Political risk: Stable, 5 out of 10
Economic risk: Stable, 5 out of 10
Commercial risk: Stable, 5 out of 10
Overall score 15, stable
Political risk – stable at 5
Political risk in Myanmar remains at elevated levels following the 1 February 2021 military coup that ousted Aung San Suu Kyi’s elected government. Peaceful pro-democracy street demonstrations, civil disobedience and general strikes have been met with an increasingly forceful response by the military. Thousands have been injured and more than 1500 killed. The military has escalated hostilities against rebel forces in Chin state and in the Magway and Sagaing regions, where it is no longer in control. Many protesters have taken up arms, encouraged by remnants of the ousted Parliament, who have called for a “revolution” against the military. Thousands of students, activists and workers have flocked to join ethnic groups, such as the Kachin Independence Organisation, that have been fighting the government for decades.
Meanwhile, an expanded civil disobedience movement has paralysed the banking system and much economic activity. Demonstrations against military rule have also accelerated the spread of the coronavirus, with reports in September of a third wave of infections sweeping the country and causing 2000 deaths per day in Yangon alone. A strike by state healthcare workers protesting military rule has added to the crisis, with hospital and healthcare centres closed. Experts estimate around half the population was infected with COVID-19 by early September, when just 3 per cent of the population had been fully vaccinated.
The government claims that by 12 November it had given at least one vaccine dose to around 42 per cent of the population, and that this level would increase to half the population by the end of the year. It added that it had enough vaccines to fully vaccinate the entire population by April. In mid-November, Myanmar announced plans to reopen land border crossings with China and Thailand by December. However, there is very little testing going on in the country, and there are grave doubts about the real progress of the vaccine programme. Myanmar is also reliant on Chinese vaccines that have been demonstrated to be less effective against COVID-19 than their Western counterparts.
Economic risk – stable at 5
Myanmar is experiencing a severe recession as a result of the military takeover in February and the ensuing political unrest and violence that has disrupted banking and commerce. The country was already in recession prior to the coup: the pandemic took hold in 2020 and paralysed the lucrative tourism sector.
The failure to contain the spread of the virus has exacerbated the slump. Indeed, Myanmar’s economy is forecast to shrink by 18.4 per cent in 2021, according to the Asian Development Bank – one of the deepest recent contractions globally.
Hundreds of thousands of people in the country have lost their jobs and poverty has deepened as Myanmar’s inflation rate has skyrocketed. The UN estimates around 3 million people are in need of direct humanitarian assistance – a figure that has risen three-fold since the coup. Additionally, nearly half of the country’s population is living below the poverty line – a poverty rate not seen in 20 years.
The coup has disrupted foreign investment significantly. Since 2011, approximately 90 per cent of FDI in Myanmar has emanated from Asian countries, which have been steadily enhancing economic ties. However, in response to the coup and under pressure from activist groups and western nations, firms are restricting activity.
Japan, for example, has cut its aid since the coup and many Japanese companies have frozen their operations in Myanmar due to difficulties in operating business activities. Violence in and around workplaces, internet shutdowns and a scarcity of employees have led office spaces to shut down.
Many infrastructure projects have been suspended, causing a “very large contraction” in the country’s construction market, with the prospect of growth pushed back to the second half of the decade, according to a Fitch report in November. Fitch cites Hong Kong’s VPower Group pulling out of two operational LNG power plants and Adani Ports withdrawing from its investment in the Ahlone International Port Terminal project.
China, however, is stepping up its activities in the country. It continues to push ahead with its Belt and Road Initiative (BRI), even though resentment concerning China’s increasing grip on the economy and its support for the junta appears to be increasing across Myanmar.
Commercial risk – stable at 5
Myanmar rated as one of the most difficult countries in the Asia–Pacific region in which to do business even prior to the military coup. It ranked 165 among 190, according to the 2021 World Bank Ease of Doing Business guide. This ranking has almost certainly fallen sharply during 2021.
Since the coup, the banking system has been disrupted significantly. Sending money out of Myanmar is extremely difficult, with much stricter oversight by the Central Bank, harming international trade and commerce. Access to and use of the internet is more difficult, with internet shutdowns common, and the disruptive effect on business activity has been magnified by the coronavirus and the associated need for remote working. Privacy and data-security concerns have also increased. Entering, leaving and moving around the country are difficult, with safety concerns about staff a major issue given the deteriorating security situation in many areas of the country.
Meanwhile, government decision-making and the administrative process are much slower and less predictable, affecting even routine matters such as tax administration and visa processing. Senior government personnel in many positions have changed, while new policies have been adopted, and the civil disobedience campaign has severely disrupted administrative processes.
The rule of law has suffered further setbacks. Even prior to the pandemic, businesses reported very low trust in the independence of the judiciary, with bribes and irregular payments in exchange for favourable judicial decisions very common.
Corruption – already a significant challenge – has worsened as living standards have plummeted. Myanmar ranks joint 137th out of 180 countries in Transparency International’s 2021 Corruption Perceptions Index. According to the Myanmar Corruption Report by GAN, corruption is endemic in Myanmar, presenting companies with high risks. The weak rule of law and complex and opaque licensing systems are serious barriers to investment and trade in Myanmar.
A lack of adequate infrastructure also provides significant challenges to operating in Myanmar. Sanctions levied since the 1960s have caused Myanmar’s infrastructure to become outdated. Much of the country’s electrical grid relies on hydropower, and factory operation, for example, becomes unreliable during dry seasons. While there has been significant growth in the country’s paved road network, the vast majority of the network – around 60% – remains unpaved. Meanwhile, port capacity is limited and the railway service is reliant on ageing and unreliable equipment.
Political risk – No Change
Myanmar is now more polarised politically than it has been at any point over the past 20 years. As attitudes harden on both the military and pro-democracy sides, the prospect of a dialogue that could bring the two together recedes. The military government has consolidated its grip on the country following the February 2021 coup. However, while street protests have subsided, the civil disobedience movement is continuing, disrupting the economy. Meanwhile, the guerrilla war carried out by ethnic groups, whose numbers have been bolstered considerably by new joiners from the protest movements, is intensifying in many parts of the country. Myanmar has experienced bomb and mine blasts in various locations, often near government offices.
The military is shunning attempts by ASEAN and others to pressure it into engaging with the opposition, and as long as it has the support of China, it can withstand external pressure such as sanctions for some time. It is reported that the junta still has access to $5.7 billion in currency reserves, for example. However, the dramatic downturn in the economy, exacerbated by the withdrawal of foreign investors, is inflaming resentment against the military amongst all Burmese. Combined with the increasingly intense guerrilla war in parts of the country, this may cause some in the military to question whether they can continue on the current path and risk losing all the economic and social gains of the past 10 years. There are already signs of resistance within the army, with thousands of soldiers defecting to the rebels.
At the same time, the junta has been facing difficulties in recruiting soldiers. There are also reports of demoralisation among army units, with some analysts even arguing that the military’s long-term viability is in question for the first time in Myanmar’s history. That being said, the military has withstood popular uprisings and civil war for decades, including the mass uprising in 1988 that led to the emergence of Aung San Suu Kyi as a symbol of the pro-democracy movement.
Economic risk – No Change
Over 2020 and 2021, the economy is expected to shrink by around one-third as a result of COVID-19 and the February 2021 coup. The Asian Development Bank anticipates a contraction of 18.4 per cent in 2021 alone and neither the IMF nor the ADB are prepared to forecast developments in 2022. However, Worldbox Intelligence anticipates a decline of at least 5 per cent. Much will depend on the political environment. Given that the military appear unwilling to compromise with the opposition, civil unrest and the guerrilla war in many areas of the country will continue. Foreign investors and tourists are unlikely to return under those conditions.
Commercial risk – No Change
Commercial risk has increased significantly since the coup, amid a deterioration in the ability of government ministries and the banking and legal systems to function effectively. Many foreign companies are leaving. In October, for example, British American Tobacco announced that it would leave the Myanmar market at the end of 2021, reportedly due to commercial decisions. The company began operating in Myanmar in 2013, with a $50 million investment, and its exit after less than a decade highlights the extent to which the business environment has deteriorated in just a few months.
A lack of liquidity is restricting the ability of businesses to make and receive payments, and this continues to constrain economic activity. Despite bank-branch re-openings and several interventions from the Central Bank of Myanmar, physical currency remains in short supply, at least in part due to a shortage of the raw materials needed to print banknotes. Access to banking services also remains limited.
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