Just four days after the overthrow of the civilian government of Aung San Suu Kyi, Japanese brewer Kirin decided to quit a joint venture linked to the country’s military.
The conclusion, reached during an emergency meeting, was swift and unanimous. “It was no longer tenable. I had to make a decision quickly, ”said Yoshinori Isozaki, managing director of Kirin, one of Myanmar’s largest foreign investors.
With huge crowds of demonstrators in Myanmar’s streets and future in question, the coup presented a moral and practical crisis to the hundreds of Japanese companies that have invested nearly $ 2 billion since the country’s democratic transition began in 2011 , in the hope of capturing the growth of one of the last frontier markets in Asia.
According to several executives and experts, however, Kirin had to act because his company had direct ties to the Tatmadaw, the Myanmar army, which was censored nationally and internationally for overturning a democratic election.
But for most other Japanese companies in Myanmar, it’s business as usual – as far as possible dozens of thousands government officials, transport workers, medical personnel and others protest against the military.
“While closely monitoring the situation and hoping for a speedy resolution, many Japanese companies remain calm and continue their operations,” said Kazufumi Tanaka, director general of the Japan Foreign Trade Organization office in Yangon.
About 70% of Japanese companies in the Thilawa Special Economic Zone are back in operation, Tanaka said, including all the garment manufacturers who had flocked there in search of low labor costs. Foreign investors, including from Japan, are aware that they are not being seen as abandoning local workers in times of national crisis.
Foreign direct investment is a vital source of growth for Myanmar, one of the poorest countries in Asia and Japan is an important partner, with official loans from Tokyo to Yangon reaching 1 billion yen (9.5 billion dollars) over the past decade.
Having maintained ties with Myanmar during the previous period of military rule despite pressure from Washington to distance itself, Japan has also been more reserved than Western countries in condemning the February 1 coup.
Tokyo rarely criticizes other Asian countries on governance or human rights issues and has long viewed its economic presence in Myanmar as a counterweight to China, the country’s neighbor and major trading partner.
Unlike many Japanese companies that have set up local factories, Kirin acquired a 55% stake in Myanmar Brewery, the country’s largest beer producer, for $ 560 million in 2015 and later spent $ 4.3 million for a controlling stake in Mandalay Brewery. The partner of the two joint ventures is the state-owned Myanma Economic Holdings (MEHL), controlled by the military.
Even before the coup, the Japanese group was under intense pressure from activists to review its operations in Myanmar after a the investigation failed to find where the product of beer companies ended up. The Myanmar army was accused crimes against humanity for committing atrocities against Rohingya Muslims and other minorities.
Kirin stressed that he is not withdrawing from Myanmar and is looking for a local non-military partner to buy MEHL’s stake. But analysts said it was not clear whether the military was willing to give up its lucrative beer business.
In contrast, many other Japanese investors in Myanmar have no ties to the military and, having invested in offices, factories or power plants, intend to continue operating.
Japanese investors in the country include large trading houses such as Sumitomo, which is involved in electricity, logistics and telecommunications; the automakers Toyota and Suzuki, who have built local factories; as well as real estate developers, food producers and clothing manufacturers. Daiwa Securities played a central role in the establishment of the Yangon Stock Exchange.
According to people close to one of Japan’s largest trading houses, news of the coup sparked an emergency senior management meeting. The tone, said one person involved, was alarming and feared that a return to international sanctions could sharply reverse the country’s economic gains in recent years.
“Business houses won’t be like Kirin. I don’t think their decision-making will be the same, ”said Thanh Ha Pham, analyst at Jefferies in Tokyo. “With or without a military government, Myanmar needs this infrastructure and Japanese companies have invested years and a lot of money. They won’t just go home, they will stay.
Toyota has invested $ 53 million to set up a vehicle assembly plant in Myanmar, which was due to open this month. The company has already resumed preparations for the construction of Hilux vans.
Suzuki Motor, whose history in Myanmar dates back to the late 1990s, said its two assembly plants remain closed to ensure employee safety. Citing strong demand for vehicles, the compact automaker said last year it would spend an additional 12 billion yen to open a third factory.
United States announced sanctions against the generals who led the coup and three companies linked to the military, other Western countries likely to follow. But this has no immediate effect on foreign investors, and even broader sanctions might be manageable given that few Japanese companies export from Myanmar.
“For many Japanese companies, this is local demand,” JETRO’s Tanaka said. “With automobiles or food, he is targeting Myanmar’s domestic market in anticipation of future economic growth.”