Investors Spooked by Myanmar Crisis as Economy Braces for Free Fall

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Investors Spooked by Myanmar Crisis as Economy Braces for Free Fall

The February coup has rapidly unwound a decade of economic progress, while foreign investors are headed for the exits.

Investors Spooked by Myanmar Crisis as Economy Braces for Free Fall

People sit on the ground while waiting for hours to withdraw cash from ATMs at the CB Bank branch at Myanmar Plaza in Yangon, Myanmar, May 11, 2021.

Credit: AP Photo

The precipitous collapse of the Myanmar kyat, which has lost more than 60 percent of its value in recent weeks, is the latest sign of the plight facing the country’s economy, which has already been pushed to the verge of total collapse. High inflation, rising food prices, and an acute cash shortage have plunged the population into economic desperation. The Asian Development Bank and the World Bank estimate that Myanmar’s GDP shrank by 18 percent in the fiscal year to September 30, the worst in Myanmar’s recent history.

Eight months after the February coup, an increasing number of foreign businesses have now jumped ship. The latest example is the closure of the $45 million Kempinski Hotel in Myanmar’s capital Naypyidaw, which hosted President Barack Obama during his state visit in 2014. The Geneva-headquartered international luxury hotel chain revealed this month that the flagship hotel would cease operations starting October 13.

Also this month, British American Tobacco announced that it would leave the Myanmar market at the end of 2021, with business sources in Yangon attributing its departure to commercial decisions. Having begun operating in the country in 2013, with a $50 million investment, BAT’s exit from Myanmar after less than a decade reflects the extent to which the business environment has deteriorated in just a few months.

The junta has continued its bloody crackdown against civilians all over the country as the generals have yet to consolidate their grip. Fighting continues to surge in the heartlands and the border regions, including Chin State – a hotbed of anti-military resistance – where the junta has reportedly imposed internet blackouts across large portions of the state.

“Many companies came into Myanmar not for the immediate return but for the fact that there was a brighter future ahead of them… but now that’s gone,” said a Japanese investor, who came into the country in 2015, lured by the prospect of profiting from Asia’s “last frontier market.”

“Big problems keep popping up every few months and it’s really devastating for business. It’s very difficult to plan in such an unstable environment,” the investor added. “We were quite confident in making investments in Myanmar in the past but now with such uncertainty it’s bringing too high [of a] risk to make investments.”

In the economic powerhouse Yangon, the regime has sought to create a façade of normality by inviting foreign business groups for an in-person meeting. On September 24, the military-appointed Minister of Investment Aung Naing Oo chaired a meeting organized by the disgraced national business lobby, the Union of Myanmar Federation of Chambers of Commerce and Industry (UMFCCI). The Diplomat confirmed this confidential meeting with an internal memo from a major Asian business group as well as multiple diplomatic and business sources briefed on the matter.

Formerly a reformist technocrat extremely popular among the foreign and local business community, Aung Naing Oo told Reuters this week that the regime had evidence that foreign intervention was partly to blame for the economic calamity, without providing any details, and openly admitted to barring foreign corporate executives from leaving the country. At home and abroad, his reputation is in tatters. Aung Naing Oo was sanctioned by countries including the U.S. and his family members’ retail businesses, which include bakery Monster Cheese and restaurant Kaung Lun Lote, have been subject to widespread domestic consumer boycotts.

Despite initial pushback from the foreign and local business community against the junta, the generals could find comfort that some foreign business groups said nothing about the crisis and had no problem meeting and greeting a minister appointed by the military.

AustCham Myanmar, China Enterprises Chamber of Commerce in Myanmar (CECCM), the Myanmar-Hong Kong Chamber of Commerce and Industry (MHKCCI), the India-Myanmar Chamber of Commerce (IMCC), the Thai Business Association of Myanmar, the Korea Chamber of Commerce in Myanmar (KoCham), and Israeli and Malaysian business groups joined the meeting, multiple sources confirmed to The Diplomat. In contrast, business groups from the United States, United Kingdom, Japan, and European countries did not attend.

In a rare break from the usual practice, Myanmar state media did not disclose this particular meeting, a move that indicates that the State Administration Council (SAC) is aware of the potential huge backlash facing the attendees. There is also little transparency from these chambers to their members and public about their policy of engagement and their justifications for it.

Business sources in Yangon pointed out that among the attendees, AustCham Myanmar is the only entity that had spoken out against the regime earlier. For the rest, critics say their silence over the coup and ensuing crisis, while quietly meeting with the junta, amounts to active support of the military authorities.

AustCham chair Chris Hughes said the business organization has been “very clear” about its position and that its “statements on the political situation have been more direct and concrete than most other chambers.”

“Our views haven’t changed and we decided that it would be appropriate to make these same comments at this regular meeting of foreign chambers that the UMFCCI organizes, and that was attended by the relevant Minister, so that these influential parties knew where we stood and could see that we were sincere about working for change,” he said.

“We certainly weren’t signaling that the political and business situation was acceptable and that we were back to business as usual, and no one present was in any doubt about where we stood,” he added.

The presence of KoCham at the September 24 meeting was a particular source of embarrassment for the South Korean government, which last month became the first foreign government to allow the parallel National Unity Government (NUG) to set up an official representative office abroad. While KoCham representative Jerry Kim told The Diplomat it did not consult the embassy over the decision to attend the meeting, the issue is bound to taint the tenure of outgoing South Korean Ambassador Lee Sang-hwa, who didn’t respond to a request for comment and who is known to be reluctant to engage with journalists since the coup.

But other chambers have more explicit government connections: The CECCM is chaired by senior state-owned Bank of China representative Liu Ying while the Hong Kong Trade Development Council’s official Shirley Ng is MHKCCI’s secretary-general. These chambers as well as Indian, Israeli, Malaysian, and Thai business groups, have either not responded to the Diplomat’s request for comments or declined to comment.

The September 24 meeting has drawn the ire of Myanmar activists and protesters.

“Foreign chambers joining this meet-and-greet with the military junta are effectively legitimizing an unlawful, terrorist entity. The military junta is courting business in an attempt to entrench rule and increase revenue to finance its campaign of terror,” said Yadanar Maung, spokesperson for the activist group Justice for Myanmar. “Foreign chambers must stand for human rights and responsible business, but these chambers engaging with SAC are doing the opposite. This also reflects a failure of the government policies of the respective chambers, none of which have imposed targeted sanctions since the military’s illegal coup.”

She branded it “deplorable” for the Australian, Chinese, Hong Kong, South Korean, Indian, and Thai chambers to “have members with enduring business ties to the Myanmar military and its conglomerates, who have ignored the findings of the U.N. Fact-Finding Mission and stand complicit in the military’s crimes.”

“For instance, IMCC chairman Sunil Seth is an Adani Ports executive, responsible for paying military conglomerate Myanmar Economic Corporation $90 million to lease land for a port, while the Myanmar-Hong Kong Chamber of Commerce and Industry includes board members from VPower and Shangri-La, which hold respective land leases with MEHL and the Myanmar army,” Maung told The Diplomat.

“Meeting with the SAC – even if it is for a ‘meet-and-greet’ – will be seen as a political act, and that comes with significant risks,” said Jared Bissinger, a development economist and independent consultant specializing in Myanmar. “Could Myanmar consumers promote a boycott against companies that met with the SAC? How will foreign buyers react? Businesses and business organizations should probably spend their time on better things than networking with the military government.”

Rights groups have criticized the move as an affront to human rights, with some warning of a public backlash. Some of the companies who lead these chambers are regional firms, such as law firm VDB Loi and Siam Cement Group.

“It’s really outrageous and unacceptable that these various chambers of commerce think that offering succor to the junta would be in any way acceptable at this critical time,” said Phil Robertson of the U.S.-based organization Human Rights Watch. “Foreign companies need to recognize that the Burmese people are not blind, and they will hold companies responsible for their uncritical engagement with the Myanmar military junta. For companies trying to sell goods or services in Myanmar, domestic consumer boycotts are the biggest threat.”

One of the Asian business leaders whose chamber attended the meeting acknowledged the criticisms and said “the least” the attendees could do to “mitigate the damage done” is to be transparent about their motives and the meeting. “AustCham at least has an explanation and raised their concerns over the military’s atrocities and actions,” the business figure said. “The rest are simply a disgrace.”

Since the military takeover, anti-coup protesters across the country have called for a boycott of products from military-linked or military-run companies. Among the most prominent of the latter are Myanma Economic Holdings Limited (MEHL) and Myanmar Economic Corporation, which are run by the Myanmar military and boast diverse portfolios that span the banking, property, construction, mining, and food and beverages sectors, among many more. Shortly after the coup, a successful boycott was launched against Myanmar Beer, a joint venture between MEHL and the Japanese beer giant Kirin, which saw its sales fall by half in May amid boycotts, which eventually forced Kirin to write off $193 million for the joint venture in August.

The Tatmadaw’s telecom company, Mytel, a partnership with the Vietnamese defense ministry, has also been the target of a boycott, while its telecom towers have come under attacks by civilian militias known as People’s Defense Forces. One industry source estimate suggests more than 100 Mytel towers have been damaged over recent weeks.

Unlike the foreign attendees, the UMFCCI is no stranger to public backlash. Two days after the coup, the business body met with the military chief, Senior General Min Aung Hlaing. It then issued a memo forcing its own striking staff to return to work, which got leaked to the public, prompting protesters to launch a boycott campaign against the chamber and its associated companies. The UMFCCI denies the accusation that it forced striking staff to return to work.

However, the UMFCCI has continued its engagement with the junta by holding regular meetings with Investment Minister Aung Naing Oo. It also provided feedback to the junta’s draft Myanmar Economic Recovery Plan (MERP), which lays out its plans for revitalizing the economy following the impacts of COVID-19, but which is yet to be made public. Its business leaders have never sought to explain or justify to the public their continued engagement with the SAC.

The Diplomat also spoke to Tin Tun Naing, the NUG’s Minister of Planning, Finance, and Investment about the meeting and the junta’s actions. Tin Tun Naing said that the SAC is “an unlawful body which has brought nothing but pain and hardship to Myanmar,” offering as a thinly-veiled swipe at the foreign chambers that met with Aung Naing Oo. “Whatever benefits them [the junta] is detrimental to our people,” he added.

In late July, the NUG Finance Ministry published a framework for investment in which it said it would not “recognize or honor investment agreements or approvals” made with the military regime since the coup. Those who had invested in the country over the past decade, though, would be treated differently.

“We also note that not all investments are the same. It is one thing to open a garment factory but quite another to set up an energy business or to get into extractive industries,” Tin Tun Naing told the Diplomat. “Garment factors bring jobs to people who are otherwise vulnerable to exploitation. Oil and gas or extractive industries bring revenue to the junta with which they line their own pockets or to buy weapons to oppress our people.”

The minister recently told Yangon-based media outlet Frontier Myanmar that the NUG was opposed to a campaign launched by Myanmar Labor Alliance to pressure and persuade brands to stop sourcing from Myanmar and for all investors to exit the country. The Alliance includes the Confederation of Trade Unions Myanmar (CTUM) and Industrial Workers’ Federation of Myanmar (IWFM). These campaigners justified their call for comprehensive economic sanctions and a garment brand boycott by saying these moves are needed to “break down the military.”

The NUG has requested the EU not to suspend Myanmar’s access to European markets through its Everything But Arms program, Frontier Myanmar said, citing official sources in both the EU and NUG.

In addition to boycott movements on the ground, military-linked companies and supporters of the regime are already facing sanctions by foreign governments. On September 2, the U.K. government slapped sanctions on Htoo Group, whose owner Tay Za is notorious for being an arms dealer and having close ties to former dictator Than Shwe. Tay Za is known in Yangon’s business community for spending at least millions of dollars, and probably a lot more, in Singapore’s casinos, notably the Marina Bay Sands.

“Through his extensive links with the former and current junta regimes and has provided support for serious human rights violations in his role in assisting the military to procure arms,” the U.K. Foreign Office said in announcing the move. It froze all of Htoo’s UK assets and banned Tay Za from entering the country. Htoo Group days later said that “it does not agree with the stated grounds for the sanctions.”

A Myanmar-based corporate executive from Hong Kong told the Diplomat that the U.K.’s sanction against Tay Za indicates that the international community would penalize or “clip the wings” of business supporters of the military. “The message from the British government is clear: ‘we don’t want to work with irresponsible businesses.’ Past practices of sanctioning prominent businessmen who seem to be doing the junta’s bidding may be resurrected. Multilaterals, donors, and responsible investors may also stay away from business groups such as the Indian chamber and the UMFCCI.”

Robertson of Human Rights Watch, as well as Yangon-based executives, expect pressure for international sanctions to continue building in the West.

Myanmar is now heading toward a full-blown banking and currency crisis, with the kyat inflating from around 1,300 to the U.S. dollar pre-coup to nearly 2,800 at its peak in mid-September, a a loss of more than 60 percent.

The junta’s restrictions on cash withdrawals and attempted heavy monitoring of cash flows, coupled with the growing economic desperation of the public, have prompted massive withdrawals of cash from bank accounts. Efforts by the Myanmar Central Bank to intervene, such as by selling dollars into the market or instructing exporters to repatriate dollar profits within a month, are not a long-term solution, business people say, as confidence in the system has collapsed resulting in the record depreciation of the kyat.

Multiple Yangon-based senior corporate executives, who all requested anonymity for security reasons, noted that the depreciation of the kyat is not temporary and said business confidence is now so low that some investors who were hunkering down have started to reconsider their positions.

Several multinational companies have either suspended their operations or left Myanmar since the February coup as security conditions and business operations have worsened. So far Norway’s telecom giant Telenor, Germany’s wholesale firm Metro, and British American Tobacco have decided to call it a day, among others.

“I’m not sure what magical economic cure the military can do to fix the economy as a whole,” one executive said. “[Drafting a] policy is one thing but the practical disruption of the realities is another.

“Right now the people’s appetite to do business in Myanmar and confidence here has changed. Even if the policies are supposed to be the same as the National League for Democracy [NLD] administration, the realities of doing business here are just now totally different,” he added.

The regime’s proposed Myanmar Economic Relief Plan and budget plan have not effectively responded to the crises either. The MERP is primarily copied from the ousted administration’s economic plan, minus the reforms. The budget plan, meanwhile, committed over 15 percent of the budget to defense spending, the highest among all categories.

The MERP focuses on salvaging plummeting business confidence by streamlining business regulations, digitizing government services, and reducing taxes. It also seeks to revive the tourism industry and stabilize the banking sector, in addition to supporting agriculture, livestock, and fisheries. But it omits the state-owned enterprises and structural reforms put forward by the ousted NLD government, and does not mention the political and economic turmoil that has engulfed Myanmar as a result of the coup.

“With businesses and the economy affected severely by the COVID-19 pandemic, the Myanmar Economic Recovery Plan of the State Administration Council aims to revive the affected businesses, attract international and local investors, and have firms be able to restart their operations,” reads the still-confidential document, a copy of which was seen by The Diplomat.

Industry sources point to the similarities between MERP and the plans formulated by the ousted administration. Tin Tun Naing said the generals “have plagiarized while stripping elements of reform from the original [document]. It just shows both their lack of ideas and scruples.”

Branding MERP as being “detached from reality,” the NUG finance minister said, “It fails to recognize the root causes of the country’s economic calamity. The COVID-19 pandemic has been devastating, but it was the military’s reckless coup and its consequences that destroyed Myanmar’s economy.”

“This so-called MERP fails to recognize, let alone address, the issues of post-coup economic paralysis, precariousness of the banking sector, acute cash shortage, the plummeting kyat against the dollar, lack of public and investor confidence, and of course increasing risk of conflict as people in some areas have had to resort to arms to defend themselves against the junta forces,” Tin Tun Naing commented.

Myanmar political analyst Khine Win echoed the same view. “The military regime cannot salvage the economy no matter with any sort of business or investment policy layout because at the end of the day it’s a political problem and a large amount of damage has been done to the people’s trust,” he said.

It’s unclear, however, if the junta is aware of the scale of the economic calamity brought on by its seizure of power eight months ago. Junta chief Min Aung Hlaing appeared in person for the opening of Myanmar’s first underpass in Yangon earlier this month and spoke dreamily about manufacturing electric cars and building a subway system in Naypyidaw. As a senior diplomat in Yangon remarked, “The generals know nothing about the economy.”