By SHIBANI MAHTANI / YANGON | The Wall Street Journal -
Aug 28, 2015
Initial rush for opportunities turns to disenchantment
as political changes lag behind
Eric Rose expected a rush of business advising American companies when he opened a branch of his Manhattan-based law firm in Myanmar three years ago. Today his business is barely hanging on. Photo: Kaung Htet for The Wall Street Journal
YANGON, Myanmar—Many people thought this would become one of
the hottest new markets for American capital a few years ago,
when the country began opening to the West after decades of
Instead, Myanmar has been a letdown for many
investors—especially Americans. Many have already pulled out
after opportunities failed to materialize.
It was “not worth risking our reputation” in Myanmar, said
Ryan Manicom, a head of business development for Holloman Corp.,
a Houston oil & gas services firm. His company shut its country
office this year after it took longer than expected for the
government to open more natural gas to foreign players. Holloman
also worried about local safety standards, he said.
Disenchantment with the business climate comes as concerns
are spreading about Myanmar’s political future.
Although officials say a national election planned for early
November will be free and fair, doubts have deepened since the
main military-backed party this month purged a presidential
hopeful who was linked to democracy icon Aung San Suu Kyi.
Ms. Suu Kyi is barred by Myanmar’s constitution from becoming
president, even though she is widely regarded as the most
Numerous construction projects for new hotels, offices and
condominium buildings in Yangon have stalled, as investors wait
for clearer investment rules and to see how the dust settles
after the November election.
Officials in Myanmar, also known as Burma, say the government
is learning how to implement market overhauls and that the
investment climate will improve.
This “is the transition period from military government to
democracy government,” and from a centrally planned economy to a
market economy, said Soe Thane, minister in charge of economic
affairs in the office of President Thein Sein.
Still, disappointment with the way Myanmar has played out
since its former military junta stepped down in 2010 is palpable
among many U.S. business leaders.
The U.S. began easing sanctions—first imposed in the 1990s—in
2012. Then-Secretary of State Hillary Clinton called on U.S.
companies to “invest in Burma and do it responsibly,” adding,
“let’s all work together to create jobs, opportunity, and
The economy has grown relatively rapidly since then and
people have gained more civic freedoms, including the right to
protest. A more robust media developed as harsh censorship laws
Yet leaders dragged their feet on fully opening some sectors
that Western investors wanted, including financial services and
real estate. Officials say they’ve had to strike a balance
between protecting domestic enterprises and welcoming foreign
Other challenges include Yangon rents that spiked to levels
on par with Singapore, one of the world’s richest cities,
because of a shortage of modern space. Lack of financial
services like wire transfers forced companies to bring cash in
by truck or air.
Washington, meanwhile, has in many ways made it hard for U.S.
firms to do business in Myanmar, even as it encouraged U.S.
companies to go there.
The Obama administration added requirements that forced U.S.
firms to make extensive public disclosures if they invested more
than $500,000. It also kept some sanctions in place in case the
government backtracked on its promised overhauls.
The U.S. Treasury maintained its blacklist prohibiting
Americans from doing business with an estimated 200 individuals
and entities linked to the former military junta. Any U.S. firm
needing a local partner had to make sure no one involved was on
Eric Rose, a U.S. lawyer who opened a branch of his firm,
Herzfeld & Rubin, in Yangon, says about half of Myanmar’s
economy is controlled by the military and another 20% is
dominated by blacklisted cronies, effectively making 70% of
Wary of Washington’s mixed signals, American banks kept
blocking some transactions involving the country. Citibank Inc.
and others made exploratory trips but decided not to do more
Six foreign banks have branches in Myanmar and dozens more
have representative offices, but none are American.
A Citigroup spokesperson says it has assisted clients making
payments into Myanmar “after ensuring full compliance” with U.S.
rules and will keep monitoring the situation.
Europe, by contrast, lifted all its sanctions by 2013.
Carlsberg A/S and Heineken NV invested in breweries there,
while Nestlé SA and Unilever PLC set up manufacturing plants.
Adidas AG and Hennes & Mauritz AB are sourcing garments from the
country. Britain’s BG Group is investing more than a billion
dollars in oil exploration with an Australian partner.
A few big U.S. companies have entered, including
Colgate-Palmolive Co. and Coca-Cola Co., which intends to spend
up to $200 million here over the next few years. Gap Inc. has
started sourcing garments from Myanmar and a two-story KFC
outlet opened in June.
These U.S. multinational brands have large compliance teams
to guide them in extreme-frontier locations. As early movers
some were able to lock up relationships with local partners who
aren’t on U.S. blacklists.
But Rehan Khan, Coca-Cola’s country manager, said the company
is still having trouble delivering its product in many places
because of supply-chain problems.
Gap has kept its sourcing small in Myanmar, limiting it to
two factories outside Yangon. It sources “more than 100 times”
more clothing from Vietnam, a spokesperson said.
The U.S. has declined to lift import duties, meaning
companies like Gap have to pay as much as 17% in tax when
bringing goods home. The European Union in 2013 granted Myanmar
products duty-free and quota-free access to Europe.
Officially, U.S. firms have invested just $2 million in
Myanmar since 2011, according to Myanmar government statistics,
though that doesn’t include an undetermined amount spent through
regional offices in Singapore.
China has invested $5.2 billion since 2011. The U.K. has
spent $1.3 billion and the Netherlands $312 million.
“It is almost like (Washington is) telling us to invest with
a wink and a nod,” said Dave Peck, the American chief executive
of Arrow Technologies, a Singapore-based company that sells
laboratory equipment in Myanmar. He said he has handled his
business through a non-Western bank.
A U.S. Treasury Department spokesperson said remaining
sanctions aren’t intended to hurt American business but to “put
pressure on bad actors.”
It isn’t unusual for investors to overhype markets when they
open to Western capital. Many foreigners abandoned Vietnam when
it failed to live up to expectations in the 1980s and 1990s,
though many global firms eventually located there.
Myanmar has also proved frustrating for some.
Holloman of Houston set up shop in 2013 when Myanmar was
signaling plans to open more natural gas to foreign players. But
the government delayed. When authorities awarded exploration
blocks in 2014, the global market was facing an energy glut.
Many international firms Holloman hoped to team with lost
interest, leaving little for Holloman to do.
Mr. Rose, the lawyer, said he’s struggling to keep his
A balding 60-year-old who wears a pin of the Myanmar and
American flags on his suit, he started planning the venture when
he heard Ms. Suu Kyi was freed from house arrest in 2010.
Mr. Rose, who fled to the U.S. from Communist Romania in his
youth, had worked for American Standard Brands when it
introduced bathroom fixtures into Myanmar before U.S. sanctions
in the 1990s.
He assembled a 65-page budget to start a law office in the
country and convinced Herzfeld & Rubin partners to go in 50-50.
He hired a former armed rebel who had a law degree from Indiana,
and the chief legal counsel of Ms. Suu Kyi’s political party.
He kicked off his venture with a party at a five-star hotel
attended by ambassadors and a famous Myanmar singer.
Business was initially robust, he said. Clients included
American firms exploring opportunities and a pair of New Yorkers
injured in a Myanmar plane crash.
“There was just more and more good news every day,” Mr. Rose
recalled. “I felt like a guy who just bought a new car, and
keeps seeing reviews of how amazing the car is in magazines.”
Several months later, business “literally fell off a cliff,”
he said. American firms were losing interest. He laid off half
his staff of 15 after sinking $200,000 of his own money into the
In May, Mr. Rose said, he got a reprieve when he signed an
American not-for-profit as a client.
Still, he’s recalibrating his expectations.
“U.S. companies are severely handicapped by our government’s
unclear policy” in Myanmar, he said. “When even the banks stay
away…our clients will stay away.”
—Richard C. Paddock contributed to this article
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