Observers Weigh FDI Impact of Ongoing Ethnic Conflict

By Kyaw Hsu Mon 18 February 2015

RANGOON — Recent conflicts between the government and armed ethnic rebels in Burma are not expected to have an impact on foreign investment inflows over the next year, economic observers told The Irrawaddy this week, though broader turmoil could presage a negative long-term outlook.

On a visit to promote British investment in the Southeast Asian nation, City of London Alderman Alan Yarrow told The Irrawaddy in Rangoon that he did not think ongoing clashes in Burma’s northeast would impact foreign direct investment in the country.

“Nearly every country at the moment has a problem somewhere. And if you’re an emerging economy, and as rich [in natural resources] as Burma, you are going to have conflicts which are different,” he said, while acknowledging that he was a relative newcomer to economic punditry in Burma.

Yarrow, who also holds the title of “lord mayor” as London’s global ambassador, was visiting Burma for the second time, and met with government officials and members of the business community to share his experiences in government and the private sector.

“I don’t think that people will necessarily consider that as being serious unless it gets bigger. At the moment it’s a border conflict, it’s not something across the whole of the country,” said Yarrow, a former investment banker.

Heavy fighting between the Burma Army and the Kokang rebels, also known as the Myanmar National Democratic Alliance Army (MNDAA), has raged since last week, with dozens of casualties reported on both sides. Battles are continuing for control of Laukkai, the region’s largest town.

Despite his unfamiliarity with the specifics of Burma’s economy, Yarrow said a universal truth was at play when it came to luring foreign businesses: investors crave certainty and predictability.

“Maybe tax [rates and policy], maybe civil unrest, maybe its lack of power [electricity]—all these things have an impact on risk,” he said.

“And the lack of legal certainty. So the answer is yes, that [ethnic conflict] of course is an element, but I would doubt it’s a big element because it’s very specifically in a region of a country. It’s not down in Yangon, Naypyidaw and Mandalay, it’s on the borders,” Yarrow said.

Due to the fighting, thousands of residents and migrant workers from the region in northern Shan State have fled south to Lashio. Tens of thousands more have reportedly fled into neighboring China’s Yunnan province. The Kokang flare-up follows on the heels of clashes in recent months between the Burma Army and a handful of other ethnic armed groups, including Kachin, Karen and Palaung insurgencies.

Myat Thin Aung, chairman of the Hlaing Tharyar Industrial Zone in Rangoon, said the fighting in northeastern Burma and recent student protests that the government has said threaten national stability would not be a serious drag on FDI.

“If the fighting was happening in cities like Yangon, Mandalay and Naypyidaw, it would definitely cause FDI flows to stop, but this fighting and protests are not happening in the major cities, so we don’t need to worry right now,” he said.

One sector that does look likely to be held back by recurrent fighting in the country’s border regions is the extractive industries. Though Burma is rich in natural resources, much of that wealth is concentrated on the country’s periphery in territories controlled or contested by ethnic armed groups. A mining bill that has languished in Parliament has further dampened foreign interest in the sector.

Dr. Maung Maung Lay, the vice chairman of the Union of Myanmar Federation of Chambers and Commerce Industry (UMFCCI), took a less sanguine approach in assessing the long-term implications of continued unrest.

“Investors want sustained political stability for their long-term investments in such countries. Because we have a checkered past in the eyes of the international community, we need political stability first in the country,” he said.

“The Laukkai fighting will not have an impact on FDI in the short term; other countries have similar internal conflicts, but if it continues to happen frequently, it will [negatively] impact FDI flows,” he said.