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Murray Hiebert -- Caution reigns as Myanmar sanctions lifted

U.S. President Barack Obama's pledge on Sept. 14 to lift the remaining U.S. economic sanctions against Myanmar was hailed by the U.S. business community and is expected to attract more investment not only from American companies but also from other countries. But U.S. investors are expected to move into Myanmar cautiously, thanks to the raft of other challenges facing the economy of one of Southeast Asia's poorest nations.

Obama, speaking after a meeting in the White House with Aung San Suu Kyi, Myanmar's state counselor and de facto leader, said he made the move in response to recent steps in the country toward democracy after decades of harsh military rule. "It is the right thing to do to ensure that the people of Burma see rewards from a new way of doing business and a new government," Obama said, referring to Myanmar by its old name. 

Aung San Suu Kyi, to whom the U.S. government had looked for a green light on the lifting of sanctions, said she appreciated Washington's use of sanctions to pressure the military on human rights in the past, but added it was now time to lift the restrictions, which were hurting economic development. One of her top priorities is creating jobs and she hopes foreign investors can help address this problem.

New opportunities

Myanmar's  November 2015 elections brought Suu Kyi's National League for Democracy to power. With companies from Asia and Europe investing in Myanmar in recent years, sanctioned companies had growing possibilities of joining projects with non-American investors. In recent months the sanctions were hurting U.S. companies at least as much if not more than Myanmar businesses long linked with the military. The longer U.S. companies were limited in their operations in Myanmar, the fewer the remaining opportunities would be for them down the road. 

Obama's announcement was greeted with enthusiasm by the U.S. business community, which believes  it will open up market opportunities in the country. "This action would remove the single biggest obstacle to U.S. companies engaging in Myanmar and allow U.S. companies to compete on a level playing field with competitors from Europe, Asia, and elsewhere," said Alexander Feldman, head of the US-ASEAN Business Council.

Obama's announcement will go into effect when he issues an executive order ending the national emergency, first declared in 1997, which referred to the country as an "extraordinary threat," and under which the sanctions had been renewed annually for nearly two decades. U.S. officials say that the president's order will lift a ban on doing business with about 111 Myanmar companies and individuals on the Treasury Department's specially-designated nationals list, including military firms, but other restrictions intended to block trade with North Korea and restrict the trade in drugs will still apply. 

Obama also announced that Myanmar would become eligible to participate in a U.S. program that gives many developing countries reduced trade tariffs on about 5,000 products exported to the U.S. Some observers believe this could boost investment in light industry in the country. 

Washington began easing sanctions in 2012 after the military junta launched reforms that resulted in Suu Kyi's release from house arrest, freed many political prisoners, and eased tight controls on the press. The U.S. government took further steps to relax the sanctions earlier this year after surprisingly free November elections.

Untapped economy

Many U.S. companies came to look at Myanmar over the last four years, enticed by its relatively untapped  economy, relatively cheap labor force in a country of 51 million people, mostly unexploited mineral wealth, and vast quantities of farmland. But only a handful, such as Coca-Cola, actually invested. Until now most said that the remaining sanctions made it too difficult for them to do business in Myanmar, at least in part due to the legal risk of falling foul of the remaining restrictions.

The lifting of sanctions is an important symbol that Myanmar has been rehabilitated as a member in good standing of the international community, but the move is unlikely to create a flood of investment that will suddenly rejuvenate the economy. U.S. companies can be expected to approach the country with considerable caution, because Myanmar remains a difficult environment in which to do business and is not for the faint-hearted.  

Until now, Myanmar has witnessed a "gold rush of interest" by U.S. companies but not a "gold rush of investment," Erin Murphy, founder of Inle Advisory Group which advices clients on Myanmar, told a conference at the Center for Strategic and International Studies in Washington ahead of Suu Kyi's arrival. Murphy cited health care, mining, transport, and telecommunications among the sectors in which there are important opportunities for U.S. business. 

One issue holding back U.S. investors is practical rather than political: Myanmar's underdeveloped infrastructure, including the lack of roads, over-extended ports, and limited electricity availability. "If you don't require electricity or water, your company can do well," Murphy joked. 

U.S. companies are also anxious about the country's uncertain legal and regulatory environment. The new parliament has started work on streamlining some investment laws, jettisoning many cumbersome license requirements, and putting trade regulations online. Still, many of the sectors in which foreign companies might want to invest lack adequate laws or regulations. 

U.S. companies that have looked at Myanmar say the country faces a critical shortage of skilled labor and managers. Companies are also nervous about gaining access to land use. Since the military began opening up the country and undertaking reforms, disputes have erupted over the confiscation of vast swaths of land by the former regime, which often turned the land over to crony companies.

With the end in sight of legal concerns about getting caught in the complicated sanctions regime, more U.S. businessmen will be willing to follow their Japanese, Korean, and Singaporean competitors into the Myanmar market. But the country's remaining economic challenges mean that many of them are likely to approach the market with considerable caution.  

Still, the lifting of the sanctions means U.S. companies can now compete on equal terms in Myanmar, rather than watching from the sidelines. 

Murray Hiebert

Murray Hiebert is senior adviser and deputy director of the Southeast Asia Program at the Center for International Studies in Washington, D.C.;  he is co-author of a new CSIS report, "Myanmar's New Dawn:  Opportunities for Aung San Suu Kyi and U.S.-Myanmar relations." 

 

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