Kerry in Myanmar to Urge Reforms to Encourage Investment

Coca Cola Co., Gap Inc. and other U.S. businesses have rushed to tap Myanmar’s underdeveloped economy since President Barack Obama’s 2012 visit touting the country’s transition to democracy.

Two years later, U.S. Secretary of State John Kerry is visiting the capital Naypyitaw and Yangon, the largest city, amid concerns from U.S. lawmakers, the United Nations and rights watchdogs about stalled political reforms, continued violence against ethnic and religious minorities and persistent violations of human rights.

Kerry met today with government officials on the sidelines of the the Association of Southeast Asian Nations’ Regional Forum in Naypyitaw. Tomorrow he’ll travel to Yangon to meet opposition leader and Nobel Laureate Aung San Suu Kyi.

“As Myanmar tackles the challenges ahead, I want the people of Myanmar to know that they have the support and the friendship of the U.S.,” Kerry said in his opening remarks of the regional forum. “So much of the history of the 21st century is going to be written right here in Asia and the longest chapters of that history are going to be driven by what happens in Southeast Asia.”

‘Mindful of Successes’

The top U.S. diplomat’s main objective in this nation of 62 million is to “form his own firsthand sense of how they are meeting the significant challenges in connection with the ongoing domestic political and economic reforms,” U.S. Assistant Secretary of State for East Asian and Pacific Affairs Daniel Russel told reporters in Washington on Aug. 4.

“Although we are mindful of the successes thus far and incremental progress in the democratic reforms, ultimate success is not pre-ordained,” Russel said. “It’s a goal for which the Burmese are striving, and it is a goal that we, the United States, very much want to help them to attain.”

Kerry’s predecessor, Hillary Clinton, in 2012 announced the easing of some U.S. sanctions -- lifting some travel bans and naming an ambassador to Burma for the first time since 1988 -- as the Obama administration’s way to encourage acceleration of legal, economic and constitutional reforms.

Hopeful Signs

The move to relax some sanctions against Myanmar came as the country’s lawmakers reached out to political dissidents and lifted repressive measures imposed by the former military junta, creating an opening for foreign companies.

In the 2013-2014 fiscal year that ended March 31, contracted foreign direct investment in Myanmar nearly tripled from a year earlier to $4 billion, creating 90,000 new jobs, according to the Myanmar government. The Asian Development Bank estimates that the country’s gross domestic product growth accelerated to 7.5 percent in 2013 and expects it to continue.

“The pace of investment is continuing to move, but the conditions in Myanmar are now at the place where it’s still exploratory investments for a lot of people,” Anthony Nelson, director of Myanmar affairs at the U.S.-Asean Business Council in Washington, said in a phone interview Aug. 4. “Over the course of next couple of years as they develop -- especially the legal infrastructure, but also the physical infrastructure that they need and the digital infrastructure -- you’ll start to see more of them.”

Financial Reforms

Vijay Nambiar, UN Secretary-General Ban Ki-moon’s special adviser on Myanmar, said the country has managed, by introducing financial sector reforms in a short period of time, to rebuild its economy after decades of sanctions and isolation.

Over the past several years, private banks have been given foreign exchange dealer licenses and new laws have been enacted to protect foreign investors from nationalization, establish a commission to supervise the securities market and make the central bank autonomous and independent of the Finance Ministry.

The government is expected soon to introduce regulations to end discrimination against private banks and a law that will offer “improved corporate governance and accountancy standards, a robust regulatory and reporting framework, and a level of transparency that will give domestic and international investors adequate information for investment decisions,” Nambiar said in an e-mail.

Constraints still remain for interested U.S. investors. The Obama administration hasn’t fully lifted sanctions and requires any U.S. person who invests $500,000 or more, or invests in Myanmar’s oil and gas sector, to report their activities and plans to the State Department. Since July 2013, 15 U.S. companies have filed reports.

Facilitation Sanctions

“When sanctions were suspended, U.S. companies have been under facilitation sanctions, which meant that they couldn’t do a lot of very simple things like market research or spending time in the country looking at business environments,” Nelson said.

“There were a lot of companies that came to look around right away, but what they needed to do was familiarize themselves with environment,” he said. “We saw Coca Cola make a big investment right away, but that’s something that’s part of their strategy, and they want to be everywhere and it’s something that they’ve planned for quite a long time.”

“For everyone else it’s a bit more of a gradual process,” he added.

Purchase, New York-based PepsiCo Inc., the world’s second-largest soft-drink maker, is stepping up the fight there as well. The company opened new factories and sought to expand distribution in China in 2012 to narrow the gap with market leader Coca-Cola, based in New York City. In November 2013, PepsiCo opened its largest research center outside the U.S. to help tailor beverage and snack food brands to Asian tastes and develop new products for the region.

Garment Factories

Coca-Cola pushed further into faster-growing emerging markets in June 2013 with the opening of a beverage plant in Myanmar. The company will invest $200 million by 2018. In June, San Francisco-based Gap announced that it will start sourcing from two garment factories in Myanmar, with products to begin hitting the shelves this summer.

Vicky Bowman, director of Myanmar Center for Responsible Business, said that while it’s too early to conclude whether opening up to foreign companies has had a significant effect on the country’s socioeconomic conditions, businesses already are driving “the adoption of international standards in areas like labor conditions and anti-corruption.”

Higher Standards

Multinational corporations are demanding “higher standards from their suppliers and business partners and providing training and other support to help them make the grade,” Bowman said in an e-mail.

“The challenge of doing business in this market will be much greater for those who invest to manufacture here, since they will have to contend with issues like irregular power supply, a very tight market for skilled labor and high real estate prices,” Bowman said.

Other challenges for investors are Myanmar’s poor human rights record and the need for political will to improve it.

While Myanmar must be “recognized and applauded” for “coming a long way,” there are “worrying signs of possible backtracking which if unchecked could undermine Myanmar’s efforts to become a responsible member of the international community that respects and protects human rights,” UN special rapporteur on Myanmar Yanghee Lee said after a 10-day visit to the country in mid-July.

‘Intimidation, Harassment’

She highlighted “intimidation, harassment, attacks, arrests and prosecution of journalists for reporting on issues deemed too sensitive or critical of those in power” and the “systematic discrimination” against the Rohingya Muslim minority as communal violence between the Buddhist community and Muslims recurs in northwestern Rakhine state.

The independent UN rights investigator is not alone in these criticisms. Earlier this week, Republican Senators Marco Rubio of Florida and Mark Kirk of Illinois urged Kerry in a letter to turn up the pressure on human rights issues during his visit this weekend.

They expressed alarm at the Myanmar government’s recent sentencing of four local journalists to 10 years in prison for publishing an article claiming that a military facility was producing chemical weapons.

Kerry made it clear in his meetings today with Myanmar President Thein Sein and parliament lower house speaker Shwe Mann that human rights violations are of concern “not just to the U.S. and the international community, but more importantly to the people of Myanmar, said a State Department official who asked not to be identified citing policy. The U.S. is not engaged in any sanctions lifting at this moment and the Myanmar government is still expecting that to happen naturally as they want a fully normalized relationship with the U.S., the official said.

Delaying Reform

Time is not on Myanmar’s side if they keep delaying constitutional and political reforms because of the instability it signals to businesses on the ground, said a second State Department official who also asked not to be identified, citing policy. Myanmar does care a lot about its legacy and doesn’t want to cut off companies, which have started their operations in the country in the form of corporate social responsibility versus full-on investments, the official people of Myanmar, said a State Department official who asked not to be named citing policy. The U.S. is not engaged in any sanctions lifting at this moment and the Myanmar government is still expecting that to happen naturally as they want a fully normalized relationship with the U.S., the official said.

Myanmar’s Challenge

UN adviser Nambiar and U.S.-Asean Business Council’s Nelson agree that the heart of Myanmar’s challenges lies in its ability to modify the constitution inherited from its military dictatorship to reflect the country’s changing realities.

Nelson says it’s unlikely that such constitutional reform would take place before next year’s presidential elections, which would be the first democratic contest to take place under a quasi-civilian government.

‘‘The government has so far taken care of low-hanging fruit in terms of reform,” he said. “The things that are remaining to tackle are quite a bit more complicated and will take a lot more work to get to.”

“I think the Myanmar side really understands that there is a lot of work that they need to do.”