China is still Myanmar’s largest foreign investor, with around US$20 billion in investment assets according to the Directorate of Investment and Company Administration. Over many years China, and Chinese investors, built good relationships with Myanmar’s government and obtained a ‘head start’ over other foreign investors who, until recently, were largely barred from investing in Myanmar. While worries about over-dependence on China were an inevitable but not fundamental part of the milieu for change, with the changing political, social and regulatory environment, the climate is now much more competitive and fluid.
Competition is one, basically good, thing; fluidity in the political environment is another thing, for investment and growth prospects, altogether.
The exuberance of political change and its impact on Chinese investors are emblematic of broader challenges to Myanmar’s democratic and economic future. Activists energised by Myanmar’s democratic opening are pressing, through the Shwe Gas Movement, for higher compensation for land taken for gas pipelines and for better paying jobs along the pipelines’ route; monks have joined with landholders to stop a Chinese-led conglomerate from ‘levelling’ a fabled mountain embedded with copper; and violent protests have been staged against a mining project involving a Chinese company which promoted a government-established inquiry into the project.
These are not problems confined to Chinese investors; they are problems for all investors and for the authorities themselves, as they try to develop basic economic infrastructure as the foundation for economic growth and stability. The plan to set up a Free Economic Zone near Yangon has been bedevilled by attempts to overthrow already-thought-to-be-done settlements over land, for example.
There is also heightened anxiety over the incendiary and xenophobic remarks that have enflamed ethnic and religious tensions. Looming in the background is the prospect that the forces of democracy could marginalise the National Solidarity and Development Party, the military’s proxy political party, at the elections scheduled for 2015. Some worry that the reform movement has gotten out of control, going way beyond what its military progenitors had ever contemplated. With so much social and political flux, should we worry about relapse to military rule?
This week’s lead essay from John Blaxland offers reassurance that political reform is on track in Myanmar.
Blaxland explains that Burmese leaders were envious of Thailand’s economic success, particularly after their neighbour’s recovery from the 1997 Asian Financial Crisis, and set reform in train ‘in order to tap into the kind of wealth that had come Thailand’s way’. Former military president Than Shwe and his acolytes realised they needed to chart a new path. ‘With a stagnant economy, they had shared the Burmese economic pie amongst themselves as much as they could. To have more to share, they needed to grow the pie. That growth required outsiders’ investment; it required economic and political liberalisation’, Blaxland observes.
‘When the “Seven-Step Roadmap” was announced in August 2003’, Blaxland argues, ‘it was dismissed for its echoes of Soviet-era-like control mechanisms over domestic politics and commerce. Few took seriously this deliberate Tatmadaw-controlled transition plan. Yet, in hindsight, the roadmap was indeed intended to facilitate economic renewal; by opening up the country with a semblance of democracy, it triggered the lifting of sanctions. It also was intended to generate some strategic breathing space that would enable Myanmar to reach out and build partnerships beyond those with China and a small handful of other sympathetic countries. The constitutional referendum, held only days after Cyclone Nargis struck in May 2008, confirmed to many a brutal determination to press on with a callous plan.
‘In conjunction with the Seven-Step Roadmap, the regime spent billions of dollars establishing a new capital city at Naypyidaw. Centrally placed — in order to best exercise control over the country — and widely dispersed, the city was designed and located to avert the possible recurrence of mass and destabilising street protests like the country faced in Rangoon (Yangon) in 1988.
‘The decision on Naypyidaw, typical of its approach to governing, was motivated by the Tatmadaw’s three prime objectives: first, to prevent disintegration (possibly triggered by ethnic separatists); second, to unify a multi-ethnic nation (through a strong unitary, military-controlled and Buddhist-dominated state apparatus); and third, to preserve state sovereignty’.
As Blaxland says, the decision to build Naypyidaw may look strange to outsiders, but given where the Burmese leadership were coming from and the nature and history of the state, it made compelling sense to them.
Meanwhile, although economic and political openness is generating friction and social tension — as a process of the kind on which Myanmar is embarked inevitably will — the economic plan is getting traction. Investment is pouring in and the Chinese oil and gas pipelines from Kyaukpyu to Yunnan are now coming online. These developments will generate unprecedented revenues for the state. As Blaxland concludes, the military-controlled government is in a sweet spot. ‘The economic pie is growing, even as its centrality to the safety and security of the state is reinforced — thanks to security challenges in Rakhine State, the central Burman plains and in Shan State, where China has aided the Wa rebels’.
Myanmar has many problems in committing to comprehensive economic and political reforms; in managing its fractious minority problems; and in building the human capital that will allow it to complete an enormously difficult and complex process. The major job is building the policy frameworks and civil service infrastructure that ensures that the fruits of the early economic payoffs from reform are captured more broadly for the state and its people and feed a self-sustaining process of high potential economic growth. These are daunting challenges but the seven-point plan is holding together relatively well and nobody in a box seat in the country sees Myanmar turning back.