Foreign businesses and investors that bet on a democratic Myanmar have been left rattled and are exiting the country, following a military coup in which the leader of the ruling National League for Democracy (NLD) party Aung San Suu Kyi was detained.

The Tatmadaw, Myanmar’s military, took control of the government by force at the start of this month – when NLD’s first parliamentary session had been due to start.

The army has cited fraud in the November general elections, which Suu Kyi’s NLD won by a landslide, as rationale for the coup.

The country is now in the hands of Min Aung Hlaing, commander-in-chief of the Tatmadaw, which has declared a one-year state of emergency.

The coup will hit Myanmar’s economy, already in a fragile state because of Covid-19. “Myanmar faced large economic and social costs as a result of the pandemic,” reads a press briefing by the International Monetary Fund (IMF). “We are, of course, very concerned about the impact of recent events and what they could have on the people of Myanmar.”

The dramatic takeover by the military has caused significant civil unrest and made doing business in Myanmar very difficult for foreign companies because the future of the country hangs in the balance.

Firms with operations in Myanmar have been quick to act. Japanese beer company Kirin has stated that it is pulling out of a joint venture (JV) with Myanmar Economic Holdings Limited (MEHL) – overseen by Hlaing – after deciding to invest in the country in 2015. A statement by Kirin reads: “We will be taking steps as a matter of urgency to put this termination into effect.”

According to Amnesty International, MEHL shareholder records show that military units, including combat divisions, own about one third of the conglomerate’s shares. The military also operates the holding company Myanmar Economic Corporation (MEC).

On February 9, Singapore gaming company Razer’s co-founder Lim Kaling said that he will relinquish his one-third stake in a JV that owns RMH Singapore, which in turn holds 49% of Myanmar’s military-linked cigarette maker Virginia Tobacco Company. “I hope for a time when I can be an investor in the country and its people once more,” he wrote.

Meanwhile, Thai property giant Amata said it had suspended work on a large project in Myanmar’s biggest city, Yangon, and Japanese car maker Suzuki Motor’s two plants in the city will also remain closed this week, reports Nikkei Asia, after operations were halted following the coup.

“And this is just the first week,” Eric Rose, who is of counsel at Herzfeld & Rubin PC, the first US law firm to set up in Myanmar back in 2013, tells GTR. “Right now, everybody is waiting for a concerted response from the West.

“I don’t foresee that foreign companies at this point are going to be rushing into Myanmar because of its instability. Before you consider competence and taxation and the other factors, foreign investors look for stability and, at the moment, they are voting with their feet,” he adds.

Even if the military holds new elections one year from now, as it claims it will, uncertainty for foreign investors remains an issue.

“Let us assume that happens; that’s additional instability because you have no idea who that government is, how it will be elected, and how it will come to power. We’re looking at at least one year of lost foreign investment, though that does not necessarily include China,” Rose says.

He explains that Myanmar has long been isolated from the international community and has such struggled to secure finance. “The country has not sought out a sovereign credit rating, it has not entered the international financial market and the result of that has been that it is still acting as an isolated country.”

Additionally, corruption issues and a lack of transparency over business transactions has made it difficult for development institutions, including the World Bank, the International Finance Corporation (IFC) and the Asian Development Bank (ADB), to finance projects and trade and encourage growth.


Rolling out of sanctions?

Many governments have been swift to condemn the actions taken by the Tatmadaw, including newly inaugurated US President Joe Biden, who said on February 1 that the measures “are a direct assault on the country’s transition to democracy and the rule of law”.

He added that the international community should come together to press the military to immediately relinquish the power it has seized, adding that the US will take “appropriate” action in reviewing and imposing sanctions on the state and associated individuals.

A report by Verisk Maplecroft, a global risk analytics and advisory company, reveals that the US is likely to restrict foreign assistance to Myanmar and impose new sanctions on military officials and related entities involved in the coup.

It adds, however, that additional sanctions will likely have limited impact because many relevant individuals and entities were already sanctioned by the Trump administration over the Rohingya crisis; a ruthless Tatmadaw campaign against the Rohingya people which left thousands dead and nearly 1 million seeking refuge in Bangladesh.

“Instead, any new sanctions would make it harder for responsible companies adhering to international best practice to keep operating in Myanmar due to reputational and ESG considerations,” the report reads.

Any tough countermeasures from the US, such as sanctions, would drive Myanmar closer to China, with Myanmar remaining an attractive long-term destination for investment by the Asian giant, particularly in the energy, mining and infrastructure sectors, finds the research.

China, backed by Russia, has blocked the United Nations Security Council from condemning the Myanmar coup.

Will more foreign businesses exit Myanmar? The signs are “not good”, says Rose. “We [Herzfeld & Rubin PC] pulled out of Myanmar because after 2017 it became very apparent that the military will not relinquish its share of the economy, which is more than 50%, nor contribute to the success of the civilian government.”