Rakhine turmoil hits Myanmar’s FDI ambitions

Events in Myanmar’s Rakhine state in recent weeks have attracted considerable and highly emotive press attention, with up to half a million (estimates vary) Muslim Rohingyas fleeing across the Bangladesh border at the Naf River, to refugee camps in Cox’s Bazar, following a marked increase in violence.

There is clearly the potential for this developing situation to have an adverse impact on much-needed FDI inflows into Myanmar; inflows that have been relatively modest even before the recent events in Rakhine state. In early October, the EU announced that it was indefinitely postponing the signing of an investment promotion agreement with Myanmar. This followed a resolution passed by the European Parliament in mid-September on the Rohingya issue.

As yet, no policymakers have spoken about a resumption of economic sanctions against Myanmar, the last of which were lifted last year. But the willingness of some foreign firms to risk the ire of human rights groups and other lobbyists by initiating business activities in Myanmar will be diminished. This will be particularly true for firms headquartered in Muslim countries, as well as transnational enterprises which have a large footprint in these countries. Shareholder and consumer activism could also serve to deter firms from investing in Myanmar. 

One of the few industries in Myanmar to have seen rapid growth in recent years has been the garments sector; principally the same ‘make, cut, pack’ model so evident in countries like neighbouring Bangladesh and Cambodia, employing large numbers of (mostly female) workers. While these factories are mostly owned and operated by Chinese and other Asian firms, the major buyers are typically Western high-street brands. It is therefore possible that some buyers will opt to reduce or halt sourcing from Myanmar, for fear of alienating customers.

After more than half a century of military leadership and economic mismanagement, Myanmar is in dire need of investment to rebuild a dilapidated infrastructure and antiquated utilities, not least in Rakhine state itself. With limited financial resources of its own, the intention had been that this would be largely underwritten by overseas investors and the international development community.

Until some kind of acceptable resolution to the Rohingya situation is forthcoming, however, the appetite of foreign firms, and potentially some donor agencies also, to proceed with their spending plans will not be as great as previously anticipated. The one possible exception to this is China.