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Gold rush: Japan Inc. flocks to Myanmar

An eyewitness report on the rapid changes engulfing the country and the prospects for further democratization

by Jeff Kingston

Special To The Japan Times

The visa section at the Myanmar Embassy in Tokyo used to be a quiet and lonely place, but not anymore. Pointing to boxes containing hundreds of Japanese passports bearing business visas, the staff there told me the deluge began in early 2012.

ANA now has all-business-class direct flights to Yangon from Tokyo, and is operating near full capacity. The Japan External Trade Organization (JETRO) office in Yangon reports being swamped by requests for assistance by Japanese firms looking to cash in on Asia’s most promising frontier. PR giant Dentsu is opening an office there this week. I even met a young Japanese nail artist in Yangon who thought she would try her luck in Asia’s latest boomtown.

Until a couple of years ago there were few vehicles on Yangon’s streets, and hotel rooms went begging. The new normal, though, is traffic jams, packed hotels and spiking rental rates for housing and offices.

Japanese firms are in catch-up mode, lamenting that their government’s support of U.S.-led sanctions against the military regime opened opportunities for China and India.

Meanwhile, the Association of Southeast Asian Nations (ASEAN) members, under the guise of constructive engagement, “held their noses, averted their eyes — and grabbed whatever they could,” said a diplomat who prefers anonymity.

Sanctions played a crucial role in nudging Myanmar to embrace political reforms that have taken hold with surprising rapidity since the Saffron Revolution protests in 2007, named for the Buddhist monks who were at the forefront of the protests, and whose robes are actually maroon colored.

Political reforms are happening because the military/political leaders wanted to end their nation’s isolation and benefit from having a more prosperous economy.

They were also eager to counter China’s unappreciated dominance of their country, and there is no love lost for India owing to resentments accumulated during their shared history under British colonial rule.

Lifting sanctions was the key to turning on the taps of international financial institutions and attracting needed investments and development assistance from Western nations and Japan.

The key to ending sanctions was initially the November 2010 release of the opposition politician and chair of the National League for Democracy, Aung San Suu Kyi, who had been under arrest for almost 15 of the 21 years from July 1989 — and then convincing her to participate in the political process.

To achieve these goals required the new government under Thein Sein — the prime minister from 2007 until his appointment to the presidency in March 2011 — to promote substantial reforms. And it has.

“Democratization might not be in their DNA,” a consultant told me, “but the elite see this as a means to growth and a bigger pie to slice up.” And, once powerful interests have a growing stake in the new system, they become its guarantors.

The gold rush of Japanese firms into Myanmar is an endorsement of recent political gains and will help sustain the process. Yesterday, a large Keidanren (Japan Business Federation) mission returned from Myanmar after looking into how to improve the investment environment.

Prominent on their radar and that of the government of new Prime Minister Shinzo Abe is Thilawa, a sleepy port about an hour’s drive east of Yangon that’s slated for a major Japan Inc. development project. In addition to relieving a transport bottleneck, the project includes a special economic zone for manufacturing.

The story of how Japan landed this plum deal is revealing. As it was reported in the Western media, Pres. Thein Sein was dining in Tokyo in October 2011 with Hideo Watanabe, chairman of the Japan-Myanmar Association and a former minister for posts and telecommunications. After the president had a map brought out, he pointed to a 2,400-hectare area around Thilawa and told Watanabe that he wanted Japan to take on this project.

Some wrangling ensued, but in September 2012 a consortium of government agencies and Japanese firms, including Mitsubishi, Sumitomo and Marubeni, announced that they had lined up an $18 billion package. It also appears that Japan will take a $3 billion stake in a similar port project further to the south at Dawei, in which Thailand has been the major player. That project has been stalled due to local opposition and conflicts over land grabs.

Japanese companies, seeing stagnant sales at home, are eager to buy into Asia’s growth prospects, and in fast-tracking this deal — and a mega-infrastructural project in Jakarta, Indonesia, exceeding $50 billion — they are reminding observers that the “declining Japan” story has been overdone.

In fact Team Abe’s diplomatic offensive in the region, often portrayed as a way of highlighting China’s regional isolation over territorial disputes in the South China and East China seas, also signals Tokyo’s support for Japanese business participation in regional economic growth and integration.

Overall, China is Myanmar’s largest investor — to the tune of $14 billion in FY 2011 alone, mostly in energy projects. In contrast, between 1988-2011 Japanese firms invested a total of $217 million in Myanmar, making Japan its 12th-largest foreign investor.

But Japan Inc. is roaring back. The Japanese government recently forgave $3.6 billion in bilateral debt and provided a nearly $1 billion bridging loan so that the World Bank and the Asian Development Bank could resume lending. In addition, Japan just announced an extra $220 million in soft loans for infrastructure and human-resource development — the first such lending in 26 years.

As in all gold rushes, there will be stiff competition from the usual suspects, but there are many appealing opportunities in banking, finance, telecoms, infrastructure, mining and energy — while low wages make Myanmar a competitive manufacturing export platform.

However, legislation regarding foreign investments was only passed at the end of 2012, and Myanmar’s judicial system is not reliable, so for overseas investors it is a case of navigating uncharted waters.

Land grabs are one of the major challenges to the rule of law in Myanmar, and a major source of local grievances and political instability. According to Myanmar Legal Network, the land-acquisition process is murky and presents significant opportunities for bribery and manipulation of cases.

Since Thilawa is close to Yangon, where many civil-society organizations and international institutions are based, this project will be subject to extensive scrutiny especially as it involves regime cronies blacklisted by the United States. Taking care of farmers and fisherman affected by the project won’t be that costly in the larger scheme of things — while disregarding their interests risks reputational damage and a nationalistic backlash.

The politics of foreign investment and resource extraction are hotly contested in Myanmar, a sign of just how vibrant democracy has become.

To its regret, China knows this story all too well, as anti-Chinese sentiments are rampant. A high-profile conflict at a copper mine in the north, involving the military and a Chinese company, underscores the risk of ties with the power elite in Myanmar and the political risk to foreign investors engaged in ventures that ignore local land rights. While the government was explaining the need to honor contracts and the rule of law, the public saw a shady deal displacing local residents. A major Chinese dam project is also suspended due to protests against displacement of local communities.

A gold rush generates a no-holds-barred mentality, and in Myanmar, regional competitors have a head start — but Japan Inc.’s ace up its sleeve compared to its rivals is an enviable reputation for integrity as an investor and employer. That’s a brand to trade on that’s well worth preserving.

Jeff Kingston is Director of Asian Studies, Temple University, Japan.

  • Christopher-trier

    While it’s perhaps best not to trust the Burmese government entirely this can, if Japan stays true to its reputation, be for the best option for the long-suffering Burmese people. A brilliant, beautiful country with incredible potential. Some of the most gracious, intelligent people finally have a chance to have a better life.

  • Richard Wilcox

    Wonderful, let the rape and plunder begin! Since when does Japan Inc. have a good reputation? Mr. Kingston should read his own articles about TEPCO if he thinks that is true. Japan’s outsourcing of its manufacturing base has decimated the domestic economy and this is just more of the same, albeit certain multinationals will enrich themselves if they can get their greedy hands on Myanmar’s natural resources. This article reads more like a press release from a foreign office than it does like critical journalism.

    • Christopher-trier

      Multinational corporations exist to make profit, not to sit around camp fires singing “Kumbaya” or “We Are the World”. That is their structure and, frankly, what stock holders expect them to do. Doing business in Japan is expensive, in order to save money corporations move low-value facilities elsewhere. That is, products are assembled elsewhere. Most of the parts are still made in Japan, though. If things are to change people will have to change their mentalities. Blaming corporations for giving them what they want is missing the point.

      People in Burma need jobs. Burma has massive unemployment, massive malnutrition. The country has been torn by decades of strife. If the Japanese can alleviate the poverty then so be it. Multinational investments in Mexico have helped to turn that country into a mid-income state, international investment is helping to drive the Brazilian, South African, Vietnamese, and Thai economic booms. Far fewer people are in poverty there than before.
      Is the situation perfect? No, far from it — but ask those who lived through extreme poverty and deprivation, those who lived through socialist/communist economic systems which they’d prefer and they will usually say that what you rile against is what is better.

  • Jeff Kingston

    Richard
    Perhaps you should reread what I wrote and react to that rather than the distorted version you are responding to. I never equate foreign investment to democratization. I don’t state that Japan Inc roaring back is good. I do think that democratization is fragile and that economic development will help sustain the momentum of political reforms. Conversely, a stagnant economy and no improvement in living standards, what you seem to favor, could undermine democratization.

    Wilcox writes, “replacing one oppressive regime with a potentially even more destructive system is not a progressive agenda.” so you are arguing that democratization is destructive? Well it is no magic wand but everyone there I talk with thinks its a step forward. And the economic reforms that are proceeding are also no magic wand but you seem to suggest that further isolation is a better alternative and viable? Really? Sounds like you are nostalgic for Ne Win.

    I point out that the contesting of various large scale foreign investment projects is a sign of a vibrant democracy. I also point out the downside of backroom deals with power elite..as Chinese have learned to their regret. In drawing attention to integrity I explicitly state Japan Inc’s integrity is RELATIVE…so in interviewing many people there I got the impression that Chinese, Indian Korean and ASEAN firms are seen to be comparatively bad. I am drawing attention to the pending issue of land grabs in Thilawa and how this should be handled responsibly. And suggest negative consequences if farmers and fishermen interests are neglected. So I am stating that Japan Inc will be under scrutiny and should do the right thing or face the consequences..

    Wilcox writes,
    In my opinion, countries like Myanmar that would to prefer to stay isolated from the control and abuses of global corporations and banks should continue to do so, and protect their natural resources and people from these so-called liberators.

    Based on what? I think people there are pragmatic and want to engage and improve the terms of that intl engagement that have been very unfavorable under existing crony deals. That is why there are all the protests targeting foreign projects. And I don’t refer to investors as “so-called liberators”.

    This is a longterm rebuilding process, reforms will be zigzagging…capacity is lacking across the board…poverty in rural areas is some of the worst I have ever seen. Right now it is prey to some of the worst extractors. Civil society is shining a light on that and seeks to improve the rule of law and promote transparency so that the inflow of investment projects can be managed better than it has been until now. Its a work in progress but nobody I met thinks the answer is more isolation. Is it? How so? What model of development do you favor?
    So yes Japan Inc has much to answer for, but you seem happy to leave Myanmar prey to far worse options.
    kingston@tuj.temple.edu

    • johnny cassidy

      Where do the quotes by Wilcox that you cite here come from?

      • Jeff Kingston

        From copy of original posting he sent me directly.

      • johnny cassidy

        Thanks! I guess I was a little puzzled but you’ve solved the mystery for me. It was very good of you to take the time to address readers’ comments here. I hope you have time to answer the claims made in a recent letter to the editor (Japan Inc. a dubious liberator) in reference to your article or maybe repost the relevant points you’ve made here in a rebuttal letter or the reader mail comments section.

  • Ryan Daniels

    Are there any truly independent mining companies in Myanmar that are not owned or controlled by the Union of Myanmar Economic Holdings Limited?