Risks remain for US companies in Myanmar
The removal of nearly all economic sanctions imposed on Myanmar's previous military regime has not yet sparked an inrush of US investment
Automated teller machine maker Diebold Nixdorf’s opening of a permanent office in Yangon on February 2 marked the first significant US investment in Myanmar since former US President Barack Obama last October terminated nearly all of the remaining sanctions Washington imposed for decades on its previous rights-abusing military regime.
Obama’s executive order meant that US entities no longer need to seek permission from the US Treasury Department’s Office of Foreign Assets Control (OFAC) to make investments exceeding US$500,000 in Myanmar. A blacklist of Specially Designated Nationals (SDN) of military cronies was also dropped, with a few exceptions, along with the penalties US firms would face if caught doing business with them.
While Obama’s order ended most sanctions against Myanmar’s current elected government, it has not yet sparked an inrush of US investments. One reason, analysts say, is that Myanmar is not yet completely sanction-free. Although Obama ended most sanctions, Article 312 of the Patriot Act remains in place, a measure that demands a high degree of due diligence against possible money laundering by US banks doing business in Myanmar.
That scrutiny means US banks likely won’t be entering Myanmar any time soon. That will necessarily stunt the underdeveloped banking sector’s international engagement, including for money transfers, trade finance and other financial services US companies require to make foreign investments. No other large country in Southeast Asia is similarly penalized under the Patriot Act. And it is unlikely that scrapping the measure will be high on President Donald Trump’s policy agenda.
Corporate America has been burned before in Myanmar. The country first opened its doors to foreign direct investment (FDI) in the late 1980s following a bloody military crackdown on the pro-democracy movement of 1988 that left an estimated 3,000 dead, but also put the nail in the coffin of the disastrous “Burmese Way to Socialism,” the state ideology under former military strongman Ne Win who ruled from 1962 to 1988.
Encouraged by the passage of a foreign investment law and promises of a transition to democracy, some US multinationals rushed in. PepsiCo, for example, inked a joint venture in Myanmar to produce their soft drinks for the Burmese masses in 1991. PepsiCo was forced to sell a 40% stake in the joint venture to its local partner and withdrew from Myanmar in 1997, after it became the target of consumer boycotts in the US as outrage with the then-military regime grew overseas.
Other US firms that pulled out of Myanmar included Eddie Bauer, Levi Strauss and oil giants Amoco and Texaco, as Myanmar became a pariah among Western democracies and more sanctions were piled on in response to continued rights abuses.
“The sanctions imposed by the US had an enormous chilling effect on American investment here and continue to have a residual effect today, primarily due to the remaining financial sanctions under Section 312 of the USA Patriot Act,” said Eric Rose, a founding partner in Herzfeld Rubin Meyer & Rose Law Firm Ltd, the first US law firm to establish in the country in 2013. “Furthermore, they have created for many public companies interested in Myanmar trade and investment a public relations issue.”
The military’s ongoing crackdown on the Rohingya Muslim minority in Rakhine State, which has drawn widespread condemnation even from the Vatican, doesn’t help matters, even if apologists will point to the lack of control de facto national leader Aung San Suu Kyi has over the military.
Under the 2008 Constitution, the military maintains autonomous control over four powerful ministries, including the defense and border affairs portfolios, and appoints 25% of seats in parliament. “Not having the Tatmadaw (military) under civilian control continues to remain an issue,” Rose said.
Still, US companies have been pragmatic about Myanmar’s many under-developed markets, which are often referred to as “last-frontier” by prospective investors. Big brand corporations, including General Electric, Coca Cola and PepsiCo, all opened token operations in Myanmar shortly after Obama initially “suspended” sanctions in 2012. Others have taken a wait-and-see approach, but that hasn’t stopped them from pioneering the Myanmar market.
“Most American companies would be manufacturing in Thailand and then importing to Myanmar, so they don’t need to set up an operation here,” said Aung Htun, managing director of Myanmar Investments, a private investment company. Just because US sanctions were finally lifted (not just suspended) in October does not mean these firms need to rush in, not when important considerations, including the passage of new accompanying rules to the Myanmar Investment Law, have yet to be finalized.
Dielbold Nixdorf, one of the world’s largest manufacturers of automated teller machines (ATMs), is showing that there are big opportunities for companies willing to take the capital risk. The company, the result of a merger in December between US-based Diebold and Germany-based Nixdorf, inked a deal in January to sell Myanmar’s Co-Operative Bank Ltd 500 new ATMs.
The two ATM suppliers already claimed about 70% of the Myanmar market, having worked through local dealerships prior to setting up a permanent office. “We are here purely to support the banks because they are expanding rapidly and being here locally was the only way we could do that,” said Diebold Nixdorf Myanmar Manager Piers Leach. “In Myanmar 90% of the population is unbanked and the banks are trying to address this.”
Peter Janssen is a Bangkok-based journalist who has been covering Laos, Myanmar and Thailand for the past 36 years