Not all publicity is good publicity. In late 2016, Myanmar made international headlines following reports that the country’s government was engaged in the widespread persecution of its Muslim Rohingya minority. Over the following months, stories of police detention, arson, gang rape and state-authorised murder emerged. Hundreds of thousands fled from Rakhine State in the country’s west to refugee camps over the border in Bangladesh. Since then, the UN has said the Myanmar Army should be investigated for genocide. Although the world’s media have largely moved on, the crisis remains unresolved.
According to the UN Office for the Coordination of Humanitarian Affairs, some 900,000 Rohingya refugees remained in Cox’s Bazar, Bangladesh, as of March 2019. In addition to the considerable social challenges that have emerged in Myanmar over the past few years, the economic toll of the crisis has been considerable.
At an investment forum held in Singapore in 2018, then Director General of Myanmar’s Directorate of Investment and Company Administration (DICA) U Aung Naing Oo admitted that he “totally underestimated” the economic impact of the Rohingya displacement, citing sharp declines in foreign direct investment (FDI). At the same time, the country has had to cope with diminished growth and sharp currency depreciation.
In addition to the considerable social challenges that have emerged in Myanmar over the past few years, the economic toll of the Rohingya refugee crisis has been considerable
While it may not be possible to state with certainty that Myanmar’s investment shortfall results from the plight of the Rohingya, it is not implausible that the reputational damage it caused is keeping businesses away. The refugee crisis is undoubtedly already a humanitarian disaster; it is now up to political and corporate leaders to ensure that it does not become an economic one as well.
A bad reputation
On the surface, many things might encourage a foreign investor to place their money in Myanmar. The country has English heritage and a strong legal system similar to those found in the UK and Singapore – a remnant of the country’s time as a British colony. As a developing market, it also regularly posts strong growth: even considering the economic damage caused by the Rohingya crisis, the Myanmar economy is expected to expand by 6.5 percent across the 2018/19 financial year (see Fig 1).
“Myanmar is not far into the democratic process following the country’s landmark 2015 elections, but already you can see things happening that are improving the business climate,” Enrico Cesenni, CEO of Myanmar Strategic Holdings, told World Finance. “Now, four or five years into the process, industry leaders are emerging that can really contribute to the country. Over the next five to 10 years, we will witness the rise of more accountability and more expertise that will accelerate the pace of investment in the country.”
But the investment world is no longer solely concerned with immediate returns. Companies – both large and small – rarely miss an opportunity to flaunt their progressive values, regularly boasting of the importance they place on issues relating to the environment, political governance and wider society. Unsurprisingly, as the persecution of Myanmar’s Rohingya minority began to amass attention abroad, businesses started pulling out of the country.
Luxury jewellery house Cartier, Belgian satellite communications firm Newtec and French energy company ENGIE are among the organisations to have severed ties, with many others publicly criticising the Myanmar Government for human rights abuses. Companies that have any connection to the military, which is usually held responsible for the crisis’ worst atrocities, have found themselves placed on Burma Campaign UK’s Dirty List. Facebook, in particular, has been singled out for criticism for allowing its platform to spread misinformation about the Rohingya Muslim community.
Given Myanmar’s economy was ranked as the 73rd-largest in the world by the IMF in 2019, the reputational damage accrued by continuing to operate there simply isn’t worth the risk for most firms. This has been particularly notable among businesses based in the West: according to the latest data from the Myanmar Government, Asia invested five times more in Myanmar than the EU and US combined in the 2017/18 financial year.
“To the West, Rakhine equals Myanmar and Myanmar equals Rakhine, and there doesn’t seem to be anything else,” Serge Pun, a local business tycoon and chair of Serge Pun and Associates, told The ASEAN Post. “Whereas the East has another lens, and that is Rakhine is a problem, but Rakhine is a small part of Myanmar, and there is still Myanmar left, [so] we should engage and not isolate. We should help and not punish.”
Pun’s views are echoed by Cesenni, who believes that wrenching investment away from Myanmar does little to help Rohingya refugees or Myanmar citizens more generally: “I personally think that the way Asian countries are engaging with Myanmar is a little bit more productive in terms of their willingness to move forward and drive development. Greater engagement is required if we are to solve some of these issues, instead of just pointing fingers.
“Myanmar is a country in transition. Every month across the country, there are multiple conflicts, not just in Rakhine. I think it is naive to think that a country that has been closed for 50-plus years will sort everything immediately. Myanmar needs time and support if it is to move forward socially and economically.”
It may well be that outside investment starts to return to Myanmar naturally as the outcry surrounding the Rohingya crisis subsides. After all, this is far from the first time that businesses have been put under pressure for operating in the country. Burma Campaign UK published its first Dirty List in 2002; since then, some companies have ceased operating in the country, while others have moved in. Where there is money to be made, ethical concerns are often transitory.
Not so noisy neighbour
The economic challenges currently facing Myanmar are in stark contrast to some of the positive rhetoric emanating from the country. That’s understandable when you consider that this should be the time when Myanmar makes its mark on the investment stage, showing off its newly democratic, rapidly growing economy.
Many firms are currently looking to reallocate their production from China in response to its ongoing trade war with the US – Myanmar should be jostling with the likes of Vietnam and other South-East Asian states for the attention of these businesses. In the country’s defence, though, its failure to boost FDI is not for want of trying.
At the first ever Invest Myanmar Summit in January 2019, State Counsellor Aung San Suu Kyi spoke at length about the advantages her country offers to investors, including several recently enacted financial reforms, such as the Myanmar Investment Law and the Myanmar Companies Act.
“To understand Myanmar’s contemporary investment landscape, we must also seek to understand the broader forces at work,” Suu Kyi said. “The pursuit of market-friendly economic policies, together with rapidly increasing regional cooperation and integration, has been highly beneficial for the Asia-Pacific region, allowing many of us to make a successful transition from low-income, low-growth [economies] to middle-to-high-income, high-growth [economies]. Myanmar seeks to do the same.”
Following the National League for Democracy’s landslide victory in 2015, there was genuine optimism that the Myanmar economy could thrive, finally free from the shackles of military rule. Some of this optimism has since been extinguished, with FDI inflows proving largely disappointing after an initial upsurge in 2016 (see Fig 2).
This is perhaps because investing in the country is not as simple as it would appear on the surface. Although Myanmar did move up six places in the World Bank’s Doing Business 2020 report, it still ranks a disappointing 165th out of 190 countries. The positive movement suggests that business reforms are working – it should be remembered that the country was only added to the index in 2014 – but Myanmar still compares poorly with its regional neighbours. Currently, investors don’t seem to be in any rush to make inroads in the country once branded ‘Asia’s final frontier’.
East or famine
While the expected post-dictatorship boom in investment hasn’t arrived, there are still areas of the Myanmar economy that are drawing attention. In terms of real estate, the hotel chain Hilton continues to work with local development firm Eden Group, hoping to take advantage of rising tourist numbers. The consumer business sector has also witnessed some landmark deals of late, with the Philippines’ Ayala Corporation recently committing to a multimillion-dollar investment in First Myanmar Investment.
Further, the regulatory climate is becoming more favourable. Myanmar’s Yangon Stock Exchange (YSX) is currently in the process of changing its rules to allow foreign individuals and entities to own up to 35 percent of its listed companies. A more liberal approach would not only be good for investors looking to enter Myanmar, it could also spark some much-needed life into the country’s limp trading market. Today, there are just five listed companies on the YSX.
The raw materials for a thriving investment climate are all present in Myanmar if businesses are willing to enter the market
The lack of development in Myanmar’s investment market – certainly when compared to other countries in the Association of South-East Asian Nations – can be viewed either negatively or positively. On the one hand, it suggests that businesses may have to deal with a corporate ecosystem that is not as supportive as those found elsewhere; on the other, it means there is plenty of space to operate in and, more importantly, grow.
“One of the negative things that is affecting the success of… investors is the fact that there are not many companies that are already of size… have the right teams and the right governance in place,” Cesenni said. “You can view these factors as either an opportunity or a potential challenge. Clearly, the market is not as developed as, say, Vietnam, where you have proper brokers, fully fledged institutions and a market in which deals are, in a sense, pre-cooked. In Myanmar, you need to be fully prepared before conducting any deals. There is value to be found, but it will take some time and a lot of operational involvement to extract it.”
If investors do want to capture a slice of the Myanmar market before it gets too crowded, it’s worth acting quickly. According to DICA, foreign investment is already starting to show signs of recovery, rising 79 percent year-on-year across the first six months of 2019. Investment from Singapore almost tripled in that time, while funds originating from Hong Kong and mainland China rose 150 percent.
“In general, what has happened over the past two or three years is you’ve seen a real acceleration of investment from Asia,” Cesenni continued. “A lot more investment from Japan, Thailand, South Korea – I guess Singapore is a bit of a conduit for Asian investment in general – and then, of course, you have China. I think China is sometimes misrepresented as having underhand motives for its investments, but the country is really just taking a leading role in development when nobody else is stepping up. You don’t see the US coming and building highways in Myanmar, but I definitely see China and other Asian countries supporting that.”
Regardless of where businesses and individuals are based, there is no denying that Myanmar boasts some attractive qualities. Aside from its steady economic growth, the country has a population of around 55 million people and a median age of just 27, representing great potential for firms in the consumer sector. Its location, bordering the twin behemoths of China and India, is also favourable. The raw materials for a thriving investment climate are all present if businesses are willing to enter the market.
Slow and steady
Even as investment opportunities in Myanmar pick up, businesses and individuals should exercise caution when deciding what assets to acquire. The Rohingya crisis and the corporate backlash that followed demonstrated the important role that international finance can play in supporting repressive political and military regimes, even if unintentionally.
Money can also be a force for good, though. According to 2017 data from Myanmar’s Central Statistical Organisation, roughly a quarter of the country’s population still lives in poverty, with rural inhabitants the most likely to be poor. Economic development is desperately needed in the country, and outside investment can help spur this on. What’s more, many jobs in Myanmar rely on FDI inflows; shutting them down abruptly could end up hurting ordinary civilians more than the military forces being blamed for the Rohingya persecution.
“It is extremely important that any investment coming into the country benefits the local people,” Cesenni told World Finance. “That’s why our business has been built alongside local people. At the end of the day, most foreign investors will operate in a country for two or three years – maybe five. But the people that will stay and help build a better future for their country are the locals. Our divisional CEOs… are still foreign because we are still encouraging knowledge transfer, but many of our other executives are now local. Our second line of management is already local and more than 50 percent of our staff is female.”
As individuals and corporate entities look for their next big opportunity, they could do a lot worse than investigating what Myanmar has to offer
In various nations, foreign investment has been criticised for crowding out domestic entrepreneurship. Suu Kyi’s government is well placed to avoid this, as long as it is careful to encourage a steady, rather than sudden, growth in FDI. Private businesses also have a role to play. As Cesenni noted, foreign investment can leave a country as quickly as it arrives, so organisations should support domestic talent as much as possible, employing locally and partnering with existing firms where relevant.
For Cesenni, one area the current government should be looking to target is the use of financial incentives. Not only could this help create a more favourable climate for foreign investment, it could also be deployed in a targeted fashion, driving businesses and individuals to focus on strategic industry sectors. Whether the government has the motivation to implement these business-friendly measures, however, is another matter.
In the 2015 elections, Suu Kyi’s party received 86 percent of seats in the national assembly; since that win, though, the once-feted leader has disappointed many observers. The 1991 Nobel Peace Prize winner failed to react swiftly to the Rohingya crisis, either because she is not the champion of human rights that many thought her to be or because she is simply unable to stand up to the Myanmar Army, which still holds considerable sway over the country’s political climate.
The coming national elections are scheduled for November and, should they go smoothly, they will help cement democracy as a normal part of life in the country. The potential for political change could also provide the impetus politicians need to boost an investment climate that has remained underutilised for far too long. As individuals and corporate entities look for their next big opportunity, they could do a lot worse than investigating what Myanmar has to offer. They’ll need to consider carefully, though, what parts of the existing political regime their money is helping to support.