A Quandary for Foreign Firms in Myanmar: Stay or Go?

On October 12, British American Tobacco (BAT) became the latest Western company to scuttle its investments in Myanmar due to the country’s increasingly unstable and uncertain political situation. In response to questions from Reuters, BAT said it would cease all operations in Myanmar and withdraw by the end of this year.

“Like any global company, we continuously evaluate our operations around the world,” the company told the news agency. “Having evaluated the long-term operational and commercial viability of our business in Myanmar, we have taken the decision to withdraw from the country and cease all operations.”

BAT did not elaborate on the reason for its decision to withdraw from Myanmar, though it is not hard to guess. The military’s takeover in February has engulfed the country in political chaos and pushed the economy into freefall. In defense of their coup, the Myanmar armed forces, or Tatmadaw, have launched an unremitting crackdown on strikes and protests. In the process, the Tatmadaw has killed more than 1,100 civilians.

The economic impacts of the coup have also been disastrous. The World Bank, Asian Development Bank, and International Monetary Fund all forecast Myanmar’s GDP to contract by an astounding 18 percent this year, while the kyat currency lost more than 60 percent of its value in September alone, forcing up the costs of fuel and basic foodstuffs.

For foreign companies investing in Myanmar, the crisis has unleashed a perfect storm of challenges, including growing Western sanctions, disruptions to basic services such as the internet and the banking system, and the severe reputational risks of being perceived as supporting the military junta.

While some big firms expressed their commitment to the country in the weeks after the coup, others like BAT have decided that withdrawal is the better part of valor. As Eric Rose, a counsel at Herzfeld & Rubin PC, the first U.S. law firm to set up in Myanmar in 2013, told Global Trade Review three weeks after the coup: “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.”

Within days of the coup, the Japanese beer company Kirin stated that it was pulling out of a joint venture with the military-linked Myanmar Economic Holdings Limited (MEHL) after deciding to invest in the country in 2015. In April, South Korea’s POSCO C&C, which was involved in a steelmaking venture with MEHL, followed suit. Undoubtedly, many other companies intend to follow in their footsteps, even if they have not begun the long and complex process of winding up their affairs in Myanmar.

Among the most prominent to pull out was the Norwegian telecom firm Telenor, which in May announced that it was fully impairing Telenor Myanmar in its first-quarter accounts for 2021, booking a loss of 6.5 billion crowns (around $783 million). Two months later, it announced its sale of its mobile operations in Myanmar to M1 Group, a Lebanese company, for the knockdown price of $105 million. The company said that “further deterioration of the situation and recent developments in Myanmar form the basis for the decision to divest the company.”

The aforementioned companies all invested in Myanmar in mid-2010s, at a time of great promise for the country. In 2011, a government led by technocrats and retired generals took office and embarked on a program of far-reaching political and economic reforms. They released political prisoners, rationalized Myanmar’s moribund and distorted state-guided economy, and rebuilt mined and shattered bridges to the West. Their efforts were rewarded with the lifting of most Western sanctions and embargoes, and the country’s move toward something approaching economic normalcy.

During this period, political change appeared so frictionless and uncannily rapid that many foreign observers came to see Myanmar as something of a fairy tale, in which Aung San Suu Kyi, the daughter of an assassinated national hero, had prevailed in her decades-long resistance to the evil military that had ruled the country for a half-century. The economic corollary of this vision was a perception of the country as a Shangri-La of untapped markets, a golden land long sequestered from the world economy and whose capture would enrich those foreign firms brave enough to bet on the country’s continued political and economic opening.

The optimistic view of Myanmar’s economy, like that of its political reforms, was always a product more of hope than reality. Back in 2015, on the cusp of the historic election that would catapult Aung San Suu Kyi and her National League for Democracy (NLD) into office, Aung Thura, the CEO of Thura Swiss, a Yangon-based research and consultancy firm, told me that many foreign investors had “totally unrealistic expectations” about Myanmar’s potential. He pointed out that Myanmar lacked even the sinews of a modern economy: infrastructure was in a moribund state, millions languished below the poverty line, and electricity was among the most expensive and unreliable in the region, to say nothing of the struggles for ethnic self-determination that raged on in the borderlands.

Less obvious at the time was that this tiger-economy-in-waiting also rested on surprising weak political foundations: on a compact between the Tatmadaw and the NLD, whose fragility was revealed dramatically in the predawn hours of February 1.

Investing in Myanmar in the mid-2010s amounted to a bet on the durability of the reforms, or at least that basic stability would last. The coup has now presented the foreign firms that made this bet with an tangled ethical quandary: whether to remain despite the rapidly deteriorating economic context or to undertake the intricate, complex, and costly process of withdrawal.

As Nicholas Farrelly and Alice Dawkins noted in a recent article for Nikkei Asia, both of these courses of action carry serious risks. On the one hand, “For a major multinational player in Myanmar to succeed in maintaining responsible business practices while continuing local operations would be an even more remarkable outcome.”

On the other hand, the path to the exit is similarly strewn with reputational landmines. This is something that Telenor found out in July, after it announced its deal with M1 Group, which has a long pattern of investing in telecoms infrastructure in some of the world’s most authoritarian nations. At the time, the local activist group Justice for Myanmar described the move as “a further nail in the coffin” for the “prospects for freedom of expression and the right to privacy in Myanmar.”

Indeed, while foreign firms have come under pressure to cut their ties to the military, or are fearful of being seen to be supporting the junta, it is worth asking whether human rights would really be better served by abandoning the field to foreign firms whose profit seeking is less tempered by reputational worries, and who are less squeamish about working with the Tatmadaw.

This dilemma will be familiar to anyone who followed the debates over whether foreign companies should invest in Myanmar under its previous junta prior to 2011, except for an even greater burden of extreme political uncertainty. For the Western firms that placed their bet on Myanmar’s seemingly miraculous opening last decade, the coming months and years will no doubt confront them with many more difficult ethical decisions.