Home MMBIZ News Britain Makes Deeper Inroads into Myanmar, Albeit Cautiously

Britain Makes Deeper Inroads into Myanmar, Albeit Cautiously

Western investors’ interest piqued in early 2011 when Myanmar’s former ruthless junta loosened its ironclad grip and a new semi-civilian government initiated a series of political and economic reforms. It pardoned scores of political prisoners, secured a ceasefire with Karen rebels and agreed to talk with other ethnic rebel groups. By-elections took place in April 2012, which was hailed by the former US Secretary of State Hillary Clinton as “an important step” in Myanmar’s democratic transformation. It also paved the way for the global democracy icon Aung San Suu Kyi to become a member of the parliament after spending 15 years under house arrest since November 1989.

Britain was one of the first Western nations to actively seek a thawing of relations with Myanmar – one of its former colonies. Prime Minister David Cameron’s April 2012 trip was the first visit by a high-profile Western leader to Myanmar in decades, and also was the first ever to the country by a British head of government. His visit was preceded by the British Foreign Secretary and the Department for International Development (DFID) Secretary of State’s visit to the country. Cameron advocated for suspension of the European Union (EU) sanctions against Myanmar and in April 2013 all EU sanctions were dropped, except for an arms embargo.

Now, more than two years after Cameron’s visit, Myanmar observers are concerned that the reforms are stalling, with some even blaming the government of backsliding on its much-hyped reforms. Andrew Patrick, who took charge in September last year as the UK Ambassador to Myanmar, thinks that while “some things are going really well, [there are] things we are worried about.” His concerns also hold true for businesses.

“It is still quite a difficult place [to do business], but things are improving. We are working very closely with DICA [Directorate of Investment and Company Administration] and ministers to try to help that process along and make it an easier place to do business,” Andrew Patrick told Myanmar Business Today during an exclusive interview at the British Embassy in Yangon.

“There are a lot of businesses coming here, that’s true. But, there are a lot of businesses that are still very cautious.”

Myanmar was placed at the bottom of the World Bank’s Ease of Doing Business Index last year, ranking 177 out of 189 countries. It moved up one position in this year’s index.

The UK Ambassador said British firms see Myanmar as an “extraordinary market” but there are trepidations about political and social stability.

Myanmar’s next general election is slated to be held at the end of 2015. However, there are doubts if it will be free, fair and credible. With Suu Kyi effectively barred from becoming president and a constitutional change to allow that seemingly too-distant, the next election is going to be an acid test for the government to show its willingness to carry on with the transition to establishing genuine democracy.

“People want to see what’s going to happen, and you can’t divorce politics from business. Any company coming in to invest a large amount of money … would need to look very carefully at the situation,” the Ambassador said.

Rising investment and trade

Jitters aside, British businesses are in fact surpassing every other Western investor when it comes to tapping this frontier market. However the UK Ambassador was quick to point out that “[Western countries] are engaged in many different ways.”

According to DICA data, investment from 76 UK enterprises stood at $3.45 billion as of October 31, which makes UK the fifth largest investor in Myanmar, accounting for 6.88 percent of total Foreign Direct Investment (FDI) inflow.

The closest EU countries in the ranking are France with $474.36 million and the Netherlands with $398.34 million in investments from three and 10 enterprises respectively. During the same period, 15 US enterprises invested $243.56 million and 18 Canadian enterprises put in $195.8 million, while the rest of Europe invested $181.8 million, with FDIs coming from Austria, Luxembourg, Germany, Sweden, Denmark, Switzerland and Norway.

However, the four countries above the UK in the FDI list – China, Thailand, Singapore and Hong Kong – accounted for more than 76 percent of the total FDI: a sum of $38.3 billion.

Lisa Weedon, director at UK Trade & Investment (UKTI) Burma, said a variety of UK companies are now coming into Myanmar, “much more varied than I thought it would be when I first arrived.”

“From education to construction to FMCG, there’s a whole slew of companies. At the moment we are seeing a lot of interest in the energy sector,” said Weedon, who has been in charge of UKTI for about two years in Myanmar.

In March, British oil and gas firm BG Asia Pacific won four blocks in the offshore bidding and Weedon said there are UK companies who are interested to provide the subsequent support to the supply chain ranging from scaffoldings and rigs to providing health and safety training.

She said there are massive potential for British companies in Myanmar’s electric power sector as the country struggles to provide electricity for even one-third of its population. British law firm Allen & Overy is also helping the Ministry of Energy in negotiating Power Purchase Agreements (PPA).

British businesses are indeed foraying into Myanmar in a range of sectors: banking giant Standard Chartered, which has had a history of over 150 years in Myanmar, opened a representative office in Yangon last year; automaker Jaguar Land Rover opened its dealership in June, while financial services group Prudential Plc was awarded a licence to establish a representative office in October 2013.

Consumer goods firm Unilever launched full business operations in May 2013, world’s largest temporary power generation firm Aggreko and Rolls Royce have both signed contracts with the Ministry of Electric Power, while in the education sector Harrow, Dulwich and the British International School started operations.

Trade has been rising too. UK exports to Myanmar increased from £12.8 million ($20.2 million) in 2012 to £44 million ($69.5 million) in 2013, an increase of 244 percent. In July, the UK became the first country to launch a locally registered Chamber of Commerce in Myanmar with more than 80 founding members.

Lisa Weedon, director at UK Trade & Investment Burma, speaks during an exclusive interview with Myanmar Business Today at the British Embassy in Yangon.

Engagement with the government

The Ambassador said UK is working closely with the Myanmar government to provide technical assistance in public sector financial management to ensure a clear and accountable budget, in a bid to help the government “be more responsible and transparent.”

“Britain advocates for change with the government and the parliament. We’ve been talking about various business issues that are needed to be taken care of for the economy to grow further,” he added.

UK International Development Minister Desmond Swayne announced new British funding in August, increasing direct UK support to Myanmar from £64.7 million in 2014-15 to £82 million in 2015-16.

The Ambassador said he was pleased with the international banking licence awarding process, although the only British heavyweight Standard Chartered pulled itself out of the race citing “commercial reasons”.

“You need to have international banks in order to have foreign investment – at least in this market because domestic banks are so undeveloped. It’s essential for providing capital and we are very pleased the government has taken this difficult step,” he said.

Britain has also started a push to revive relations with Myanmar’s military. The UK’s Chief of Defence Staff General Sir David Richards visited Myanmar in June last year, offering help with security reforms. He became the first Western military chief to visit Myanmar in decades and hold official talks with his counterpart, Senior General Min Aung Hlaing.

Opening up and SMEs

There are concerns among the local business community that with the surge in foreign players into the country the local small and medium enterprises (SME) are going to find themselves out of depth. Matters may get compounded as the ASEAN Economic Community (AEC), which ensures free flow of labour and capital within the region, comes into effect in late 2015.

“This is a very important issue when you are opening a market. You do have to be careful about in which sector you are opening and how far. You just don’t throw open the doors to everybody,” the Ambassador said.

He added that there are some industries where foreign entries can be “sort of enabling,” where the entrants help other developments to happen such as financial services.

The British Embassy in September initiated an entrepreneurship event, funded by the Standard Chartered and run by the British Council, to provide training to specifically SMEs. “Helping SMEs is a big part of what we are doing here,” Andrew Patrick said.

“It is also important that we recognise the role of British private sector companies to support capacity and it’s not going to come only from aid organisations and the government. Foreign investors themselves are helping to build capacity,” Weedon added.

Legal infrastructure and corruption

Andrew Patrick acknowledged that legal framework is a concern for SMEs coming into Myanmar. He said one significant change was Myanmar acceding to the New York Convention Arbitration, which obliges Myanmar’s Courts to give effect to contractual provisions which provide for disputes to be resolved by arbitration and enforce foreign arbitral awards. However, implementation will be a different issue altogether.

“There’s a long way to go in terms of building capacity to implement those judgments. We and the British firms are working here to help improve the capacity of the legal system, which was basically frozen for thirty years.”

The Ambassador said some new legislation such as the Companies Act and steps to rationalise the Investment Law do show that the government is trying to tackle the difficult issues related to business.

British companies, like other Western firms see corruption as a huge problem in Myanmar while doing business as it makes it difficult for them to find a “clean” local partner. Myanmar ranks 157th out of 177 countries in Transparency International’s Corruption Perceptions Index.

However, Patrick said British firms that are doing business in Myanmar are doing businesses elsewhere in the region, where corruption is rampant, so they are used to coming across issues. “I don’t think it’s particularly a more difficult concern here than in some other frontier markets. But obviously they need to be careful.”

British companies have to comply with the UK Bribery Act, which can sometimes be even tougher than its US counterpart, while many British companies also have to comply with the US regulations because of their US interests.

“There are definitely businesses they can’t get involved in and they won’t. But equally there is a way of doing business here: carrying out due diligence, getting legal advice and being careful about identifying the local partners,” Weedon said.

“There are many companies who have managed to do that, and they tell me it’s not more difficult than any other regional markets,” she added.

Advice for British firms

The UKTI director said companies have to be realistic about doing business in Myanmar – and be prepared to accept the unexpected. “When I arrived here last year there was definitely a flurry of investments. But a lot of those companies are probably now beginning to realise that it is a challenging place to do business.

“You’ve got to be prepared to be here and roll up your sleeves. This is not a country where you can do business remotely. You have to be prepared to spend the time on the ground, build relationships and understand the way to do business here,” said Weedon.

She added that companies have to look at the long-term potential of Myanmar and be comfortable with the fact that they are investing in the long term.

The tipping point

The British Ambassador said there were setbacks on the political reform process and “significant concerns” remain. “The key issue is definitely the election next year. There are big question marks about what the electoral system would look like, how will it work and if the country has the capacity to see it through.”

When asked if Western interest will dwindle if Suu Kyi doesn’t win, the Ambassador said: “It depends on the circumstances. One of the important things we have to bear in mind, although I think it’s very unlikely, that if there is a military coup here we’ll be back to square one.”

He said some people might look at Thailand and say, “well the reaction wasn’t too bad” and if something happened here nothing would change, but “that’s wrong.” In May, Thai Army toppled the country’s caretaker government in a coup d'état, following six months of political turmoil.

“If we have a military coup in Burma … everybody would go out,” the Ambassador said, referring to the country by its former name, but still officially used by the British Government. The UK, and many other Western nations, refuses to call the country Myanmar as the overnight name change in 1989 was done by an oppressive regime. However, the Ambassador said if there is a fully democratically elected government in the country that decides to reaffirm the name Myanmar, “we would change [the name].”

The British Ambassador said there’s a range of possibilities on how the election will go, but the bottom line is that it has to be a credible one. “If it’s not, it would make things difficult,” he said.

“Eventually the most likely scenario is somewhere in the middle. Not perfect, not completely disastrous.

“If we turn back to the authoritarian political arrangement here then that’s a very pessimistic future. But if we can sustain the transition and preserve the legacy of this government in terms of rule of law then I think Burma has quite a bright future.”

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