Myanmar’s economic growth is unrelenting. The number and diversity of investors in the country continues to increase, as highlighted by the recent awarding of foreign banking licences and the announcement of a fourth international airport close to Yangon. To a certain extent, economic growth has become decoupled from the concurrent political opening. Even if there is a backsliding in terms of human rights and democratic advances, and even if sanctions are re-imposed, at this point it’s difficult to see how foreign investment could be rolled back to pre-2011 levels.
This isn’t to say that Myanmar’s economic development will be smooth. Lacking infrastructure constrains the country’s ability to absorb investment. Poor planning and insufficient regulation could easily result in crony capitalism. Growing inequalities may heighten ethnic tensions and cause political destabilisation. However, short of catastrophe or a return to pariah status, Myanmar will continue to attract a slew of investors willing to try their hand in this frontier market. There won’t be a shortage of foreign capital.
Two obstacles will continue to hinder foreign investors for the foreseeable future, particularly in ethnic minority areas: security threats and poor stakeholder relations. For instance, in Rakhine State sectarian violence continues to escalate and more than a hundred thousand Rohingya remain in displacement camps. In Kachin state, armed ethnic groups maintain antagonistic relations with Naypyitaw against the backdrop of a rampant transborder drug trade. In both states, foreign investors have been criticised for exploitative practices that sideline local communities’ aspirations. The cumulative result of all these factors is that foreign investors are vulnerable to acts of violence and to public discontent, which could potentially lead to contract renegotiations.
What is the solution for foreign investors then? Community-based security initiatives are an innovative approach that simultaneously addresses the two obstacles of security threats and poor stakeholder relations. Such initiatives entail establishing a community policing system that also provides mechanisms for conflict resolution and prevention.
By implementing community-based security initiatives, investors improve their capacity to mitigate threats. Ultimate control of innermost security measures still rests in the hands of a separate professional security team. Locals are not given keys to the server room, but they are engaged as a front line of the security apparatus. A security team is then much more able to protect investors’ operations because it is always receiving on-the-ground information about potential security threats.
Furthermore, community-based security initiatives gain investors a social licence to operate by providing employment opportunities and by establishing meaningful community relations. Perhaps most importantly, investors can reduce their reliance on central government troops by developing an alternative and effective security apparatus; the presence of Naypyitaw’s soldiers often enflames ethnic conflict and irreparably damages investors’ reputations with local stakeholders.
To be most effective, community-based security initiatives should be an important component of a more expansive corporate-sponsored development programs that share investments’ benefits with local stakeholders. These development programs identify and realise common goals held by both affected communities and investors. Such programs can take many forms, including: vocational training that benefits communities’ employment prospects and allows investors to hire cheaper local labour; decentralised off-grid electricity generation that improves locals’ lives and ensures electricity access for industrial operations; and microfinancing institutions that increase community members’ wealth and expand the local consumer base.
Short of a dramatic black swan event, foreign investment into Myanmar seems likely to continue. Investors operating in the fringe ethnic minority areas of this frontier market will face more challenges than most. By implementing community-based security initiatives, these investors will improve their capacity to protect their operations from violence and community discontent.
Nicholas Borroz is an independent analyst of energy geopolitics and investment strategies, specialising in energy-related infrastructure. He works for a DC-based risk consultancy and has previously worked for the US government in international affairs with a focus on development, energy and economics. You can reach him on Twitter at @NBorroz or on his blog, www.nicholasborroz.wordpress.com.
The views and opinions expressed here are the author’s own and don’t necessarily reflect Myanmar Business Today’s editorial opinion.
