FDI, Aid ‘Will Dry Up’ If Burma’s 2015 Elections Are Postponed

By William Boot 6 November 2014

Burma’s economic and social development will grind to a halt if rising military interference in politics delays the 2015 national parliamentary elections, a business analysis warns.

Foreign aid and investment would likely dry up and there would be pressure on some key Western governments to re-impose economic sanctions, said US-based business analysts IHS.

The international assessor said in a Global Insight Country Risk report on Burma that there is an “increased risk” of a delay in the elections because of factional rivalries between the military, Parliament and the ruling party. It sees the possibility of a three-way race emerging for the presidency amid growing nervousness by the military about a loss of power and influence.

“The 2015 election is widely perceived as the leading barometer of stability, and failure to hold elections would also compromise investor confidence and increase the risk premium of doing business in [Burma], which would likely lead to an escalation in insurance premiums for large infrastructure projects along with muted market interest in the Thilawa, Dawei, and Kyaukphyu special economic zones,” IHS said.

“This would then jeopardize the leadership’s efforts to attract investment in infrastructure projects that are needed to wean the economy off reliance on the extractive industries.”

The assessment envisages a scenario in which mass street protests might take place and business activities curtailed if the military gains the upper hand.

IHS warns clients that delayed elections, due in the final quarter of next year, are looking increasingly likely if rivalries between the Tatmadaw (military), the ruling Union Solidarity and Development Party (USDP) and the opposition are not resolved.

The military is “motivated by fears” that a national ceasefire agreement with rebel militias would strengthen an NLD-ethnic groups’ alliance.

“The real fear is that the 2015 election will lead to this bloc dominating the Presidential Electoral College [PEC], which is the body responsible for electing the next president. This would then reduce the prospects of a military-backed candidate securing the presidency.”

The HIS warning comes amid recent hostilities between the Burma Army and ethnic armed rebel groups.

“The renewed offensives are likely intended to pressure smaller ethnic groups into signing a ceasefire acceptable to the army, and demolish the prospects of any NLD-ethnic alliance by demonstrating that the Tatmadaw is the only entity capable of delivering peace,” the analysis reads.

“This would then bolster military Commander-in-Chief Min Aung Hlaing’s own presidential ambitions.”

The other two possible presidential candidates, IHS said, are parliamentary Lower House Speaker Shwe Mann and NLD leader Aung San Suu Kyi.

The military’s hardening is an indication that the Tatmadaw is against any further political liberalization, IHS said.

“The military’s changing stance is likely motivated by fears that continued negotiations will lead to the executive signing a national ceasefire agreement unacceptable to the military, and would further buttress an NLD-ethnic alliance. The NLD and the ethnic insurgents favor amending the 2008 Constitution and the formation of a federal union, both of which the Tatmadaw oppose because it wants to preserve the status quo guaranteed under the current Constitution.”

The IHS warning about the possibility of a blunting of economic growth and renewed sanctions also comes as the US government blacklists one of Burma’s biggest and most influential businessmen.

Aung Thaung, who is also a lawmaker representing the military-backed USDP, was placed on a Washington Treasury Department restriction list for actively seeking to undermine positive economic change in Burma.

The department did not specify what in particular Aung Thaung had done, but the blacklisting freezes his assets in US-connected banks and bars him from doing business with American firms.

“The latest US sanctions on a [Burma] lawmaker highlight the conundrum for companies looking to bring Western investment to the country: More names are going on the blacklist than coming off,” the Wall Street Journal said. “The move represents the first time the US has placed a senior Burmese official on the blacklist since it began lifting sanctions in 2012.”

Aung Thaung and his family control several major Burmese firms, notably IGE Company Limited, which is engaged in a wide range of trading and construction, including contracts to build hydroelectric dams.

IGE is involved in the construction of the Yeywa hydro plant, in Mandalay Division, in partnership with the China Gezhouba Group Corporation.

IGE has also moved into the oil and gas support services and pipeline construction sector in anticipation of a rise in demand when work begins on more than 20 recently awarded onshore and offshore blocks—some of which went to American oil companies.

“The new sanctions highlight the obstacles to Western firms seeking to do business in [Burma],” said the Journal, “but while US diplomats are actively encouraging [Burma] businessmen to apply to be taken off the blacklist, few of the 100 or so names have so far been removed.

“No names were taken off the blacklist in 2014 and only one was removed in 2013, while several were added, according to public records.”