The overthrow of Myanmar’s democratically elected government by the military last week is drawing international attention to the armed forces’ vast but murky business empire as pressure builds on foreign companies to break ties with it.
The military declared — and took charge of — a one-year state of emergency on Feb. 1, hours after rounding up the top leaders of the ruling National League for Democracy, including the country’s de facto leader Aung San Suu Kyi. The generals claim, without evidence, that a 2020 general election that gave the NLD a second landslide win was rigged.
International rebuke of the coup was swift and by the end of the first week Japanese beverage giant Kirin announced it was pulling out of a joint venture with a military-owned firm behind the country’s most popular brew, Myanmar Beer. On Tuesday, RMH Singapore said it would be giving up its shares in Myanmar’s Virginia Tobacco Company, another joint venture co-owned by the military.
Cutting ties
Calls for foreign companies to pull out of any tie-ups with army-run firms took off in the wake of the military’s widely reported campaign of arson, rape and murder against the country’s ethnic minority Rohingya in late 2017. While some companies took heed, many held on.
Last week’s coup will convince more of the holdouts to follow suit to save their reputations, said George McLeod, managing partner at Access Asia, which advises firms doing business in the region on risk and brand protection.
“Absolutely it will …quicken a process that was already underway before the coup had started, I would say, after the Rohingya crisis,” McLeod said.
“The Rohingya crisis started the process and the coup will cause many mainstream Western companies to eventually cut ties,” he said, referring broadly to companies in both Western countries and their Asian allies.
Since the coup, Amnesty International, Global Witness and other rights groups have renewed and stepped up their calls for foreign firms to break ties they have with military-linked enterprises. They are also urging governments to impose targeted sanctions on the generals and their business interests.
The White House says targeted sanctions are being considered.
Much of the Myanmar military’s business interests are held together by a pair of bulky conglomerates, the Myanmar Economic Corporation and the Myanmar Economic Holdings Public Company Limited. Their operations run the gamut from mining and manufacturing to banking, real estate, tourism, transport and telecommunications.
Reports by the United Nations and Amnesty International in recent years have shed some light on the foreign companies tied up with the conglomerates and their subsidiaries. Japanese and South Korean firms dominate the known joint ventures. Others from China, India, Europe and Southeast Asia also have or recently had contracts, leases and other deals.
A Feb. 4 list drawing mostly on public corporate records published by Justice for Myanmar, a local pressure group, shows many of the same arrangements.
Sanctions
Kirin’s pullout was significant given Japan’s large corporate footprint in Myanmar and likely portends similar moves by more companies from both Japan and next-door South Korea, said Christopher Sidoti, an international human rights lawyer from Australia who co-authored the U.N. report.
He said Singapore’s unusually tough public rebuke of the coup could signal that companies there will face pressure to sever any ties with Myanmar’s military as well.
Multinational corporations from other countries typically less sensitive to reputational risk may also start to come under pressure from the other countries they also do business in, Sidoti added, taking India’s Adani Group as an example.
“Companies like Adani are not just Indian companies but transnationals, and Adani for example has major interests in Australia. So I think we will see increased pressure on Indian companies coming from other places where they are economically active, not necessarily coming from India itself,” he said.
Sanctions put on army-linked companies by the United States and others would add more pressure still, said Peter Kucik, a former sanctions adviser at the U.S. Treasury Department.
U.S. sanctions placed strictly on those companies would bar U.S. firms and nationals from dealing with them. But they will also make anyone else still doing business with those companies toxic to U.S. firms and nationals, said Kucik, now with Ferrari & Associates, a U.S. firm specializing in sanctions risk.
“U.S. businesses are reticent to have relationships with companies that have relationships with sanctioned entities just because they are concerned where that might lead and they don’t want to have connections that they might have to quickly unwind, and they don’t want the reputational concern,” he said.
So while U.S. firms and nationals may have few interests in Myanmar themselves, the ripple effect of U.S. sanctions could convince foreign firms that do to ditch their Myanmar military partners to preserve their interests in and access to the much larger U.S. market.
This will hurt
For all the obscurity of the Myanmar military’s finances, and how much its two conglomerates contribute, experts believe an exodus of foreign business partners will bite.
“I think it would cause an enormous amount of financial hurt,” said Sidoti. “You just have to look at the way the arms of this octopus spread through the Myanmar economy, what they own, the key roles that they play in a number of sectors.”
He said Myanmar Brewing, the military’s joint venture with Kirin, was earning MEHL tens of millions of dollars a year alone.
McLeod said Chinese firms may be ready and willing to fill the breach but added that Myanmar’s long-running mistrust of its giant neighbor means the feeling is not wholly mutual.
“There’s a real aversion there to the PRC [People’s Republic of China] on a political level and on a business level, so it means something for these Western companies to break ties with these Myanmar military conglomerates,” he said. “It’s not just a moot point where they turn around and happily engage with Chinese companies. It is an issue and it does hurt them.”
