic about where Myanmar is going. For us it’s not just about the immediate financial returns, it’s a very rewarding place to work… – Chris Hughes, BLP
“For BLP itself, they will still have a presence in the market… In the shorter term, they [BLP] feel that they will have a higher return elsewhere.
“We are all in Myanmar already, we have a very good client base and we are very committed to Myanmar,” he said, adding that for all the clients, it’ll be business as usual, while BLP will continue to work on Myanmar transactions from its Singapore and Hong Kong offices.
BLP opened its Yangon office in November 2015 and has been doing Myanmar work since 2012. The Yangon office was the firm’s 14th office in its 12th country. Prior to joining BLP, Mr Hughes was the managing partner of the Baker & McKenzie office in Yangon.
Lack of business activities
The British law firm cited the lack of an adequate flow of local work as the reason of closing its Myanmar operations.
“With the majority of the Myanmar related work currently being serviced out of the BLP Singapore office, the flow of locally generated business does not justify currently maintaining a physical presence on the ground,” it said in a statement released last month.
The lawyer explained that there is an expectation gap and that the source of capital turns out to be different from the expectations – Myanmar has seen less Western and more Southeast Asian and North Asian investments, with the exception of consumer goods.
“Everybody was hoping that the activity levels seen in 2012-15 would continue or increase in a similar way post-election. That didn’t happen.
“People expected the proportion of Western investments to grow and that hasn’t happened. The reason is that it is still a difficult and unfamiliar market to invest. Most of the western investment doesn’t have the longer term perspective to invest here,” he went on, stressing the fact that a longer-term investment horizon is necessary for Myanmar and it takes years to understand the local environment.
The lawyer added that BLP is geared towards foreign investments and hence the activity level varies across sectors. For example, infrastructure and energy sectors are not living up to expectations but there are still some activities. For other sectors like services and infrastructure services, there are ongoing inward investments but that “just hasn’t matured into the large-scale infrastructure projects people expected.”
The hope is that the government will now pay more attention to the economy, improving the environment for businesses. Investors are still waiting to see how the broader economic direction will take shape.
Delay in Companies Law a mistake
BLP advised the government on drafting the new Companies Law, which was sent to the legislatures after lengthy consultations and which Mr Hughes believed, when implemented, will set the conditions for further economic growth. The key legislation will liberalise many sectors and allows domestic companies to grow their businesses by seeking foreign capital and expertise via joint-ventures.
But the unanticipated decision by the government to delay the implementation of the law has disappointed the private sector.
William Greenlee, DFDL partner and chair of American chamber’s legal group, argued that the delay will result in “a loss of potential foreign investment enthusiasm”. During the new year, Katsuji Nakagawa, chair of the Japan Chamber of Commerce Myanmar, even said that proper and swift implementation of the new Companies Law is “the most important” task for the government.
Mr Hughes echoed their views.
“They [the government] have made a little bit of a mistake in delaying the implementation. There is no real reason to do that. From a business confidence point of view, that’s an opportunity they’ve lost,” he said.
They [the government] have made a little bit of a mistake in delaying the implementation. There is no real reason to do that. From a business confidence point of view, that’s an opportunity they’ve lost. – Chris Hughes, BLP
“The government needs to engage more with the business community to explain what their economic priorities are,” he said.
Nay Pyi Taw has a mentality that, if there is a problem or something has to be done, “all you need to do is to pass a new law and that’s going to solve the problem.” Some areas do not need new laws; they need better administration, better law enforcements and “much better” communications. “The attention more needs to be around government administration and working with businesses on project implementation. The government must see business as a partner in development, we must learn to speak the same language,” the lawyer urged.
The attention more needs to be around government administration and working with businesses on project implementation. The government must see business as a partner in development, we must learn to speak the same language.
Nay Pyi Taw must recognise that some challenges are beyond the capacity of the administration to deal with.
“The energy challenge, for example – the government doesn’t necessarily need to be a co-investor or joint venture partner,” Mr Hughes commented. What they should do instead is to provide a sound and transparent regulatory regime and pricing regime and security around for the power generated, and allow the private sector to go in and solve the issues.