Foreign Direct Investment in Myanmar

Foreign Direct Investment in Myanmar

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Foreign Direct Investment in Myanmar (Graphics not Included)

Since 1962 the Burmese government has been under military rule (Country Profile, 2007). The lives of the Burmese citizen are dictated by the totalitarian style of government which led to horror and starvation, causing numerous protests against the government. The latest protest in 2007 was planned and organized by the same student groups which took part in the similar protest earlier in 1988. The first protest was held on 15 September 2007 with protesters protesting on streets in Yangon on nearly a daily basis. Soon civilian and Buddhist monks joined in the protest on the streets. The government responded by beating and arresting monks and civilians. Monks are highly regarded and influential in Buddhist custom. The Myanmar government were accused of practising human-right abuses and also using violent acts against its civilian (The Economist, 2007: 27).

The political turmoil in Myanmar has cost them in deterioration in various sectors of life, especially in the economic sector. As it was mentioned, human rights seem to be the issue in Myanmar. These issues has caused multinational companies such as Anheuser-Busch International Inc, Carlsberg and many more, to pull out of Myanmar due the increasing in the intensity of the human rights issues, and pressure from countries such as the United States which heavily sanctioned Myanmar (Frey, 2006: 209; Global Policy Forum, 2008; Holusha, 2008; The Irrawaddy, 2003; Lansner, 2008; Myanmars, 2008; Times Online, 2007).

1.1 Causes

The Myanmar government on 15 August 2007 drastically raised the price of fuel without first giving notice to the people. The drastic fuel increase caused the price of diesel to be doubled and the price of natural gas to increase five-folds. This triggered a chain reaction which cause price hike in almost everything in the country from commodities to services which is the basic needs of the citizens in Myanmar, such as transportation, rice, and cooking oil (BBC News, 2007). In addition, inflation has led to decline in living standards and cause unrest among the citizen of Myanmar. This is due to the inability of Burmese government to maintain a stable economic situation. Other than that, Burmese was enraged against the Junta government due to the arrest of Daw Aung San Suu Kyi, who was the winner in the first democratic election but was not allowed to come to power (Asian Human Rights Commission, 2007: 2).

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1.2 Current Situation

The United States (US) had renewed its earlier sanction on Myanmar by imposing sanction on its citizen from doing business with Myanmar state owned companies (The Associated Press, 2007). The sanction also prohibits all imports from Myanmar from entering the US and also new legislation requires that US oil company Chevron think over its investment in Myanmar and consider pulling out its investment from Myanmar. Beside the US, the European Union (EU) also placed sanction on Myanmar by banning investments on several key sectors in Myanmar (Javno, 2007). Myanmar also faced boycott by trade-unions. Campaigns organised by trade-unions in several countries has managed to slow down the amount of foreign direct investment (FDI) into Myanmar. These campaigns has lead to numerous large multinational companies (MNC) to pull out or reduce its stake it Myanmar (Asia Times, 2003). For example trade union all over the world, plans to boycott multinationals which has a business link with the government of Myanmar (Associated Press, 2007). The US has been demanding that the United Nations Security Council place international sanctions on Myanmar due to human rights violations.

2.0 FDI in Myanmar.

Despite of the multinationals which terminated its operation in Myanmar, not all country agree and follow the sanction which was made by the international organizations. Countries such as Thailand and China, has continued their business operations in Myanmar, as where the relationship between the three countries are getting stronger. As a matter of fact, Thailand which is one of the largest investors in Myanmar has strengthened their economic relationship through an agreement which is signed by both countries in aim to protect Thai investors in Myanmar. Furthermore, ASEAN countries, does not support the sanction, especially neighbouring countries to Myanmar such as China, Thailand, and India has mutual interest with Myanmar (Bilaterals, 2008; People Daily, 2007; Richardson, 2008).

ASEAN countries are the main source of FDI in Myanmar which accumulated to around US$10,000 million. It is followed by the EU which invested roughly US$2,500 millions, four times lesser than the investment by ASEAN countries. Thailand is the main contributor with investment of about US$7,500 million which consist of almost more than half the total FDI in Myanmar. Second in the list is United Kingdom (UK) with FDI of about US$1,800 million. Next in the list is Singapore which invested US$1,500 million and Malaysia US$700 million. Four ASEAN countries and three countries from other parts of Asia made up the top ten investors in Myanmar, those countries are Thailand, Singapore, Malaysia, Indonesia, Philippine, Brunei Darussalam, and Vietnam (Kline, 2008: 29-31). As we can see, the top ten FDI contributor countries are all geographically close by with Myanmar, on other words within the same region which is Asia. Vietnam, is known to be the least contributor to the FDI in Myanmar. From the graph below, we can see that Asian countries dominate in terms of investment in Myanmar.

Figure 1: The value of investment by top 10 countries during the period of 1989 to 2007.



2.1 Implication to and on Foreign Direct Investment (FDI)

Some MNC had already withdrawn or diverse their investment in Myanmar due to the sanctions by their home governments and also due to pressure from their consumers and shareholders to refrain from doing business with Myanmar during the almost identical protest in 1988 (Asia Times, 2003). Adidas and Levis Strauss had shut down their production plant and also stopped sourcing for materials from that country due to pressure from critics. Premier Oil from the UK also withdrew its investment because of pressure from consumers and critics (Business Week, 2008).

Currently firms that are operating in Myanmar are facing pressure from non-governmental organisations (NGO) and consumers to cease operations in Myanmar. Non-governmental organisations from all over the world particularly in the US and EU had campaigned outside companies and shareholder meetings to pressure these companies to pull from Myanmar. Those NGOs even publish list of blacklists firms which operate in Myanmar (Kollas & Tonnesson, 2006: 6). Firms operating in Myanmar will soon diversify or withdraw their investment there due to pressure from their consumers and also from their governments.

The sanctions and the withdrawal of western oil companies from Myanmar had negative effect on the FDI inflow from western countries but the effect is insignificant due to the fact that Myanmar’s main source of FDI is from ASEAN countries. Recently China and India are expressing their interest in investing in Myanmar and are also expanding its economic relation with Myanmar (Kollas & Tonnesson, 2006: 8).

Firms from ASEAN are eagerly to take over the place of western firms which pull out their investment from Myanmar. For example, Premier Oil withdrew from the Yetagun oil Project in Myanmar due to the pressure from the British government and investors in the US demanding Premier Oil to pull its investment from Myanmar. Petronas from Malaysia bought over the Premier Oil’s share in the oil project (Kollas & Tonnesson, 2006: 7). This causes FDI inflow to Myanmar to change its pattern from western countries to ASEAN countries.

3.0 Recommendations

The incentives offered by the Vietnamese government to attract FDI are almost the same as those offered by Myanmar however Vietnam still receives greater amount of FDI due sanctions by the US. It is not possible for Myanmar to depend on sector diversification or country diversification as the sanction imposed by the EU and US do not favour country diversification. This results in Myanmar being dependent on other ASEAN countries for FDI inflow (Kline, 2008: 65-66).

Since ASEAN countries are the main source of FDI for Myanmar, the government need to modify it policies to suit to the requirements of ASEAN countries. The policies should be able to foster its relationship with other ASEAN countries particularly Thailand and Singapore to further increase its FDI inflow from these countries. Myanmar will need to concentrate on increasing its FDI from non-western countries such as Asia and Middle East to make up the FDI that are lost due to sanction by the US and EU since those sanctions prevent firms in some western countries from investing in Myanmar (Kline, 2008: 65-66).

The oil sector is one of the main contributors of FDI to Myanmar. Myanmar should not be too dependent on the oil sector for FDI inflow. This is to reduce the adverse effect should those western oil companies decide to withdraw their investment in Myanmar due to pressure. Myanmar needs to diversify its source of FDI by exploring and promoting other sectors in the countries such as timber products and gems production to attract investors to invest in those sectors. The government should invite investors to invest in jade production since that jade production is one of the most profitable trades for Myanmar.

Myanmar should also be able to see to the future. As where China as an economic powerhouse with a rapid economic growth and increasing Myanmar’s FDI inflow, Myanmar should consider to keep a close relationship with China in order to enhance its economic ties. Other than economic benefit from trading with China, Myanmar could use the support of China in order to avoid UN international sanction. This could be done due to China is one of the five countries with the veto power, which could be used to block UN sanctions (Coleman, 2007).

In order for Myanmar to gain FDI not only from ASEAN and neighbouring countries, it is in the best interest of Myanmar to persuade US to remove the sanctions made towards Myanmar. This could be done by progressing in reducing human rights abuse, as where the US has made criteria to be met by Myanmar in order for US to put an end to the sanction (Asia Times, 2003). For example, by taking actions that is peaceful in nature such as setting up an open discussion with human rights activist, instead of reacting in a violent manner against them. Other than that, creating a stable economic climate is also in the best interest of Myanmar in order to increase the inflow of FDI. Hopefully, these actions could improve the image of Myanmar in the eye of the world, and multinationals will be less hesitant to invest in Myanmar, which in the end sanctions against Myanmar could be loosen up.

4.0 Conclusion

The ongoing suffering and suppression of human rights by Burmese government undoubtedly has caused Myanmar to lose its integrity in the international society. Many international organization and foreign countries are concern with the situation in Myanmar, especially the UN. Countries such as the US have given sanctions in order to improve the situation in Myanmar. Some argued that these sanctions or democracy did not play a great role in an effort to improve Myanmar as a whole (Brown, 2007). This is due to the sanctions are not supported by all countries, due to conflict of interest. Neighbouring countries such as China, Thailand, and India has a significant interest with Myanmar, as where these countries get their supply of natural resources from Myanmar. Furthermore, Myanmar as a developing country, offers opportunities especially in the mining industry. Even though US have placed sanction against Myanmar, there are several American companies which still operate in Myanmar. This shows us that, a lot of multinational is interested in investing their capital in Myanmar, despite the humanitarian issues. At this point, Myanmar still has a hope to improve its economic condition and to increase its FDI. Although, the current condition in Myanmar is not necessarily first-class, this is why Myanmar still has to change in terms of domestic and international policy making in order to improve its image in the international society.
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