SIM Report: Alliance of parallel government, insurgent groups increases security, business risks in Myanmar

SIM Report: Southeast Asia, Issue 12

A survey of 372 companies conducted jointly by ten foreign commerce chambers in the country released on 6 May investigated the impact of the COVID-19 pandemic and the 1 February military coup d’état. The survey included 182 Japanese respondents, 115 Western respondents, 54 local respondents, and 17 from Southeast Asian neighbours. The results indicated that almost 13 per cent of all firms had halted all operations since the coup. Approximately one third of companies reported at least a 75 per cent reduction of activities since the coup, while 21 per cent said they have decreased activities by between 50 and 75 per cent. Only 5 per cent reported that the coup had no impact on their business activities. The survey also forecast increasing termination of employment contracts and salary cuts over the coming months, leading to a surge in unemployment.

The survey underscores the greatly increased business risks following the coup. Risks are likely to rise over the coming months as the security situation deteriorates further beyond months-long violent unrest and potentially into a scenario more closely resembling a civil war. The National Unity Government (NUG), the country’s recently formed shadow government comprised of ousted former lawmakers, on 5 May announced the formation of an armed militia named the ‘People’s Defence Force’ (PDF). The militia was established to oppose the military junta behind the coup d’état which has deployed lethal force against violent unrest, according to the NUG. The majority ethnic Bamar PDF is a precursor to a ‘Federal Union Army’ that will join forces with several armed ethnic rebel organisations to fight the Myanmar army (Tatmadaw) under the command of the junta, according to the NUG statement. The Karen National Union (KNU), which has been targeted by the Tatmadaw’s first airstrikes over KNU-held areas in 25 years, expressed support for the PDF.

The announcement marks an escalation in the increasing risk of civil war in Myanmar. Several so-called ethnic armed organisations (EAOs) in March notably threatened to fight in solidarity with anti-coup protesters if lethal violence against demonstrators continued. Additionally, the Arakan National Party representing Rakhine state has announced it has halted cooperation with the military government, known as the State Administration Council (SAC), even though the SAC had awarded the party a seat. Further erosion of support by EAOs for the SAC and increasing willingness to back the NUG in an armed conflict with the SAC significantly increases conflict risks. Crucially, the SAC on 8 May labelled the NUG a terrorist group, banning membership and contact with the shadow government. The preclusion of dialogue between the SAC and NUG exacerbates the risk of clashes as both governments vie for international recognition.

The severe business impact of the coup can also be exemplified by Norwegian telecommunications firm Telenor, which in early May wrote off its Myanmar operations, citing the ‘worsening of economic and business environment outlook and a deteriorating security and human rights situation’. Additionally, human rights group Justice for Myanmar recently successfully pressured several multinational organisations including Coca-Cola, McKinsey and Reuters into moving out of the junta-linked Sule Square commercial complex in downtown Yangon. Human rights groups have also repeatedly urged oil and gas firms to sever ties with the military junta, though firms such as Chevron and Total have refused to do so. Given that a further worsening of the security and human rights situation is probable, a decrease in or even withdrawal of foreign commercial operations is likely over the coming months. Overall, the security risks associated with a larger-scale conflict and the reputational, financial, and liability risks of operating under a violent military junta government pose the largest threat to business continuity and will compel many organisations to reassess their presence in Myanmar.

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