SUMMARY
Overall Score 12- Stable
Political risk: Stable 4
Economic risk: Stable 4
Commercial risk: Stable 4
The risk assessment of a country is made up of 3 components, being Political, Economic and Commercial. Each component is scored out of 10 with 1 being the highest risk and 10 the lowest.
Political Risk – Stable at 4
The military’s grip on the country appears under serious threat for the first time since it took control of the country in 1962. A rebel insurgency and campaign of civil disobedience has been gaining strength since the 1 February 2021 military coup that ousted Aung San Suu Kyi’s elected government.
Thousands of students, activists and workers have flocked to join ethnic groups, such as the Kachin Independence Organisation, that have been fighting the government for decades. The military regime has responded by attacking opposition strongholds with helicopter gunships, fighter jets, and troops that burn villages they accuse of supporting anti-junta militias.
The government appears to be losing control over increasing parts of the country with assassinations of officials also growing. In August, the military extended its emergency rule until 2023, a tacit admission that it is not in control of the country. The junta first declared a state of emergency after seizing power from the elected government of Aung in February 2021. The military has pledged to hold new elections in August 2023, but few believe they will be free and fair.
The National Unity Government (NUG), a parallel government formed by ousted Myanmar officials and some ethnic leaders who oppose the country’s military government and back the armed resistance movement fighting it, appears best placed of the opposition movements to take over should the military government collapse.
In September 2022, writing in the Diplomat, Philipp Annawitt, a democratic governance expert who advised Myanmar’s government and parliament prior to the 2021 military coup, said he believed the NUG is ready to govern, explaining that:
“The NUG now controls significant territory, commands the loyalty of the overwhelming majority of its people, and provides security and justice in the areas under its control.”
The growing influence of the NUG was confirmed by a November 2022 report from the Voice of America (VoA) that this “government-in-exile” was opening its first-ever office in Washington to reach out to US officials, international diplomats and the local community. The VoA quoted Priscilla Clapp, a senior adviser at the US Institute of Peace, as saying that the opening of the NUG office in the US capital “is a big deal,” adding that “it signifies intensifying engagement of the NUG with the US.”
The NUG was formed in April 2022, while its armed wing, the People’s Defense Forces (PDF), was formed a month later. According to a report in the Irrawaddy in November 2020, there are currently 221 PDF battalions under the command of the NUG across the country. When combined with battalions of Karenni Nationalities Defense Force (KNDF) and Chinland Defense Force (CDF), there are some 300 battalions nationwide. A further 63 PDF battalions are reportedly waiting for recognition by the NUG’s Defense Ministry. Altogether, the PDF now comprises of about 65,000 members, with around 25% armed like a regular army while some 40% have home-made guns, the publication added.
In September 2022, the NUG claimed that resistance forces had effective control over more than half of the country and described the year ahead as the “decisive year of the final battle”.
Economic Risk – Stable at 4
Myanmar experienced a severe recession as a result of the military takeover in February 2021 and the ensuing political unrest and violence that has disrupted banking and commerce. The country was already in recession prior to the coup: the pandemic took hold in 2020 and paralysed the lucrative tourism sector.
The failure to contain the spread of the virus has only exacerbated the slump. In January 2022, the World Bank reported that the economy was 30% smaller than it would have been but for the coup and the COVID-19 pandemic.
Independent forecasters believe the economy will experience anaemic growth or another contraction in 2022 – see February economic risk update below for further details.
The coup has disrupted foreign investment significantly. Since 2011, approximately 90% of FDI in Myanmar has emanated from Asian countries, which have been steadily improving economic ties. However, in response to the coup and under pressure from activist groups and western nations, firms are restricting activity.
Japan, for example, has cut its aid since the coup and many Japanese companies have frozen their operations in Myanmar due to difficulties in operating business activities. Violence in and around workplaces, internet shutdowns and a scarcity of employees have led office spaces to shut down.
Many infrastructure projects have been suspended, causing a “very large contraction” in the country’s construction market, with the prospect of growth pushed back to the second half of the decade, according to a Fitch report in November 2021. Fitch cites Hong Kong’s VPower Group pulling out of two operational LNG power plants and Adani Ports withdrawing from its investment in the Ahlone International Port Terminal project.
China, however, is stepping up its activities in the country. It continues to push ahead with its Belt and Road Initiative (BRI), even though resentment concerning China’s increasing grip on the economy and its support for the junta appears to be increasing across Myanmar. In February 2022, the UN human rights expert on Myanmar said Russia and China were providing the junta with fighter jets being used against civilians.
Commercial Risk – Stable at 4
Myanmar rates as one of the most difficult countries in the Asia–Pacific region in which to do business even prior to the military coup. It ranked 165 among 190, according to the 2021 World Bank Ease of Doing Business guide. This ranking has almost certainly fallen sharply since that report.
Since the coup, the banking system has been disrupted significantly. Sending money out of Myanmar is extremely difficult, with much stricter oversight by the central bank, harming international trade and commerce. Access to and use of the internet is more difficult, with internet shutdowns common, and the disruptive effect on business activity has been magnified by the coronavirus and the associated need for remote working. Privacy and data-security concerns have also increased. Entering, leaving and moving around the country are difficult, with safety concerns about staff a major issue given the deteriorating security situation in many areas of the country.
Meanwhile, government decision-making and the administrative process are much slower and less predictable, affecting even routine matters such as tax administration and visa processing. Senior government personnel in many positions have changed, while new policies have been adopted, and the civil disobedience campaign has severely disrupted administrative processes.
The rule of law has suffered further setbacks. Even prior to the pandemic, businesses reported very low trust in the independence of the judiciary, with bribes and irregular payments in exchange for favourable judicial decisions very common.
Corruption – already a significant challenge – has worsened as living standards have plummeted. Myanmar ranks joint 137th out of 180 countries in Transparency International’s 2021 Corruption Perceptions Index. The Myanmar Corruption Report by GAN says that corruption is endemic in Myanmar, presenting companies with high risks. The weak rule of law and complex and opaque licensing systems are serious barriers to investment and trade in Myanmar.
A lack of adequate infrastructure also provides significant challenges to operating in Myanmar. Sanctions levied since the 1960s have caused Myanmar’s infrastructure to become outdated. Much of the country’s electrical grid relies on hydropower, and factory operation, for example, becomes unreliable during dry seasons. While there has been significant growth in the country’s paved road network, the vast majority of the network – around 60% – remains unpaved. Meanwhile, port capacity is limited and the railway service depends on ageing and unreliable equipment.
February Bulletin
Political Risk – Stable at 4
Myanmar is now more polarised politically than it has been at any point over the past 20 years. As attitudes harden on both the military and pro-democracy sides, the prospect of a dialogue that could bring the two together recedes.
The military is shunning attempts by ASEAN and others to pressure it into engaging with the opposition. The junta’s execution of four pro-democracy activists in late July suggests the military is not ready to compromise. But the executions also highlight the brutality of the regime and will encourage the view among the opposition that armed struggle is the only way of removing the military from power.
The attitude of China is key. Beijing is the junta’s closest foreign ally. There are signs that China is playing a complex game in Myanmar, reaching out to the rebels in case they gain the upper hand. So, as well as sending vaccines to the government to distribute, Beijing has “also quietly shipped thousands of vaccines, medical workers, and construction materials for quarantine centres, multiple rebel groups”, according to the French news agency AFP.
Meanwhile, the increasingly intense guerrilla war in parts of the country may cause some in the military to question whether they can continue on the current path and risk losing all the economic and social gains of the past 10 years.
There are numerous reports that the army is suffering from low morale, with many soldiers, including officers, defecting to the rebels. It is also having trouble attracting new recruits. Moreover, a shortage of aging Polish-built Mi-2 and more modern Russian Mi-17 transport helicopters, vital in any guerilla war, is adversely affecting the army’s combat ability.
Once an army’s morale collapses and the opposition gains momentum, the end can come very quickly as we saw in Cambodia and Vietnam in the 1970s. On the other hand, if the rebels remain divided and continue to lack vital weapons, the war could drag on indefinitely.
The deteriorating economy could also have significant repercussions. People in Myanmar have historically taken to the streets in mass numbers when an economic shock makes their livelihoods untenable, and we may well be approaching that point. Around 40% of the population now live in poverty, having seen a decade of reform and progress reverse over the last two years. By November 2022, food prices were increasing at an annual rate of 60%.
Another outcome is a diplomatic solution engineered perhaps by China. If that happens the best hope is that the military’s involvement in any new government proves very limited given their appalling record in running the country over the past sixty years or so. The emergence of a government - packed with technocrats that implements the economic policies that have enabled the economic miracle seen in the rest of Southeast Asia, could yet occur.
Economic Risk – Stable at 4
The latest outlook by Fitch Solutions, published in November 2022, predicted that economic growth would increase from 0.5% in 2022 to 2.5% in 2023. However, it added “this would still leave output 15% below where it was before the civil war.” Fitch said there were “signs that businesses have been adapting to the turbulent political landscape, and an economic rebound in Mainland China would boost external demand”. Much will depend on whether the rebound in China continues, given renewed lockdowns in the country.
Fitch added that much of the population remains in poverty, affected by surging inflation, and widespread shortages of basic goods and foreign currency mean that economic output will remain significantly constrained for the foreseeable future.
The outlook largely depends on the political environment. Given that the military appear unwilling to compromise with the opposition, civil unrest and the guerrilla war will continue. Foreign investors and tourists are unlikely to return under those conditions.
Pressure on Western countries to increase sanctions on Myanmar is likely to grow after the regime executed four pro-democracy activists in late July 2022. The US has sanctioned military officials and companies, condemned human rights abuses, but could do much more – such as sanctioning Myanmar’s oil and gas revenues and increasing aid to the opposition movement. The UN has similarly criticised the junta but has hesitated to directly intervene in Myanmar.
The country re-opened to tourists in April 2022 but given the uncertain security situation and widespread calls for tourism to boycott the country, it is unlikely that tourism receipts will provide any relief to the economy.
Commercial Risk – Stable at 4
Commercial risk has increased significantly since the coup, amid a deterioration in the ability of government ministries and the banking and legal systems to function effectively. Thus, many foreign companies are leaving. Some are also coming under activist pressure to leave. In November 2022, for example, Australia’s ANZ Bank announced that it would pull out of Myanmar by early 2023 due to “rising operational complexities” over the past several months.
However, the Irrawaddy publication reported that ANZ’s decision to leave Myanmar comes “about three weeks after activist group, Justice for Myanmar (JFM), exposed the bank’s dealings with Innwa Bank, a subsidiary of the military-owned Myanmar Economic Corporation (MEC). Information of the transactions was found in data released by the whistleblower site Distributed Denial of Secrets.”
Meanwhile, France's Total Energies, Japanese beer maker Kirin Holdings and Norway's Telenor, once the second-largest wireless carrier in Myanmar, have exited the Southeast Asian country. Others remain in the country but have all but suspended activities. Toyota, for example, completed a new vehicle assembly plant in Myanmar just before the military seized power in February 2021 but is producing just one to two units per day.
In July 2022, the World Bank reported burdensome trade license requirements, the abandonment of the managed float exchange rate regime, and the imposition of foreign currency surrender rules have resulted in shortages of key imported inputs and inhibited exporters. Uncertainty among businesses has increased due to the rapid issuance of new policy instructions, including exemptions to previously imposed restrictions, followed by subsequent attempts to revoke those exemptions.
Despite bank-branch re-openings and several interventions from the Central Bank of Myanmar, physical currency remains in short supply and access to banking services also remains limited.
Additionally in January 2022, the US issued a formal business advisory for Myanmar. It warned of the heightened risks associated with doing business in the country. The advisory emphasized the reputational and legal risks of doing business and utilizing supply chains under Myanmar military control, particularly in any enterprises related to gems and precious metals, real estate and construction, and arms and military equipment.
In April 2022, the country’s military administration acted to tighten its control over movements of foreign currency. In a notification published in state media, the Central Bank of Myanmar ordered banks and other holders of foreign currency to convert these deposits into the local kyat currency. In August 2022 the central bank relaxed its foreign currency conversion order, allowing exporters to compulsorily convert only 65% of their earnings into kyats.
The official central bank exchange rate for the kyat is currently 2,100 per dollar, but this tends to be well below the unofficial black-market rate. The exchange rate hit a record low of 3,400 kyats per US dollar in late August 2022.
Meanwhile, in November, the Financial Action Task Force (FATF) placed Myanmar on its blacklist of jurisdictions for failing to implement its action plan to address its strategic deficiencies in combating money laundering and terrorist financing. FATF urges its members to practise increased due diligence when dealing with Myanmar-based entities. Only two other countries, North Korea and Iran, are currently blacklisted by the FATF.
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* Trading Economics
** CEIC Data
*** Worldbox Intelligence
Source: Asian Development Bank, except where stated
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