Worldbox Business Intelligence Risk Rating – June 2024
MYANMAR
Summary
| Overall Risk Score 12 (Stable)
Political risk: Stable 4/10 Economic risk: Stable 4/10 Commercial risk: Stable 4/10 The risk assessment of a country is made up of 3 components, being Political, Economic and Commercial. Each component is scored out of 10 with 1 being the highest risk and 10 the lowest. |
ESG Risk: 4/10 (Stable)*
*Environmental, social and governance (ESG) issues are becoming increasingly important to companies, investors and consumers in Southeast Asia. That is why we are now preparing a separate ESG score and section with our quarterly country risk reports. We explain how each country rates, looking at the E, S and G individually, and outline recent developments. |
Political Risk – Stable at 4
The rebellion against the military, which has been in power since 1962, intensified significantly in 2023. Momentum continues to move towards the rebels in 2024. The country’s civil war is the longest running armed conflict in the world as ethic groups battle for autonomy. No Burmese government has been fully in control of the country since independence in 1948.
The ethnically diverse country fragmented into numerous civil conflicts. Officially, there are more than 135 ethnic groups in the country of more than 55 million people. However, the majority Bamar (also known as Burman) ethnic group has dominated both the military and major parties, such as the NLD.
The rebel insurgency, along with a campaign of civil disobedience, escalated significantly following the 1 February 2021 military coup that ousted Aung San Suu Kyi’s elected government. Following the coup, lawmakers formed a government in exile, the National Unity Government (NUG), which established the Peoples’ Defence Force (PDF) of civilians, which has fought alongside established ethnic armed groups.
China could prove key to any peace talks. ASEAN has been marginalised, while China’s veto has protected the government from any action by the United Nations. Although the NUG holds the country’s seat at the United Nations, it has struggled to win international recognition — the EU recognizes the NUG but Japan and the United States do not.
China had good relations with Aung San Suu Kyi’s government and craves stability in the country, having invested heavily in infrastructure and other projects. It has expanded high-level engagement with the military regime on issues of concern. But it has refrained from normalising relations or recognising regime leader Min Aung Hlaing as head of state. China continues to prefer that the regime enter dialogue with Aung San Suu Kyi on a path back to constitutional rule, however unlikely that may be.
China has also been alarmed by the level of lawlessness in areas of Myanmar bordering China, and particularly by the military government’s tolerance of scam centres targeting Chinese citizens in China.
There is strong evidence that China had advance knowledge of, and supported, an operation by rebel groups that began last October against the military junta in northern Shan state, bordering China. In March, China brokered a peace deal between the military and the rebel groups in the area. Critically, both sides agreed to pull their troops back from the frontlines and to ensure that “China’s interests in Myanmar are not harmed”.
Economic Risk – Stable at 4
Given the civil war raging in the country it’s very difficult to gain an accurate picture of what is happening to the economy. The junta hasn’t published monthly economic data since mid-2022 and figures from the World Bank and other organizations are at best guesstimates of what is happening in the country and could well be wildly inaccurate.
It is known that war is severely disrupting economic activity, which was already badly hit by the impact of the pandemic. The military takeover in February 2021 has caused foreign investment and tourist numbers to plummet, while exports have also been hit. Moreover, rolling blackouts are disrupting economic activity.
According to a UN Development Programme report released in April 2024, the economy continues to deteriorate. The report found a protracted recession has taken a heavy toll across Myanmar’s economy, which has yet to recover in any significant way since the severe 17.9% contraction in GDP in 2021. The UN reported that 76% of the population lives below or perilously close to a subsistence existence and poverty rates have almost doubled from 24.8% in 2017 to 49.7% in 2023.
The report polled over 12,000 households across Myanmar, one of the largest nationwide surveys conducted in recent years, finding that most families and households have been forced to resort to various, often unsustainable, coping mechanisms like cutting healthcare and education expenses, depleting savings, borrowing, and eating less.
Commercial Risk – Stable at 4
Myanmar is rated as one of the most difficult countries in the Asia–Pacific region in which to do business even prior to the military coup and escalating civil war.
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 162nd out of 180 countries in Transparency International’s 2023 Corruption Perceptions Index, moving down five places over the course of the year. The Myanmar Corruption Report by GAN says that 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 depends on ageing and unreliable equipment.
June Bulletin
Political Risk – Stable at 4
The military’s grip on power continues to weaken. In the latest setback for the junta, it lost control of a key town on the Thai border in April 2024. Soldiers abandoned their base in the southeastern town of Myawaddy following an attack by Karen fighters. The town of 200,000 people sits across from Thailand’s Mae Sot. The border crossing, which was under the control of the junta, is vital for trade, especially commercial goods and food flowing into Myanmar.
There are also reports that junta’s second most senior leader General Soe Win and other officers came under drone attack and may have been injured when visiting a military facility in southern Shan state in April.
The junta has been losing control of towns, bases and territory across the country as it grapples with troop losses and reports of mass defections. It has reacted by stepping up its conscription, but this is reportedly causing even more people to defect to the rebel cause.
CNN reported that, in March, ethnic rebels in northern Kachin state seized a key trading town on the Myanmar-China border, along with dozens of outposts and bases, according to local media. In western Rakhine state, the Arakan Army has recently seized major towns and is gaining significant ground against junta forces.
CNN also quoted analysts as saying the reverses indicate the regime is doomed. The fall of Myawaddy to the resistance is a turning point because it underlines the junta’s inability to reverse its defeats.
“Step by step it’s just watching these losses and not being able to do anything in response,” said independent Myanmar researcher Kim Jolliffe. “That’s why it further confirms the junta is going to fall because it’s just not at any point displayed the ability to strategically reverse the situation and regain initiative.”
Economic Risk – Stable at 4
Economic conditions deteriorated in the last six months of 2023, according to the World Bank’s Myanmar Economic Monitor, published in December 2023. The Monitor said the escalation of the civil war across much of the country since October had caused displacement, labour shortages, and increased logistics costs.
The fighting had also renewed pressure on the exchange rate, while a combination of internal and external developments had triggered a rise in inflation. Interventions to encourage foreign-currency inflows and regulate exchange rates have generally been ineffective in restoring stability, while exacerbating uncertainty and market distortions, added the Monitor.
Power outages had also persisted throughout the year, indicating underlying structural challenges in the energy sector. Meanwhile, the fiscal space remains constrained, with a widening deficit in large part financed directly by the central bank. Household incomes continue to be stretched by the cumulative impact of recent shocks. Emigration from Myanmar has increased as a result.
In April 2024, the Asian Development Bank (ADB) forecast growth of 1.2% in 2024 and 2.2% in 2025. It projected inflation of 15.5% in 2024 and 10.2% in 2025. The ADB added that trade has declined significantly since March 2023 due to weaker global demand and increased internal conflict. Meanwhile, an unfavourable business environment, international sanctions, and exchange-rate volatility have hindered investment demand for public and private projects.
Commercial Risk – Stable at 4
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. Consequently, many foreign companies are leaving. European multinationals have withdrawn from Myanmar’s telecom and energy sectors, for example, which have close ties to the military. They also are shrinking their presence in the garment industry, a major economic driver, with H&M and Zara among the latest companies to leave.
Thai and Chinese companies are filling the gap. China’s Union Resources & Engineering and Yunnan Energy Investment are building a US$2.5 billion power plant in the Ayeyarwady region in southern Myanmar, for example. Meanwhile, Thai Beverage-owned Fraser and Neave, a Singapore-based brewer, said in July it would spend U$14.1 million to acquire alcohol licences and land-use rights in Myanmar. F&N will build a brewery through a joint venture with a local company. In 2022, Thailand’s Northern Gulf Petroleum acquired rights to the Yetagun undersea gas project after Japan’s Eneos Holdings and Malaysia’s Petronas withdrew from the project. Most of around 400 Japanese businesses that operate in the country are also continuing their operations.
Environmental, Social and Governance (ESG) – Stable at 4
The United Nations’ Sustainable Development Goals (SDGs) are recognized as a beneficial framework for responsible investment. The Sustainable Development Report from Cambridge University Press assesses the progress of all 193 UN Member States on the SDGs. It provides a useful means of ranking Southeast Asian countries on their ESG progress.
Myanmar is ranked 103 out of 163 in the 2022 report with a score of 64.3.
Environment – According to the East Asia Forum, Myanmar is “a climate change hotspot with a tropical climate, long coastlines, varied topology and a large population in climate-sensitive areas”. It adds that cyclones frequently affect the delta region, encompassing main population centres in Yangon and Ayeyarwady, while droughts, intense rainfall and flooding threaten states in the central dry zone, particularly Mandalay. Agriculture, primarily smallholder farming, is Myanmar’s largest sector and is highly sensitive to shifts in climatic regimes, says East Asia Forum.
Social – According to the IndustriALL Global Union, which represents 50 million workers in 140 countries in the mining, energy and manufacturing sectors, the situation for workers continues to deteriorate. It says:
“Unions have been outlawed and with no mechanism to help workers and no freedom of association, workers are in a very vulnerable situation. Violations against workers are increasing, as is wage exploitation, forced labour and harassment against women. The military has cracked down on unions and its members, with violent attacks and arrests.”
Governance – Another area where Myanmar scores very poorly, reflecting high levels of corruption and the lack of the rule of law. The IFC – a sister organisation of the World Bank – had previously reported that the current level of governance standards in most firms in Myanmar was very low. It added that governance structures at Myanmar firms remain largely underdeveloped with poorly functioning boards, antiquated management control processes, and low levels of transparency. Governance levels are likely to have deteriorated even further since.
June Bulletin
Environmental, Social and Governance (ESG) – Stable at 4
In February 2024, the Financial Times reported that three of the biggest index providers for stocks and bonds – MSCI, FTSE Russell and S&P Dow Jones – have included dozens of companies linked to the Myanmar junta regime in their sustainability indices, according to a new report from Inclusive Development International. The non-profit organisation has filed complaints to regulators in the US, the UK and the Netherlands, claiming the firms are violating OECD guidelines for responsible business conduct by helping direct investments labelled “ESG” to dozens of companies linked to Myanmar’s military.
Latest economic data
f – forecasts
e – estimate
Source: World Bank/Asian Development Bank, Worldbox Business Intelligence
Useful links
https://www.worldbank.org/en/country/myanmar/publication/myanmar-economic-monitor-reports
https://www.transparency.org/en/cpi/2021
https://www.imf.org/en/Countries/MMR
https://www.adb.org/countries/myanmar/main
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