Rakhine ramifications

Peter Firth

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Photo credit: Mathias Eick/EU/ECHO

The humanitarian disaster that has been unfolding in Myanmar’s Rakhine state has become a highly charged issue, with widely differing views harboured on its origins, actual perpetrators, real victims and the potential for some kind of resolution.

Whatever one’s views, the images of suffering being felt by so many displaced civilians are heart rending and difficult to absorb. Little wonder that international reaction has been so strident and the media coverage so extensive.

Numerous newspaper and website columns have been devoted to analysing how this has come to pass. This article does not seek to add to this commentary, but rather explores the potential ramifications for Myanmar’s economic development. Does the Rakhine situation have the potential to derail the economic reform and investment agenda in Myanmar?

The risk is certainly a real one, under a number of scenarios that could play out. The most short-term consequence is likely to be a decline in foreign tourism and in much-needed foreign exchange. Some hotel managers and travel agents are already receiving cancellations, even though few holiday packages include a visit to Rakhine. Arrivals from Islamic countries will presumably suffer most.

But even (non-Muslim) Westerners may opt to stay away, in protest at the persecution of the Rohingya community. Ironically perhaps, such a reaction is reminiscent of Aung San Suu Kyi’s own call, when under house arrest, for foreign tourists to stay away from the country and thereby deny the military regime access to foreign funds.

Another potential consequence is a limited resumption of economic sanctions against individuals and/or military-related organisations and companies. But as yet, no international development agencies have even intimated suspending their economic interventions, let alone pulling out altogether. And the tolerance levels of some bilateral donors, particularly in Asia, tend to be markedly greater than others’.

Nevertheless, multilateral development agencies’ provision of larger loan packages to the Myanmar government — such as so-called budget support loans that typically feed straight into the host government’s treasury — will now come under much greater scrutiny and will be much harder for their boards of directors to approve. The Burmese military, the Tatmadaw, still has a 25 per cent share of seats in both legislatures and is in full control of three of the most powerful ministries in the government.

With private sector investment in the country still very modest, and the government’s own coffers limited, a substantial proportion of the work needed to rebuild Myanmar’s dilapidated roads, railways, ports and power plants will have to be underwritten by development finance institutions, whether employing local or foreign contractors. However, that will become harder to do if there is a real or perceived risk that the Tatmadaw, military-owned companies and even some military-run ministries will indirectly benefit.

These are not the only knock-on scenarios. One sector of the economy that has been growing rapidly in recent years is basic “cut-make-pack” garment manufacturing, akin to that seen in Cambodia and Bangladesh. This employs a large number of people, mostly women, many of whom have migrated from rural areas to work in factories located in the industrial zones around Yangon and Mandalay.

While the factories are typically owned and managed by local, Chinese, South Korean and other Asian firms, their major buyers are the big name high-street brands. Shareholder, consumer and other forms of pressure could cause the main brands to halt sourcing from Myanmar. The growing emphasis placed on corporate social responsibility by institutional investors means that firms cannot simply turn a blind eye to alleged atrocities going on in host countries with which they do business, even if they are not directly involved.

An interesting case study in reverse is that of Ooredoo. The large Qatar-based telecommunications company was one of two telcos to win a 2014 government tender to provide mobile telephony in Myanmar (the other being Telenor). The tender was widely perceived as having been free and fair, and the resulting investments have been very large, as telecom towers have been erected across the country.

But some of the local public reaction to a telecommunications service provider from a Muslim country was highly critical, with calls from some quarters for the licence to be rescinded, or for consumers to boycott the firm. Some even went so far as to speculate openly that the project was a ruse to get the telephone numbers of young Myanmar women so that they could be spirited off to the Middle East as unwitting brides.

As a consequence of these headwinds, Ooredoo has struggled to build market share in the country, currently estimated to be around 18 per cent (9.6 million subscribers). In late August, its latest CEO in Myanmar resigned after revenues dropped 13 per cent — despite an extensive media blitz and competitive pricing against its two main rivals.

Reputational risk is key for multinational enterprises in most sectors, from airlines to washing powder, and a number have already come under pressure from lobby groups like WeAreAllRohingyaNow to make clear statements on the Rakhine issue. For those multinationals with large footprints in predominantly Muslim countries, the option of appearing oblivious to the issue is simply not viable.

Companies in the upstream oil and gas sector typically have the greatest tolerance for reputational risk when it comes to working in countries, or the territorial waters of countries, that are perceived to have poor human rights. Dating well back into Myanmar’s military rule, a French-led consortium has extracted gas from Myanmar’s waters, piped to a power plant in neighbouring Thailand, serving as the former’s single largest source of (legal) foreign exchange earnings (excluding illicit jade, opium and teak exports). In doing so, it chose to run the gauntlet of opprobrium from some pressure groups. But as those offshore fields come to the end of their commercial life, it remains to be seen if other companies will be willing to invest their capital and reputations in exploring for new fields.

Perhaps the biggest downside risk for Myanmar’s economy from the Rakhine developments and international reaction is that the country could revert to a time when economic sanctions, and a general hesitancy by foreign companies to engage in Myanmar, meant that China had a dominant influence.

Indeed, some commentators have argued that one of the principal reasons that the military leaders took the step of transitioning to a semi-civilian government — a move not without considerable risks — was because international isolation was pushing them into a dependence on China that was exploitative, and therefore deeply unpopular. This was evident in the popular protests against China’s US$3.6bn Myitsone dam project in Kachin state, and the project’s suspension was one of the first acts of the new government in 2011. They had to break free of China’s economic stranglehold, and that meant changing their stripes so that re-engagement with the wider international economic community could resume.

Should the West suspend its renewed economic and business engagement with Myanmar in reaction to events in Rakhine, the likelihood of a return to a compliant relationship with China is not beyond credulity. China’s economic ambitions for Myanmar — let alone its strategic ones in the Indian Ocean — are considerable, including in Rakhine.

Would Myanmar’s citizens and military ranks be more tolerant of such a pliant relationship with China, this time under the government of Aung San Suu Kyi? Probably not. But is she willing and able to adopt a more positive stand towards the Rohingya — a word her government does not use, preferring instead “Bengali”, implying that they are illegal immigrants with no right to Myanmar citizenship — despite opposition from the majority Burmans, hard-line Buddhists and the military? Seemingly not. Most would probably agree that the opportunity for that has passed.

Probably the best option is for the international development and business community to continue to focus on the creation of jobs and economic opportunities that will allow Myanmar’s economy to get to a place where it will be better able to respond to the issue of Rakhine, and also avoid any risk of becoming dependent again on China for investment and as a trading partner.

This is not to suggest that the many civilians who have crossed the Naf River into Cox’s Bazaar, as well as the ones who failed to make it, should be conveniently forgotten. They need and deserve immediate help from the international community, and concerted diplomatic pressure — not to judge, punish or chastise, but to find a solution — must not be allowed to abate.

Looking further ahead, if any hope exists for these communities to be re-assimilated into Rakhine at some point, then that prospect will be made more likely if there is a vibrant economy waiting for them. Wishful thinking, perhaps. But a return to sanctions and some degree of economic isolation, or even a threat of such, is unlikely to provide a better solution. Indeed, it would come with considerable downside risk, as it could actually intensify an already highly binary situation and potentially push the Myanmar government into a corner.

Peter Firth is a business analyst based in Myanmar
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