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    Southeast Asia
     Feb 25, 2011

Asset grabs in Myanmar
By Clifford McCoy

Myanmar is in the midst of a large-scale privatization drive that promises, for better or worse, to shake up one of Asia's most moribund economies. However, investors keen to get involved in the fire sale would be wise to weigh the experience of media entrepreneur Ross Dunkley, who is languishing on unclear charges in the country's Insein prison.

Dunkley, chief executive officer and until recently editor-in-chief of the Myanmar Times newspaper, was arrested on February 10 after returning from a business trip to Japan. A statement from his publishing group said that his arrest was due to immigration violations. Rumors have since surfaced of an altercation with a sex worker in a bar in the former capital city of Yangon.

However, the real reason behind his arrest seems to be a power

play by his local business partner, Tin Htun O, who in recent days has assumed editorial control of the venture. Many observers suspect that since the arrest and sentencing of Dunkley's previous business partner and political patron in 2004 that the country's ruling generals have been keen to exert more control over the profitable joint venture. Dunkley was known to be in tense negotiations with his partner over the future leadership of the paper at the time of his arrest.

Tin Htun O owns 51% of the paper's parent, Myanmar Consolidate Media - a group of foreign investors including Dunkley hold the rest - and has long exercised management control, according to the Wall St Journal.

Dunkley 20 years ago launched the Vietnam Investment Review, which he has since left, and in 2008 bought with Western partners control of the Phnom Penh Post. David Armstrong, a former editor of the South China Morning Post who works with Dunkley on the Cambodian paper, said police had decided to take no action on the sexual assault charge and that the woman had subsequently withdrawn her complaint, the Journal report said.

Dunkley's incarceration coincides with the government's announcement of a fresh round of sales of state-owned enterprises (SOEs) in line with the country's transition from military to civilian rule after last November's general elections. However, the privatization process has so far been fraught with charges of favoritism of businessmen close to the country's military rulers and a lack of transparency surrounding the deals.

Myanmar is bidding to transform its economy after decades of strong state-control and poor performance that has kept the country at the bottom of most economic and development indexes. Most industries were nationalized when the military seized power in 1962 and declared it was following the "Burmese Way to Socialism". That inward-looking campaign aimed to limit foreign influence in the economy while promoting the military's interests.

Certain industries were privatized as early as 1995, but the pace of the sell-off accelerated last year in the lead up to the elections. Myanmar officials have said that the government aims ultimately to sell 90% of its held assets. Officials have also said that 70% of those holdings have already been sold. However, it is unlikely that the country's most important revenue spinners, including control over offshore oil and gas fields, will be spun off to private interests.
Khin Maung Kyaw, deputy minister of industry No 2, was reported in the local press as saying that the privatization drive was in line with the experiences of other newly democratic countries. However, Myanmar's state assets have been made available mainly to military-linked holding companies, private businessmen with close ties to the regime and their relatives. Few, if any, deals have involved foreign investors.

In early 2010, 110 business properties, 32 buildings, 246 gas stations and a number of port facilities along the Yangon River that handle much of the country's international trade were sold to private business interests. Most of the buildings were former government offices in Yangon, where the capital was situated before its move to Naypyidaw in 2005. The businesses included a number of gem and tin mines, agricultural land and factories producing commodities such as soft drinks and cigarettes.

Another round of privatizations, including initial offerings of 76 state-owned enterprises and properties, kicked off on January 26 this year. State-run newspapers reported that the sales included former government offices in Yangon, many of which are dilapidated and would likely be demolished to make room for new developments, and loss-making enterprises that weren't sold during the previous round of sales.

The offerings included state-owned factories that produce textiles, consumer goods, electronic and electrical goods, as well as land, buildings, cinemas and warehouses in Yangon and other areas of the country. Another announcement was made on February 15 that put 268 enterprises, buildings and parcels of land on the auction block.

Many of the properties and enterprises have been sold to either the Union of Myanmar Economic Holdings (UMEH) and the Myanmar Economic Corporation (MEC). UMEH is run by the military's quartermaster general rather than private investors, raising questions about the integrity of the divestments. MEC is also a questionable participant in the privatization process since it is a government body and responsible for controlling the funds raised from the sale of SOEs.

Sales to private investors have been even more opaque. During the 2010 asset sales, announcements were made quietly to small, select groups of businessmen, many known to be close to the generals. This, critics say, provided them with privileged choice before the assets were made more widely available to bidders. The lack of transparency has increased the odds that the most profitable assets have wound up in the hands of the military's cronies or their relatives.

Most large private companies in Myanmar have strong ties to the country's military rulers. This has become a matter of necessity in order to receive operating licenses and lucrative state contracts. Economists have noted that businessmen in Myanmar often participate knowingly in loss-making government projects, such as infrastructure development schemes, in order to maintain their political connections.

Friends in 'high' places
Prominent businessmen who have participated in recent privatizations include Tay Za of the Htoo Group of Companies, Steven Law of Asia World, Zaw Zaw of Max Myanmar Group, Htay Myint of the Yuzana Company, Win Aung of Dagon International and Khin Shwe of Zaykabar Co Ltd. All of these businessmen are currently on the United States' financial sanctions list.

The Htoo Group has interests in logging, construction, tourism, mining and telecommunications. Its owner and chief executive officer, Tay Za, is known to be close to junta supremo and now head of the newly created "State Supreme Council" Senior General Than Shwe. He is also known to be close to former General Shwe Mann, now the speaker of the newly founded People's Parliament, and his son, Aung Thet Mann. Both sit on the Htoo Group's board of directors.

Steven Law's Asia World is perhaps the country's largest and most diversified conglomerate, with ventures spanning industrial investment, transportation and port and road construction. The company is constructing an international airport at the new capital and is expected to run the facility upon completion. Pioneer Aerodrome Services, an affiliate of Asia World, was awarded the concession to run Yangon's international airport last year. Steven Law is the son of famous drug lord Lo Hsing Han.

Zaw Zaw is Tay Za's main rival for the title of the richest man in Myanmar and has been active in the privatization process. His Max Myanmar Group has extensive interests in gem mining, timber, tourism and construction and it recently won a lucrative contract to participate in the development of a new deep-sea port project at Dawei in southern Myanmar. Zaw Zaw is close to Senior General Than Shwe and former Lieutenant General Tin Aung Myint Oo, the junta's Secretary-1 and now the country's "first vice president".

Htay Myint's Yuzana Company is involved in tourism, real estate, fisheries, palm oil production and rubber. The company also owns the Yuzana Supermarket and Yuzana Hotel in Yangon and an oil refinery in Thaketa township near the old capital. Khin Shwe is Myanmar's leading property developer and plays a prominent role in the tourism industry through his chairmanship of the Myanmar Hotelier Association. His daughter is married to Shwe Mann's youngest son.

Another company with close ties to senior military officers is the Kanbawza Bank, one of the country's largest privately held financial institutions. The bank is part of Aung Ko Win's Myanmar Billion Group, which has interests in banking, mining, gems and large-scale commercial agriculture. It is also on the list of companies sanctioned by the US Treasury Department.

Aung Ko Win, is reportedly close to junta number two Vice-Senior General Maung Aye, who is the other major shareholder in the bank. Maung Aye was a regional commander in Shan State, from where Aung Ko Win hails. Kanbawza Bank secured a controlling 80% share of national carrier Myanmar Airways International in last year's mass sale of state assets.

Some analysts believe the sale of Myanmar's SOEs could mark a dramatic shift for the economy. Most of the enterprises that have been sold were run by the state since their inception and that private ownership will lead to greater efficiency. However, many are expected to face difficulties if they are simply rebranded and expected to compete in a more market-driven economy without wholesale restructuring.

Because details of the sales remain sketchy, it is unclear if the process represents a genuine attempt at economic reform or is instead a thinly veiled asset grab aimed at maintaining the military's hold over the economy. Many observers saw the 2010 sales as a means for the generals to cement the support of the country's wealthiest businessmen ahead of a potentially delicate political transition.

Although most of these businessmen did not themselves run for office, they financially supported other military-linked candidates who did. The transfer of assets from state to private hands will thus likely ensure the economic well-being of the many senior military officials who were required to leave the armed forces in order to become "civilian" politicians as required under the 2008 constitution.

Some incentive for the asset sales may also have come from Beijing, which has strongly and publicly encouraged Myanmar's generals to reform the economy. China is a top foreign investor in Myanmar and would likely gain from a more open investment climate. Than Shwe has shown interest in China's economic reforms, most recently during a visit he paid to the Shenzen Special Economic Zone.

To follow China's liberalizing model, however, Naypyidaw will need to allow for greater openness. Total foreign investment in Myanmar reached US$32 billion as of October 10, 2010, including major foreign joint ventures in oil and gas development and electrical power generation.

A deal signed last year with Thailand's Ital-Thai Company to develop a deep-sea port at Dawei could bring in as much as $13 billion. China has also committed to investments worth $8 billion in the energy sector, mostly related to the Shwe oil and gas pipelines designed to connect southwest China with Myanmar ports on the Indian Ocean.

Nonetheless, two opposition parties have spoken out against the government's handling of the privatization process. The National Unity Party (NUP), successor to the Burma Socialist Program Party that nationalized much of the economy in 1962, has cautioned against the selling of assets primarily to individuals close to the regime.

The party now champions a market economy and privatization, although it still supports state regulation of certain businesses and intervention in the economy. Outside of parliament but still a political force, the National League for Democracy issued a similar statement on January 4, claiming that the privatization policy is creating monopolies controlled by a select group of elites and the generals' business cronies.

There remain big impediments to greater foreign participation and competition, including not least US-led economic sanctions, a distorted official exchange rate regime and questionable rule by law. As the power play against Dunkley's investment has revealed, contractual obligations are easily broken and foreign investments are at risk of forced takeovers. Until that changes, Myanmar's privatization drive will remain mostly a domestic affair of questionable reform value.

Clifford McCoy is a freelance journalist.

(Copyright 2011 Asia Times Online (Holdings) Ltd. All rights reserved. Please contact us about sales, syndication and republishing.)

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