Less than a decade after it came in from the cold, Myanmar is once more facing the freeze. Since the mili-tary forcefully seized power on Feb. 1 over unhappiness with the country’s elections, huge crowds of anti-coup protesters have taken to the streets daily. The crackdown seems to be intensifying, with police opening fire on protesters and threatening further violence.

 

As a result, the governments of countries like the U.S., UK, Canada and New Zealand have already announced sanctions against the generals who led the coup, and military-linked companies.

For Myanmar, the escalating crisis places precious foreign direct investment at risk. Before the coup, investment in Myanmar was on the up. The World Bank reported a 33 percent jump in total foreign direct investment commitments in Myanmar to $5.5 billion in fiscal year 2019/2020, according to Reuters. Meanwhile, total trade in goods between the U.S. and Myanmar reached nearly $1.3 billion in the first 11 months of 2020, up from $1.2 billion in all of 2019, according to U.S. Census Bureau data.

HOW HAVE THE EVENTS SO FAR AFFECTED BUSINESS CONFIDENCE IN THE COUNTRY?

Following the escalations in Myanmar, Japan’s Kirin announced that it would be abandoning its partnership with a Myanmar brewery, which is owned in part by military generals who overthrew the elected government. The company has said it is not leaving Myanmar, but instead is looking for a local non-military partner.

After earlier pressure from human rights groups to sever ties with its Myanmar business operations, the coup was enough to make Kirin act, but for other businesses with less direct ties, it may be a case of “wait and see.”

Every business is “watching the situation closely,” according to comments provided to ALB by Herbert Smith Freehills, noting that for companies with a presence in the market, the immediate priority would be securing the safety of, and reliable communications with, their people.

However, Romain Caillaud, principal at Tokyo-based advisory firm SIPA Partners and an associate fellow in the Myanmar Studies Programme at Singapore thinktank ISEAS-Yusof Ishak Institute, says that business confidence has taken a knock in Myanmar.

“Business confidence has been impacted negatively as there are questions around the new regime’s stability in the context of protests, as well as around its economic policies as while continuity has been announced, some key economic technocrats have been removed and a strict cybersecurity law that would impact digital connectivity, proposed,” Caillaud says.

With “EU sanctions expected shortly,” HSF says other governments and global institutions “are watching closely before deciding on an appropriate diplomatic and/or economic response”.

“International businesses with operations or investments in Myanmar need to be aware of the potential for sanctions or other measures to be implemented at short notice and consider how their business may be impacted and the steps that may be required to ensure compliance,” the firm adds.

Still, Caillaud notes that sanctions are likely to continue targeting “specific individuals in the military regime, as there is a shared willingness to prevent negative shocks on the Myanmar economy and population”.

COULD WE SEE BUSINESSES PULL OUT OF MYANMAR AS A RESULT?

While the situation continues to evolve, many businesses are waiting before they make any firm decisions.

“It depends on how the situation evolves. What is likely in the short term is that there are few new entrants in the market. If the political situation deteriorates due to protests, violence, and sanctions, we could see exits. Countries for relocation depend on industries but Thailand and Vietnam seem particularly well placed to benefit,” Caillaud says.

HSF says that while many have paused investments or operations for now, and a small number of investors claim to have stopped plans for future investment or have withdrawn from existing investments, “it’s far too early to say.”

“Still, the majority of the investors we see in the market have a longstanding presence and understanding of the country, and might be prepared to navigate this period of uncertainty without committing to closure or withdrawal at this early stage. We had anticipated a post-COVID rebound for the Myanmar economy in the second half of this year; it is too early to estimate whether that forecast should be altered,” the firm adds.

HOW ARE LAWYERS CURRENTLY ASSISTING CLIENTS?

While businesses may be weighing up the situation as they plot a course ahead, for lawyers it’s a time for action, with a number of the developments requiring legal counsel and remedies.

Caillaud notes that lawyers on the ground will be trying to navigate the new climate and the issues this presents. “Currently there are a number of operational issues associated with the protests — labour issues as to whether employees can join the civil disobedience movement, or tax issues as some employees refuse to pay income tax to the new regime they see as illegitimate,” he says, noting that “longer term there will be compliance reviews of local partners and suppliers as sanctions kick in.”

 

To contact the editorial team, please email ALBEditor@thomsonreuters.com.