Euphoria and expectations were high after Aung San Suu Kyi’s National League for Democracy swept to power in 2015. The shine may have worn off and elections are looming, but patient investors are holding out for a return.

SINGAPORE (June 24): Seven years ago, all the money in the world could not get you a coffee at the Traders Hotel in Yangon, Myanmar. The hotel, which has been upgraded to a Shangri-La, was packed to the rafters with businessmen and foreign investors, wheeling and dealing amid the country’s ostensible economic liberalisation, after decades of isolated military rule. “You just couldn’t get a seat [at the hotel café]. There were so many people there, all trying to figure out what they could do in Myanmar,” says Joshua Morris, CEO of Emerging Markets Investment Advisers (EMIA), a Singapore-registered private equity fund manager.

In the 2015 elections, Aung San Suu Kyi led her National League for Democracy to victory against the then-ruling Union Solidarity and Development Party (USDP). Euphoria and expectations were high for a democracy and the opening-up of the last frontier market in Southeast Asia. As the US and European Union lifted the last of their sanctions on Myanmar, the economy was set to boom, with growth forecast at 8% to 9%.

(Main image: Yangon city centre, where a lot of construction is going on)

Myanmar, with a population of just over 53 million, is a geographically strategic country. It forms the “land bridge” between South Asia, China and Southeast Asia. Yet, three years after Daw Suu — as Aung San Suu Kyi is called in Myanmar — led her NLD party to a landslide victory, the promise of a renewed Myanmar in the global arena seems to have all but disappeared. In the eyes of the international community, the Nobel Peace Prize laureate’s silence on the persecution of the minority Muslim Rohingya in Buddhist majority Myanmar has been deafening.

Today, the hotels are no longer overflowing with eager investors. “You can walk into the café anytime and get a seat,” says Morris. It is not because interest has waned, he explains. Rather, interest is now tempered with reality. “There is reform happening,” he says. “[It’s just that] from our perspective, the reform has been slower than we hoped, especially in the last three or four years since the NLD took over. So, it really becomes a matter of how patient you are and how long you have to see those reforms come through.”

Myanmar’s GDP growth currently hovers around 6%, with the Asian Development Bank predicting it to reach 6.8% by 2020. That is still robust, driven by growing wealth and the influx of large-scale development projects, as is typical in emerging markets. In comparison, the World Bank estimates that the region’s growth (excluding China) will be only 5.1% in 2019. Even manufacturing powerhouse China is recording growth of around 6% annually since it experienced a downturn, from 6.9% in 2015 to 6.2% in 2019.

But, as in any developing country, the lack of access to capital and financing, opacity in business dealings and the long wait for robust infrastructure and legislative frameworks are some of the major pain points that have investors’ patience wearing thin.

By the Myanmar government’s own admission, a lack of coordination between the NLD and regional governments on development policies, red tape and weak implementation of new laws have hampered the flow of foreign direct investment (FDI) into Myanmar. U Aung Naing Oo, permanent secretary of the Ministry of Investment and Foreign Economic Relations, said in a report in the Myanmar Times: “Political uncertainties, poor physical infrastructure, a lack of skilled labour, an underdeveloped capital market, high taxes and a legal system with a hodgepodge of laws dating back to the British colonial era have held back investors.”

To be sure, there have been significant efforts to resolve these issues for investors, though it will require time and political will to see them through. Yet, there is a far more troubling obstacle to growth, according to various sources The Edge Singapore has spoken to: the rise of mono-ethnic nationalism.

‘The face of Buddhist terror’

Ashin Wirathu, leader of the Association for the Protection of Race and Religion (Ma Ba Tha), does not look like “the face of Buddhist terror”, an epithet given by Time magazine. He appears preternaturally calm, but his words give the lie to his demeanour. In a 2013 interview by the GlobalPost and the Open Hands Initiative, he likened Muslims to African carp. “They breed rapidly, have violent behaviour, and eat their own kind and other fishes,” he said.

The Muslim Rohingya, who have been described as “the most persecuted minority in the world” by the United Nations, are not considered citizens of Myanmar under a law passed in 1982, despite having lived in the country for generations. Wirathu also accuses the NLD of foiling the military’s efforts to defend the Buddhist-majority nation against what he describes as a Muslim onslaught. Muslims make up less than 5% of the population.

While the majority of Buddhist monks have distanced themselves from Wirathu, few would dare openly oppose him. The Ma Ba Tha (now known as the Buddha Dhamma Parahita Foundation, as it was declared illegal in 2017) is supported by the still-powerful Tatmadaw (military), with Major General Thet Pone donating 30 million kyat ($26,693) to the group on June 19 and deeming the ultranationalist group “a necessity”. According to the US-based Public Radio International (PRI)-backed GlobalPost, Wirathu heads the Ma Soeyein monastery, which houses some 2,500 monks, and attracts thousands in his speeches and gatherings across Myanmar. He had an active Facebook page, but it was taken down by the social networking platform in 2018. 

He was jailed in 2003 for his anti-Islamic sermons, but was released after serving less than half of his 25-year sentence. In February, he was charged with sedition: Prosecutors said he had made defamatory remarks against Aung San Suu Kyi. In March, hundreds of monks and their supporters marched in Myanmar to protest the issuing of an arrest warrant for Wirathu.

“The nastiest part of this mono-ethnic nationalism, in my opinion, is the Ma Ba Tha, which propagates an aggressive Buddhist nationalist agenda and spreads hatred of the Muslim minority,” says Stuart Larkin, Yangon-based consultant and former guest researcher at the ISEAS-Yusof Ishak Institute.

Such ethno-nationalism has two consequences. The most obvious is the disruption of the peace process in Myanmar’s ongoing civil conflict between the military and the states with ethnic minorities that seek self-determination, giving rise to a negative effect on the domestic economy. Secondly, it damages Myanmar’s reputation in the global arena. “A low-income country looking for foreign investments really can’t be in a head-on values conflict with the liberal global order,” Larkin says.

He adds that the government needs to build a multicultural ethos and curb mono-ethnic nationalism in order to implement the policies necessary for development. The Myanmar economy’s underperformance is the result of the government’s failure to do so.

International versus domestic interests

The 700,000 Rohingya refugees who were forced to flee to Bangladesh due to clashes between Rohingya militants and the military have sullied Myanmar’s reputation. When Aung San Suu Kyi came to power, there were widespread expectations that she would be able to rectify the situation.

In October 2013, Aung San Suu Kyi denied that the persecution of Rohingya amounted to ethnic cleansing. In a BBC interview, she said: “Muslims have been targeted, but Buddhists have also been subjected to violence; there is fear on both sides and this is what is leading to all these troubles. And we would like the world to understand that the Buddhist reaction is also out of fear.” In November 2015, she went on to say to BBC: “Hatred and prejudice are not removed easily.”

She appeared to change her tune at a World Economic Forum interview in 2018, when she was asked how she felt about the Rakhine conflicts. She said that on hindsight, the government could have handled the matter better, but added that “we must be fair to all sides”.

According to Moe Thuzar, a fellow at the ISEAS-Yusof Ishak Institute, Aung San Suu Kyi’s reputation remains intact at home despite international condemnation. “The Rohingya issue really highlighted the difference between the international criticism and the domestic support for Daw Suu and, by extension, the party that she leads,” she says. Thuzar notes that the NLD will leverage that support for its 2020 campaign.

It will be challenging for the NLD, however. In a 2019 paper titled “Trends in Southeast Asia” by the ISEAS-Yusof Ishak Institute, visiting researcher Aung Aung noted that the changing political landscape in Myanmar may not necessarily be in Aung San Suu Kyi’s favour. Before the 2015 elections, he writes, the NLD was strongly supported by the media, celebrities, civil society organisations and ethnic armed groups. Any news that was negative to the NLD and Daw Suu was rarely seen in local print and social media.

“However, today, the situation is slightly changing; because of the poor efficiency of the government in politics and economics, people started comparing the current NLD administration with the previous USDP one and criticising the NLD and Aung San Suu Kyi more,” he notes.

He points to Aung San Suu Kyi’s reaction when she gave a lecture in Singapore last August. In response to a question about Myanmar’s economy, she had urged people to vote for the NLD in the 2020 elections. Following that lecture, which was hosted by the ISEAS-Yusof Ishak Institute, a Myanmar media agency, News-Eleven, ran a story headlined “Vote for the NLD in the 2020 general elections if you want business transactions in Myanmar to continue smoothly”. In just 24 hours, the article saw 3,225 comments posted and most of them were unfavourable to the NLD — something that was “unprecedented”, according to Aung Aung.

Essentially, Aung San Suu Kyi faces challenges on all sides. “Rakhine politicians think she has a poor understanding of the on-the-ground situation in Rakhine State. Other ethnic politicians are of the view that she is being manipulated by the military in the peace process,” Aung Aung says. “[At the same time,] some Muslim politicians take the view that she is [surrendering to] the military in fighting for human rights. Many civilians are also disappointed with the NLD government, especially over the rise of general commodity prices and the increase in crime rates.”

Furthermore, ISEAS’s Thuzar says, the effect of allegations of human rights abuses cannot be underestimated. “Investors from the West, especially, have greater accountability to shareholders and stakeholders, and they would be very concerned if an announcement is made that they have invested in a country that has human rights violations.”

FDI impact

This impact can be clearly seen, at least in foreign investment. The flight of the Rohingya began around August 2017. Data issued by the Directorate of Investment and Company Administration (DICA) showed that FDI in 2018 was the lowest since 2013. Between 2013 and 2014, FDI totalled US$4.1 billion, and peaked at US$9.5 billion between 2015 and 2016, which was when the NLD came into power. It declined to US$6.65 billion the following year, then to US$5.7 billion in 2017, and plunged to US$1.74 billion by mid-2018.

“It’s not that policymakers are not aware of the Rakhine issue. It’s just that it has reached such proportions and magnitude that any response would just be seen as too little or too late,” Thuzar says. She recalls that then director general of DICA, U Aung Naing Oo, admitted that the government had completely underestimated the impact of the Rakhine State violence that broke out in 2017. “After two years... now you can see that FDI in Myanmar is heading down, it is declining,” U Aung Naing Oo was quoted as saying at an investor forum in Singapore last September.

However, Thuzar adds that the challenges that Myanmar faces are unique. “Myanmar is undergoing political, economic, social and administrative reform, and all those things accentuate the challenges so much more.” The country is also at the mercy of a confluence of various global factors, particularly the protracted uncertainty over global economic growth and, now, a trade war.

In addition, there are difficulties faced by a political party that is in power for the first time: There is the need to differentiate itself from the previous ruling party, but also maintain some semblance of continuity, particularly in the context of the country’s existing institutions.

Myanmar is also unique in that after every general election, when the results are declared, there is a six-month period before the party that has won takes office. “That is again good and bad. It gives the incoming government time to form its Cabinet, but it also puts investors and the local business community on a ‘wait and see’ stance,” Thuzar explains.

Myanmar consultant Larkin is less forgiving. “Let’s just take the top leadership [for example]. They are lethargic. They do not have the energy to drive things through the bureaucracy,” he says. He points out that the cabinet ministers, who are mostly academics, technocrats or allies of Aung San Suu Kyi, are “not the guys who would break eggs to make an omelette”.

He adds: “To exert [authority on] your ministry, you need a strong personality and energy, and experience in public administration. They do not have those traits.” More crucially, though, according to Larkin, there are some very basic infrastructure challenges that just are not being resolved properly. “It’s difficult to feel positive about the government when [you get to watch TV intermittently] because of brownouts, or you’re sitting in the dark because of a blackout,” he says.

Time needed

Nevertheless, businessmen are still positive about growth in the country and are clear-eyed about operating in a “frontier market”. In interviews with The Edge Singapore, some business owners in Myanmar describe a disparity between what the international community is saying about Myanmar and what they are actually experiencing.

“It’s probably fair to say that, [on hindsight], the international investment community got overly excited, perhaps even euphoric, given that Myanmar represented the last great economic frontier in the region,” EMIA’s Morris says. “When you really think about the amount of change that had to happen, that takes a while, and they didn’t have that time yet.”

The speed at which Myanmar found itself going from being a totally closed-off country to one that was totally open was “zero to sixty”, adds Morris. “For other countries such as Vietnam and Laos, they were never totally closed-off like Myanmar was.”

Consequently, businesses in Myanmar, or incoming ones, have to navigate considerable challenges. For starters, there is no official credit bureau, which would help in evaluating potential business partners by verifying credit history. As at December 2018, the country’s first licensed credit bureau was still not operational, although it is expected to be so by year-end.

“Many international companies and investors are really quite strict about understanding who they are working with. Given concerns about [money laundering] and global sanctions lists, they need to understand the background of potential business partners before formalising any relationships,” Morris says.

In addition, almost 80% of Myanmar’s 53 million population are still unbanked — they do not have bank accounts and deal exclusively in cash — while less than 10% own credit cards. This is because when the socialist military regime took power in 1962, it nationalised the financial industry, which in turn barred the private sector and foreign investors from being part of it. It was not until the early 1990s that the sector was gradually liberalised, allowing the re-entry of commercial, investment and development banks as well as finance companies and credit societies.

Morris also points out that while the flow of capital in and out of Myanmar is regulated, it is still problematic. “Especially with international banks, if you have Myanmar on remittance, it’s a challenge, fraught with bureaucratic headaches and regulatory issues,” he says.

Given the administrative and bureaucratic red tape, the corporate sector is also a work in progress. “While the Companies Act was a strong positive step forward for international investors, the supporting laws and regulations are still being developed and vary by sector,” Morris says. “There is still ambiguity on what is required for the various sectors to operate within the regulatory framework, although that is definitely improving.”

The Myanmar Companies Act is a long-awaited replacement to the original 1914 Act, and states the requirements for companies to set up business. However, implementation is inconsistent and not truly transparent, something that “shouldn’t surprise anyone”, says Singapore-Myanmar InvestCo CEO and president Mark Bedingham.

It is unfair to hold Myanmar or any frontier market to the kinds of standards expected in developed, high-income nations. Instead, “more reasonable comparisons” would be with Indonesia, Thailand, Cambodia or Vietnam. Bedingham does not think government-led reform is the only way to instil investor confidence in Myanmar. The government contributes through improving institutions and creating confidence in the economy, but a lot could be said for the private sector as the driver of growth. “The private sector, in a sense, is quite dynamic. There are a substantial number of Myanmar companies, local ones with a lot of business experience and, from my observation, rather well-run. You can be quite optimistic even if institutional progress is slow,” he says. 

Singapore is largest investor in Myanmar

Business owners in Myanmar have seen for themselves the change and the potential in the market. “To get to the pot of gold at the end of the rainbow, [one has] to be here, in Myanmar,” says Gerald Lee, managing director of Myanma Food For Thought (MFFT). “If you come here [looking] to make a quick buck by putting the systems in place and hiring lots of people, but operate from overseas, that isn’t going to work.”

The second time Golden Sunland set up business in Myanmar, it focused on the development of high-quality non-GMO rice seeds and premium rice products

MFFT, which owns the master franchise for Singaporean F&B brand Ya Kun Kaya Toast in Myanmar, was started in 2013, and now has eight Ya Kun outlets there, in addition to many other F&B outlets in the country.

Lee, whose background is in finance, says there are many opportunities in Myanmar, which is still growing, but commitment is key. A major challenge is the mostly unskilled labour force, who, while eager to learn, require a lot of training and are experiencing some degree of culture shock from the rapid changes. “They went from not having any SIM cards or mobile phones to suddenly everyone having one. Hardly anyone knows how to use a computer, but everyone is on Facebook or Instagram,” Lee says.

“The way I see it, the new government came in at a handicap, but it is trying to make good on whatever the previous regime left behind,” he adds. Having seen the regime change from the Union Solidarity and Development Party to the National League for Democracy, Lee says it was easier to conduct business during USDP rule, but that is only because “everyone knew what to do already”.

“When the new government came in, there was a period when everyone was kind of at a loss as to what to do ‒ how to set things up, how to get a new business started, or even who makes the call,” he recalls. The confusion, however, has had little impact on his business, he says.

David Chen and Peng Jingkai of agriculture firm Golden Sunland have tried setting up business in Myanmar — twice. They first ventured into rice production in 2013, but did not proceed because of the political situation then. They re-entered the market in 2016, and focused on the development of highquality non-GMO rice seeds and premium rice products, but it was no walk in the park either.

“As a fully foreign-owned company in the traditional rice sector, there were numerous initial considerations regarding setting up our business based on how the locals had always done it, or based on what we felt should be the right way that was more acceptable internationally. Most of the time, we did things the way we felt was right, which usually meant more time-consuming discussions with government officials and efforts to educate farmers,” says Peng, the company’s chief financial officer.

Even in 2016, they, like everyone else, found optimistic investors, but poor infrastructure and support. “For example, the implications of the different land statuses were unclear and permitted uses were vague. While the politicians have changed, the bulk of the government staff were the same and still relied on traditional norms. For a foreign entity, it was confusing, as each government department seemed to have a different answer to the same question,” Peng adds. The situation has improved with the revamp of the Myanmar Investment Commission in 2016.

Meanwhile, the Rohingya situation has had little impact on business, Chen says. “First, our operations are not in the conflict zone. Second, the smallholder farmers we work with are producers of the staple crop (rice) and are mostly detached from political and religious issues. Instead, they are focused on fulfilling essential needs and the betterment of their livelihoods. Regardless of politics and religion, rice remains a staple.”

Chen has this piece advice for investors: “This is a developing nation; investors should expect no less than a steep learning curve with a hands-on approach.”

Government agency Enterprise SG says Myanmar remains a viable investment location for Singapore companies. Audris Tan, regional director for Myanmar, tells The Edge Singapore that Myanmar’s strategic location, young and highly literate population and increasing income levels make it a market with plenty of opportunities.

“We see opportunities for Singaporean companies in agriculture and aquaculture, infrastructure — especially in utilities, power and urban development — as well as the manufacturing and consumer sectors. The education sector, covering preschool to higher education, also holds potential, given Singapore’s track record in this sector,” says Tan.

Physical infrastructure will also be in high demand as the population grows and urbanisation increases. “This results in opportunities in the real estate space, such as master-planning, design and development, as well as the utilities space, such as water and power solutions. Singapore companies can leverage our experience to bring affordable power and water solutions to the masses,” says Tan.

She points out that power outages are a perennial problem. Indeed, in a new report, the World Bank has estimated that up to US$2 billion ($2.7 billion) worth of investment is needed in the electricity sector annually, as power consumption is expected to grow at 11% a year until 2030. “The government is in the midst of putting in initiatives and policies to improve the situation, and Singapore energy companies could capitalise on these initiatives to participate in Myanmar’s power projects,” says Tan.

In March, Sembcorp Industries officially opened its 225mw combined-cycle gas-fired independent power plant in Myingyan, Mandalay, to great fanfare.

Indeed, Singapore is now Myanmar’s largest investor, outstripping even China. Myanmar is part of the ambitious Belt and Road Initiative; there are some 40 projects under the China-Myanmar Economic Corridor initiative, including in infrastructure, agriculture and technology.

“We still see keen interest in Myanmar from Singapore companies despite the diverse ethnicities, religions and political parties,” Tan notes. Nevertheless, companies should keep a close eye on the upcoming elections. “It is to be expected that there will be preparatory work by the Myanmar government in the runup to the 2020 elections,” Tan says. “Larger projects that require more local stakeholder involvement may be affected in terms of timeline and decision-making processes.”