Mandalay Migraine
Source : Shawn W. Crispin & Bertil Lintner,Far Eastern economic Review (November 2, 2000)
The Rangoon junta's seizure of a joint-venture brewery could test Asean's resolve and its ability to protect foreign investors
SINGAPORE BUSINESSWOMAN Win Win Nu has spent the past two years vainly battling in Burma's courts over the government's seizure of her investment in a thriving joint-venture enterprise in her former homeland.
The case, if taken up by Asean, could also serve as a test of Burma's commitment to the organization. Burma first saw Asean as a ticket to participation in the region's economic growth of the mid-1990s. Since then, however, it has come to regard membership as a liability because it helps to put the ruling military's repressive policies under the spotlight.
Win Win Nu's case is a compelling one. When Burma opened its doors to foreign investment in the early 1990s, she spotted a good business opportunity. Helped by influential contacts in the ruling State Peace and Development Council, including intelligence chief Lt.-Gen. Khin Nyunt, Win Win Nu forged a joint venture between her Singapore-based company, Yaung Chi Oo Trading, and the government's Ministry of Industry No. 1 in 1993 to bring the bankrupt Mandalay Brewery bubbling back to life.
Win Win Nu, who took a 45% stake in the venture, was in charge of operations and marketing while the ministry handled the books. Profits would be shared.
The fresh infusion of modern management, technology and capital worked wonders. In six months, output increased 10-fold, salaries leapt 20-fold and cash flows soared. Mandalay Beer became a recognized brand name after the brewery opened more than 40 pubs nationwide. The company also became one of the country's largest domestic taxpayers.
Burma's experiment in opening to foreign investment was paying off handsomely, stimulating local economic activity while generating revenues for the depleted state coffers.
But the joint venture came to an abrupt halt on November 11, 1998, when armed soldiers and police seized the brewery on the orders of SPDC Chairman Gen. Than Shwe. Win Win Nu says her local bank accounts were frozen and claims she was threatened with arrest for misappropriating funds, which she denies. She fled the country as the junta took over operation of the brewery just three months after the final payment of her pledged $6.3 million initial investment.
"Because we were so successful, the brewery became an easy target for greedy soldiers and bureaucrats," Win Win Nu says. "We fell on the wrong side of the power struggle and as a result lost our business. Unfortunately in Burma that's what matters--political connections, not law."
Burmese law explicitly bars nationalization of foreign investments. But after fighting her case unsuccessfully through the local courts for 18 months, Win Win Nu was forced to liquidate her share in the company.
Court papers indicate she was facing an uphill battle by going through Burma's murky legal system. The first team of liquidators was not even led by a lawyer but by local tycoon Steven Law, whose family runs Burma's largest privately owned business group. The junta most probably enlisted the services of the Laws because of their perceived business acumen, a rare commodity in military circles in Burma.
Win Win Nu is now lobbying to have her case put before Asean's untested dispute-settlement mechanism on the grounds that Burma's seizure of Mandalay Brewery directly violates the commitments to protect foreign investment that it entered into upon joining Asean in 1997.
Asean Secretariat officials in Jakarta say they would be charting new territory if they took on the case. So far, the regional body, which has shown consistent impotency in mediating regional disputes on both political and economic fronts, has failed to respond to appeals for arbitration sent by Win Win Nu's Singapore lawyers. An Asean official claims the complaint was not filed through the "proper channels."
Under normal circumstances, the businesswoman should have grounds for confidence, judging by the results of an independent report into her case commissioned by the government's Myanmar Investment Commission and released in June last year. Local PricewaterhouseCoopers representative U Hla Tun found the takeover was conducted "without legal sanction" and that the charges of misappropriation of funds against Win Win Nu were unsubstantiated, according to a copy of the confidential report seen by the REVIEW. The investigation also warned that the takeover could "tarnish the 'open market economy' policy declared and prescribed by the government of the Union of Myanmar."
While Win Win Nu seems to be the first foreign investor to have been targeted for de facto nationalization, Burma's reputation as an attractive destination for foreign investment had already started turning sour. Ever since the mini-boom of the mid-1990s, red tape, bureaucratic hassle and enduring worries of political instability have slowed foreign investment to a trickle. Now, the SPDC's apparent unwillingness to abide by both its own and international laws protecting foreign investment could further dampen potential investors' spirits.
"Although the policies on the books are unchanged, the SPDC attitude towards small-scale foreign investment has changed 180 degrees since the crisis," says a Bangkok-based lawyer who has clients with investments in Burma.
CLOSING DOOR
The takeover of Mandalay Brewery gives more ammunition to those who argue that the junta is moving away from its flirtation with economic openness, a position Khin Nyunt once trumpeted, to the chagrin of army commander Gen. Maung Aye. When the local currency, the kyat, plunged during the Asian Crisis, the Maung Aye group seemed to prevail with their argument that too much openness, too fast, was a threat.
Until now, many looked at SPDC leader Than Shwe as the moderating force that kept these two power bases from breaking into factions. But Than Shwe's order to seize Mandalay Brewery may signal that the ailing chairman will give his blessing to Maung Aye regarding economic openness.
Win Win Nu says Than Shwe ignored numerous warnings from Khin Nyunt's office about the negative international fallout that nationalizing the brewery might incur. (Burma's Investment Commission, the Ministry of Economic Planning and Economic Development and Than Shwe's office didn't reply to faxes and phone calls from the REVIEW.)
Meanwhile, Asean's reputation and overall viability have continued to sag. Investment in the region has almost ground to a halt since the crisis, particularly in Burma. Asean has worked to restore investors' confidence in the region by sending promotion missions to the United States, Japan and Europe in recent months, while also pushing to enhance the transparency of member nations' investment regimes.
So far, though, that has been a hard sell against the political uncertainties in Indonesia, the Philippines and even Thailand. And without a firm response to the junta's takeover of Mandalay Brewery, that sell could become even harder as perceptions grow that investment protection codes are only so much unenforceable parchment.
But perhaps one clear lesson from the Mandalay Brewery case is the pervasive influence of nepotistic policies and an arbitrary legal system on the success or failure of any foreign business in Burma.
"If rules and regulations are not enforced for the layman, that is bad for Asean, bad for me, bad for everyone," says Win Win Nu.