Reports of massacres and the displacement of close to 700,000 Rohingya have chilled relations between Myanmar and its Western partners but the crisis has not reversed the country’s long-term economic outlook.
Myanmar’s brand as a “frontier” destination for Western investment took a knock earlier this month with the exit of a disgruntled U.S. law firm, while doubts grow over the government’s ability to implement business-friendly reforms.
Some analysts say the crisis in Rakhine State is taking an economic toll and hurting the government’s efforts to attract more balanced foreign investment after years of over-reliance on China.
The government’s belligerent approach to Western criticism over the Rohingya crisis has allowed China to win back ground lost since Myanmar began to liberalize, economically and politically, after 2011. It remains the country’s largest trading partner, with Singapore now the largest investor. The U.S. and European countries trail far behind.
However, large Western firms that have entered in recent years—in energy, consumer goods, telecommunications, and beer, among other sectors—are digging in rather than packing up.
Tiago Coelho, editorial manager at the Oxford Business Group, a consultancy firm, told VOA that few Western companies that have committed funds and energy would seriously consider pulling out or downsizing on account of the Rohingya crisis.
Low-hanging fruit
The likes of Telenor and Heineken entered their respective markets—telecoms and beer—on the cusp of giant expansions, in a country where the cost of entry is high. Moreover, they can still count on the support of their embassies.
New sanctions, narrowly targeted at Myanmar military officers, are being enacted and discussed, but most embassies retain a pro-investment platform, in support of the civilian government of Aung San Suu Kyi and their own countries’ trade interests.
Eric Rose, lead director of New York-based Herzfeld Rubin Meyer & Rose, announced this month that the firm was leaving after five years in Myanmar, and cited stalled economic reforms. He had lobbied for the lifting of sanctions and for an American investment rush that never came.
Since 2016, only U.S. sanctions against arms deals, money laundering, and transactions with drug kingpins remained—until a regional army commander was sanctioned late last year.
In 2017, Myanmar’s investment directorate approved $5.6 billion of Foreign Direct Investment (FDI), down from $7.8 billion in 2016, prompting talk of a downturn.
But Tony Picon, Myanmar founder and director of real estate services firm Colliers International, warned against putting too much emphasis on FDI, since this index dips and surges as major infrastructure and energy projects are put to tender.
“Manufacturing FDI,” which has been robust, “is a better indicator of economic growth as this represents sustainable revenue,” he said.
The National League for Democracy government, which assumed power in early 2016, has launched few big-ticket projects compared to the previous, military-backed government, which scooped low-hanging fruit by liberalizing the oil and gas and telecoms sectors, among others.
Rebound
Although appalling in scale and intensity, the death and displacement in Rakhine is contained within an isolated border enclave of little economic consequence to the rest of the country.
Three months into the crisis, in November, visiting officials of the International Monetary Fund (IMF) hailed a “rebound” in Myanmar’s economy. Projected growth of 6.7 percent for the 2017/18 financial year, up from a post election-year dip of 5.9 percent in 2016/17, is being fueled by advances in agriculture and rising exports, they said.
Western investors seem largely convinced. In November, another international law firm, London-based Stephenson Harwood, opened an office in Yangon, Myanmar’s commercial capital. Lead partner Tom Platts declared it an “exciting time to be working in Myanmar.”
In January, the in-country managing director of Nestlé, the Swiss food and drinks giant, told Yangon-based media outlet Mizzima of plans for four-fold growth in Myanmar by 2020. A Nestlé factory near Yangon will soon go online, servicing the local market.
The similarly vast consumer goods company Unilever, headquartered in the UK and Holland, is also expanding in Myanmar. It announced a joint venture with a local company last year to build on combined annual sales of more than $120 million.
Reputational risk
As the Rohingya crisis has deepened, activists had trained their sights on Unilever as well as Telenor, the Norwegian telecoms company that has invested $2 billion in Myanmar since 2013 in a cutthroat race for mobile phone subscribers. In September, Telenor issued a statement of “grave concern,” but avoided using the word Rohingya which is politically toxic in Myanmar.
Telenor, now second in the market and not far behind a state-owned enterprise, is bracing itself for the entry this year of a new telecoms company, branded Mytel—with stakes held by the militaries of Vietnam and Myanmar—which is tipped to start a price war.
However, the worst effects of the crisis on investment may be the hardest to trace: that of foreign companies eyeing the Myanmar market and choosing, on assessment, to opt for countries with more favorable headlines and less risk to reputations.
“Before any economic impact, you see a political impact,” said Coelho of the Oxford Business Group, noting the widening political gulf between Myanmar and the West.
…
