Global investors cautiously monitoring the Myanmar market to determine the scope of their potential investments may be reaching a decision point due to recent political developments. For some, particularly from the U.S., the conduct and outcome of the election will be a key milestone in gauging the country’s economic stability. Additionally, the election could mitigate the reputational risks associated with engaging in a country that frequently is the target of international criticism suggestive of slowing reforms and human rights violations-a successful election day in Myanmar would be an important milestone in the progress of its democratization. For all investors, the election will introduce a new set of political players, potentially with different views on the role of foreign engagement and investment, and legal framework governing it. Though the Election Day will not by itself provide a clear-cut sense of Myanmar’s political and economic trajectory, November 8 will likely see a credible election, which almost certainly will produce a second wave of foreign interest and engagement in Myanmar.
According to the Myanmar Investment Commission (MIC) and the Directorate of Investment and Company Administration (DICA), foreign direct investment (FDI) in Myanmar reached US$8 billion in the last fiscal year, more than doubling that of the previous period. Oil and gas is the top sector for foreign investment, followed by power generation, manufacturing, transportation and communication, and mining. Real estate, hotels, and tourism also have attracted sizeable amount of FDI. The top foreign investor in Myanmar is China, followed in magnitude by Thailand, Singapore, Hong Kong, the United Kingdom, South Korea, Malaysia, Vietnam, the Netherlands, and France. Singapore-listed companies accounted for half of the 2014-2015 FDI figures. Some major U.S. investors have taken the plunge, including Coca Cola, General Electric, and Gap, but other major corporations and name brands have delayed or decided not to enter the market, which may change following the November 8 election.
Political development in Myanmar is perceived as a mixed bag of positive and negative beans. Many outside observers closely monitored the constitutional amendment process and the steps taken by the Union Election Commission (“UEC”) and political parties. To broad disappointment, the push for amendments failed on June 25, meaning that the constitution will not be amended in any way prior to the election-including articles governing who can be president, the role of military in politics, and power distribution among region and state parliaments. Shortly thereafter however, the UEC announced the election date, and Aung San Suu Kyi and her National League for Democracy party confirmed their participation in the November 8 election. Despite some setbacks, most investors have confidence that the election and lead-up to November 8 will proceed relatively smoothly. A credible process-including full participation of parties that meet the UEC threshold and electoral rules, transparent conduct of the current government, UEC, and participating political parties and candidates, and acceptance of the election results-will provide a modicum of stability for investors concerned with the trajectory of Myanmar. For many, this election is a real test in the country’s commitment to reform, and a credible process could alleviate many concerns that the country could slide backwards politically.
Many investors, not only Americans, are closely monitoring U.S. policymakers’ comments regarding Myanmar. There is a concern with reputational impact from investing in Myanmar, as influential U.S. policymakers and human rights organizations continually criticize the Myanmar government on its reform effort and pace and perceived political backsliding. There is an overwhelming fear that sanctions could, to some degree, be reimposed, which would not only further complicate market entry and market expansion strategies, but potentially force divestment. Additionally, negative comments that could be tied directly to a sector, an investor, or broader, non-specific investments, also could be perceived to be harmful to a company’s reputation. There is intense focus on investment and corporate conduct in Myanmar with a lot of scrutiny by human rights groups, civil society, and skeptical policymakers, including influential members of the U.S. Congress.
For example, following the constitutional amendment efforts, U.S. Senator Mitch McConnell, a key U.S. policymaker on Myanmar, publicly stated that he does not expect a more normalized bilateral relationship between Myanmar and the U.S. while the constitution is in its current form. On July 9, Senator McConnell said, “In light of the recent defeat of constitutional reform, I believe that steps such as including Burma [Myanmar] in the generalized system of preferences program should be put on hold until after this fall’s (upcoming) election.” McConnell highlighted the importance of the election, saying that based on its conduct “can an appropriate evaluation be made about the pace of reform in the country and whether additional normalization of relations is warranted.” He did acknowledge that “we knew that legal, economic, political, and constitutional development and reform would evolve in that country through fits and starts. This is only realistic given the baseline from which Burma [Myanmar] was starting when Congress agreed to lift some of the sanctions.” U.S. State Department spokesman Mark Toner said on July 8 that a credible vote will be an important step in Myanmar’s democratic transition.
Other members of the U.S. Congress have made negative statements, further causing worry for investors. In July 2014, a bipartisan group of 72 U.S. Representatives issued a letter to Secretary of State John Kerry outlining “recent disturbing developments” and calling for “a significant recalibration” of U.S. policy towards Myanmar. Their concerns centered around the situation in Rakhine State and the fate of the Rohingya population-a situation that continue to deteriorate and captures international focus-and “stalled political reforms,” obliquely referring to non-action on amending portions of the 2008 Constitution. Representatives Joe Crowley (D-NY) and Steve Chabot (ROH) were the lead signers of the letter, and have also co-sponsored bills to limit bilateral military ties between the U.S. and Myanmar. Crowley has long championed human rights in Myanmar and has been critical of the Thein Sein administration and Myanmar military. The two congressmen also issued a statement following the parliament session on constitutional amendments stating. “Today’s move by the Burmese [Myanmar] military in the parliament only solidifies concerns that the country’s upcoming elections cannot be free, fair, or credible. While the results may not be surprising, they are deeply troubling.”
Even the Obama administration, which has touted Myanmar’s democratic transition as one of its biggest foreign-policy achievements, has made concerned statements regarding the country’s political progress. During his visit last year at the East Asia Summit, President Obama used the term “backsliding.” Prompting concerns from the business community of potential responses in the form of sanctions or investor limitations.
Concerns about reputation and entering the Myanmar market are not just affected by the Myanmar election but by the coming U.S. one as well. Myanmar, among other foreign policy issues, could potentially be politicized in an attempt to attack a candidate’s credibility. Former Secretary of State Hillary Clinton, a declared presidential candidate, dedicated a chapter in her book “Hard Choices” to Myanmar, highlighting her 2011 visit and the U.S. efforts to engage with the reformist government of President Thein Sein. She concluded the Chapter with “It was America at its best.” Any suggested backsliding in Myanmar, including in the conduct of the election and the formation of the next government, could be used to target Clinton as a foreign policy failure. Several candidates that support maintaining sanctions on countries such as Cuba and Iran, and supported past restrictions on Myanmar, may use the U.S. electoral campaign as an opportunity to attack Obama and Clinton’s foreign policy achievement and call for tougher measures on Myanmar. U.S. investors, in particular, will monitor serious presidential candidates’ views on foreign policy, especially their views on sanctions, trade, and commercial ties.
Following the election and formation of the new government in 2016, all investors will have to engage with a new set of political players. More than 73 parties have registered, and the Myanmar political landscape will be more diverse in 2016 with various party policies and priorities. Some investors are already conducting outreach to current opposition parties to assess prospective new political leaders’ economic and political priorities and development plans, and to boost chances for future opportunities and ensure current investments will proceed smoothly. For example, Aung San Suu Kyi visited China in June where she met with Chinese President Xi Jinping and Liu Jiheng, the Communist Party Secretary of Yunnan province. According to the Wall Street Journal, while China is still the largest foreign investor in the country, new Chinese direct investment in Myanmar has decreased by more than 90% to US$516 million in the fiscal year ending this March from US$8.2 billion in 2011. President Xi stated that he hoped Myanmar in the future would maintain a more consistent and positive position on bilateral ties despite changes in leadership. China almost certainly is interested in getting assurances that its future regional infrastructure projects will go through, including its “One Belt, One Road” initiative and a railway link between Yunnan and the Bay of Bengal.
The election day by itself will not provide all of these answers investors seek: leadership, policy priorities, and a set of political and economic trajectory. However, the conduct of the election and formation of the new government can allay investor concerns of instability, progress on reform efforts, and investor reputational risks. A credible process still will not be the magic pill for the short term challenges that continue to prevent a massive influx of FDI, namely capacity draught, shifting rules and regulations, and the relatively high cost of doing business, among other issues. Lack of capacity, extending to physical and governing infrastructure, will continue into 2016 while a new set of political actors grow into their roles and begin to craft economic policies. There are needed efforts that would be difficult for even the most seasoned politicians. Hopefully, the next government is up to the challenge and will have the right motivation to tackle these important and critical development issues and continue to move Myanmar along the path to a strong economy and an inclusive political system.