Quarterly Business Magazine

President Obama’s Trip to Myanmar: Reading Between the Lines

Posted :
Sunday, February 15, 2015

The November visit to Myanmar by U.S. President Barack Obama, his second in two years, marked another step in the normalization and strengthening of bilateral ties between the two countries. Observers in the U.S. and Myanmar followed the trip closely to discern the trajectory of the bilateral relationship, particularly whether the U.S. rhetoric would suggest a change in policy. Those hoping to get a definitive pronouncement of how the U.S. views long-term prospects, especially those in the investment community, likely were disappointed. President Obama maintained the U.S. line of “cautious optimism,” highlighting progress, but noting concerns related to constitutional reform and human rights. For the first time, the U.S. went so far as to use the term “backsliding.” This almost certainly cast a further chill over some U.S. and international investors who already were hyper cautious toward the Myanmar economy, as well as raised eyebrows on the Myanmar side among those who may wonder if the U.S. will remain involved in the country for the long haul.

Bilateral ties have come a long way since the initial stages of Myanmar’s political transition in 2011, but perhaps have not developed to a level satisfying the skeptics. Since the easing and lifting of the major global sanctions that had prevented investors from entering—or even considering—the Myanmar economy, both the U.S. and Myanmar assumed there would be a rush by multinational corporations eager to engage this untapped market. On the Myanmar side specifically, there were expectations that standards of living would be raised, top-of-the-line consumer products would become available, and development assistance from both public and private entities would flood in to ameliorate Myanmar’s infrastructure woes.

Since 2012, U.S. companies have committed approximately $612 million in foreign investment in Myanmar, a number that is impressive but does not match anticipated levels. General Electric, Coca-Cola, Pepsi, Procter and Gamble, Ford, MasterCard, Visa, Western Union, Gap, Colgate-Palmolive, and Ball Corporation have all arrived; the expected “gold rush,” however, has not materialized. Both sides are quickly discovering the full depth of the challenges, and the amount of time it will actually take, to establish the framework necessary to bring in foreign investment and really begin to develop Myanmar.

For prospective U.S. investors at least, there are questions about return on investment, general difficulties in operating in the country, remaining risk of running afoul of U.S. sanctions--highlighted by the a recent addition to the U.S. sanctions list), and in some cases, an overriding concern that entering the market “too soon” could potentially harm a company’s reputation. Also weighing on decisions whether or not to invest are certain well known issues: poor infrastructure, high cost of doing business (both business registration and office operation and rental costs), a shifting regulatory environment, broad capacity issues, and an uncertain political environment. Additionally, the at times seemingly contradictory messaging from the Obama Administration, coupled with calls for punitive actions from the U.S. Congress over religious violence and the curbing of personal freedoms, add to these concerns that U.S. investors entering the Myanmar market may not have the full support of their government and may be exposed to political criticism from the highest levels.

U.S. investors monitoring the lead-up to President Obama’s trip to Myanmar for the East Asia Summit almost certainly noted a more cautious than optimistic tone from the Administration’s public statements, and interpreted the negative focus of media coverage as a sign that bilateral ties have hit a rough patch. Just two weeks before the trip, the U.S. Department of the Treasury sanctioned Myanmar parliament member Aung Thaung, demonstrating that the U.S. would continue to go after individuals and entities that are trying to undermine the reform process and “perpetuating violence, oppression, and corruption.” Prior to President Obama’s second trip to Myanmar, White House officials said that he harbored concerns about the recent pace and scope of reforms in Myanmar. U.S. officials told the media that one priority of the trip was to send a message of displeasure, particularly regarding the perceived stalling of those efforts. During the trip, President Obama said in a press conference with Aung San Suu Kyi that the U.S. would be unable to have full ties with Myanmar unless progress continues apace, and identified the 2015 elections as a critical test. He also noted concerns about sectarian violence in the western part of the country.

Despite all this--which might appear to suggest a downturn in the bilateral relationship--the U.S. government is committed to Myanmar for the long-term, and still has a strong desire to see U.S. companies expand their currently limited engagement. During a meeting with Myanmar President Thein Sein, Obama offered that with Thein Sein’s leadership, “the democratic process in Myanmar is real.” He went on to say, “[w]e recognize change is hard and you do not always move in a straight line, but I’m optimistic.” Obama’s Deputy National Security Adviser and a key Administration figure on Myanmar, Ben Rhodes, reinforced this idea, as well as the importance of investment, stating during the trip that “[o]ur fundamental view is it’s better for us to be engaged, it’s better for us to be here on the ground.”

The Obama Administration, with rare bipartisan support—and more often than not, actual cooperation—from key members of the U.S. Congress, has prioritized assisting Myanmar’s transition to democracy and encouraging its further reform. Senator Mitch McConnell, a long-time supporter of Aung San Suu Kyi who remains highly engaged on Myanmar policy, recently voiced apprehension on the lack of constitutional reform, but said that broad sanctions against the country would not be put back in place. The addition of Aung Thaung to the Department of the Treasury’s list of sanctioned Specially Designated Nationals (the “SDN list”) was consistent with U.S. policy and showed, just as promised, that the U.S. would continue to use the SDN list as a tool to encourage individuals to support reforms and adhere to international norms. This designation does not run counter to the U.S. government’s broader engagement with Myanmar or its encouragement of U.S. investment there. In fact, the U.S. has established a path for removal from the SDN list, encouraging sanctioned individuals to demonstrate in a verifiable way that they have changed their behavior and support peace, stability, and security in Myanmar. Senior U.S. government officials, including Assistant Secretary for Democracy, Human Rights, and Labor, Tom Malinowski, have privately met with such sanctioned individuals and publicly discussed the guidelines for removal from the SDN list.

On the Myanmar side, things are moving in a positive direction. The U.S., Japan, Europe, the Asian Development Bank, and the World Bank have, through funding and technical assistance, contributed to rebuilding the banking and regulatory systems, as well as to major infrastructure projects. Efforts to address power generation have been prioritized. Myanmar wants its laws to be more investor friendly, and it has adopted anticorruption laws, embraced the Extractive Industries Transparency Initiative, and implemented various best practices for global corporate conduct to ease market entry.

U.S. investors should view these developments in a positive light, particularly as Myanmar’s risks and challenges have not prevented other foreign investors from entering the market. Japan, South Korea, Norway, France, Germany, Canada, Qatar, Indonesia, and Thailand have announced involvement in major projects and initiatives. Perhaps because the Myanmar market was for so long entirely off limits to the U.S. and because there has not been as unique a frontier market as Myanmar in some time, the institutional memory of how to engage in such markets has been lost. In terms of U.S. sanctions, their reach is global, and U.S. persons must also be particularly aware of restrictions in places like Belarus, Liberia, Zimbabwe, and Russia, as well as counter narcotics sanctions throughout Central and South America—regions that are not typically thought to be problematic for U.S. businesses. U.S. companies have figured out how to comply with U.S. regulations in these investment climates, so the situation Myanmar should be equally navigable.

Those waiting for a clear, definitive signal that Myanmar’s political development is complete, or for an explicit pronouncement from the U.S. that the time has come to invest in the country, may be waiting for a long time. Myanmar’s political transition—already succeeding beyond what was thought possible not so long ago—is a major departure from the past, and will be a bumpy road, but there is firm commitment from all sides to make it work. Standing on the sidelines will not bring about change any faster--these efforts can only maintain a positive trajectory if everyone is willing to actively support and contribute to reform.

 

Erin Murphy

Prior to founding Inle Advisory Group, Erin served as the Sepcial Assistant for the first ever Special Representative and Policy Coordinator for Myanmar. In that position, she participated in the most significant U.S policy shift on Myanmar in decades including joining Secretary Clinton on her historic trip to Myanmar in December 2011, overseeing the easing of economic sanctions, and advising and supporting the Office of the Special Representative during the unprecedented warning of U.S.- Myanmar ties. She is based in Washington, DC.

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