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What does military rule mean for foreign investments in Myanmar?

In Myanmar, companies and businesses are adjusting to a new reality after the military took over control of the government on Feb 1. What does military rule mean for foreign investments in Myanmar? Money Mind reports.

What does military rule mean for foreign investments in Myanmar?

A shopkeeper counts the Myanmar kyat currency at his shop in Pazontaung market in Yangon on March 21, 2020. (Photo: AFP/Ye Aung Thu)

SINGAPORE: It was only a decade ago in 2011 that Myanmar started democratic reforms and opened its doors to foreign investment.

Industries such as oil exploration, retail and wholesale, telecommunications, and insurance and banking have since been opened up.

Aung San Suu Kyi’s landslide victory in the 2015 elections further cemented the country’s path towards democracy.

Foreign investors piled in.

World Bank data shows that foreign direct investment inflows jumped to a high of 6 per cent of gross domestic product (GDP) in 2015.

Foreign direct investment inflows have since tapered off, hitting a low of 1.7 per cent of GDP in 2018.

Now, with the army back in control, there are concerns foreign investor sentiment will take another hit.

This photo taken on Dec 11, 2020 shows workers loading bananas onto a truck at a wholesale coconut and banana market in Yangon. (Photo: AFP/Sai Aung Main)

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Htwe Htwe Thein, an Associate Professor of international business at Curtin University, said the coup is the “biggest nightmare” for investors.

“Businesses want stability and certainty. Right now, anything can happen, so confidence is low. These events prove that Myanmar is still a dangerous foreign investment destination.”

The manufacturing sector could see a fallout.

According to Assoc Prof Htwe Htwe Thein, “Made in Myanmar” could find fewer buyers.

Big infrastructure projects such as industrial zones and special economic zones are also likely to be affected. China and Japan are the biggest investors in these developments.

Kirin Holdings was the first Japanese company to speak out against the military coup. It has announced it will terminate its two joint ventures in Myanmar.

But China is Myanmar’s largest trading partner, and observers believe the Chinese will seek to deepen their foothold in Myanmar.

Boys play outside a branch of the Myawaddy Bank in Yangon on Feb 3, 2021, after Myanmar's ousted leader Aung San Suu Kyi was detained in a military coup. (Photo: STR / AFP)

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“China wants to be a more substantial player regionally, and it wants good close relationships, productive relationships with its direct neighbours, of which Myanmar is one. So, there's no sense that Myanmar would fall off the map of interest for policymakers in China," said Mr Andrew Delios, Professor of strategy and policy at NUS Business School.

"In fact, it might even be prioritised as a major policy initiative, particularly as it connects to China developing its Belt and Road initiative and connecting through these parts of Asia to other parts of the world,” he added.

Mr Jason Yek, senior country risk analyst at Fitch Solutions, said believes that the Chinese government and Chinese companies will still be able to push through with their projects, even under military rule and in the current state of emergency - but with a caveat that the pace of progress might be slightly slower.

According to Myanmar’s Directorate of Investment and Company Administration, China has invested a total of US$21.5 billion so far, making it the second-largest investor in Myanmar.

Singapore remains the largest investor in the country, with US$24.1 billion in approved foreign capital.

Singapore and Chinese investments alone account for more than half (52 per cent) of all approved foreign capital into Myanmar.

Women holding umbrellas look back as they walk along a bridge in Yangon on Jun 8, 2020. (Photo: AFP/Ye Aung Thu)

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The country, seen as the last frontier market of Asia, is not for the faint-hearted.

The threat of military coups will always be present; this is Myanmar’s third coup since 1962.

But the last time there was a coup, Myanmar was not a member of the Association of Southeast Asian Nations.

Mr Yek from Fitch Solutions believes the impact will be contained.

“We see quite minimal spillover impacts in the grand scheme of things and this is largely due to Myanmar’s low external integration. The country only emerged from military rule in 2011, so from an investor country's perspective, foreign direct investment into Myanmar generally constitutes a very very small proportion of the total outward FDI.

"This is also similar in trade, as Myanmar is not a large trade partner from the perspective of the other countries, even for Thailand, which is a large trading partner for Myanmar.”

A vendor pushes a cart carrying bottles of drinking water while crossing a road on Feb 3, 2021, in Yangon, Myanmar. A coup in Myanmar on Monday left the military in control under a one-year state of emergency. (Photo: AP/Thein Zaw)

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Myanmar-watchers note that the country is known for having a very difficult business climate to begin with. That, they said, is ultimately about effective governance, coup or no coup.

“The idea of having a military government, and at the same time, seeing rapid economic development, these two things are not really inimical to each other," said Mr Michael Witt, Professor of strategy and international business at INSEAD.

"The form of governance per se is not the problem. What you see here is an authoritarian government, (but) with the right policies, actually this could be very good for economic growth,” he added.

A convoy of army vehicles patrol the streets of Mandalay, Myanmar, on Feb 3, 2021. (AP Photo)

Businesses face other structural challenges too.

Mr Bryan Tse, country analyst for Asia at the Economist Intelligence Unit, said that Myanmar has faced many complaints about its slow pace of reform, especially when it comes to opening up key sectors and improving its bureaucracy and regulatory regime.

"These are the things that don’t really have a lot to do with the military. Rather, it has more to do with the fact that Myanmar lacks an efficient bureaucracy, it lacks expertise and also it lacks the money needed to implement these changes effectively," he said.

In the longer term, as the country transitions from a decade of civilian rule, back to military rule, there remain many questions over how the political and business environment will pan out.

Source: CNA/aj


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