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.

Corporate dilemmas in Africa: geopolitics and reputational risk

Just as different firms and funds have varying appetites for risk in Africa, so not all firms are equally exposed to various types of risk. This is particularly true of reputational risk.

This short post reflects on how most sources of reputational risk in Africa will probably continue to come not from mere presence in a country -- even one that itself has a poor reputation -- but from the traditional sources of reputational risk such as supply chain (labour relations, community or environmental impact, or quality control) incidents.

When it comes to the significance of reputation (and so the importance of its degree of vulnerability), so much depends on the sector, the nationality of the firm (Western firms are more vulnerable, generally speaking) and the extent to which a firm has a transnational footprint where things like consistency and contagion-perception can matter.

Thus foreign banks interested in Angola face different reputational risks to foreign beermakers; while often arbitrary distinctions arise (especially where the business and political elite are small and entwined), they can be relevant: investing in palm oil in Equatorial Guinea does not, on the face of it, raise the same lay person's response as investing in oil there.

Why write about this now? Last week saw Uhuru Kenyatta sworn-in as Kenya's new president following the March elections. Given that for now he still faces trial before the International Criminal Court (and given that Sudan's president, another ICC indictee, was initially to attend his inauguration), much of last week's media coverage turned on what the ICC dimension in Kenya means for Western governments' dilemma -- torn between (on one hand) not undermining the ICC and all it stands for, and (on the other hand) their interest in engaging with a duly-elected, not-convicted-of-anything leader of a major and strategic African partner state.

It is also a state with good investment and economic growth potential. I've not seen any accompanying questions about the appropriateness of investment dealings, by private firms, with a government led by an ICC indictee -- corporate diplomacy or foreign policy, if you will.

In my view there is not really any issue in the Kenya case: it is very hard indeed to see that any firm will (or in principle should) suffer reputational damage simply from maintaining or initiating such links now; the risks, if any, lie far more in particular relationships and actions that firms might take, than any broad-brush 'complicity-by-general-association-or-presence' risk. By contrast the latter risk -- whether fairly or not, and partly because Washington maintains some sanctions -- probably obtains in relation to a country like Sudan.

Yet the private sector inhabits a public world where its decisions and actions will impact the public interest -- and vice-versa. Thinking in terms of distinct public and private spheres is limiting even just in a narrow corporate operational sense: this is not to say that the state (on behalf of the public) has a legitimate interest in all private dealings. Instead for companies at least it means being conscious that a particular firm's actions can (often quite randomly or arbitrarily) become seen as illustrative of big political debates -- suddenly, hashtags appear linking one's business in the public mind with narratives of crimes against humanity; likewise, seemingly small issues and events can become seen as linked to much wider stories.

Hence -- for those firms with reputational exposure -- the links between attempts to respect and protect the public interest, and what the public will likely take an interest in.

Jo

ps - see the first April post on public trust in firms -- a key element of reputation; see also, for instance, this post on corporate engagement in 'pariah' states -- here.

pps - in the last post related to this topic (here) I referred to a talk on 'corporate foreign policy' that my colleague Dr Stephanie Hare gave for our firm at the Chicago Council on Global Affairs. Here is a link to a podcast of her talk.

1000 days till 2015 MDGs ... SDGs ... and the role of business

Last week (April 5) marked 1,000 days before the Millennium Development Goals (MDGs) are replaced -- as the consensus macro-framework for measurable developmental poverty-reduction progress -- with the SDGs (Sustainable Development Goals).

One of the 10 principles, agreed at last year's Rio+20 summit, around formulating the SDGs is that the process include the active involvement of 'all stakeholders ... as appropriate'.

This includes the private sector (by which I mean business and its umbrella groups -- one can debate where private foundations / philanthropy fit here).

There are quite a few interesting insights and arguments on business' role in the SDGs (a good one of these from the ODI can be found here).

One thing that has arguably changed, and which is both implicit and often unexplored in many of these debates, is that it is now seldom questioned in policy-making circles that it is 'appropriate' that business be a relevant stakeholder both in the process of agreeing on the SDGs, and efforts to realise these.

Indeed, for my part if I were again a student and looking for a doctoral topic now, I'd want to look at either (a) how the role (and public sector's expectations) of the private sector in meeting development goals changed during the MDGs' lifetime (or perhaps changed as between the process of deciding the MDGs pre-2000, and their pursuit after promulgation) or (b) how business has been / is involved -- or not -- in the process of refining and deciding the SDGs (and perhaps how this has changed from the MDGs experience).

We are not at the 'end of history' but in an age of both austerity (of public funding for development) and greater consensus (about the role that business can or even should play in meeting public goals, and about how developing a vibrant private sector is a key aspect of development programming), it is easy of forget how the UN system has long had a very ambivalent view of the private sector's place at tables that talk about public (governmental and civic) issues.

Across the continent I follow, there is not necessarily ideological consensus about the role that business should play in meeting local, national and regional development aspirations. Sometimes private commercial activity dictates development policy; sometimes the voice of business is muted or not sought.

Yet what is probably true is that especially in African countries experiencing rapid headline growth rates, there is a new pragmatism from all sides -- governments, business, and civil society -- about finding ways to bring business along in the process of translating economic achievements into sustainable and developmental transformation. This is surely to be welcomed as an opportunity -- and as something 'appropriate'.

Jo

Ps -- for one of a number of earlier posts on this blog on this topic see here ('after the MDGs -- the private sector and development') and here.

Public trust in the private sector in Africa

One recurrent theme of this blog is reflections on building trust between government and business in Africa.

But what do we know about levels of citizens' trust in / of big business in Africa -- and the potential utility of such trust as a possible resource for achieving public goals?

In the context of current Cypriot banking woes, this week's blog-post is prompted by an article in last week's Financial Times on what recent survey data in developed countries reveal about declining public trust in banks and corporations.

A cursory search does not yield equivalent opinion poll data across African countries. Afrobarometer of course surveys public attitudes on democracy, corruption and so on -- but almost nothing on 'the private sector', 'corporations', or 'business'.

Yet I'd be surprised if the average African survey respondent would be as sceptical of corporations as their peers in Europe. (For instance, the high proportion of unbanked Africa citizens does not necessarily reflect lack of trust in private financial institutions but rather issues such as the level of middle class development in many African economies.)

If this intuition is correct, it may nevertheless be highly variable as between sectors -- mobile phone companies, for instance, may be more trusted by consumers than their corresponding ministry or regulator, but this may not be true for extractive industries; it might also be subject to variation across countries -- South Africa's public is no doubt more familiar (for better or worse in opinion terms) with big-name firms than is Mozambique's.

One would need respectable data. Some of what data-sets do exist are inconclusive of the relative trust of public institutions compared to private service providers (eg academic studies on comparative levels of trust in public and private healthcare provision in previously isolated economies). Like all such surveys, any one on this topic -- what are the levels of public trust in corporations in Africa -- would turn on methodology and framing of questions:

* It would, I suppose, be necessary to distinguish brand loyalty or aspiration from more general, almost ideological attitudes toward private business actors and activity in and across different African countries.
* People may trust foreign firms more than their own government, or more than the firms' country of origin, or more than citizens in other emerging regions do. Yet they might at the same time potentially not trust policies of market liberalisation which encourage such firms' entry [*].
* On this wider topic, distrust of government and distrust of business may be linked, where distrusted political elites control business activity, or where it is difficult to distinguish predatory or exclusive business activity from government action. Many people's encounters with bigger businesses in Africa will, moreover, be with state-owned firms.

The wider question -- here more a form of thinking aloud -- is whether, if the intuition is well-founded that in many developing African countries people might trust companies as much or more than government, or trust them more than in developed countries, this creates a potential resource for improving social and economic development outcomes:

* Aid agencies might think afresh about partnering with big business on the basis that the latter's perceived trustworthiness creates a platform for innovative strategies that have mutual benefit for agencies and corporates;
* If public-private partnerships remain the buzzword of African development and the private sector is envisaged to have an expanded role in meeting development aspirations, it would be useful for strategy-formation to know whether people trust businesses (of various kinds and origins) more than local or foreign public and civic institutions.

That is, if surveys revealed that many citizens in African countries do not hold a jaded view of important kinds of companies, this is one factor for firms in conceiving fresh ways of doing business and relating to publics and authorities in ways calculated to preserve and enhance mutual trust. This might hold important portends for regulating corruption and greater revenue transparency -- as well as mitigating the risk, as African economies grow at rapid rates, of future highly disruptive discontinuities that might occur from a serious deficit of public trust in the market-place.

Finally, I wrote this post with big business (multinationals) in mind: like the citizen's relationship with government, it implies a somewhat vertical relationship. Of course, most (by number if not value) of the commercial transactions on any given day in an African setting are typically more horizontal, between individuals and groups. There trust is a vital resource in stable relationships of exchange and value-creation. One does not need to adopt a fully market-led approach to development to agree that building trust in relation to smaller-scale and less formal business institutions is likely to increase the potential for economic vitality capable of having transformative social and developmental benefits.

Jo

ps, for one of the various posts where business-government trust is discussed, see here.

[*] = ps, for one academic study on public opinion democracy and market reform in Africa, see Bratton et al, here; for an example of one country study on attitudes to pro-market reforms see here (Ghana -- Afrobarometer).