Burma

Sanctions Threat Already Having Chilling Effect on Business Activity in Myanmar

By Nan Lwin 3 February 2021

YANGON—Many firms, especially foreign-owned businesses, in Myanmar have reacted with shock to Monday’s military coup and declaration of a yearlong state of emergency, which has put billions of dollars’ worth of foreign investment at risk due to possible sanctions from Western countries. Some foreign firms have already put investment commitments on hold.

One day after the coup, a number of Japanese companies put on hold their operations in the country, including Suzuki Motor Corp, All Nippon Airways (ANA) and Denso, due to the effects of the coup, including concerns for the safety of employees and difficulties accessing information due to unstable conditions. Japan is the fourth-largest source of foreign investment in Myanmar.

Moreover, a US$1-billion (1.34-trillion-kyat) modern industrial hub project backed by Thailand’s largest industrial estate developer, Amata Corporation, has suspended work due to possible sanctions by Western countries. The project is envisioned as an industrial complex on 2,000 acres of land near Laydaunkkan Village in East Dagon and South Dagon townships in Yangon.

The project was one of a number launched by the National League for Democracy-led government to mitigate the impact of the COVID-19 pandemic on Myanmar’s economy. The NLD government inaugurated the project in late December expecting to create 33,000 jobs, attract foreign investment and boost Yangon Region’s industrial output and exports.

Amata chief marketing officer Viboon Kromadit told media the corporation will reduce investment, as sanctions, particularly from the US and EU, are very likely to be imposed on Myanmar. If that happens, new investment in Myanmar will be badly affected, Viboon said.

Ford Motor Myanmar, the local unit of the US-based multinational automaker, announced it would close its showroom and service center temporarily. It did not give a reason but many interpreted it as resulting from the military coup.

Dr. Maung Maung Lay, vice chair of the Union of Myanmar Federation of Chambers of Commerce and Industry (UMFCCI), told The Irrawaddy that “Many investors are in shock” over the coup, adding that businesses are waiting to see how the situation unfolds.

“Many investors are concerned about the possible impacts of the political instability,” Dr. Maung Maung Lay said.

Japanese automaker Suzuki Motor Corp. announced on Tuesday that it will halt production at its two auto plants in Yangon, the commercial capital. Suzuki is one of the best-selling automobile brands in Myanmar, enjoying a more than 60 percent share of the new car market in the country.

In a statement, it said the quality inspection process at its automobile factories has been interrupted due to network instability, forcing it to suspend production processes.

It also said it is concerned about the safety of employees following the network outages and military coup. Suzuki said it will reopen the factories after it can stabilize its production network and guarantee safety.

One of the largest Japanese auto parts makers, Denso, stopped production in Myanmar a day after the coup due to concerns over employee safety.

A local IT businessman based in Naypyitaw, the capital of Myanmar, said businesses are suffering from “uncertainty”, adding that some commitments made by Western investors are already being rolled back.

He said some investors from Western countries had suspended negotiations on the implementation of new projects until they can get more information on the current situation.

US President Joe Biden has threatened to reimpose sanctions on Myanmar in response to the coup and detention of national civilian leaders including Myanmar State Counselor Daw Aung San Suu Kyi and President U Win Myint. Biden said the reversal of democratic progress would necessitate an immediate review of US sanction laws and authorities, followed by appropriate action.

Foreign investment is the main driver of the country’s economic development. As of December, Singapore was the largest investor under the National League for Democracy (NLD)-led government, followed by China and Hong Kong.

Prior to the coup, both the World Bank and Asian Development Bank had forecast that Myanmar’s economic growth would begin to recover from the pandemic this year supported by a stable performance in agriculture, higher government spending and expansion in the telecommunications sector, public investment, a resurgence in manufacturing, and productivity gains associated with the adoption of digital technology.

Economist Dr. Aung Ko Ko said the military takeover would impact small and medium-sized enterprises in the country and jeopardize the economic reforms implemented by the civilian government.

Since taking office in 2016, State Counselor Daw Aung San Suu Kyi’s government has implemented numerous economic reforms, including: amending new investment laws and introducing a Myanmar Companies Law to boost confidence among foreign investors; creating the Ministry of Investment and Foreign Economic Relations (MIFER); and drawing up the Myanmar Sustainable Development Plan (MSDP), a road map to promote equal development in social and economic sectors.

Around 200 Korean companies were expected to invest in production facilities at the recently launched Korea-Myanmar Industrial Complex (KMIC) project. It was
expected to create 50,000 to 100,000 jobs and support the development of the industrial, export and human resource sectors in the country.

KMIC manager Daw Thazin Nwe told The Irrawaddy that South Korea remains committed to the project despite the coup, but said implementation could be delayed.

She said technicians from South Korea were supposed to be arriving in the coming weeks, but was not sure whether they would be able to travel to Myanmar under present conditions.

The NLD government had arranged special procedures via a diplomatic channel to facilitate travel to Myanmar related to the implementation of government-backed projects amid COVID-19 restrictions.

Following the coup, the Myanmar military announced it had formed a new cabinet
largely comprising ex-military officials and members of its political proxy party, the Union Solidarity and Development Party (USDP).

Two ex-military officers were appointed to head the Planning, Finance and Industry Ministry and the MIFER. Both ministries play a crucial role in economic development and mitigating the impact of COVID-19 on the economy.

Ex-military officer U Win Shein from the USDP was appointed minister for MOPFI. He served as a minister for finance and revenue under U Thein Sein. U Aung Naing Oo, an ex-military officer, was appointed as minister for MIFER. He served as a permanent secretary at MIFER under the NLD government.

Dr. Maung Maung Lay said that “Different sentiments have arisen among businesspeople but we need to wait and see how these new bodies will handle [economic] policy.”

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