Myanmar stands to lose FDI in critical sectors

5 February, 2021 12:00 AM printer

NAYPYITAW: Myanmar risks losing billions of dollars of foreign direct investment and diminished growth prospects after the South East Asian slipped back into military rule this week.

The country, which is already reeling from the impact of the Covid-19 pandemic that halted several projects, risks an exodus of international investors, report agencies.

“We’re going to get a situation where there’s going to be a knee-jerk natural reaction where investors just stop. They don’t need to be encouraged,” said Stephen Innes, chief global market strategist at Axi.

“Any further investment is just going to halt and there will be outflows, people will be rushing to get their money out,” said Mr Innes, who is based in neighbouring Thailand.

Capital flight will deal a significant blow to Myanmar’s economy, which has been heavily reliant on foreign direct investment to revitalise certain critical sectors. Trading on the four-year old Yangon Stock Exchange, which has six listed companies, was suspended after the benchmark fell 6 per cent following the coup.

The power and infrastructure sectors have been the biggest beneficiaries of foreign investment following the end of the military junta rule in 2011. The sector drew more than $21.8 billion, accounting for a fifth of overall FDI in the financial year 2019-20, according to Fitch Analytics.

Myanmar, which also has significant gas reserves estimated at 23 trillion cubic feet risks $2bn worth of projects reaching final investment decision, according to consultancy WoodMackenzie.

Companies with longer-term infrastructure or exploration deals must be “nervous”, said Tim Dobermann, an economist covering Myanmar.

“Renegotiating existing gas export contracts is likely to prove contentious and may not be a fight the military government wants to take up at this point in time,” he added.

The country, formerly known as Burma, is likely to see a backlash from investors as international sanctions are likely to be applied against the military regime.

G7 foreign ministers of Canada, France, Germany, Italy, Japan, the UK and the US and the High Representative of the European Union, condemned the coup in Myanmar.

They called upon the military to immediately end the state of emergency, restore power to the democratically-elected government, to release all those unjustly detained including Aung San Suu Kyi and to respect human rights and the rule of law.