Myanmar: Coup confusion

It's been a booming 18 months on the frontier. In November, Delta Capital launched its third Myanmar Opportunities Fund targeting $100 million to top its $70 million haul in the prior vintage. In October, CDC Group, one of Delta’s LPs, made two appointments to build out its Yangon office. This coincided with Ascent Capital closing its debut Myanmar fund with $88 million in commitments. The GP followed up quickly with two leadership appointments in the country.

Meanwhile, local authorities have been playing ball. A long awaiting opening up of the banking sector to foreign investors prompted Singapore’s GIC and Norway’s Norfund to acquire stakes last year in Yoma Bank, one of the largest local lenders. This followed the PE and corporate units of Japan’s Daiwa Securities Group setting up a $30 million Myanmar fund and the incorporation of the Myanmar Private Equity & Venture Capital Association.

Then came the plot twist. In the past week, the military has taken control of the country following the election victory of Aung San Suu Kyi’s National League for Democracy Party. Suu Kyi and other officials have been arrested. There have been mass demonstrations, rubber bullets, water cannons, a shutdown of the internet, and few indicators of where things will go next.

Warning signs of volatility did not slow down investment, even as the furor over the Rohingya refugee crisis peaked in mid-2019. These were the days when the UN said Myanmar could have a “severe impact on the security of the region,” and yet ride-hailing giant Grab committed $100 million to a Myanmar push, and Anthem Asia launched its $50 million Myanmar fund. It’s worth noting the latter development received support from a World Bank program dedicated to conflict-affected countries.

Political instability was always an accepted part of the high risk-reward thesis of Myanmar, however. The equation has been playable because the enticements are as substantial as the pitfalls: a population of 55 million with a median age of 27, GDP growth around 7%, and rapidly modernizing lifestyles, facilitated by spiking mobile penetration rates. The question is, can this story be contained in the long term by a repressive regime?

To some extent, Myanmar’s four decades of political and economic detachment offers a simple answer. Between 1962 and 2011, the country was controlled by a junta and closed to international trade, setting the stage for the growth upside and unpredictability investors are currently trying to balance. But now Myanmar has tasted a decade of uplift, women’s empowerment, financial technology, and digital communications. Isolationism will be harder to maintain.

Local GPs are playing wait-and-see and holding comment for now. Others are not, with a smattering of reports beginning to surface of investors and companies breaking ties with the country. Japanese beer giant Kirin is perhaps the highest-profile example, saying the actions of the military were against its human rights policy.

This raises an interesting question of whether the investment industry’s growing commitment to stricter environment, social and governance (ESG) compliance requirements could end up hurting one of its favorite geographies for inclusion and impact strategies. It also raises the question of whether the latest political meltdown merits labeling Myanmar a pariah when previous transgressions such as the refugee crackdown did not.

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• Topics
• Southeast Asia
• Investments
• Regulation
• Myanmar
• ESG
• Economy