Yangon, Myanmar

Myanmar has not lived up to the expectations of Big Law.

A nation full of promise just a few short years ago, Myanmar is now associated with headlines that describe the massacre of its Rohingya minority and the jailing of journalists. Economic growth has slowed, and multinational corporations and investors are holding back.

The international law firms that flocked to the newly opened Southeast Asian nation are now getting a reality check.

“It was just unrealistic,” Christopher Hughes, who helped launch the Yangon offices for Baker McKenzie and Berwin Leighton, said of the once-sky-high expectations.

When the Southeast Asian nation opened its market in 2011 after half a century of repressive military rule, investors around the world were excited: the nation is rich in resources such as oil, gas, copper, gold and gemstones. It is also strategically located between China and India. It didn’t take long for law firms to follow their potential investor-clients. Since 2013, at least a dozen major international and regional firms have set up shop in Yangon, the country’s former capital and largest city.

But so far this year, no additional major international firms have entered Myanmar, and in fact, momentum is building in the other direction. In February, New York-based Herzfeld & Rubin was the first to close its five-year-old Yangon office; London-based Berwin Leighton Paisner shuttered its base as it prepared to combine with U.S. firm Bryan Cave; Dentons lost former Yangon resident partner Mark Livingston after merely 10 months; and after a string of departures, Baker McKenzie’s Yangon office was left with only one partner, down from five in 2015.

The first batch of foreign law firms came in 2013, led by Duane Morris, Allen & Overy, Japan’s Nishimura & Asahi and Southeast Asian firms Rajah & Tann and ZICO Law. The following year, Baker McKenzie, Japan’s Mori Hamada & Matsumoto, Big Four Singaporean firms Allen & Gledhill and WongPartnership, and South Korea’s Yulchon moved in. Berwin Leighton launched in 2015 and top South Korean firm Bae, Kim & Lee arrived in 2016. Last year saw the arrival of Dentons and Stephenson Harwood.

These law firms were attracted by the progress Myanmar was making. In 2012, the United States and European Union eased sanctions on Myanmar, and a new Foreign Investment Law was enacted, which allowed foreign firms to fully own ventures and also offered them tax breaks. A few years later, in 2015, Aung San Suu Kyi, the Nobel Peace Prize laureate and the daughter of a Burmese independence hero, led her National League for Democracy party to a landslide victory in a landmark democratic election.

“The fundamentals were very positive,” Hughes said. “The political story was positive as well then. There was a great sense of interest and optimism. A once-in-a-generation opportunity.”

But the expectations were too high, said Hughes, who now runs a Yangon-based boutique firm—SCM Legal. ”You can be excited about the macro numbers, but translating that into getting things done is different.”

Gold-Rush Mentality

Some disappointment in emerging markets is to be expected, said John Dick, a partner and Southeast Asia region practice leader at Dentons Rodyk in Singapore. ”When these markets open up, there’s a lot of enthusiasm,” he said. “People rush in and inevitably there’s disappointment, regardless of what the government is doing.”

Even so, the government in Myanmar, hindered by inexperience, has not done much to move the economy forward, lawyers say. “The government had not been in power before. They had no experience,” Hughes noted. “There was some confusion and not a lot of direction in the first year-to-18 months of the new government.”

After Suu Kyi’s government assumed power in 2016, economic growth slowed to 5.9 percent from the previous year’s 7 percent, according to the Asian Development Bank. In 2017, the economy started to pick up, growing at a rate of 6.8 percent.

But just as Myanmar’s economy was picking up pace, news of the Rohingya crisis spread around the globe. Since last year, the military has driven more than 700,000 members of the Rohingya ethnic minority—who represent the largest percentage of Muslims in Buddhist-majority Myanmar—from their homes in the country’s Rakhine state, creating what is said to be the world’s fastest-growing refugee crisis. International condemnation of the Burmese government, particularly de facto leader Suu Kyi, has ramped up. The United Nations described the military offensive in Rakhine, which provoked the exodus, as a “textbook example of ethnic cleansing.” And in a report published this month after a year-long investigation, the UN said that many of the violations in Rakhine “undoubtedly amount to the gravest crimes under international law.”

Earlier this week, there was another worldwide chorus of condemnation when two journalists working for Reuters news agency were sentenced to seven years in jail on official secrets charges. The journalists, Wa Lone and Kyaw Soe Oo, reported on the killing last year of 10 Rohingya men by government soldiers and Buddhist villagers in Rakhine.

For multinational companies, Myanmar’s current political climate poses too many risks, Dick said. “They don’t want to be suffering demonstrations outside their headquarters. The impact of their global operations won’t justify their Myanmar base,” he said.

The crisis has also affected investor sentiment, Hughes said. Investors who were not already in Myanmar have lost interest—at least for now.

However, the political crisis has not yet had a fundamental impact on the economy, Hughes noted. If investors were too optimistic before, then perhaps they are too pessimistic now.

“Before, expectations were sky high. Now it’s flipped too much the other way,” Hughes said.

Lawyers point to a myriad of opportunities and developments on the horizon, including infrastructure work related to China’s Belt and Road initiative and a new round of bidding for oil and gas exploration rights in Myanmar next year—the first since 2014.

There are also reforms, including to the country’s banking sector, and new laws, such as new, soon-to-be-enacted intellectual property laws. Last year’s most anticipated piece of legislation, the new companies law, came into force just last month.* Though it was delayed for more than half a year, it offers much-needed flexibility, said Hughes, who advised the Myanmar government in drafting the law. “Foreign companies can now invest and buy into local companies, giving local companies access to financing.”

Progress is happening, observed Dick, and investors will be encouraged to come back to Myanmar as the legislative and administrative platforms get put in place, creating more legal certainty.

The Organization for Economic Cooperation and Development projects that Myanmar will be the fastest growing country in Southeast Asia in the next few years, growing at an average of 7.4 percent until 2022.

But, Hughes warns, investors and law firms need to be reminded that it’s not an opportunity to get rich quick.

“You have to take a long view,” he said.

*Correction 9/7: An earlier version of this story stated that the new Myanmar companies law was enacted in August 2018. It was actually enacted in December 2017, but became effective in August 2018. A correction has been made to reflect that. We regret the error.