Kanika Datta: Bad regimes are bad business

SWOT

The fervent debate over whether the Indian government should do business with Myanmar's military junta after its latest round of atrocities has subsumed a related issue. Over the past decade or so, many private Indian companies have been making exploratory visits to that country in search of investment opportunities. Should they do so?

ONGC Videsh Ltd has much riding on $150 million investment plans in gas and oil exploration that Petroleum Minister Murli Deora says is critical for India's energy security. But apart from this, Myanmar apparently offers rich potential in engineering, fertilisers, tourism and pharmaceuticals for the private sector.

The question raises another age-old issue of whether corporations should do business with rogue regimes "" and Myanmar's "soldier thugs", as Martin Wolf calls them, certainly fit that description. The obvious, ethical answer is no. But if we set aside the moralist argument, the realistic answer is also no.

All too often, countries under exploitative and venal dictatorships are rich in minerals and oil that corporations are keen to exploit. That is why even as the Indian government banned economic relations with South Africa under apartheid, the country's booming diamond processing industry routinely imported De Beer's uncut diamonds but through Europe.

It is easy to argue that cynicism is an essential ingredient of doing business, so companies need not be overly concerned about the quality of governance in the host country. Politics, after all, is not the corporation's business. But it is possible to argue from the same cynical paradigm that, in the long run, doing business in countries with rogue regimes simply doesn't pay.

The reason for this is simple. Businesses cannot function without some semblance of stable governing institutions and property rights that are not only the basic ingredients for a functioning market economy but also to ensure prosperity and freedom for a country's people. It is no coincidence that the United States and the European Union, with their strong institutional frameworks and prosperous citizenry, have consistently been the main recipients of world foreign direct investment.

Any global businessman understands this "" ask Shell about its troubles in Nigeria or whether the US corporations (other than Haliburton) are reaping the benefits that were expected from Iraq. Ironically, it is post-war, liberalising Vietnam that has attracted more US investment interest.

Coming back to Myanmar, despite abundant natural resources, it has hardly emerged as a haven for investment. Even before sanctions were imposed against the country in 1997, many a global corporation found investment heavy-going because of the absence of transparent institutions and the limited potential to develop a market within the country.

Although the economy is growing in double digits, almost 27 per cent of its 56 million people are poor. Signs of chronic economic mismanagement are clear in a consistent fiscal deficit (4 per cent of GDP last year). China's heavy presence in the country's hydrocarbons business has not done much to transform the country.

Here is a one small example of the futility of doing business in a country under institutionalised brutality. About ten years ago, Indian Airlines flew a bunch of journalists (of whom I was part) from Calcutta (as it was called then) to Myanmar's capital Yangon as part of an inaugural flight that resumed operations after 22 years. This was around the time Myanmar's rulers were trying to attract foreign investment and Singapore was lobbying for its entry into ASEAN. IA executives were expecting 70-80 passenger load factors on this route as a result of expected renewed business interest.

Most journalists on that trip were keen to interview members of the ruling junta and, most of all, Suu Kyi, who had been placed under one of her numerous bouts of house arrest after she swept the elections in 1990. Long used to the unregulated freedom of India's information industry, it soon became clear to visiting journalists that this was easier said than done in Myanmar.

At lavish IA receptions, attempts to meet various ministers "" all uniformly attired in be-medalled khaki shirts over checked longyis "" were bluntly barred. (Amazingly, these same ministers "won" most of the prizes at the raffles that IA organised.)

As for our attempts to meet Suu Kyi, an appointment was duly made "" but could not be kept. At a dramatic late-night meeting, embarrassed IA officials said the airline's licence would be cancelled if we met her formally. IA was our host, so it was only ethical to accede to its request. We finally did manage to meet Suu Kyi, but only by attending one of her customary and hugely attended Saturday public addresses outside her University Road house.

At an interview afterwards, Suu Kyi told us that foreign investors should wait "" Myanmar was not ready for investment. The statement sounded naïve at the time but with the hindsight of a decade, it proved prescient. Myanmar has not gained anything from military dictatorship but global exclusion. Nor, to date, have Indian companies. And incidentally, IA also discontinued its Kolkata-Yangon flight about two years ago.