The Great Burmese Fire Sale

In 2011, Burma’s ruling military junta handed over power to a civilian government. This shift enabled the opposition to enter parliament and gave some measure of political power to civilians for the first time (though the military remains the most powerful player). It also opened the country to the world, making foreign investment in its economy possible and promising rising standards of living.

But Burma’s opening is threatened by an economic phenomenon common to many transitioning countries. Its current government inherited a large number of state-owned assets from the former junta — and it is now selling off these possessions to a coterie of business tycoons at rock-bottom prices, by means of an auction process that would meet few serious standards of transparency.

Burma’s class of “cronies” (as they are called locally) arose during the junta’s rule, when private businesses required the military’s approval to operate. Naturally, not all citizens were granted such permissions. The military extended special privileges to a select group of businessmen who had close personal connections with the generals and supported their rule.

The tycoons’ fortunes rose still further during the last years of the junta’s rule, when it began selling off state-owned enterprises and key properties in closed-door auctions. Knowing their period of uncontested rule was coming to an end, the generals were eager to empower and enrich individuals they trusted and from whom they could expect continued support in the new Burma.

The process prompted accusations from international journalists that the winners of the auctions may have been buying assets at extremely low prices, though the opacity of the transactions makes it impossible to know for sure. As tycoons gained control of vast assets, government officials likely pocketed the revenue and used it to fund their election campaigns, raise the salaries of civil servants, or grant inflated pensions to the former junta’s top generals. The sale of farmland and other property seized by the junta from civilians has particularly outraged Burmese citizens. In a country where most people make their living from agriculture, land grabs are a sensitive issue.

Since the end of the junta, sell-offs to tycoons have continued under the new civilian government. This prevents the rise of new actors in the economy and concentrates wealth into the hands of a few connected elites. International financial institutions, such as the International Finance Corporation and the Asian Development Bank, which purport to advance sustainable development, promote transparency and accountability, fight poverty, and build local capacity, have failed to meaningfully alter the privatization process despite their investments in Burma’s private sector. Most of the same two dozen business tycoons who rose to prominence under the junta — many of whom are sanctioned by the United States because of their relationship with the military — have also benefited from the latest rounds of privatization.

Little specific information about these privatization deals is available, making it difficult to calculate the portion of GDP they represent. But the asset sales have enabled members of the same small business elite to gain control of, or develop, banks, roadways, farmland, airports, factories, gasoline stations, dams, gem mines, ports, hotels, communications contracts, and other key properties across the country.

The rise of Zaw Zaw, one of Burma’s most prominent businessmen, shows how Burmese fortunes are made. According to a WikiLeaks cable, Zaw Zaw lived in Japan in the early 1990s and started a business exporting used cars to Burma. In 1994 he returned to his homeland and sought favor with senior military generals. Though it is unclear how he originally befriended members of the junta, he is known to have become particularly close with the grandson of Gen. Than Shwe, the junta leader, and other key members of the government. (In a 2013 profile, he acknowledged his friendships with leading officials: “Only the government has projects,” he told a reporter. “If I don’t do projects with them, who will I do projects with?”)

His relationships with the junta facilitated his rise by earning him the sole contract to import used cars and motorcycles to continue his car business within Burma. He also branched into construction and volunteered on key government construction projects to gain favor with the regime. His company, Max Myanmar, worked on the construction of Naypyidaw, Burma’a new capital, and in return was awarded ten more car import licenses. The U.S. Treasury Department cited his services to the government in 2009 when it placed him and his holding company on a sanctions list.

In 2010, when Burma’s junta sold off more state assets, Zaw Zaw and his holding company, Max Myanmar Group, won land for his future Novotel Hotel and 12 gas stations. Zaw Zaw also managed to win banking licenses despite an apparent lack of previous banking experience.

Zaw Zaw had already earned much — but he was shrewd enough to position himself to benefit still more from the 2011 political opening. And as the privatization process continues, Zaw Zaw’s empire continues to grow. His assets are so enormous that Secretary of State John Kerry couldn’t avoid staying at one of his hotels while on a visit to Naypyidaw in 2014. Among the business elite, Zaw Zaw has a relatively positive reputation, having studiously avoided any ties to the country’s shadier industries (such as the teak industry). As a result, even organizations that receive U.S. development funds are permitted to host events in Max Myanmar hotels.

Zaw Zaw is an important businessman and developer in the new Burma. But the government has failed to make such economic opportunities available to those who stand outside the small group of insiders like himself. As a result, those who had become close to a repressive junta that ruled Burma for decades are the ones reaping most of the rewards from the country’s economic opening.

The story of the mogul Tay Za showcases another career made on the back of junta connections. According to a WikiLeaks cable, Tay Za started doing deals with the junta in the 1990s through the establishment of the Myanmar Billion Group (a company with investments in the gem, mining, distribution, and real estate industries) with the help of a senior military official. Tay Za earned favor with the junta (according to leaked U.S. diplomatic cables) by entertaining officials and hiring their children at his many companies. He was also a business colleague of the son of Than Shwe, one of the junta’s generals. The junta gave Tay Za permission to log in regions of the country where local leadership resisted central military rule.

In 2010, the government tapped Tay Za to head up a new petroleum association, enabling him to gain a foothold in one of the biggest drivers of Burma’s economic growth. In 2011, the government awarded Tay Za’s company, E-lite Tech, telecommunications contracts.

In a 2014 article, Tay Za accused the U.S. government of pressing for some of his overseas bank accounts to be shut down on suspicion that his Singapore investment firm had dealings with North Korean-affiliated companies. The Burmese government’s decision to continue to award Tay Za new business opportunities demonstrates that the current administration is not interested in penalizing cronies engaged in harmful industries, such as arms dealings and extractives. He and his company, the Htoo Group, are still subject to U.S. economic sanctions for his close relationship with the junta and his alleged involvement in the arms trade.

Burma’s president, Thein Sein, may not have created the tycoons that have most profited from privatization, but he is overseeing the institutionalization of a Burmese oligarchy. According to the World Bank, Burma’s GDP is growing at a steady clip — over 8 percent a year since 2013. While this is good news, the growth is driven by construction, manufacturing, services, gas production, and investment — sectors that are largely under control of the same cronies who have benefitted from privatization. This means Burma’s oligarchy will enjoy most of the incoming cash, leaving ordinary people behind. It is common to hear that average Burmese living outside of cities do not feel their lives have changed since the country has opened to foreign investment. And Burma is still one of Asia’s poorest nations, with an estimated per capita GDP of around $1,105.

Burma has more than its share of urgent problems: ethnic persecution, backsliding on democratic reforms, and missteps by the opposition. But the privatization process and its potential consequences have received far less attention than they deserve. The decisions now being taken on this score will determine the structure of Burma’s economy for decades to come. As the former Soviet states know all too well, oligarchies become only more entrenched with time. The concentration of wealth in a few hands also makes it unlikely that any genuinely representative political system will ever emerge.

If this is to change, media, development banks, international organizations, and foreign governments must demand greater transparency. The international community should bring all the leverage at its disposal to bear on the privatization problem. Otherwise it, too, will be complicit in the creation of an economic order founded on the injustices of decades of authoritarian rule.

In the photo, a group of land owners who lost their land stage a protest in Yangon on April 5, 2014.

Photo credit: Soe Than WIN/AFP/Getty Images

Corrections, Oct. 30, 2015: The U.S. Treasury Department put Zaw Zaw and his holding company on a sanctions list in 2009; a previous version of this article mistakenly said they were put on the list in 2013. A previous version of this article said that Max Myanmar nearly doubled its revenue in 2012; that clause has been removed because it could not be confirmed. Zaw Zaw has been connected to the jade industry; a previous version of this article mistakenly stated that he had avoided ties with that industry.