Myanmar: Asian Tiger or Resource-Rich Failing State? Business Will Have a Say

June 5, 2012
Authors
  • Chris Nolan

    Former Associate Director, BSR

Chris Nolan, Manager, Advisory Services, BSR

The recent announcement by U.S. Secretary of State Hillary Clinton to further ease economic sanctions in Myanmar typifies the way political and economic reforms sweeping Myanmar are creating once unthinkable opportunities for business—from oil, gas, mining, and manufacturing to travel and tourism, agriculture, and financial services. As business considers investing in this long-isolated nation, it must realize that it has a direct role in whether Myanmar is the next Asian tiger or another resource-rich failing state exploited for its natural resource wealth and cheap labor.

The social and political risks are numerous. These include underdeveloped financial, legal, and regulatory institutions, as well as the continued predominance of the military (politically and economically), weak rule of law, lack of an independent judiciary, a poor human and labor rights record, and endemic corruption (losing out only to Somalia and North Korea for top honors). In addition, human rights abuses committed by the military against some minority ethnic groups reportedly continue. Many advocacy groups believe the West, including the U.S., is moving too quickly to suspend and remove economic sanctions. The U.S. Campaign for Burma, a US-based advocacy organization, warns that no laws exist to prevent investments from harming local communities.

Stakeholders speaking recently to BSR see daunting challenges, as well as vast opportunities awaiting companies in Myanmar. Despite limited educational opportunities in recent years, the Burmese people value education and are eager to learn; they are open to new ideas and have the aptitude many businesses are seeking. The government is also making good faith efforts to reform, such as introducing a new foreign investment law in May 2012. The legal system, however, is in “absolute shambles,” according to David Scott Mathieson, senior researcher on Burma at Human Rights Watch. “It’s been used for years as a tool of the state, and to protect vested interests.” 

With Aung San Suu Kyi and the democratic opposition National League for Democracy elected to Parliament, expectations are high and rising. The role that business can play in a transitional society like Myanmar has never been so important or so highly anticipated. Business can start with sectors critical for the country’s development. For example, the power and energy sector can invest in sorely needed upgrades to the country’s power grid and help the government develop a national energy policy. The financial services and information and communication technologies (ICT) industries can help support small business development through improved access to affordable communications and financial services. Significant investment is also needed to help the national agriculture sector begin to modernize, which is central to any rural development efforts.  

Business conduct will no doubt be an important factor in the country’s development trajectory. Business should start as it means to continue. Companies should establish and make public responsible investment criteria that guides whether and how an investment is made. As business considers investing in Myanmar, the risks and opportunities must be carefully weighed. As Aung San Suu Kyi said before the World Economic Forum this past Friday, "A little bit of healthy skepticism I think is in order." Business needs to take a medium- to long-term view on investments and ensure social and environmental impacts, both positive and negative, are identified and responsibly managed. In the absence of strong rule of law and an independent judiciary, and with the newness of the post-sanctions environment, business deciding to invest in Myanmar should adhere to relevant international standards and guidelines such as OECD 2011 Guidelines for Multinational Enterprises, 2012 IFC Performance Standards, UN Guiding Principles on Business and Human Rights, and the Extractives Industry Transparency Initiative.

Until the regulatory system catches up and issues like endemic corruption are brought under control, companies have a responsibility to use international standards to help ensure that the boom doesn’t spell doom for the country’s prospects. The costs of such due diligence in terms of money and time won’t be insignificant, but the stakes for Myanmar are too high—next Asian tiger or resource-rich failing state?

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