Businesses and investors in Myanmar are looking on with trepidation amid concerns over the nation’s political stability, internet connectivity and overseas sanctions.

Widespread protests have kept the international spotlight firmly on Myanmar since February 1, when the armed forces, the Tatmadaw, staged a coup against the now-deposed state counsellor, Aung San Suu Kyi. The coup comes after a landslide victory for Ms Suu Kyi and her party, the National League for Democracy (NLD), at the ballot box in November 2020, which the military claimed to be fraudulent. 

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Due to ongoing nationwide protests and intermittent internet shutdowns, businesses now face operating at reduced capacity while unable to contact their employees, whose safety is potentially at risk. Large-scale infrastructure plans have been halted, and the increased supply chain and reputational risks about working with a military-run government is set to affect current and future foreign direct investment flows into the country.

It is too early to say what the effect on this will be, but as investor sentiment has wobbled in recent years due to the Rohingya crisis and a need for infrastructure reforms, this may simply exacerbate a pre-existing trend.

Companies on the move

Janie Wong, a partner at law firm Addleshaw Goddard, says that while some businesses are pulling out, sources on the ground indicate that “there isn’t a massive exodus just yet”.

Following the coup and first week of protests, Japanese beverage company Kirin decided to sever ties with the Myanmar Economic Holdings Limited (MEHL), a military-backed conglomerate, with whom it set up a joint venture. Investors with direct ties to the Tatmadaw are likely to take a similar course of action. 

Japan’s ministry for energy, trade and industry (METI) is looking into other Japanese companies invested in Myanmar and closely monitoring the situation, a METI spokesperson told fDi Intelligence. 

The US has moved to impose sanctions, while the EU and the UK are considering following suit. Thailand-based Amata Corp has said it will “slow down” its $1bn industrial project in Yangon amid concerns over sanctions, which though currently applied to military leaders, have potential supply chain knock-on effects. 

Oil and gas companies, such as Chevron, Petronas and JX Nippon Oil & Gas Exploration and investors in liquefied natural gas-to-power projects, such as Mitsui, Marubeni and Sumitomo, are among those also exposed to similar reputational risks and the potential effects of international sanctions. 

FDI to lose momentum

Myanmar has made moves to boost FDI in recent years, notably by way of establishing special economic zones (SEZs). One is operational, Thilawa SEZ, and many have been developed as joint ventures between local companies and international partners.  

Greenfield announcement monitor fDi Markets, however, shows that investors have been wary of expanding into Myanmar well before the coup. Following the establishment of a civilian government in 2011, fDi Markets tracked a peak year in 2013 but report waning interest ever since, reflecting the risks and difficulties inherent in doing business in the country. 

Now faced with the implications of US sanctions and the risk of operating under intense political uncertainty, foreign investment is expected to lose momentum.  

Kaho Yu, senior risk analyst at Verisk Maplecroft, says that with increased reputational risk on top of the Rohingya crisis, business behaviour in Myanmar will be “screened under the microscope of non-governmental organisations and international human rights organisations” for the foreseeable future. 

China’s orbit 

Despite these headwinds, some investors might not be scared off just yet. Amid US and EU sanctions, eyes are also on Beijing which has so far taken a ‘wait and see’ approach towards the coup. 

Mr Yu expects China to resume efforts to integrate Myanmar into its economic orbit via the China-Myanmar Economic Corridor (CMEC). 

“The current political uncertainty will certainly lead to business disruption, but we expect Myanmar to remain a long-term destination for Chinese investment, particularly in the energy, mining and infrastructure sectors,” he says.