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For Foreign Businesses in Myanmar, Coup Creates 'Unworkable' Situation -- Update

21/03/2021 4:24pm

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By Jon Emont 

SINGAPORE -- Foreign businesses in Myanmar are struggling to operate in an increasingly volatile environment, as the military uses lethal violence against a swelling protest movement opposing last month's coup and swaths of the country's workforce go on strike.

Bank employees and port workers aren't punching in, part of a massive civil-disobedience campaign meant to pressure the military regime to restore elected government. That has paralyzed Myanmar's financial system and logistics arteries, with executives scrambling to work out how to pay salaries and import raw materials.

Migrant workers have been fleeing industrial areas near Yangon, the country's largest city, since security forces gunned down at least 37 demonstrators there on March 14 and flames tore through Chinese-owned garment factories amid the chaos.

Energy giants Total SA and Chevron Corp., which have business ties with a state-owned company, are under pressure to prevent revenue from flowing to the army that controls the government.

"For businesses in general the conditions are pretty unworkable," said a senior U.N. official based in Myanmar. "There's a sense of impending doom."

The Feb. 1 coup ended Myanmar's decadelong transition toward democracy. Police and soldiers have responded with horrific violence to the protests that followed, killing at least 247 people, according to the Assistance Association for Political Prisoners, a nonprofit that monitors arrests and fatalities.

Reduced investment by foreign companies may not shift the military's calculus, analysts focused on Myanmar say, because the army appears more motivated by political primacy than economic development. The generals withstood decades of economic sanctions -- lifted gradually over the past 10 years during the democratic shift -- and are accustomed to ruling under international isolation.

Still, an economic collapse caused by widespread strikes, potentially amplified by a threat of foreign investors exiting, would create challenges for them. Sectors like apparel and infrastructure have attracted substantial investment over the past decade, especially from Asian countries, and employ hundreds of thousands of workers.

Some foreign companies are relocating staff who live near protest hot spots to secure hotels and are encouraging nonessential expatriate employees to leave the country, according to Jack Mullan, chief executive of Singapore-based risk-management firm Barber Mullan and Associates, which advises foreign businesses there.

Even basic tasks have become complicated. Companies that typically wire money from elsewhere in Asia to pay wages are finding that, with many banks in Myanmar closed, transfers aren't going through. Mr. Mullan said a transfer he made to a private Myanmar bank on March 2 has yet to clear.

"It's a big stress for many companies -- how will they get cash at the end of the month?" he said.

Dale Buckner, chief executive of McLean, Va.-based security-services company Global Guardian, said his firm has a workaround to help its seven large corporate clients in Myanmar: It wires funds to a broker in Singapore who has cash on hand in Myanmar, and the cash is then delivered in bundles to the offices of the Myanmar clients. The total delivered has reached around $2.5 million, and the broker's fee has risen to 25%, Mr. Buckner said, from 12% six weeks ago.

Since early March, clothing brands that source garments from Myanmar, such as Sweden's Hennes & Mauritz AB and Italy's Benetton Group SRL, have paused new orders, citing concerns over instability. Garment manufacturers, whose production accounts for around a quarter of the country's exports, say it is becoming harder to staff factories. Thousands of workers have fled two of Yangon's industrial suburbs since the March 14 protests that left dozens dead.

"My parents are worried for us," said Ma Thida, 33, a sewing operator at a Chinese-owned factory, who returned to her rural family home.

Despite the risk, anticoup protests have drawn citizens from all layers of society. One Western businessman in Yangon said some of his employees regularly attend them during working hours. "It's very difficult to tell them not to go," he said.

Workers at Dutch beverage giant Heineken NV, which has a brewery in Myanmar, have pressed the company to stop forwarding to the government the income tax it deducts from employee salaries, as a way to deny the military funding, according to Heineken employees in Yangon.

A business analyst in Yangon familiar with the situation said companies like Heineken face a quandary: Break the law by not delivering the tax money, or risk being branded pro-military -- and perhaps suffering boycotts -- by delivering it over employee objections.

"All companies are having this problem," the analyst said. "Staff are saying, 'We don't want to pay income tax.'"

A spokeswoman for Heineken said after this article was published initially that the company was "committed to complying with the law and paying taxes to ensure we can continue to operate," but added that "given the current situation in Myanmar" the company has requested a deferment of its tax payments.

Some are finding a third way. A Yangon-based Western lawyer said he knows of several businesses that are offering protesting staff the option of becoming independent contractors, making the workers responsible for delivering their own income taxes to the government. They can choose not to, without implicating the company.

Multinationals working with state-owned businesses are finding it harder to escape scrutiny. Activists and a group representing ousted Myanmar legislators have called on French energy company Total -- whose operations in Myanmar waters supply gas for the domestic market and for export to neighboring Thailand -- to stop transferring revenue to its state-owned partner Myanmar Oil and Gas Enterprise. The legislators' group said in a letter to Total that continuing the payments would fund the junta.

Human-rights campaigners are asking energy companies in the country like Total and Chevron Corp., part of the venture with Total, to place the revenue in escrow accounts until civilian rule is restored.

Western oil-and-gas companies worry that could be a breach of contract and invite legal reprisals against local employees, according to a person familiar with their thinking. There are no easy options for exiting the country, the person said. Negotiating a sale to exit from the country could take months or years, and quickly handing over fields to an unprepared new operator could lead to power outages, the person said.

Chevron said it is working to "ensure safe and reliable energy for the people of Myanmar at a time of crisis, and during a pandemic." Total declined to comment. The company, along with other foreign businesses, signed a mid-February statement saying they were watching developments in Myanmar with "growing and deep concern."

Write to Jon Emont at jonathan.emont@wsj.com

 

(END) Dow Jones Newswires

March 21, 2021 12:09 ET (16:09 GMT)

Copyright (c) 2021 Dow Jones & Company, Inc.

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