Previous Quarterly Editions
Expropriation Risk: 56 58 58 58 Political Violence Risk: 48 49 50 52 Terrorism Risk: 45 45 45 45 Exchange Transfer and Trade Sanction Risk: 57 58 62 63 Sovereign Default Risk: 42 42 42 42
TREND ▲ OUTLOOK ▲
With no substantive progress made on the issue of the 700,000 Rohingya living in overcrowded refugee camps in neighbouring Bangladesh, tensions between the Myanmar government and the international community remain high. In December 2018, the US House of Representatives passed overwhelmingly a resolution that declared Myanmar’s treatment of the Rohingya to be ‘genocide’. This followed a new UN report that described recent events in the Rohingya home area of Rakhine state as ‘ethnic cleansing’. The EU has been considering whether to revoke GSP status for Myanmar, which allows it to pay few or no duties on export to EU members, largely in response to the situation in Rakhine. In the face of this international criticism, in January a Myanmar court rejected an appeal by two Reuters journalists sentenced to lengthy prison terms for reporting on one atrocity in Rakhine, and the Myanmar government yet again banned UN Special Rapporteur Yanghee Lee from visiting the country. While the prospect of economic sanctions originally imposed on Myanmar’s previous military government being reinstituted in the near term appears unlikely, the NLD government is facing increasing international criticism for Aung San Suu Kyi’s unwillingness to condemn the actions of the military in Rakhine. In Rakhine itself, tensions remain high as armed conflict between the separatist Arakan Army and the Myanmar military resumed in January, with thousands more people fleeing the military build-up. While most Myanmar citizens firmly support the NLD government on the issue of Rakhine and the treatment of the Rohingya, there are indications that they are becoming more critical of its handling of the economy. In response, and with national elections due in late 2020, the government appears to be focusing greater attention on the need for substantive economic reforms. In 2018 the government belatedly issued its ‘Myanmar Sustainable Development Plan’ for the period up to 2030, followed by the unveiling of an Investment Promotion Plan. A new ministry responsible for investment and economic relations was announced in late 2018, and January 2019 saw the launch of the National Project Bank that is meant to prioritise and co-fund strategically important development projects. It was also announced in January that foreign insurance companies would finally be allowed to conduct business in Myanmar. While only three foreign life insurance companies will be allowed to set up wholly owned ventures, an unspecified number of foreign life and non-life insurers will be allowed to establish joint venture companies with domestic counterparts. The announcement came just days after Samsung Life Assurance announced it was leaving Myanmar, having waited five years for insurance market liberalisation to materialise.
TREND ► OUTLOOK ▲
The governance of business in Myanmar will remain weak for some time to come. While improved laws and regulations are being introduced, the institutional capacity of the courts and relevant agencies to implement and enforce them is inadequate. In particular, the legal system is not robust enough to prevent powerful vested interests from contravening or circumventing the country’s commercial laws, many of which remain outdated. In addition, enterprises owned by the military and the state continue to distort many aspects of the wider business environment. The possibility of new economic sanctions is a growing cause for anxiety in the business community. These could conceivably require foreign investors to cease operations in Myanmar, or simply force them to withdraw because of the added costs of doing business there. The reputational risk of doing business in Myanmar is also a concern at present.
There has been no substantive progress in Myanmar’s search for peace over the last twelve months. Fighting continues in Kachin, where the country’s lucrative jade mining is conducted, and in northern Shan, where the contest is primarily over control of narcotics and illicit trade routes. Other areas of tension include Kayin and, less acutely, Sagaing, Chin, Kayah, Mon and Tanintharyi. In addition, armed clashes between Rakhine separatists and the military have recently increased in the northwest of Rakhine state. As the 2020 national elections start to draw closer, the potential for greater political violence will increase.
The harsh treatment of the Rohingya has the potential to radicalise parts of the Muslim community, and the separatist Arakan Army has increased its attacks on security posts since January. The very public assassination in 2017 of one of the few Muslims close to the NLD government, the prominent constitutional lawyer Ko Ni, underlined the tensions existing between the Buddhist and Muslim communities in Myanmar, and the extremism that exists on both sides of that divide. A terrorist attack by Muslim militants in a major urban centre is a possibility, particularly if no progress looks possible in relieving the plight of the Rohingya.
TREND ▲ OUTLOOK ►
The kyat depreciated quite significantly for much of 2018 before stabilising towards the end of the year. The currency is not freely convertible outside the country, and foreign exchange liquidity risk is an issue for businesses operating in Myanmar. The original economic and financial sanctions against Myanmar, which were aimed at the military government, were removed in 2016 with the coming of quasi-democracy. Despite widespread acknowledgement that the government has little control over the military and its actions, the civilian government’s decision to ignore the views of the international community on the treatment of the Rohingya means that the possibility of new economic sanctions in the medium term cannot be wholly discounted.
Although the NLD-led government resisted the temptation to increase public spending during 2018, it may be less able to do so as the 2020 elections approach. For the moment, however, its recent decision to drastically reduce the budget for the Kyauk Pyu deep-water port project from 7.3 billion dollars to less than two billion dollars to avoid the heavy borrowing needed is a good sign of fiscal conservatism. Liberalisation of the domestic insurance sector should help in the development of a domestic sovereign debt market, as insurance firms will have a need for appropriate paper in which to invest.
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