British firms are staying out of Burma because they are sceptical of President Thein Sein’s reform process despite the end of EU sanctions and concerned about continuing military influences in business.
That’s the conclusion of the human rights NGO Burma Campaign UK after talking to a number of companies in the manufacturing and retail sectors.
Although firms are being encouraged by the British government to invest in Burma, the consensus seems to be to stay out until after the 2015 elections, Mark Farmaner, a Burma Campaign UK director, told The Irrawaddy.
“Some of the British companies we have spoken to, especially retailers, have told us the risks outweigh the benefits,” he said.
“Burma is not significantly cheaper to source from and it is very hard to be sure that any factory they are doing business with is not associated with cronies or the military, and that workers’ rights will be respected.”
He said some British firms that have visited Burma since the lifting of sanctions have decided that “they’ll take a look at Burma again after the 2015 elections.”
“I have been surprised by how few British companies have gone into Burma, especially as the British government is actively lobbying them to,” he said.
“They are also very aware that human rights problems have not gone away and that the future and direction of the reform process is uncertain.”
These views seem to reflect recent studies by international business risks monitoring company Maplecroft warning of the potential problems of investing in Burma.
In its report on Burma for the third quarter of this year, Maplecroft said the lifting of additional international sanctions in mid-2013, and the continued opening of the economy to foreign direct investment (FDI), were positive trends.
“The country’s underexploited oil and gas, mining, forestry and agro-commodities sectors combined with its geographic location near key Asian markets offer a range of investment opportunities,” it said.
But it added, “Despite the country’s significant growth potential, [Burma’s] business environment is still fraught with risks, particularly given the still-changing nature of investment regulations.
“Although investors have welcomed the adoption of a new FDI law in November 2012 the continued discretionary powers of the Myanmar Investment Commission (MIC) is a concern.
“The MIC is dominated by officials close to the military who, in many cases, are likely to favour businesses owned by the military. Reformists amongst the political elite are keen to demonstrate improved governance to create a more favourable foreign investment climate for western investors. However, a sudden influx of capital and donor-financing is likely to increase the scope for corrupt practices, which will require consistent monitoring and risk mitigation mechanisms.”
The Burma Campaign UK is one of a number of European human rights NGOs which have argued that improved trading relations with Burma should be conditional on improved human rights in the country.
The international NGO Avaaz recently raised more than 1 million names on a petition sent to both the French and British government leaders.
Human Rights Watch and Fortify Rights International have both expressed concern about the lack of action by the Thein Sein government to deal with basic problems in Burma.
“[The British government] appears to believe that if people in Burma don’t start to see economic benefits from the reforms then they won’t support the process,” Farmaner told The Irrawaddy. “So as well as seeing Burma as a place where British companies can make a profit, they also think more trade and investment will increase public support for Thein Sein and his reforms.
“The fact that many people in Burma are sceptical about Thein Sein and his reforms because of ongoing human rights abuses, and issues like his spending five times more on the military than on health, don’t seem to have occurred to the [British] Foreign Office.”
However, companies in Asia now investing in Burma do not share the apparent concerns of British firms, nor do their governments subject them to the close scrutiny that US companies face from Washington.
Japan is at the forefront of seeking investment opportunities in Burma, although some big corporations have complained about the slowness of progress in obtaining approvals to start projects—notably the Thilawa special economic zone on the outskirts of Rangoon.
Japan’s Trade Minister Toshimitsu Motegi is set to visit Naypyidaw and Rangoon on Wednesday and Thursday as part of his government’s efforts to “encourage Japanese companies to move into [Burma].”
News of his visit comes days after the major Japanese technology conglomerate NEC Corporation formally opened offices in Rangoon and Naypyidaw.
“There is tremendous growth potential in [Burma] and this is an opportune moment for NEC to contribute to the country’s IT needs,” said NEC senior vice president Takayuki Morita.
But major oil and gas company PTTEP of Thailand has found itself embroiled in exactly the kind of controversy which Maplecroft has warned about.
PTTEP chief executive Tevin Vongvanich was this week obliged to issue a statement denying a Burmese media report alleging underhand practices in connection with the Thai government-owned company’s acquisition of two offshore exploration blocks, the MD-7 and MD-8 in the Gulf of Martaban.
“PTTEP would like to deny the intransparency (sic) and bribery of the MD-7 and MD-8 acquisition and would like to clarify that the process of direct negotiation for both blocks started in early 2010 before the current Offshore Exploration Block Bidding Round,” PTTEP said in a statement on Tuesday.
“The company has had a long-term relationship with the Government of Myanmar for more than 20 years. PTTEP is a state-owned and national oil company.”
Complaints were reported in The Myanmar Times newspaper earlier this month that PTTEP had bypassed a competitive bidding process to acquire the two blocks, and that this had led to the sacking of Than Htay as minister of energy in July.
Whatever the rights or wrongs, the issue underlines the reputational problems foreign firms may face in Burma.