Myanmar businesses stumble on corporate responsibility

• Oct 30, 2017

Many foreign investors are shying away from Myanmar because of the government’s apparent failure to prioritise economic development and the violence in Rakhine state. Local businesses also complain of government inertia. But ministers still insist that the country is on the verge of a major economic breakthrough.

“Myanmar was like a plane running on the runway in 2016, but it is ready to take off in 2017,” Kyaw Win, the minister for Planning and Finance, told local and foreign businesses earlier this year.

If and when take-off does occur, it will be aided by many businesses dedicated to conducting their affairs more transparently, responsibly and sustainably than in the past, say experts.

The elected government’s priority in its first year was stability. The National League for Democracy (NLD) inherited a desperate situation, said Sean Turnell, the government’s chief economic adviser. Budgets had been drained dry by the previous Thein Sein administration, with conditions exacerbated by a trade deficit and rampant inflation, he said.

The key priority was maintaining stability, and that meant stabilising the economic fundamentals. “Make sure there’s no crisis, make sure the budget deficit does not completely blow out and inflation doesn’t go through the roof,” Prof Turnell told Asia Focus. “That was successfully accomplished and now it’s time to turn attention to generating growth.”

While some of the foundations for reform were laid by the Thein Sein administration starting in 2010, the past year has been marked by a major drive to get policies right and develop the legal infrastructure that will allow sustained economic development and responsible businesses to flourish. This involves integrating international standards into business practices in Myanmar as the country is enters a new phase.

The government, international financial institutions, and both foreign and local businesses applauded the new investment law — enacted in October last year — as a significant break from the old ways. The law and its related regulations reflect modern realities and conditions that affect businesses, said Prof Turnell. “These actually clarify and make clear the government’s priority areas for the businesses, for example, labour-intensive industries that should get special treatment,” he said.

The ground rules for doing business in Myanmar are changing radically, and responsible business has become the watchword. Less than a decade ago, Myanmar was under a military dictatorship, human rights abuses were rampant, and business practices corrupt, irresponsible and unethical. It was more than just a case of putting profits before people: businesses were subservient to the military regime, and operated at the soldiers’ beck and call.

Cronies — big businessmen who dominated the economy — were at best beholden to the generals in power, enmeshed in an intricate network of links associated with the military, or actually owned by former and serving soldiers. Bribery and land confiscation were endemic. But since the quasi-civilian government under Thein Sein came into existence some six years ago, things have begun to change.

The new government was keen to roll back the US-led international sanctions that were in place and re-establish Myanmar in the international community. It dismantled many of the unethical practices in place. For this to happen and responsible foreign investors to start taking an interest, international standards were needed. That entailed seeking international assistance and know-how.

Developing terms of reference and allocating government contracts through open bidding began to replace the old system of patronage. The auction for two international telecoms licences in 2013 — awarded to Telenor and Ooredoo — was hailed internationally as one of the world’s fairest. But much progress has also been made to have private companies — local and foreign — embrace responsible business conduct.

Since 2010, the government and businesses have become much more responsive to public opinion, civil society and local community concerns, according to several activists. Thein Sein’s suspension of the controversial Chinese-backed Myitsone dam was a clear indicator of this new environment. The NLD is perhaps even more responsive to local protests against dubious investment projects.

“The current Myanmar government has a strong focus on socially responsible business, and it’s clear that it wants to see local communities benefit from projects, and to avoid projects that are unpopular in the local communities,” said Ola Nicolai Borge, a lawyer and business consultant who has been based in Yangon for many years.

“An example is coal-fired power plants, where local communities’ concerns about pollution have influenced the government and it appears to be moving away from such projects as a result,” he told Asia Focus.

“If anything the pendulum has swung to far the other way,” said Vicky Bowman, director of the Myanmar Centre for Responsible Business (MCRB). “We’ve perhaps reached a point where government is so scared of civil society protests that it isn’t taking any decisions or simply suspending projects rather than addressing the cause of the concern.”

“The way of doing business in Myanmar is changing for the better,” Luc de Waegh, a consultant with Roland Berger and a Myanmar resident for more than 20 years, told Asia Focus. “Corruption is less prevalent. The mindset is changing; there’s a realisation that it is wrong to condone corruption or to try to offer bribes.”

This in part reflects businesses willingness to adopt international norms. But it is also the result of international efforts to improve the local business environment.

The MCRB, based in Yangon and funded by international donors, has done substantial pioneering work in this area and helped to shape new business attitudes, especially among local companies. Set up in 2013, it has earned a reputation for its professionalism and impact.

UNIQUE TRANSPARENCY INDEX

The centre has produced major reviews of critical sectors in Myanmar’s economy — oil and gas, tourism, information and communication technology (ICT) and mining — and has advocated for legal and regulatory changes to bring business practice into line with international human rights standards. It also provides a neutral platform for networking and discussion.

“The MCRB’s main concerns are to boost the practice of responsible business, encourage businesses to operate according to international standards, and increasingly include those standards in the legal framework,” Ms Bowman told Asia Focus in an interview earlier this year. “We want to encourage more investment, but investment that is responsible.”

That has given rise to the annual “Pwint Thit Sa” index of Transparency in Myanmar Enterprises which rates big companies on their disclosure of corporate information and policies.

“We tapped into their competitive instincts, as well as the zeitgeist,” said Ms Bowman. “The companies who had been labelled ‘cronies’ wanted a practical guide to how they should change, exit the sanctions lists, and differentiate themselves. Incoming foreign investors were looking for an objective way to identify potential partners, and guide them in what they should be doing to improve transparency and corporate governance.”

The MCRB’s other activities include field research, advocacy and promoting dialogue, through connecting businesses with businesses, businesses with civil society and businesses with government.

“Our field research allowed us to break new ground, and develop an important network, including businesses, social activists and government,” explained Ms Bowman. “It gave our advocacy more authority as it is based on evidence from the frontline, and the views of business and community stakeholders.

“Our principal concern is human rights. Companies have a responsibility to respect human rights: that’s what the 2011 UN Guiding Principles on Business and Human Rights says, and it is the international standard that has now been adopted globally on this issue. And that responsibility to respect human rights requires companies to do human rights due diligence to understand their potential impacts.”

This approach underlines the advice the MCRB gives companies asking what the situation in northern Rakhine state means for them: “I tell them that human rights due diligence is always a useful starting point,” she explained. “Examine whether your company’s operations could have a negative impact on the situation. Or perhaps there’s a way a way they can contribute positively.”

Sometimes this involves thinking outside the box. “Some companies assume that because they are not physically present in Rakhine state, there’s nothing they can — or need — to do. But a business can be affecting the situation in other ways.

“For example, I ask them if they know whether their staff are using social media to express hateful opinions. Or could they reinforce their company’s values of non-discrimination to change societal attitudes?”

The MCRB’s main priority now is to promote dialogue between business, civil society and government and better public consultation. This is particularly important in the drafting of new legislation. “A responsible business’s first duty is to obey the law,” said Ms Bowman. “But if the laws are unclear, confusing and contradictory, it creates a major obstacle to the practice of responsible business. Better laws are needed as well as better enforcement.”

The process of consultation on the recently enacted Investment Law and the subsequent rules has been an important milestone, she said. “There were a series of public consultations on the published draft which sought and made use of business and civil society input. I hope this will become a model for drafting future legislation.”

The MCRB is a unique organisation — there is nothing similar anywhere else in the world. It has been very important in changing attitudes in business and government, according to Mr de Waegh.

“It’s done a remarkable job,” he told Asia Focus. “It is unique and daring. And the government response was not to reject or ignore it, but to embrace it. The transparency index was an excellent trend setter.”

“Corporate governance is not just good for individual businesses, but the economy as a whole,” Robbie Barkell, a private-sector development adviser with the Department of International Development of the UK government, told a seminar organised by the Securities and Exchange Commission of Myanmar earlier this year in Yangon for local investors. “A vibrant private sector is important for creating jobs and reducing poverty.”

In a transitional democracy, which embraces the free market and liberalisation, getting public policy right and educating the public is crucial for the country to survive and prosper. Myanmar’s rigorous adoption of international standards and responsible business practices augurs well for the future and could be a significant benchmark for other developing countries.

Source: https://www.bangkokpost.com/business/news/1351019/myanmar-businesses-stumble-on-corporate-responsibility