The push for Japan’s engagement in Myanmar is multi-fold: it is part of the economic growth strategy in Prime Minister Shinzo Abe’s “Abenomics,” it has a historical legacy for Japan, and serves as a geopolitical chess piece to displace Chinese influence in the region. Since Myanmar’s initial political and economic opening in 2011, Japanese companies, trade associations, and aid organizations have aggressively pursued opportunities in Myanmar, making Japan one of its largest investors. However, the new Aung San Suu Kyi-led National League for Democracy (NLD) government views Japan, whether deserved or not, as being too closely tied with the previous Union Solidarity and Development Party (USDP) government, a view that undermines the expansion and success of Japanese businesses. Additionally, Aung San Suu Kyi is more open to Chinese engagement. While Japanese companies face competition from Western firms in Myanmar, its most significant competitor remains China. Japan companies will have to adjust its approach to ensure it remains competitive and become the country’s top investor.
Following years of global sanctions policies and divestments, Japan undertook its classic “Japan Inc” strategy to re-enter the Myanmar market, with the Japanese government, including the Japanese External Trade Organization (JETRO) and Japan International Cooperation Agency (JICA), working closely with businesses and major conglomerations. Since its initial re-engagement, hundreds of Japanese businesses have investments or at least representative offices in country, billions of yen in assistance or loans have been dispersed, and one of Myanmar’s main Special Economic Zones, Thilawa, is now operating.
But Myanmar’s relationship with Japan is complex and views vary on Japanese investment; Japanese companies appear to give back to communities and hire locally but at times are exploitive, particularly during the junta era and in some of their more recent infrastructure projects. In fact, Japan’s most visible and successful investment has been the Thilawa Special Economic Zone; however, this project generated some controversy at its beginnings. Thilawa employs tens of thousands of workers producing food, consumer products, and construction materials for the domestic market, as well as export-oriented goods such as shoes, car parts, and garments. Investors from more than 16 countries are located in Thilawa and the SEZ has received an estimated USD $980 million in FDI since its 2015 launch. However, local farmers protested the development, stating their lands were confiscated without proper compensation and the displaced residents state they were not fully consulted on the project. With growing land tenure issues and increasing public engagement on foreign investment decisions, major Japanese investments will encounter similar protests; the Myanmar government has responded to several of these protests, including the Chinese-built Myitsone dam–though the scale of Thilawa-related protests were not nearly as widespread and garnering nationwide attention as Myitstone, a project that would have caused environmental devastation and displaced many villagers*— and several high-rise real estate projects in Yangon, by shutting down the projects.
Further adding to the acrimony is that Japanese businesses and government officials also did not foster relationships with the NLD while they were the opposition party. This approach has resulted in the Japanese scrambling to build and strengthen ties to the NLD following its landslide victory in the 2015 election, with several high-level visits and invitations sent and promises of yen loans and increased investment in agricultural, education, finance, health care and infrastructure sectors offered.
Complicating Japan’s efforts is the re-emergence of Chinese influence in Myanmar. Despite strong anti-Chinese sentiment and an apparent slowdown in investment during the USDP government, China is still Myanmar’s top investor and ties between the government are strengthening. There have been several high-level visits and on the margins of the recent Belt and Road Forum, Myanmar signed five MoUs, including the establishment of a China-Myanmar Border Economic Cooperation Zone, support for healthcare, and assistance for restoration and preservation of historic and cultural heritage sites.
Steps to Remain Competitive
Japanese companies have an opportunity to not only build on its generally positive reputation, but strengthen it to ensure its future competitiveness. Of the hundreds of Japanese companies that have entered the market, including powerhouses such as Mitsubishi, Marubeni, Hitachi, and Sumitomo, few have seen significant returns because of lack of infrastructure, electricity, legal and regulatory framework, and lack of relationships to the government and community. However, the following recommendations not only address these challenges but offer paths for Japanese companies to be both competitive and successful.
Infrastructure: Japan’s investment in infrastructure, namely the type of infrastructure, will clearly set it apart from competitors. Focusing on transportation and economic zones not only provide returns on investment for Japanese companies and significantly helps Japanese companies in or entering the market, but it shows very publicly what Japan can do.
The right sectors: Not all sectors are ripe for foreign investment and some are only slowly opening to new investors, such as insurance, and many will not provide decent returns on investment for a long time. Retail, consumer goods, healthcare, power generation, and telecommunication services are hot sectors and need capable companies to deliver.
Stakeholder engagement: This is a weak point for Japanese companies; significant stakeholder outreach, to include the relevant government players and impacted communities, particularly in rural and ethnic minority dominated areas, is critical and it will save future significant reputational and implementation headaches and potential financial losses. Government outreach is an obvious one as it holds the authority to approve the investment and set the parameters of engagement. Community outreach is often overlooked and to ignore this key step will undermine the success of the project; although Thilawa was not cancelled, many projects have been by both the USDP and NLD government due to protests.
Build relationships: In a similar vein to stakeholder engagement, Japanese companies and government agencies must move beyond solely dealing with the majority government and foster relationships with relevant players. In Myanmar, each State and Division has strong political centers that revolve around ethnic identity or political leanings. Any one of these groups could gain governing power in local governments and they will have a say over investment in their region. For example, Japan’s early donor projects in Kachin State were cancelled due to lack of understanding of local concerns and safety; if Japan had conducted the appropriate outreach, the nature of the engagement may have slightly altered but would have been welcomed. Â Even on the national level, Myanmar will likely change to a coalition government, with no one party as the super majority, meaning that Japanese companies will have to gain the trust of more than one party. The 2015 election should serve as a lesson learned for Japanese companies; building relationships with influential players is important.
Corporate conduct: Chinese companies have long been criticized for their labor practices, namely bringing in their own workers and failing to hire locals or with the few exceptions, hiring locals to do menial and dangerous tasks, particularly in mining. Japanese companies have not received the same sense of disdain but there are a few ways its corporate conduct can continue to set itself apart from competitors, particularly from the West. Though Japan does hire locals, many complain that there is a “glass ceiling” in moving up the management chain, with few available opportunities for higher level positions. Investment transparency is also necessary; profit seeking businesses are viewed with a degree of suspicion and misunderstanding, demonstrating how a company operates, what it is doing, and how and why both the company and the people should benefit, either financially or improved livelihoods, will go a long way.
Though Japan has been relatively successful in entering the Myanmar market, its competition has risen, especially with the removal of the U.S. sanctions program and a new NLD-led government that has different relationship. Additionally, the government and public have become more vocal on foreign investment, eyeing it with both cautious optimism and concern. Japan will need to recalibrate its strategy to maintain its positive reputation and ensure both short and long-term success.
In addition to Inle Advisory Group, Erin Murphy is currently a 2017-2018 Council on Foreign Relations International Affairs Japan fellow: https://www.cfr.org/fellowships/international-affairs-fellowship-japan
*Author note: The author has added clarification to the differences between the Thilawa/Myitsone projects.