Burma’s government forces staged a coup on Feb. 1. Myanmar’s return to military rule will certainly be condemned by the international community and will lose the opportunity for economic growth that was so easily seized. Japanese companies, which have been pulling for investment in Myanmar in recent years, also face a huge test.
After the Second World War, Myanmar was expected to take the lead among Southeast Asian countries in terms of growth due to its high level of Education and balanced industrial structure, but was reduced to the poorest country in the region due to a half-century of military rule and the international isolation that accompanied it.
It was in 2012 that Burma gained attention as “Asia’s last virgin land. That was after Aung San Suu Kyi, who had been under house arrest in opposition to the junta, was released and elected to the House of Representatives. The U.S. lifted economic sanctions against Myanmar in stages as dialogue between government forces and democratization forces was launched. The re-entry of US and European global companies such as Coca-Cola and Dutch company Heineken kick-started foreign investment-led economic growth, and the 2015 election victory of Aung San Suu Kyi’s National League for Democracy (NLD) further strengthened expectations of democratization and once led to one of the highest real growth rates in the ASEAN (Association of Southeast Asian Nations).
Among the overseas companies that entered Myanmar during this period, it was particularly Japanese companies that made a huge presence. Sumitomo Corporation, Mitsubishi Corporation and Marubeni Corporation have built the country’s first modern industrial park since 2013 in the Dilawar Special Economic Zone near Yangon, the largest city. In the vast 2,000-hectare area, Yakult and others have opened factories, and Toyota intends to move in.
In the infrastructure sector, KDDI and Sumitomo Corporation have entered the mobile communications business through joint ventures with local communications companies. Japan’s JFE Engineering will also produce bridges, which are essential for road construction.
In the consumer sector, the Aeon Group, one of the first foreign retail companies to move in after Myanmar’s shift toward democratization, is pushing ahead with the development of large-scale commercial facilities.
Japanese companies are involved in a wider range of industries than Chinese companies, which have invested a large amount of money in Myanmar in absolute terms, but have a bias toward investments in the resource sector. It is difficult to avoid a situation where the coup will have a negative impact on the business of these companies.
In addition to the internal chaos, what is worrisome in the future is the resumption of economic sanctions by Europe and the United States. During the junta era, the U.S. has taken measures to restrict financial transactions with U.S. companies, such as domestic investments in Burma and overseas companies that deal with Burmese companies with close ties to the junta. This has been the biggest impediment to investment in Burma. The U.S. government’s demand that government forces release Aung San Suu Kyi could also make it difficult to maintain business if sanctions are reintroduced with the aim of promoting democratization.
In recent years, Myanmar has also faced a harsh international spotlight on human rights abuses against the Rohingya, a Muslim minority. Japan’s Kirin Holdings (HD), which is involved in the beer business in a joint venture with a company owned by the Burmese government forces, has been criticized by international human rights groups for the fact that some of the funds from the joint venture are going to the government forces and that it has stopped receiving dividends from the joint venture after 2020. The seizure of power by the Tatmadaw, which is seen as a party to human rights abuses, will damage Myanmar’s image. The reputational risk of investing in Myanmar will also increase.
Myanmar, with a population of more than 50 million and located on the border between China, ASEAN and India, has great potential, but without political stability, it will not be able to capitalize on these advantages. To avoid a return to the lost half-century, both the government forces and the democratization forces will need to compromise with each other.
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