What Myanmar’s coup could mean for investors
A Thai perspective
On 1 February, the Myanmar military arrested State Counsellor Aung San Suu Kyi and key members of her National League for Democracy party. Suu Kyi and the NLD won a landslide election in November 2020 but have been accused by the military of voter fraud – a claim international observers believe is fabricated.
The new administration, led by senior general Min Aung Hlaing, has imposed a year-long state of emergency. Despite the promise to hold fresh elections once it is over, Myanmar has once again returned to military rule.
Condemnation of the coup came swiftly. The US and European Union announced they were considering sanctions on Myanmar. The market has responded in kind: the Yangon Stock Exchange's benchmark index saw its largest percentage drop since 2017, and many of the country's large infrastructure and energy projects have been on hold. The political instability has raised questions over the country's future economic prospects.
What's next for Myanmar?
While shocking, Myanmar's coup is by no means the first elected government overthrown in Southeast Asia in the last decade. Thailand famously saw its civilian government deposed in 2014 and has been under quasi-military rule ever since. The Thai case study offers a potential insight into how uncertainties may play out in Myanmar and what businesses can expect:
Like the Myanmar military before them, the Thai coup leaders also promised to restore elections. However, Thailand’s 2019 vote – the first since the imposition of military rule – was criticised by international observers as “deeply flawed” and skewed in favour of pro-military parties. Thailand is now run by a coalition government dominated by parties that are led by former military officials and pro-military politicians. This is the likely direction for Myanmar as well, where the military already has de facto control over a third of parliamentary seats. Myanmar looks all but certain to install a government friendly to the military once elections are held again.
The behaviour of foreign investors would depend largely on the military’s ability to avoid international sanctions and deliver economic growth. The Thai junta addressed its legitimacy problem through economic performance. It introduced reforms and policies that encouraged exports and foreign direct investments. An average 3.4% GDP growth since 2014 has arguably been central to the junta's staying power, and is a model Myanmar's military will seek to follow.
Whether it will succeed is another question. Encouragingly for the military, the West remains on the fence regarding sanctions, which could push a potential key Southeast Asian ally further into the Chinese orbit. But even without sanctions, Myanmar's new government will face a major crisis of legitimacy after deposing a wildly popular political figure. Being able to establish itself as a better alternative to Aung San Suu Kyi would be a serious challenge for Myanmar's new rulers. However, it would not be impossible. After all, the deposed Thai prime minister Yingluck Shinawatra enjoyed firm support from the Thai working class and much of the country’s northern region, but it was not enough to reverse the coup.
Human Rights question will not disappear
These points suggest that while Myanmar may likely see a short-term dip following the coup, there are opportunities for foreign investments in the long-term should the military government succeed in stabilising its position through economic growth. In the immediate aftermath of 2014, major corporations like Toyota and Honda announced they were rethinking plans to open factories in Thailand. Yet the fears failed to materialise: Thailand became the largest car exporter in Southeast Asia in 2017. The international community appears to have largely forgotten or ignored the violent military coup seven years ago.
Yet even if the investment climate in Myanmar returns to normal, the key question businesses should ask is how they can responsibly engage with the country in light of the military’s human rights record. For that is the big difference between the two countries. Thailand’s junta – while undemocratic – has never been accused of genocide at the International Criminal Court.
Myanmar’s military faces credible allegations of ethnic cleansing against the minority Muslim Rohingya population in the northern state of Rakhine. In dealing with the new authorities in Naypyidaw, businesses must determine if this line is one that they cannot cross. That is a less clear-cut moral judgement than it appears. After all, the democratic administration the junta just ousted had stood by and watched as the Rohingya were murdered and displaced: in 2018 Amnesty International stripped Aung San Suu Kyi of its top honour, the Ambassador of Conscience Award, due to her silence over the crimes.