[Premium] Chairman’s Note (01/2018) – Myanmar’s Rakhine State and Business Confidence

January 2018 |
I visited Myanmar from 9 to 16 December 2017, meeting with key officials in the government as well as a number of the leading businesses. This is the most challenging time for Myanmar since the opening began in 2011. There are strong international pressures to the government arising from the Rakhine state (“Rohingya”) issue. This is coupled with an economic dip following the historic change to the National League of Democracy (NLD) government, when policy reform and decision making noticeably slowed and lacked clarity.

The Rohingya is a sensitive and highly politicised issue, and we have been cautious about making our views known publicly as this may negatively impact our access to key decision makers in the government. We are therefore writing to specifically share our views on a confidential basis with you as our member and friend.

May I share the following points with you, briefly:

1. Rakhine State: There is widespread recognition that the Rakhine state issue has changed international sentiment and can further impact political ties and investor interest. But there is a broad, visceral antipathy against the Rakhine state Muslim claims to a separate identity and claims to land and citizenship. This sentiment cuts across society. There are also divisions between civilian/ military control and within the Rakhine state population and political factions, and a “radical” Buddhist streak that is evident. Even if the NLD government and the Lady are pressured to move on the issue, efforts to recognise and protect the “Rohingya” will be unpopular and have only a small chance of success. While this seems to be an especially challenging period, there are positive signs that the government recognises the complex challenges at hand, and is moving in the right direction.

2. Humanitarian Relief: The government does plan to follow up with the recommendations made by the panel chaired by Kofi Annan, former UN Secretary-General, and working out key priorities is currently underway. The key plank in this will be an effort to resettle and provide basic services to those who remain or wish to return. This humanitarian relief is led by a loose committee and depends on Myanmar private sector contributions. The effort is underway and plans to be more evident by March. There are however doubts about the speed and effectiveness of the effort, as well as the likelihood that any of the displaced will return under these conditions.

3. Potential Flare Ups: The scale of the outflow has spiked in 2017, estimated at over half a million displaced persons. The problem is currently centered and largely confined to parts of the Rakhine state, far from Yangon and businesses. There may not be a large scale increase in the movement of people or widespread conflicts, but the situation can flare up. This can be triggered by a number of different interests – from the militant group Arakan Rohingya Salvation Army and Bangladesh government, to the Myanmar military who could over-react to provocation and/ or actions by radical Buddhist elements.

4. External Pressure: The government is feeling pressure from Western governments. The US and EU have already given notice that they will no longer actively pursue trade facilitation and assistance agreements that had begun earlier. The US congress is looking at reintroducing sanctions – albeit targeted against military – in a signal of disapproval, and the US-Myanmar Trade and Investment Framework Agreement (TIFA) negotiations have come to a halt. There is also pressure from the Organization of Islamic Countries (OIC) that has affected lending from international organisations and, within ASEAN, from Malaysia and to a lesser degree Indonesia.

5. China Option: In contrast, China has stepped up its engagement. Politically, Beijing is reassuring Myanmar that its veto will prevent UN security council action against the country and President Xi has taken steps to assist with dialogue on the conflict. On the economic front, China has been pressing ahead with its proposals for the Kyaukpyu Special Economic Zone. Leader-to-leader ties have been smoothened. However, there are slow points and blockages at the working level in both military and civilian agencies. Some relate to capacity, but there are Myanmar concerns about Chinese domination and many Myanmar officials voiced their hope for additional partners for economic development and business, besides China.

6. Business Confidence: Some surveys suggest that business sentiment is at an all-time low since 2011, when the opening began. The mood has been impacted by the Rakhine state controversy, especially among international investors as well as the Myanmar companies who seek international partners and capital. In addition, there remain concerns about the possibility of sanctions, policies, and blockages that arise from gaps in competencies and decision-making processes in the new government.

7. Reform and Government Attitude: The government realises that they are almost mid-way towards the next elections, and that some progress has to be noted within this limited time. In this regard, the Companies law amendments have been passed, although capacity to fully implement the new processes will take some more time. More than that, the government is now prepared to listen and engage businesses much more – not only foreign investors but also the larger local Myanmar conglomerates. The increasing ties with major Myanmar businesses can be seen in a number of business projects that the government has started in the last half of the year, as well as in the Rakhine state effort noted above. This is a sharp change from the first year of the government and suggests a growing trust and recognition that these corporations – some of which have been controversially labeled “cronies” of the past military government – are essential for the country’s economic progress. Officials say that reforms will continue and speed up in the current condition and that those who remain engaged in the country, in the face of emerging challenges, will stand to reap the rewards.

8. Impact on Foreign Businesses: The Lady has begun to build trust with the local private sector and mobilised them to do their part in “nation-building” for the Myanmar economy. The year ahead is challenging but opportunities remain and partnerships with local well-placed companies will be fruitful due to their closer ties with the government.

I hope this is of interest to you. I would be happy to hear your views on a matter that concerns many of us.

Yours sincerely,

Simon Tay
Chairman