Thai businesses put Myanmar investments on hold amid escalating conflicts

The recent escalation of conflicts between the Myanmar government and ethnic groups has raised concerns about a potential "failed state" scenario, deterring Thai investors from entering the market.

Myanmar's economy has been in decline since the COVID-19 outbreak in 2020 and a military takeover the following year, with the International Monetary Fund reporting a 17.9% contraction in 2021 and a mere 0.6% growth in 2022.

The 2023 forecast of 2.49% growth now seems overly optimistic given the intensifying conflicts between the military junta and resistance groups.

Clashes between the Myanmar military and ethnic armed groups along the northern border with China in Shan State and Kachin State have disrupted the flow of goods and created uncertainty.

Meanwhile, ongoing resistance attempts to seize Kawkareik, a town on the road from Yangon to the Thai border at Mae Sot, now threaten overland trade with Thailand.

Investment freeze

The Thai-Myanmar Business Council (TMBC) confirms that Thai businesses are delaying new investments due to the volatile situation.

TMBC chairman Krit Ungwitunsathit said Myanmar faces cash flow challenges and a shortage of dollars. However, Thailand-Myanmar trade is less affected because it is conducted in baht and kyat. The TMBC chief is currently seeking negotiations with the Myanmar regime to remove obstacles to trade.

Foreign direct investment in Myanmar has plummeted after Western governments imposed sanctions following the February 2021 coup and a slew of multinationals withdrew.

Bangkok Bank, the only Thai bank previously approved to become a local bank in Myanmar, has put its plans to expand from its single branch in Yangon on hold.

Thai energy giant PTT has also postponed new investments in its two Myanmar businesses – exploration & production (PTTEP) and retail (OR) – although existing operations like gas delivery continue.

Thailand currently imports about 10% of its natural gas from Myanmar.

OR launched a fuel storage and retail joint venture with Myanmar’s Brighter Energy (BE) in 2019, holding a 35% stake. It operates the largest fuel depot in Myanmar, with a capacity of 1 million barrels of oil and 4,500 metric tonnes of liquid petroleum gas (LPG), as well as filling stations and Amazon coffee outlets.

OR has halted investments in the BE project and shut Amazon outlets in conflict zones. However, it has taken a wait-and-see approach to the conflict and says there are no plans to withdraw investment permanently.

Challenges for existing investors

Existing Thai businesses in Myanmar are facing challenges such as limited access to foreign currency and trade restrictions.

While consumers are still spending, the cash flow has significantly decreased, reflecting the overall economic slump since Covid and the coup.

Future outlook

The Thai Ambassador in Myanmar is preparing contingency plans with the Thai-Myanmar Business Council, including exploring alternative border channels to keep Thai products flowing into the market.

Thai banks Kasikorn (KBank) and Siam Commercial (SCB) have delayed plans to expand in Myanmar until stability returns.

KBank was the first foreign bank to gain approval to invest in Myanmar’s banking industry, with a plan to take a 35% stake in Ayeyarwaddy Farmers Development Bank in 2020.

Meanwhile, SCB’s original five-year plan for Myanmar was to inject 7 billion baht in credit by next year to bridge trade and investment between Thailand and Myanmar, plus the wider region including China and Singapore. Although that plan has been disrupted by events, SCB still sees Myanmar as a territory with future potential to attract global investors.

Despite the current challenges, Myanmar's long-term economic potential remains attractive to Thai businesses. However, they are likely to remain cautious until the political and security situation improves.