What Will an NLD Government in Myanmar Mean for Business?

Aung San Suu Kyi’s National League for Democracy (NLD) has secured some 80% of elected seats in Myanmar’s next national parliament. The party, dominated by veterans of a long struggle against military rule, will next year find itself a party of government.

The military looks set to cede significant power for the first time since 1962, but it will retain control over ministries concerned with national security, borders and policing. The NLD should have ample opportunity to exercise power over the economic sphere, however, leading to hopes that the economic recovery that began under the previous administration will move into a higher gear.

Maung Thant, 63, runs a small factory producing spare parts for larger manufacturers in an industrial zone outside the former royal capital, Mandalay. Voicing the hopes of many Burmese in the aftermath of the election, he said he believed Suu Kyi would bring about a transformation of fortunes for the country, where many live in poverty despite an abundance of resources. “We’ve been left behind in terms of technology compared to the rest of the world. We can’t compete with cheap goods from China, so we can’t export,” he notes.

“Daw Aung San Suu Kyi can change this,” Maung Thant adds. “Sanctions will be completely removed and international support will come; foreign investment will come and will improve our technology and education. This will mean we can produce export-quality goods Twitter .”

Maung Thant’s hopes may be well rooted. U.S. officials have broadly celebrated the election as a success, suggesting that further sanctions relief may be on its way. Investors have up to now been cautious on entering Myanmar due to lingering sanctions, while others who have been waiting out political uncertainties may be assured by the NLD’s sweeping victory, which leaves little doubt over the preference for fully civilian rule. The incumbent Union Solidarity and Development Party, led by President Thein Sein and made up mainly of former generals, won less than 10% of parliamentary seats.

Investors have up to now been cautious on entering Myanmar due to lingering sanctions, while others who have been waiting out political uncertainties may be assured by the NLD’s sweeping victory, which leaves little doubt over the preference for fully civilian rule.

Development aid, already pouring into Myanmar since the previous government started a process of economic and political reforms, could increase to a government led by a woman who became a global cause célèbre during years of house arrest under the former junta.

‘Jobs, Jobs, Jobs!’

Doubts have long been raised over the ability of Suu Kyi and her party to undertake the difficult business of ruling. But the party wants to bring in both international and local experts to advise on more economic reforms. Suu Kyi has herself built longstanding relationships with a number of experts, including Australian academic Sean Turnell.

Turnell, an economist at Sydney’s Macquarie University, says he believes that maintaining economic expansion and creating employment will be among the NLD’s priorities in government. “Growth, and jobs, jobs, jobs! All else on the economic front is instrumental to achieving these,” Turnell notes. In order to bring about this growth, he adds, the new government would need to undertake a “structural transformation of the economy broadly.”

While the administration of Thein Sein can claim some economic achievements, these have mostly been of the low-hanging variety. Oil and gas exploration licenses have been awarded to foreign oil majors such as Shell and Chevron, bringing plaudits for a tendering process of unprecedented transparency. The government abolished a state monopoly on the telecommunications sector, awarding licenses to two foreign companies, ushering in large amounts of investment to build new cellphone networks.

However, much of the economy remains in the hands of poorly run state-owned enterprises or the military itself, and some sectors remain hamstrung by regulations and barriers to entry. “Business needs to be let free,” Turnell adds, “from the cell of a governing apparatus that for 50 years has wanted a license for everything, and which has been way too fond of saying ‘no.’”

Suu Kyi may also enlist the help of some advisors to the sitting president. Thein Sein appointed a number of Myanmar academics as advisors and also established a government-linked think tank, the Myanmar Development Resource Institute, all of which could be tapped by Suu Kyi for advice.

Activists as Lawmakers

But within the party itself experts are far from abundant. Many of the new NLD lawmakers will be long-term activists and former political prisoners with little economic knowhow, and — unsurprisingly since the party has been blocked from taking power for a quarter of a century — no experience of government.

“With such a strong majority in parliament, the NLD’s foray into governance will be a trial by fire,” notes Andrew Wood, head of country risk research at London-based analysis firm BMI Research, in a briefing note. “However, the outgoing USDP government was not a particularly experienced or highly technocratic group, either, and while the NLD will no doubt encounter considerable teething issues as it takes the reins, we do not see foresee a significant deterioration in the quality of governance.”

Although light on specifics, the NLD’s manifesto ahead of the election included five key pillars for the economy. It promised to improve the state’s finances and eradicate corruption; reform institutions to strengthen the rule of law; promote rural productivity through agricultural reforms; mature the financial system; and build much-needed infrastructure.

Much of the economy remains in the hands of poorly run state-owned enterprises or the military itself, and some sectors remain hamstrung by regulations and barriers to entry.

Achieving some of these goals may involve confronting the military, which has business interests including brewing the country’s most popular beer, running two banks and operating numerous mining projects. New evidence published by the U.K.-based watchdog group Global Witness last month showed that military-run companies are making vast sums of cash from the trade in precious jade, which fuels a conflict between the central government and an armed group seeking more autonomy for the Kachin ethnic minority. Any reforms that challenge the entrenched interests of military “could lead to conflict or paralysis,” according to Wood.

Vested interests are a concern in the civilian sphere, too, where a small group of businessmen who made their fortunes by colluding with the military regime stand to lose from the transparent government promised by the NLD. In an interview ahead of the vote, NLD spokesman Nyan Win insists that so-called “cronies” have nothing to fear from an NLD administration. “We don’t want to make trouble for these people, but we want a clean government, without bribery and corruption,” he says.

Despite overtures toward Suu Kyi from some businesspeople, many of the big local players in Myanmar’s economy are believed to remain loyal to their former military patrons. One rarity is Thet Thet Khine, a successful businesswoman who runs a gems and jewelry business, as well as holding a senior position in the country’s powerful chamber of commerce. She won the seat in Parliament’s Lower House for Dagon township in the commercial capital, Yangon, under the NLD banner.

Also speaking ahead of the election, Thet Thet Khine admitted that the party is dominated by activists rather than people with business experience. However, she said, the characterization of Suu Kyi and the party as unfriendly to business is unfounded. She cited the party leader’s handling of a controversial copper mine as proof of her ability to take hard-headed decisions.

Test Case

The Letpadaung copper mine in the Sagaing region is an important test case as it stands for a number of legacy projects and disputes that the new government will inherit. Thousands of local people have been displaced by the project, which is run by a joint venture comprising Chinese firm Wanbao and a company controlled by the Myanmar military.

“Business needs to be let free from the cell of a governing apparatus that for 50 years has wanted a license for everything, and which has been way too fond of saying ‘no.’” –Sean Turnell  

Amid popular outrage over a brutal government crackdown against local residents and Buddhist monks protesting against the mine in late 2012, the then newly elected lawmaker Suu Kyi was appointed as head of a commission to investigate and come up with a solution. In the end, the commission endorsed the project’s continuation, to the dismay of many activists. Suu Kyi’s commission instead made a series of recommendations, including providing more employment for locals, to bring the project up to international standards. The terms of the contract were also rewritten, with more revenues going to the central government. Summing up the Letpadaung intervention, Thet Thet Khine notes that Suu Kyi was, “Fair for the people, fair for the state, fair for the investors.”

A new Suu Kyi government could conduct systematic reviews of projects agreed by the previous government, said Thet Thet Khine, with a similarly pragmatic approach taken. “Daw Aung San Suu Kyi will go with this approach,” she said. “People think that she will say no to everything because this regime did it, but she will not do that.”

This strategy could propel Suu Kyi into some tricky situations. A case in point is the Myitsone hydropower project on the northern reaches of the Ayeyarwady River. The project, awarded to the Chinese state-owned China Power International and Asia World, a large local conglomerate with historic links to drug trafficking, was halted by Thein Sein, also amid popular opposition, in 2011. The suspension was widely heralded as a turning point for Myanmar, indicating that the new quasi-civilian government was willing to break with China, which had been an important backer of the military regime isolated by Western sanctions.

But Thein Sein only suspended the project for the duration of his term, and the Chinese company has been lobbying hard for it to resume. Given its potential environmental and social impacts, an NLD government may find reason to at least downsize the proposed dam. But, at some point, the wildly popular Suu Kyi will be forced to take tough and likely unpopular decisions if badly needed infrastructure and development projects are to go ahead.

Image credit: “Suu-kyi-khawmu-campaign,” by Htoo Tay Zar – own work. Licensed under CC BY-SA 3.0 via Commons – https://commons.wikimedia.org/wiki/File:Suu-kyi-khawmu-campaign.jpg#/media/File:Suu-kyi-khawmu-campaign.jpg

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