Burma, a country of around 50 million people is ruled by fear. A military machine of 400,000 soldiers denies a whole nation its most basic rights. Aung San Suu Kyi, pro-democracy leader and Nobel Peace laureate, symbolises the struggle of Burma's people to be free.

Burma's Economy and Foreign Investment

Economic decline

Burma was for centuries a crossroads of ancient trade routes between China, India, Tibet, and Southeast Asia. Conquered as part of the British Empire in the 1800s, Burma was developed mainly as an agricultural producer and became one of the world's leading rice exporters. Port facilities, railways, and roads were constructed in some areas, and investment focused on mining and other extractive enterprises. Burma is a land with considerable natural resources including minerals (lead, zinc, copper, tin), precious stones (pearls, rubies), timber (predominantly teak), oil and natural gas. George Orwell (who served as a civil servant in Burma between 1922-1927) once predicted that of all the countries of the British Empire, none was more likely to prosper on achieving independence than Burma. When independence from Britain was granted in 1948, Burma was still known as the “rice bowl of Asia” (the largest exporter of rice in the world), despite suffering the devastating effects of the second world war.

Under a democratic government until 1962, Burma made slow but steady economic progress comparable to that of other developing nations. A 1962 army coup put Burma on a very different course. The military-dominated Burma Socialist Programme Party (BSPP) adopted the "Burmese Way to Socialism” which imposed central planning and rejected foreign capital, as the official state ideology for a quarter century. As its Southeast Asian neighbours experienced explosive growth and foreign investment, Burma became isolated, xenophobic, and increasingly impoverished.

By 1987 Burma became one of the United Nations’ Least Developed Countries, and at the start of the 21st century, Burma is among the world’s lowest-income countries. This dramatic change in Burma’s economic fortunes over the last 50 years has largely been the result of the rule of the military dictatorship which came to power in 1962.

In 1988 the regime was left bankrupt in the aftermath of its crackdown on the popular democracy uprising, the massacre of thousands of civilians and as a result of three decades of economic mismanagement. The regime immediately reversed thirty years of economic isolationism and welcomed foreign investment in order to build its military capacity and re-establish government control of the country. Foreign multinationals such as Unocal and Total Oil came to the regime’s aid.

The junta quickly realized that forests and fisheries were finite resources, however; and sought other foreign investment. In addition to immediate hard currency earnings that the generals would receive in signatory bonuses, taxes and profits, foreign investments offered a degree of international respectability to a regime with one of the world's worst human rights records. Further, significant Western investment in itself would tend to become a factor in foreign policy formulation. The greater the stakes held by American and European companies, the less likely their governments would be to take a strong stand against even a cruelly dictatorial regime.

Fuelling the Oppression

International investment may help open societies and bring democratic change in some countries. In Burma, however, foreign investment helps perpetuate the rule of a repressive, un-elected junta. Large investment in Burma is carried out through joint ventures with the military regime. Much is directed through companies owned and operated by Burma's Ministry of Defence, notably the Union of Myanmar Economic Holdings (UMEH).

Over the last fifteen years Foreign Direct Investment has flowed into Burma, largely for tourist infrastructure and natural resource extraction projects. During the same period Burma’s military has expanded from 180,000 personnel to 400,000 while the country’s health, education and public services have almost collapsed.

Military spending has fluctuated between a third and a half of the regime’s budget during the 1990s. A country of around 50 million people has one of the largest armies in Asia, and yet has no external enemies.

Jane's Defence Weekly reported in July 2001 that Rangoon was buying 10 MiG-29 jet fighters from Russia for USD 130 million and that the money was coming from Thai gas purchases . The down-payment for the MIGs (30 percent of the total) came in the same week that the state-owned Petroleum Authority of Thailand paid Burma USD 100 million in royalties for gas due to be piped ashore from fields in the Gulf of Martaban (operated by Total and Unocal). Before the Thais made this payment under the terms of a 1995 contract, Burma had almost depleted its foreign exchange reserves.

Military control of the economy

The Union of Myanmar Economic Holdings Ltd (UMEH) and the Myanmar Economic Corporation (MEC) are the two major industrial conglomerates controlled by the military. They dominate key economic sectors. Shareholders of UMEH are limited to the military establishment. 1

According to a leaked 1995-96 annual report of UMEH, two of the main objectives of the UMEH are 'to support military personnel and their families' and 'to try and become the main logistics and support organisation for the military by gradually establishing industries.' 2

The UMEH has current investments in banking, tourism, import and export of foodstuffs, gems and jade mining and sales, construction materials, leasing of fishing boats, real estate, and general retail. The UMEH has also been managing the armed forces’ pension funds, giving it a ready source of financing. By 1999 the UMEH had established nearly 50 joint ventures with foreign firms. 3

The MEC was established in order to shift defence expenses from the public to the private sector, i.e. in order to “decrease defence expenditure” while providing funds for the welfare of military personnel and to cover other military needs. 4 The MEC is authorised to conduct business in almost any field of commerce and industry and is not bound by the laws that control other economic activities in Burma. 5

The activities of UMEH and MEC are intended in part to build the military's resource base – enabling privileged economic treatment of army officers and their families. Economic sanctions, targeted at these conglomerates, would make it harder for the military to maintain its defence expenditures at the current level and would reduce the size of the 'economic pie' from which the regime can slice pieces for its patronage networks. Such sanctions would create hardship for mid-level military families. 6 These families form the main base of the junta’s constituency, the people the regime needs to keep happy. If discontent occurs in this constituency the pressure for reform will be substantial.

The EU’s economic relations with Burma

EU policy on Burma is critical for two reasons, firstly because the EU has provided much of the investment that has buttressed Burma’s dictatorship, and secondly because the EU’s role at the UN and its relationship with ASEAN is key to the prospects for successful diplomatic initiatives on Burma.

EU investment in Burma has increased in importance over the last decade. Though estimates of Foreign Direct Investment (FDI) inflows to Burma vary according to different sources, it is clear that in the energy sector EU investment has been vital. Between 1995/6 and 1999/00 total actual FDI in the oil and gas sectors accounted for USD 1,531 million of a total actual FDI for all sectors of USD 2,765 million. 7 In 1999 EU FDI accounted for 43 percent of all investment in Burma, and in 2000 the figure rose to 71.2 percent. 8

Apart from EU investment in Burma, the EU’s trade relations with Burma have increased significantly over the last decade. (see figure 3)

In total European imports from Burma and European investment to Burma between 1988 and 2002 have had a combined value of at least USD 4 billion.

The fact that many European companies remain active in Burma can also be gauged from looking at the lists of companies with links to Burma maintained by Global Unions. Of a total of 372 companies mentioned, 104 are European companies. 9

There are growing concerns that where the US has tried to cut off finance to the regime (see table 1), the EU will continue to be a source of economic comfort for Burma’s military establishment.

Since the 2003 US ban on remittances, transfers and transactions denominated in dollars, the regime has increasingly looked to the euro as its currency for international commercial activity. In Burma only a handful of banks are allowed to handle foreign transactions, the Central Bank and three state-owned banks (the Myanmar Foreign Trade Bank, the Myanmar Investment and Commercial Bank, and the Myanmar Economic Bank).

By collaborating with Burmese banks, SWIFT (a business owned by leading financial institutions) is making it possible for Burma to conduct international transactions in euros and other currencies.

US Sanctions on Burma

The US has imposed both a ban on US investment to Burma and a ban on Burmese exports to the US. It is the only country to have implemented such sanctions.

Table 1. Impact of current US Measures

Aung San Suu Kyi on foreign business

"What do these advocates of precipitate economic engagement see when they look at our country? Perhaps they merely see the picturesque scenery, the instinctive smiles with which Burmese generally greet visitors, the new hotels, the cheap labour and what appear to them as golden opportunities for making money. Perhaps they do not know of the poverty in the countryside, the hapless people whose homes have been razed to make way for big vulgar buildings, the bribery and corruption that is spreading like a cancerous growth, the lack of equity that makes the so called open market economy very very open to some and hardly ajar to others, the harsh and increasingly lawless actions taken by the authorities against those who seek democracy and human rights, the forced labour projects where men, women and children toil away without financial compensation under hard taskmasters in scenes reminiscent of the infamous railway of death of the second World War.

It is surprising that those who pride themselves on their shrewdness and keen eye for opportunity cannot discern the ugly symptoms of a system that is undermining the moral and intellectual fibre and, consequently, the economic potential of our nation. If businessmen do not care about the numbers of political prisoners in our country they should at least be concerned that the lack of an effective legal framework means there is no guarantee of fair business practice or, in cases of injustice, of reparation. If businessmen do not care that our standards of health and education are deteriorating, they should at least be concerned that the lack of a healthy, educated labour force will inevitably thwart sound economic development. If businessmen do not care that we have to struggle with the difficulties of a system that gives scant attention to the well-being of the people, they should at least be concerned that the lack of necessary infrastructure and an underpaid and thereby corrupt bureaucracy hampers quick, efficient transactions. If businessmen do not care that our workers are exposed to exploitation, they should at least be concerned that a dissatisfied labour force will eventually mean social unrest and economic instability."

1.According to a leaked 1995-96 annual report of UMEH, this conglomerate was formed April 27, 1990 as a 'special public company, with shareholders limited to the Directorate of Defence Procurement, Ministry of Defence, Defence Regimental Institutes, and other bodies of the Defence Services and War Veterans.', cited in Philip S. Robertson: "Sanctions Are Working in Burma”. Online commentary. Irrawaddy, 26 August 2003. Online at www.irrawaddy.org/com/2003/com31.html

2.Philip S. Robertson: "Sanctions Are Working in Burma”. Online commentary, Irrawaddy, 26 August 2003. Online at www.irrawaddy.org/com/2003/com31.html

3.Andrew Selth. 2002. Burma’s Armed Forces: Power Without Glory. Norwalk: EastBridge, p. 147.

4.Maung Aung Myoe. 1999. The Tatmadaw in Myanmar since 1988. An Interim Assessment. Working Paper No. 342. Canberra: Strategic and Defence Studies Centre, RSPAS, p.13. Cited in Andrew Selth. 2002. Burma’s Armed Forces: Power Without Glory. Norwalk: EastBridge, p. 147.

5.Andrew Selth. 2002. Burma’s Armed Forces: Power Without Glory. Norwalk: EastBridge, p.147.

6.Philip S. Robertson: "Sanctions Are Working in Burma”. Online commentary, Irrawaddy, 26 August 2003. Online at www.irrawaddy.org/com/2003/com31.html

7.International Monetary Fund. 1997. Myanmar: Recent Economic Developments, Statistical Appendix. Table 39. Source data provided by Myanmar authorities.
Available at netec.mcc.ac.uk/BibEc/data/imfimfscr1.html

8.International Monetary Fund and Burma Economic Watch tables.
Online at www.ibiblio.org/obl/docs/Tables%20and%20Data.htm

9.Online at the Global Unions Website www.global-unions.org/burma/

Further Reading:

• The EU and Burma: The Case for Targeted Sanctions
• Companies Supporting The Regime In Burma: 'The Dirty List' and 'The Clean List' (updated August 2004)
• Economist Intelligence Unit: Country Report Myanmar (Burma)
• The Irrawaddy: http://www.irrawaddy.org/aviewer.asp?a=3790&z=109
• The EU's relations with Burma
• Association for Sustainable and Responsible Investment in Asia