Myanmar is in the midst of a large-scale
privatization drive that promises, for better or
worse, to shake up one of Asia's most moribund
economies. However, investors keen to get involved in
the fire sale would be wise to weigh the
experience of media entrepreneur Ross Dunkley, who
is languishing on unclear charges in the country's
Insein prison.
Dunkley, chief executive
officer and until recently editor-in-chief of the
Myanmar Times newspaper, was arrested on February
10 after returning from a business trip to Japan.
A statement from his publishing group said that
his arrest was due to immigration violations.
Rumors have since surfaced of an altercation with
a sex worker in a bar in the former capital city
of Yangon.
However, the real reason behind
his arrest seems to be a power
play by his local business
partner, Tin Htun O, who in recent days has
assumed editorial control of the venture. Many
observers suspect that since the arrest and
sentencing of Dunkley's previous business partner
and political patron in 2004 that the country's
ruling generals have been keen to exert more
control over the profitable joint venture. Dunkley
was known to be in tense negotiations with his
partner over the future leadership of the paper at
the time of his arrest.
Tin Htun O owns
51% of the paper's parent, Myanmar Consolidate
Media - a group of foreign investors including
Dunkley hold the rest - and has long exercised
management control, according to the Wall St
Journal.
Dunkley 20 years ago launched
the Vietnam Investment Review, which he has since
left, and in 2008 bought with Western partners
control of the Phnom Penh Post. David Armstrong, a
former editor of the South China Morning Post who
works with Dunkley on the Cambodian paper, said
police had decided to take no action on the sexual
assault charge and that the woman had subsequently
withdrawn her complaint, the Journal report said.
Dunkley's incarceration coincides with the
government's announcement of a fresh round of
sales of state-owned enterprises (SOEs) in line
with the country's transition from military to
civilian rule after last November's general
elections. However, the privatization process has
so far been fraught with charges of favoritism of
businessmen close to the country's military rulers
and a lack of transparency surrounding the deals.
Myanmar is bidding to transform its
economy after decades of strong state-control and
poor performance that has kept the country at the
bottom of most economic and development indexes.
Most industries were nationalized when the
military seized power in 1962 and declared it was
following the "Burmese Way to Socialism". That
inward-looking campaign aimed to limit foreign
influence in the economy while promoting the
military's interests.
Certain industries
were privatized as early as 1995, but the pace of
the sell-off accelerated last year in the lead up
to the elections. Myanmar officials have said that
the government aims ultimately to sell 90% of its
held assets. Officials have also said that 70% of
those holdings have already been sold. However, it
is unlikely that the country's most important
revenue spinners, including control over offshore
oil and gas fields, will be spun off to private
interests. Khin Maung Kyaw, deputy minister of
industry No 2, was reported in the local press as
saying that the privatization drive was in line
with the experiences of other newly democratic
countries. However, Myanmar's state assets have
been made available mainly to military-linked
holding companies, private businessmen with close
ties to the regime and their relatives. Few, if
any, deals have involved foreign investors.
In early 2010, 110 business properties, 32
buildings, 246 gas stations and a number of port
facilities along the Yangon River that handle much
of the country's international trade were sold to
private business interests. Most of the buildings
were former government offices in Yangon, where
the capital was situated before its move to
Naypyidaw in 2005. The businesses included a
number of gem and tin mines, agricultural land and
factories producing commodities such as soft
drinks and cigarettes.
Another round of
privatizations, including initial offerings of 76
state-owned enterprises and properties, kicked off
on January 26 this year. State-run newspapers
reported that the sales included former government
offices in Yangon, many of which are dilapidated
and would likely be demolished to make room for
new developments, and loss-making enterprises that
weren't sold during the previous round of sales.
The offerings included state-owned
factories that produce textiles, consumer goods,
electronic and electrical goods, as well as land,
buildings, cinemas and warehouses in Yangon and
other areas of the country. Another announcement
was made on February 15 that put 268 enterprises,
buildings and parcels of land on the auction
block.
Many of the properties and
enterprises have been sold to either the Union of
Myanmar Economic Holdings (UMEH) and the Myanmar
Economic Corporation (MEC). UMEH is run by the
military's quartermaster general rather than
private investors, raising questions about the
integrity of the divestments. MEC is also a
questionable participant in the privatization
process since it is a government body and
responsible for controlling the funds raised from
the sale of SOEs.
Sales to private
investors have been even more opaque. During the
2010 asset sales, announcements were made quietly
to small, select groups of businessmen, many known
to be close to the generals. This, critics say,
provided them with privileged choice before the
assets were made more widely available to bidders.
The lack of transparency has increased the odds
that the most profitable assets have wound up in
the hands of the military's cronies or their
relatives.
Most large private companies in
Myanmar have strong ties to the country's military
rulers. This has become a matter of necessity in
order to receive operating licenses and lucrative
state contracts. Economists have noted that
businessmen in Myanmar often participate knowingly
in loss-making government projects, such as
infrastructure development schemes, in order to
maintain their political connections.
Friends in 'high'
places Prominent businessmen who have
participated in recent privatizations include Tay
Za of the Htoo Group of Companies, Steven Law of
Asia World, Zaw Zaw of Max Myanmar Group, Htay
Myint of the Yuzana Company, Win Aung of Dagon
International and Khin Shwe of Zaykabar Co Ltd.
All of these businessmen are currently on the
United States' financial sanctions list.
The Htoo Group has interests in logging,
construction, tourism, mining and
telecommunications. Its owner and chief executive
officer, Tay Za, is known to be close to junta
supremo and now head of the newly created "State
Supreme Council" Senior General Than Shwe. He is
also known to be close to former General Shwe
Mann, now the speaker of the newly founded
People's Parliament, and his son, Aung Thet Mann.
Both sit on the Htoo Group's board of directors.
Steven Law's Asia World is perhaps the
country's largest and most diversified
conglomerate, with ventures spanning industrial
investment, transportation and port and road
construction. The company is constructing an
international airport at the new capital and is
expected to run the facility upon completion.
Pioneer Aerodrome Services, an affiliate of Asia
World, was awarded the concession to run Yangon's
international airport last year. Steven Law is the
son of famous drug lord Lo Hsing Han.
Zaw
Zaw is Tay Za's main rival for the title of the
richest man in Myanmar and has been active in the
privatization process. His Max Myanmar Group has
extensive interests in gem mining, timber, tourism
and construction and it recently won a lucrative
contract to participate in the development of a
new deep-sea port project at Dawei in southern
Myanmar. Zaw Zaw is close to Senior General Than
Shwe and former Lieutenant General Tin Aung Myint
Oo, the junta's Secretary-1 and now the country's
"first vice president".
Htay Myint's
Yuzana Company is involved in tourism, real
estate, fisheries, palm oil production and rubber.
The company also owns the Yuzana Supermarket and
Yuzana Hotel in Yangon and an oil refinery in
Thaketa township near the old capital. Khin Shwe
is Myanmar's leading property developer and plays
a prominent role in the tourism industry through
his chairmanship of the Myanmar Hotelier
Association. His daughter is married to Shwe
Mann's youngest son.
Another company with
close ties to senior military officers is the
Kanbawza Bank, one of the country's largest
privately held financial institutions. The bank is
part of Aung Ko Win's Myanmar Billion Group, which
has interests in banking, mining, gems and
large-scale commercial agriculture. It is also on
the list of companies sanctioned by the US
Treasury Department.
Aung Ko Win, is
reportedly close to junta number two Vice-Senior
General Maung Aye, who is the other major
shareholder in the bank. Maung Aye was a regional
commander in Shan State, from where Aung Ko Win
hails. Kanbawza Bank secured a controlling 80%
share of national carrier Myanmar Airways
International in last year's mass sale of state
assets.
Some analysts believe the sale of
Myanmar's SOEs could mark a dramatic shift for the
economy. Most of the enterprises that have been
sold were run by the state since their inception
and that private ownership will lead to greater
efficiency. However, many are expected to face
difficulties if they are simply rebranded and
expected to compete in a more market-driven
economy without wholesale restructuring.
Because details of the sales remain
sketchy, it is unclear if the process represents a
genuine attempt at economic reform or is instead a
thinly veiled asset grab aimed at maintaining the
military's hold over the economy. Many observers
saw the 2010 sales as a means for the generals to
cement the support of the country's wealthiest
businessmen ahead of a potentially delicate
political transition.
Although most of
these businessmen did not themselves run for
office, they financially supported other
military-linked candidates who did. The transfer
of assets from state to private hands will thus
likely ensure the economic well-being of the many
senior military officials who were required to
leave the armed forces in order to become
"civilian" politicians as required under the 2008
constitution.
Some incentive for the asset
sales may also have come from Beijing, which has
strongly and publicly encouraged Myanmar's
generals to reform the economy. China is a top
foreign investor in Myanmar and would likely gain
from a more open investment climate. Than Shwe has
shown interest in China's economic reforms, most
recently during a visit he paid to the Shenzen
Special Economic Zone.
To follow China's
liberalizing model, however, Naypyidaw will need
to allow for greater openness. Total foreign
investment in Myanmar reached US$32 billion as of
October 10, 2010, including major foreign joint
ventures in oil and gas development and electrical
power generation.
A deal signed last year
with Thailand's Ital-Thai Company to develop a
deep-sea port at Dawei could bring in as much as
$13 billion. China has also committed to
investments worth $8 billion in the energy sector,
mostly related to the Shwe oil and gas pipelines
designed to connect southwest China with Myanmar
ports on the Indian Ocean.
Nonetheless,
two opposition parties have spoken out against the
government's handling of the privatization
process. The National Unity Party (NUP), successor
to the Burma Socialist Program Party that
nationalized much of the economy in 1962, has
cautioned against the selling of assets primarily
to individuals close to the regime.
The
party now champions a market economy and
privatization, although it still supports state
regulation of certain businesses and intervention
in the economy. Outside of parliament but still a
political force, the National League for Democracy
issued a similar statement on January 4, claiming
that the privatization policy is creating
monopolies controlled by a select group of elites
and the generals' business cronies.
There
remain big impediments to greater foreign
participation and competition, including not least
US-led economic sanctions, a distorted official
exchange rate regime and questionable rule by law.
As the power play against Dunkley's investment has
revealed, contractual obligations are easily
broken and foreign investments are at risk of
forced takeovers. Until that changes, Myanmar's
privatization drive will remain mostly a domestic
affair of questionable reform value.
Clifford McCoy is a freelance
journalist.
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