Myanmar has become a hotbed of activity recently. After almost 50 years of isolation under military rule, the former British colony better known as Burma has launched sweeping reforms and opened up to the outside world. The United States has partially lifted sanctions, more than $2 billion has been invested, and the country is set to host the 2013 South Asian Games. Foreign energy, mining, timber and construction firms have already begun looking for the best opportunities in the country. But before doing so, investors should understand the political risks in the country.
Foreign investors will need to take into account the ethnically divided nature of the country and its politics. There are more than 130 ethnic groups and many are represented in the parliament by ethnic-based parties. The Bamar are the dominant group but others like the Shan and Kayin are also important and influential. This means negotiating for projects on a local, regional and central level will be likely.
The military continues to wield considerable influence. The constitution protects the military’s role in political leadership, guaranteeing it 25% of parliamentary seats and three cabinet posts. In March 2012, armed forces chief General Min Aung Hlaing reiterated the need for the army to protect the constitution. If current political reforms threaten the interests of serving or retired army officers, the risk of a coup would increase.
U.S. Companies Not in the Clear Yet
On May 17, the United States suspended the enforcement of sanctions barring U.S. investments and financial transactions in Myanmar. However, there are still blocks on doing business with military companies, which can be problematic since economic transactions are dominated by two military conglomerates, the Union of Myanmar Economic Holding Limited and the Myanmar Economic Corporation.
Despite the government’s declaration of an emergency in Rakhine state and the imposition of a curfew by the military, there is a high risk that the local fighting will spiral out of the state and cause outbreaks of violence between Muslim and Buddhist communities elsewhere in the country. Rakhine (also known as Arakan) is a key strategic region, bordering Bangladesh and close to multibillion dollar offshore gas fields. More widespread violence would risk damaging international investor confidence in Myanmar and would also likely create spillover humanitarian problems in neighboring Bangladesh, which is already home to 300,000 Rohingya refugees, due to an increase in refugees crossing the border.