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  • Writer's pictureLARRY JAGAN


Published in the Bangkok Post on 22.03.2021

Yangon is burning: Plumes of smoke rose into the skyline in the north of the city every day last week. Large parts of Myanmar's biggest city and main commercial centre resembled a battle zone after the military junta imposed martial law in several neighbourhoods.

Security forces burned the makeshift barricades -- made of rubber tyres piled on top of each other -- erected by neighbourhood watch teams, randomly fired on unarmed anti-coup protesters, and conducted mass arrests of young people, who were then forced to clear the streets of debris and rubbish.

Many people in Myanmar and especially Yangon -- particularly local and foreign businessmen -- are complaining that the junta is terrorising civilians and turning the country into combat zone.

"It's a total war zone," WTK, a Myanmar citizen and founding partner with a Yangon-based financial advisory firm, told Asia Focus. "They are systematically destroying the economy and the country." Many people interviewed last week did not want their names used.

Undaunted by the unfolding crisis, the government installed by the coup leaders insists it remains committed to trying to get the economy back on track as quickly as possible.

"Actually our government's focus is more on the short-term actions, with priorities on quick wins rather than future longer-term programmes," Aung Naing Oo, the minister for investment and foreign economic relations, told Asia Focus in an exclusive interview.

"Efforts will be made to recover the businesses that faced heavy losses caused by Covid as quickly as possible," he said.

The minister's attempts at reassurance failed to resonate with Zaw Naing, a local businessman.

"They're turning the country into a massive battlefield," he told Asia Focus. He has seen the devastation first-hand, having travelled to many parts of the country in the last seven weeks since the army commander launched the coup on Feb 1.

But the worst damage has been in Yangon, especially in parts of the industrial zones in the northern part of the city, Hlaingtharya and Shwe Pyi Tar.

"It resembles the pictures from war-torn Syria," said a foreign businessman who declined to be identified. This used to a significant industrial hub, where the country's thriving garment industry was based.

After Cambodia's civil war, in the early 1990s, then-Thai prime minister Chatchai Choonhavan outlined a vision to turn "battlefields into a marketplaces". But here the Myanmar army has turned a thriving marketplace into a battlefield in a matter of weeks, according to an international lawyer previously based in Phnom Penh but now a Yangon resident.

In the past week hundreds of factories have been burnt to the ground, including several Chinese-owned plants, during violent confrontation between the security forces and striking workers. Each side blames the other for starting the blazes. But the owners of other factories that escaped the fires felt they also had no alternative but to close their workshops for the time being.

Now factory owners in Hlaingtharya are so worried about their factories after the recent arson attacks, they have ceased production again, having only resumed after a six-month layoff because of Covid.

"The future of the industry looks bleak," a garment factory owner told Asia Focus on condition of anonymity. "I am sure foreign companies will not consider investing in Myanmar or buying our products during this violent situation."

"I closed my factory in the south Dagon industrial zone [in northern Yangon] last week because I cannot buy raw materials and I cannot transport or export finished goods in this situation," said Aung Min, a garment and shoe factory owner. Among his contingency plans is to move his operations to Thailand, where he also operates a plant.

The garment sector had become a major employer and a significant earner of foreign currency for Myanmar -- exceeded only by gems and petroleum. The industry employs more than half a million workers, with a market production value exceeding US$6 billion a year.

The sector has more than doubled in size since 2013, when there were only around 200 textile and garment factories in the country: this has now grown to nearly 500 -- most of them Chinese-owned or managed. The sector has been a significant source of foreign investment -- especially from China, Hong Kong, Taiwan and South Korea.

Textile and garment exports from Myanmar to the European Union over the last five years have grown exponentially. In 2014 they were valued at $310 million and have now grown more than four-fold. Last year garment exports accounted for some 80% of Myanmar's $1.8 billion worth of shipments to the EU.

Myanmar had emerged as a manufacturing hub for European brands, including Adidas, C&A, H&M, Inditex, Next and Primark. But the coup has put this in danger and the future of the industry is extremely bleak.

Myanmar's garment and footwear industry was barely recovering from the impact of Covid -- which closed most factories for over 10 months -- but now the coup has effectively killed the chances of the industry getting back on its feet, posing enormous problems for the junta's proposed economic recovery plans.

The physical destruction of the factories in Hlaingtharya may be the least of the industry's problems, in the light of the reality that nervous foreign buyers are now beginning to shun made-in-Myanmar products.

Last week, the fashion giant H&M, which sources from 45 factories in Myanmar -- mostly Chinese-owned or managed -- said it had suspended new orders from the country due to transport and manufacturing disruptions.

Although the company said its long-term future in Myanmar was yet to be decided, the longer the coup leaders remain in power, the less likely that H&M will resume sourcing from the country because of he potential for reputational damage.

Regional analysts believe H&M will be only the first of many to exit Myanmar. Already major multinationals are under pressure to suspend operations or pull out altogether.

Undeterred by the challenges ahead, the new minister for investment stressed the importance that trade has for the government's longer-term recovery plans.

"Last month, the government formed a trade facilitation committee in order to help improve the smooth running of logistics, streamline customs formalities, remove barriers and generally expedite the process of trade," Aung Naing Oo revealed.

Progress is being made despite the disruption caused by the protests and the civil disobedience campaign, he suggested. "The State Administration Council (SAC) is emphasising the need for all relevant government agencies to work together in collaboration with the private sector to overcome the challenges we face, and now the major hindrances have been removed, we hope to be able to restore normalcy in trade sooner rather than later," he said.

For now, though, downtown Yangon is a ghost town: the streets are empty, there is very little traffic, barricades are up on almost all the residential streets preventing access, the major department stores, supermarkets and restaurants are all closed, and many ATMs are not functioning, observed Ko Maung, a financial markets specialist.

"Myanmar is in total chaos, and as the prospect of more violence is on the horizon, the deeper the quagmire becomes," he told Asia Focus.

"The military is trying to restore stability but that is easier said than done, as they are resorting to the traditional command economy. They ordered the private banks to open -- but most remained closed because of the civil disobedience campaign. … Myanmar is now a failed state."

Most Myanmar businesspeople seem to have a similar impression. The litany of problems is endless: "The economy is in free fall. Foreign investors are preparing to pull up sticks and leave -- that is those who haven't already done so," said a local businessman and importer, on condition of anonymity.

"The longer the country is devastated by the confrontation and conflict, the deeper the country sinks into an all-encompassing economic crisis. Communications are constantly interrupted by the government's attempt to control the networks, and transport links are disrupted -- it's impossible to drive safely anywhere in Yangon -- trains are not functioning and plane flights are irregular," he complained.

Most regional analysts are of the same pessimistic view. "Foreign investment in Myanmar is at a standstill. The coup has been a disaster for the Myanmar economy and foreign companies are struggling to even obtain banking services to pay their staff," George McLeod, managing director of Access Asia, a risk management firm specialising in the region, told Asia Focus.

"Additional sanctions are almost inevitable in the coming months and we can expect the US and its Western allies to revisit the SDN [visa-ban] list from before Myanmar's democratic transition."

Most of the primary economic indicators show Myanmar's economy has sunk into a desperate situation since the coup, at the beginning of February. Foreign investment has slowed to a trickle, new business registrations at the Directorate of Investment and Company Administration (DICA) have also virtually dried up, and projections for factory production fallen to an all-time low, after some resurgence following the easing of the Covid restrictions late last year.

While the investment minister admits that company registrations declined in February -- "due to the protests" in his words -- he expects this to pick up in the coming months. At the next meeting of the Myanmar Investment Commission (MIC) which approves new projects, around 10 proposals will be approved while further projects are in the pipeline.

"SAC's policy is to honour the projects that were agreed by the previous government," Aung Naing Oo said. "For FDI (foreign direct investment) targeting, since 2011, Myanmar has been trying to diversify the sources of investment.

"Obviously Asean has become a major investor in Myanmar but we won't change the current policy of attracting FDI and we will keep diversifying the sources of investment."

But regional analysts believe Myanmar's junta must be daydreaming. It will never be business as normal and foreign investors will be extremely cautious.

Apart from the reputational risks, the practical internal impediments to business and growth, a significant issue is also the legitimacy of the junta. It has yet to provide any proof of widespread electoral fraud, the main reason it gave for overthrowing the civilian government chosen overwhelmingly by the country's voters.

A parallel government is being set up in opposition to the coup regime, made up of parliamentarians elected last November -- calling itself the CRPH or the Committee to Representing the Pyidaungsu Hluttaw [the national parliament] -- and led by acting Vice President Mahn Win Khiang Than -- the former speaker of the upper house.

Last week the CRPH acting investment minister issued a formal warning to businesses and financial institutions: all investors "should refrain from submitting all applications to the MIC until further notice". The next legitimate government of Myanmar will not honour any MIC permits or endorsements issued by the illegitimate military regime since Feb 1, warned Tin Tun Naing.

Any businesses contemplating setting up new projects in Myanmar must think twice in light of this warning, said Mr McLeod. It is just another critical consideration that foreign businesses will have to consider. Of course this warning applies equally to local Myanmar businesses.

The coup has done tremendous damage to Myanmar's international standing, affecting its likelihood of attracting aid, investment and trade. "Myanmar enjoyed a post-2011 honeymoon when investors from around the world flocked there in a way reminiscent of Singapore and Thailand in the 1980s," said Mr McLeod.

"And although the 2017 genocide against the Rohingya was a blow to Myanmar's international reputation, the February coup totally undoes the reform period's achievements."

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