The Effect of Myanmar’s Military coup on its Economy and Economies of Nearby Countries

By Natnaree Jiruppabha

On February 1, 2021, Myanmar’s military took over the democratic government and detained President Win  Myint and State Counselor Aung San Suu Kyi. As a result, there were massive protests against the Coup and the  Junta. The military responded with lethal force, resulting in 202 deaths and 2,181 arrests.  

Myanmar’s economy, which has already suffered due to the pandemic, fears more economic instability as  foreign countries and investors might turn away on account of internal strife. The situation worsened on March 14 when protestors burned factories in Yangon and the government’s forces killed 39 citizens in just one day, further sounding the alarm for investors and entrepreneurs.  

Looking back on Myanmar’s economy, the country first opened its door to foreign investment in 2011.  Myanmar’s first democratic election in 2015 led to a rapid annual economic growth of 7% per annum. This  growth, however, slowed in 2016 after accusations against the government relating to the Rohingya genocide  began to gain global traction.  

In 2020 and 2021, the drop in inflows of foreign direct investment (FDI), an investment by a party in one  country into a business in another country, from the pandemic would likely be exacerbated by the decrease in  investor and business confidence, as some investors think that the risk of maintaining businesses in a military run country is too high. As a result, Myanmar’s GDP growth for the next financial year is expected to be cut in  half, from 6% to 3%.  

Following the coup, the UK imposed sanctions on three Myanmar generals and the US threatened to follow suit.  While most of the country’s foreign investment comes from Asia, economic and political pressure from western  states will have an effect on the economy and its future investment prospects. For example, multinational  corporations that support democratic governance and follow US and European legal standards could pull back from Myanmar. As Myanmar’s textile exports to the EU are worth 3% of Myanmar’s GDP, backlash in Europe  would very much affect Myanmar’s economy.  

As mentioned above, the political stance that countries such as China, Singapore, Japan, and Thailand will take is more likely to affect trade and therefore the economic growth of the country. Singapore is one of the largest investors in Myanmar, accounting for 40% of total FDI in 2011-2020. Currently, it has expressed non-support to the military occupation but do not plan on intervening in any way. However, Singaporean Lim Kaling had already withdrawn from the tobacco joint venture Virginia Tobacco, Myanmar’s biggest tobacco company. Meanwhile, Japan announced that it was opposed to any action against democracy. Kirin Holdings withdrew from its joint venture with military-owned Myanmar Economic Holdings Public Company (MEHL). Another concerned foreign party is The People’s Republic of China who fear delays in the Belt and Road Initiative due  to Myanmar’s political climate. While some predict that China may exclude Myanmar from its plans of Asian prosperity as it appears hesitant to engage with countries suffering from political volatility. However, others argue that China may see civil strife in Myanmar as the ideal backdrop to build closer ties. Other Asian countries are choosing not to interfere. Thailand announced that Myanmar’s situation was their internal concern. New restrictions may affect Thailand’s exports and the flow of migrant labor. With the increasing risk that Myanmar could become a failed state, there would be a significant impact on Thailand and regional supply chains.  

Overall, Myanmar’s economy would be more affected by Asia than by the US and Europe. Attracting foreign  investors will be much more difficult for Myanmar in the future given the complexities of doing business under the military government. To what extent these changes will affect the economy.