2012 Roundup: The Good, Bad and Ugly of Business in Burma

By William Boot 26 December 2012

A mixed year is probably the most generous way to describe Burma’s economic developments in 2012. The country made good progress from a pariah state to an increasingly welcomed member of the global business community, but some things remained bad—and others downright ugly.

This year witnessed the lifting of economic sanctions by the United States and the European Union, a potential key trading bloc, plus Australia, New Zealand and Canada. Washington ordered an end to its ban on imports from Burma.

At home, Parliament finally passed a new foreign investment law in November after delays and revisions spanning most of the year; the banking system started to liberalize; Rangoon and Mandalay, the country’s two biggest cities, became far more connected to the outside world with new services by major foreign airlines; and tourism flourished.

Asia’s biggest financial donor country, Japan, canceled Burma’s debts accrued by the former military regime, and some major Japanese corporations made commitments to invest in electricity, industry and financial infrastructure. The World Bank and the Asian Development Bank returned to offer help, although past debts remained unresolved.

But some bad aspects of the old regime era did not get better: Land theft continued and may have even intensified, as military-linked Burmese firms made grabs to expand their businesses; basic rights were ignored in many places amid complaints of families forced off their land and moved against their will, or coerced to work for little or no money; and tainted old-regime agencies remained unreformed.

One of the best potential sources of national income to finance future growth is the gas and oil resources off Burma’s coasts, but the continued involvement of the Myanmar Oil and Gas Enterprise (MOGE) stymied investment this year from major Western companies.

In mid-year, calls from Aung San Suu Kyi, the US Chamber of Commerce and the US ambassador to Burma, Derek Mitchell, for the government to disband or reform MOGE seemingly went unheeded.

MOGE is very closely linked with the former regime’s secret agreements to sell gas to China and Thailand, and is associated with the controversial Chinese pipelines being built through Burma to China.

The continued presence of MOGE is believed to be the chief reason why the Ministry of Energy in September postponed a licensing auction for new offshore exploration blocks. The delayed auction was supposed to take place by the end of this year, but nothing more has been heard of it.

“As [Burma’s] upstream petroleum sector has now started entering the international community, it will need time to make many considerations before launching any more international bidding rounds,” Deputy Energy Minister Htin Aung said after Royal Dutch Shell, ConocoPhillips, and Chevron and Nippon of Japan participated in an industry conference in Rangoon.

On the positive side, the government said Burma would join the Norway-based Extractive Industries Transparency Initiative, which monitors industry activities, to give international oil companies more confidence for investment.

This year saw rising public protests over pay, power blackouts and a lack of compensation for compulsory seizures of land. Government ministries and private firms made a number of shadowy deals over supposedly protected colonial buildings or prime downtown plots in Rangoon. All signs point to piecemeal redevelopment without any overall infrastructure strategy.

Electricity supply may improve slightly in 2013 in some areas of Rangoon and Mandalay, but most of the country remains years away from uninterrupted national grid supply.

Burma’s notoriety as an opium producer and exporter grew rather than declined this year, with land use for poppy cultivation expanding 17 percent to 51,000 hectares, according to the UN Office on Drugs and Crime, which blamed farmers’ debts and continuing instability in northeastern states for promoting the growth.

Angered by increasing land losses to an expanding Chinese-run copper mine, farmers, villagers and supporting monks in the northwest near Monywa suffered an old-regime-style backlash in late November, with dozens injured by tear gas and incendiary devices.

The incident helped Burma earn a spot in a league of extremely risky countries for investors, landing among the league’s 10 riskiest spots due to its poor human rights standards.

The only consolation in the league, published by British business risk assessor Maplecroft, was that the new public spotlight on Burma meant the police avoided killing anyone.

“The government did not authorize the use of lethal firearms, resorting instead to tear gas and rubber bullets,” Maplecroft’s principal Asia analyst, Arvind Ramakrishnan, told The Irrawaddy. “This is a sign that, while determined to assert its authority, the government is cautious about the potential for international condemnation that could lead to a reversal of growing international aid, diplomatic support and promises of investment.”

It remains to be seen whether the Burmese government will continue reforms and enhance human rights in 2013 to justify receiving the chairmanship of the Association of Southeast Asian Nations (ASEAN) for 2014, commented Pavin Chachavalpongpun of the Center for Southeast Asian Studies at Kyoto University in Japan.

The professor said that while reforms so far were positive “it is too soon to celebrate.”

“Despite the current round of political reforms in Burma, critics continue to wonder whether the changes are real or just cosmetic,” he wrote in the December issue of Global Asia, a journal of the East Asia Foundation. “Burma could use [the ASEAN chairmanship] opportunity to further boost the reconciliation process in the country and improve the livelihoods of different ethnic minorities while showing them the benefits of integrating with the region.”

Meantime, despite warning that Burma still faced “significant challenges,” the World Bank last week forecast the economy would grow by 6.3 percent during the 2012-13 financial year, compared with 5.5 percent during the previous year.

“The government is moving ahead with reforms, but significant challenges remain for [Burma] to reach its potential, including addressing infrastructure constraints, improving financial and telecommunications sectors and sustainable management of natural resources,” the bank said.