Foreign corporations and the coup in Myanmar

With the Myanmar military taking the reins of the country, foreign companies that remain are bound to become intertwined in the murky dealings of the new regime, Ross MacKenzie writes.

British American Tobacco (BAT) officials will be paying close attention to the evolving situation in Myanmar, following the military coup that overthrew the country’s civilian-run government in February.

The company re-entered the Myanmar cigarette market in 2013, along with a number of other foreign corporations, following political and economic reforms that appeared to move the country from military rule to a democratic system of government.

These reforms enabled BAT and other investors to return to a lucrative cigarette market, from which it had withdrawn in 2003 in the face of widespread criticism by human rights groups and pressure exerted by the British Government.

BAT had acquired Rothman’s of Pall Mall Myanmar (RPMM) in 1999 as part of a global merger of the two parent companies, providing it with long sought-after production rights in the country.

As required by national foreign investment regulations, however, the takeover also obliged BAT to enter an arrangement with the military regime. At the time, foreign companies operating in the country were assigned an approved local joint venture partner, and these partnerships were required to use state-owned land and employ a labour force supplied by the government.

BAT’s partner, Myanmar Economic Holdings Corporation, was an investment agency established by the regime to raise retirement income for military veterans, an arrangement that provoked almost immediate backlash from Human Rights Watch and the International Labour Organization, among others, as well as Myanmar nationals in exile.

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Despite BAT’s aggressive defence of its Myanmar subsidiary, mounting criticism of its involvement with a government increasingly censured for human rights abuses and the formal request by the British Government in 2003 that the company leave the country led to its withdrawal in November that year. BAT is just one example of how foreign investors found it difficult to engage with Myanmar in this period.

Then, the 2012 general election victory of the National League for Democracy under Aung San Suu Kyi ushered in an era of political and economic reform that, with an easing of sanctions by a number of foreign governments, resulted in an influx of foreign companies.

Significantly, reforms meant foreign companies are no longer required to establish enterprises with military agencies and could partner with private Myanmar interests instead.

BAT, for example, having endured the public relations damage linked to working with a military agency from 1999 to 2003, chose this latter route when it re-entered the market in 2013 in a joint venture with IMU Enterprise Ltd (IMU).

The website of its parent company, the Sein Wut Hmon Group, suggests that IMU was set up exclusively to partner with BAT, forming British American Tobacco Myanmar Ltd.

Yet, Sein Wut Hmon may not be an ideal partner for a global corporation that is given to highlighting its self-professed “commitment to high standards of corporate responsibility” and transparency.

A 2015 report, which received considerable international media attention, by the UK-based NGO Global Witness, accused the Group of colluding in rural land seizures with military and local government officials, and failing to compensate villagers for the confiscations.

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Yet, compared to foreign companies that are working directly with military agencies, BAT has so far been able to retain a low profile.

The Japanese drinks conglomerate Kirin, in contrast, announced within days of the coup that it was withdrawing from its partnership with a domestic brewery that is part-owned by generals involved in the coup, and perhaps BAT and other companies should consider the same.

BAT has, to date, not issued a statement on the coup, but it seems unlikely it would willingly leave such a profitable market if it wasn’t absolutely necessary.

In a country where 49 per cent of men (and 8.4 per cent of women) between 25 and 64 years smoke cigarettes, sales increased from an estimated 600 million cigarettes per year in a five-year period of 2005 to 2010 to approximately five billion per year in 2015 and 2016.

Since its return to the country in 2013, BAT’s share of cigarette sales has risen from seven per cent to 21.5 per cent in 2019 and, despite a decline in sales due to COVID-19 related factors, forecast figures remain strong.

The extent to which calls may increase for other foreign interests to follow Kirin’s lead will largely depend on the military’s next steps. BAT, for example, may feel better positioned to ride out criticism than was the case in 2003, not least as human rights groups will not be able to point to direct links between the company and the military as they did to great effect in past campaigns.

Unfortunately, BAT is just one company operating in Myanmar’s murky world of crony capitalism, and few could defend companies building ongoing relationships with controversial private conglomerates with links to the military.

Whether such companies should withdraw from Myanmar is a matter for debate, but at the very least, partnerships like these should raise concerns among policymakers and, especially when these companies claim to support human rights, draw the ire of consumers too.