A Tightening Noose Heightens Risks to Investors in Myanmar’s Economy

Myanmar’s State Administration Council (SAC) has faced unprecedented military defeats and territorial losses in recent months. Since October 2023, when the Three Brotherhood Alliance (3BHA) launched Operation 1027 in northern Shan State, the Myanmar military has suffered setbacks on multiple simultaneous fronts. Offensives by the Arakan Army (AA) in Rakhine State, the Kachin Independence Army (KIA) in Kachin State, and most recently the Karen National Union (KNU) along the Myanmar-Thai border, are compelling the junta to “shrink towards the centre”.

Operation 1027 saw the SAC lose control of two border-trade crossings with China to the Myanmar National Democratic Alliance Army (MNDAA). The MNDAA has since reopened Chin Shwe Haw, the second largest crossing in terms of trade volume after Muse (which is also being contested). A China-brokered ceasefire among the SAC, the MNDAA, and the Ta’ang National Liberation Army (TNLA) included an agreement that the MNDAA and the SAC share customs tariffs on a 70-30 basis  (with MNDAA receiving the larger share). However, the junta is still blocking access to border trade routes.  

In southeast Myanmar, the KNU and allied resistance forces have prevailed over SAC troops, taking control of Myawaddy township, including the strategic border-crossing of Myawaddy town. Trade reportedly continues to flow at slower rates and at higher costs amid the fighting. The SAC’s loss of Myawaddy now raises questions about the implications of the KNU’s taking over administrative control of border trade through Myawaddy, including how the SAC will respond. As not all cargo can shift to alternative routes, businesses will need to assess transport risks and time constraints going forward.

The SAC also faces a tightening noose in Rakhine State. After the AA seized the inland port of Paletwa, the Kaladan Multimodal Transit Transport Project operations along the Myanmar-India border now fall under AA control. The SAC still retains control of the port in Sittwe, Rakhine’s state capital and gateway to the Indian Ocean but shipping has all but stopped due to the fighting.

The AA is closing in on another strategic asset currently still under SAC control: the Kyaukphyu Special Economic Zone (SEZ) and its deep-sea port that also hosts the landing point for the Shwe gas and oil pipelines that run to China’s Yunnan province. The AA has gained a foothold up to a few kilometres from the site.

Myanmar’s neighbours with important trading links and foreign investors now face the question and risk calculation of whether the territory/ies where their assets are located could fall into the hands of groups that oppose the SAC junta and what this would mean in terms of the overall safety, continued operations, and mid-to long-term ownership of their businesses. Chinese investments are particularly exposed, including those in Rakhine State, though many are backed by the Chinese state, which grants them a different risk calculus from private investors.

International investors are concerned that the military regime might constrain them to support the conscription, for instance, by providing data on employees.

The SAC’s response to the intensifying conflict has been to activate the country’s “military service” law mandating conscription for young men and women. This announcement and follow-up actions have created a wave of fear and flight among the general population. Young men were seeking to escape joining the feared and despised junta’s armed forces even before the risk of being conscripted arose. These reactions have reportedly affected some local businesses: some factories are seeking to ward off the potential shrinkage of their workforce.

The conscription law activation has affected companies in other ways. SAC authorities reportedly required telecommunications operators to send text messages to smartphone users to the effect that men within certain age ranges were eligible for the draft. (The general call-up affects men aged 18-35 years old while those with certain skills like doctors and engineers can be conscripted aged 18-45 years old.) The messages were allegedly sent from the SAC information team and included a link to an official website explaining the conscription law. Admittedly, telecommunications operators in Myanmar are unable to operate independently of SAC demands.

International investors are concerned that the military regime might constrain them to support the conscription, for instance, by providing data on employees. These concerns were ignited when junta officials reportedly invited executives and managers at some factories and industrial zones for briefings related to the conscription law’s activation. It is unclear whether investors have actually been compelled to take steps that place their employees at risk. Nevertheless, global industry associations have issued warnings to their members and the broader business community to take precautions.

A recent report on the Myanmar beer market shows some inadvertent ‘winners’ in such times of crisis. The report stated that beer consumption was expected to increase in Myanmar, “one of the most promising [beer] markets in Southeast Asia”, given expected changes in consumers’ behaviours and incomes. The report also noted that Myanmar Beer was losing market share to international players, Heineken and Carlsberg. This is because Myanmar Beer, which has traditionally dominated the domestic market, is owned by military conglomerate Myanmar Economic Holdings Limited and is facing consumer boycotts. Heineken and Carlsberg entered the Myanmar market in the early 2010s and have remained in the country despite the fallout from the 2021 coup.

There is little to cheer about after the mid-April Thingyan new year holiday in Myanmar. The SAC had started the conscription exercise before its stated post-Thingyan timeline. Fears of conscription and of the SAC’s retaliation against communities as the conflict intensifies will mean that even more citizens will flee the country, further depleting the workforce.  

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