Japanese firms struggle under Myanmar's military ruleーNHK WORLD-JAPAN NEWS

Key Concepts

• Myanmar General Election (2023): The recent election conducted by the ruling military junta, widely expected to lack international recognition.
• Tilawa Special Economic Zone: A key industrial area in Myanmar developed with Japanese investment.
• Foreign Direct Investment (FDI): Investment made by a company or entity based in one country, into a company or entity based in another country.
• Economic Sanctions: Penalties applied by one country (or group of countries) against another, typically involving trade restrictions.
• Reputational Risk: The potential for negative publicity that could damage a company’s brand and financial performance.
• Withdrawal vs. Staying: The strategic decisions faced by Japanese companies regarding continued operation in Myanmar post-coup.

Political & Economic Context: Myanmar Post-Coup

The recent general election in Myanmar, concluded last Sunday, is unlikely to garner international recognition. This lack of recognition is anticipated to maintain existing economic sanctions against the country, creating significant challenges for international businesses, particularly Japanese companies with operations within Myanmar. Prior to the 2021 military coup, Myanmar was viewed as “Asia’s last frontier,” attracting substantial foreign investment, with over 400 Japanese companies establishing a presence in the market. However, the coup significantly disrupted the economy and dampened investor enthusiasm.

The Impact on Japanese Investment: Tilawa Special Economic Zone

The Tilawa Special Economic Zone, near Yangon, serves as a prime example of the impact of the political instability. Developed through collaborative efforts between Japanese public and private sectors, the zone experienced a surge in investment before the coup. Now, a growing number of firms are choosing to withdraw from the Myanmar market.

Case Study: Oshima Noki – Adapting to a Challenging Environment

Oshima Noki, an agricultural machinery manufacturer from Nigata Prefecture, Japan, represents a company attempting to navigate the difficult circumstances and remain operational. Established in the Tilawa Special Economic Zone in 2018, the company initially focused on producing rice-drying machines for the local market. At its peak, Oshima Noki employed over 30 people; however, employment has decreased to approximately 20 due to a “sharp fall in orders.”

The company faced significant operational hurdles following the coup, including restricted access to sales areas and outbreaks of fighting, forcing a halt to sales operations to ensure employee safety. Oshima Noki is now actively seeking new business opportunities, leveraging its existing “technical knowhow” – specifically its expertise in sheet metal production and simple shelving – to secure orders beyond its original product line. As stated by the company, they are hoping to “win orders for that kind of work as well.”

Expert Perspective: Risks and Difficulties of Re-entry

An expert interviewed in the report highlights the significant risks associated with maintaining ties to the military regime or engaging in business that directly benefits it. This “reputational risk” remains a major concern for companies operating in Myanmar. The expert emphasizes the difficulty of re-entering the market once a company has withdrawn, stating, “Once a company withdraws, reinvesting and re-entering the market is very difficult.” Furthermore, the expert questions the value of continuing operations if a firm is consistently operating at a loss, suggesting that continued operation in the red is likely unsustainable.

Future Outlook & Uncertainties

The report concludes that Myanmar’s future appeal to international businesses is “far from certain.” While some companies hope the election results will lead to political stabilization and an improved business environment, the expert expresses skepticism about this prospect. The ongoing political instability and the potential for continued sanctions create a highly uncertain environment for foreign investment.