Corporate (re-)entry, sanctions and risk: the Myanmar / Burma example

Geopolitics, universal values and corporate strategies intersect where firms decide to (re-)enter 'transitional' states emerging from relative international isolation.

Previous posts have discussed African settings where bilateral or bloc-mandated sanctions apply (from Sudan and Eritrea in the Horn of Africa, to Zimbabwe and Madagascar in southern Africa), but this week's post looks at Myanmar (Burma).

On April 22 the EU lifted all its remaining trade, economic and personal sanctions on Myanmar (bar the arms embargo) in recognition of its reforms towards greater inclusivity and political space.

So I asked my Oxford Analytica colleague Herve Lemahieu -- who follows the country closely -- a few questions about the issues where risk, regulation, reputation and responsible business conduct meet in post-sanctions Myanmar:

JF: What have been historical (1990s and on) patterns of Western corporate engagement and how quickly is this changing?

HL: “Two decades ago, Western companies were rushing out of Myanmar under pressure from shareholders and activists. Pepsi Cola, Apple, Levi Strauss, Unilver, Texaco, Carlsberg, Heineken, Disney and Hewlett-Packard were just a few of the big names to exit the country following high-profile campaigns. In the mid-1990s and into the early 2000s, Western economic, financial and political restrictions, in place ever since the failed pro-democracy uprising of August 1988, were steadily ratcheted up and bolstered by consumer and civic pressure groups discouraging all trade, investment and tourism.

There is little evidence that this boycott had much more than symbolic value. Twenty years of military rule and Western sanctions allowed a narrow, state-linked business elite to thrive while hitting the general population the hardest. The West lost influence while allowing Asian competitors an open field. Rather than acquiesce in Western calls for sanctions or add to pressure for regime change, Beijing and ASEAN favoured the military regime's own top-down transition and seven-point roadmap to ‘discipline flourishing-democracy’.

Many western observers failed to recognise what the military regime was trying to do during its two-decade rule because it did not conform to categorical ideals of democratisation. However, the integration of opposition leader Aung San Suu Kyi and her National League for Democracy (NLD) into the fold of the country's ‘disciplined democracy’, in which the military remains the most influential de-facto and constitutional powerbroker, has been judged ‘good enough’ for Western businesses to rapidly return to one of Asia’s last remaining frontier markets.”

JF: Are corporate engagement strategies out of line with diplomatic ones, and does it depend on whether Western or other company / government?

HL: “Government and corporate policies are now, broadly speaking, mutually reinforcing. Most Western governments have conceded that sanctions exercised only limited political leverage over the previous military regime, and are opting instead for pragmatic engagement to secure political and commercial goals in the country. For their part, many companies have learned from past experience to become more risk-averse and reputation-conscious as they prepare for market re-entry. However, there are still nuanced differences in the economic diplomacy espoused by different capitals, with varying private-sector implications:

· Japan has led the field in normalising ties and increasing its commercial presence in Myanmar -- something political liberalisation now allows it to do at far less cost to its international reputation.

· The EU has today agreed to follow Norway, Australia and Canada by permanently lifting sanctions, rather than conditionally renewing their suspension.

· That leaves the US the only country to maintain curbs on the country as part of its piecemeal ‘action-with-action’ approach of easing sanctions through presidential waivers.

Corporate and diplomatic strategies still clash in as much as US business leaders have complained that Washington's policies require extensive compliance paperwork and present legal/reputational uncertainty, while European and Asian rivals gain first-movers advantages. Many US multinationals are undeterred, including Coca-Cola, General Electric, Hilton Worldwide, Visa International and MasterCard which have all entered Myanmar in the past six months.”

JF: Is there a case for saying that corporate engagement at this time helps support wider reform / transition in Myanmar? What counter-arguments do you hear among those watching the country?

HL: Some Western politicians and lobby-groups have sought to portray Myanmar’s transition and the resurfacing of ethnic and religious violence as, respectively, evidence of the effectiveness of, and continued need for, conditionally withholding western business activity in the country. However, governments and voters alike are becoming more sceptical of their ability (or indeed the general desirability) to micro-manage political change through blunt economic polices implemented from half-a-world away.

As the logic for broad-brush 'complicity-by-general-association-or-presence' risk starts to recede for corporates re-investing in the country, risk will start to lie far more in particular relationships and actions that firms might take, such as labour relations, community and environmental impacts. Given the absence of well-developed physical, financial and regulatory infrastructure, the challenge will be for corporations to self-regulate, hedge risks, and assess their own ways in which they can contribute to the wider reform process.

Already, we have seen prospective and actual businesses drive the government’s efforts to adopt international standards, from labour rights to financial regulation and environmental protection:

· Nearly 400 government officials were sent to jail on corruption-related charges between mid-2011 and December 2012 (almost as many as political prisoners released in the same period). This includes a crackdown on the endemic practice of accepting or soliciting kickbacks and bribes to award contracts.

· The government is negotiating entry into the Norway-based Extractive Industries Transparency Initiative and will likely remodel its energy contracts according to the voluntary regime’s stringent requirements for financial transparency, environmental standards and corporate governance for the natural resources industry.

· Japanese trading houses – including Mitsubishi, Mitsui, Marubeni and Sumitomo – have spearheaded efforts to diversify away from the extractives sector by investing in the labour-intensive sectors, such as manufacturing, services and agriculture.”

My thanks to Hervé.

The Myanmar outcome came a day after the Bahrain Formula 1 Grand Prix, where the organisers (and indirectly, the sport's many sponsors) were forced to defend their decision to hold the race in the face of a campaign for greater political freedoms in the Gulf state. Politics, human rights and calls for sporting boycotts are nothing new, but there is no doubt that especially brand-sensitive corporates nowadays need to navigate these issues more swiftly, consistently and comprehensively.

For previous posts on this topic, see here (corporate engagement in ‘pariah’ states), here (entering 'closed' complex settings like Ethiopia) and here (reputational risk from mere presence?).

Jo

ps -- of note to a blog on this general subject matter relating mainly to Africa, the US Supreme Court last week rejected Nigerian plaintiffs' arguments that US courts should exercise jurisdiction (under the ATC Act) over claims against Shell for conduct allegedly occuring outside the US. In a future post I'll reflect on litigation strategies in the context of wider efforts to 'level the playing field' for responsible business activities by firms -- whether from the 'West' or 'emerging markets' -- in Africa.