Until recently, there had been high expectations in the wider international business community that Myanmar was poised for economic lift-off. The National League for Democracy, led by Aung San Suu Kyi, came to power in April 2016, and while the military remains a major force in the country’s body politic, having the first civilian-led government in more than 50 years was sufficient cause for guarded optimism. 

Virtually all international sanctions were promptly lifted, and it was anticipated that trade flows and investment activity would increase markedly as a result. This scenario has not transpired, however, because a number of factors have served to diminish international business appetite for the latest country in the high-growth south-east Asian region to finally open up to foreign capital. As a result, the government has renewed its commitment to stir up FDI inflows by launching an ambitious $200bn investment promotion plan and establishing a ministry specifically dedicated to supervising overseas investment. 

A fall from grace

Aung San Suu Kyi’s desire to bring to an end the various armed conflicts in the country’s fractious states and regions was a priority. This arguably diverted policymakers’ attention away from economic reforms, until recently at least, and is considered by many to have blocked substantive progress.

The treatment of the ethnic Rohingya in Myanmar’s western Rakhine state may yet prove to be the single greatest obstacle to foreign firms investing in Myanmar’s resource-rich economy. The considerable goodwill that Aung San Suu Kyi, a Nobel Peace Prize laureate, enjoyed among the international community has been seriously compromised. 

In addition, the use of new laws to silence critics and censor the media, including the imprisonment of investigative journalists reporting on Rakhine, has led to the widespread perception that Myanmar is a country where human rights abuses are perpetrated. Thus, while hard economic sanctions may have been lifted, potential investors now find these have been replaced by softer issues of reputational risk. 

Much at stake 

It is in this context that some multinational enterprises are thinking twice about establishing operations in Myanmar. In March 2018, South Korean media reported that Samsung Electronics had decided not to proceed with a manufacturing plant in Myanmar, citing poor infrastructure and the government’s inaction on economic reforms as just two of the reasons. This decision stands in stark contrast to the substantial investments that the firm has made in neighbouring Vietnam.

The rise of activist shareholders and retail consumer boycotts add to the risks of being viewed, accurately or not, to be tacitly supporting a government that has now been accused of what a US House of Representatives resolution calls “genocide”. This followed a UN report that used the term “ethnic cleansing” to describe recent events in Rakhine. 

While a resumption of major economic sanctions is not currently anticipated, the EU is considering whether or not to revoke Myanmar’s Generalised System of Preferences status, granted in 2013, under the Everything But Arms scheme: a monitoring mission cautioned in October 2018 that Myanmar was at risk of losing its privileges. 

If that were to happen, one industry expected to be adversely affected is Myanmar’s booming garment sector, which employs about 700,000 low-paid workers. Most of the larger garment producers and exporters in Myanmar are foreign owned, using the cut-make-pack model to produce clothing for the EU and other overseas markets. The country essentially serves as a low-paid manufacturing platform. 

This would undoubtedly be a blow to one of the few industrial sectors that has grown markedly in the country in recent years, and has been the recipient of considerable FDI inflows, particularly from China, South Korea and other east Asian countries. Given the current uncertainty surrounding US-China trade, Myanmar might expect to attract greater investment from Chinese firms seeking to sidestep potential tariffs by relocating some of their export-oriented manufacturing, a trend evident in Bangladesh, Cambodia and Vietnam. But the country’s weak infrastructure and gradualist approach to regulatory reform, among other factors, mean that it has thus far lacked a persuasive competitive edge. 

Renewed ambitions

Despite being the recipient of substantial technical assistance from the international donor community in areas such as business-enabling environment reform, Myanmar has failed to make much headway in key comparative indices. Tellingly, the country has for the past four years been stuck in 171st place in the World Bank’s Doing Business survey, for example, despite passing a new companies act and investment law within that time. 

In the face of such challenges, and the perceived need to deliver more before impending national elections in 2020, the Myanmar government appears poised to raise its game in attracting and accommodating FDI inflows. In October 2018, the Myanmar Investment Commission launched an investment promotion plan with the aim of attracting $200bn over the next two decades. 

More recently, in November 2018 it was announced that a new ministry responsible for investment and economic relations was to be established, headed by U Thaung Tun (previously the government’s national security adviser). The ministry’s first major initiative was formally launched at the Invest Myanmar Summit in late January 2019: a National Project Bank to serve as a vehicle to implement strategic projects that are congruent with the Myanmar Sustainable Development Plan (2018-2030). 

Other reforms include recent announcements that both the domestic insurance sector and the retail and supermarket sector are to be opened up to foreign investment for the first time. This follows increased liberalisation of the banking sector that will allow foreign bank branches to lend directly to local firms in Myanmar. There have also been moves to simplify the company incorporation process and tax filing for businesses. 

For now at least, the resumption of sanctions on Myanmar seems unlikely, other than those targeting specific individuals, mostly in the country’s military or those believed to have had a role in the events in Rakhine. Myanmar’s macroeconomic growth profile (GDP growth in 2018 was estimated to be 6.6%, and the Asian Development Bank is currently forecasting 7% GDP growth for 2019), its considerable resource wealth and its unique geostrategic position directly between China and India will mean that the country remains on investors’ radar. The key now will be for Aung San Suu Kyi’s government to convert that into tangible FDI inflows.