Join the dots!

Letter # 29,  12 February 2021

The thing about relationships is that one often forgets how it started. And, Aung San Suu Kyi, the state counsellor of Myanmar, shares a similar relationship with the Tatmadaw (Myanmar’s military)–a tumultuous, sad, but one that is stranger than fiction. Amidst this, India finds itself in a difficult position, for you see, part of its USD5tn economy dream is at stake.

At the start of this month, the democratically elected members of Myanmar’s ruling party, the National League for Democracy, were detained by the military in a coup d’état. Two days later, President Myint was charged for breaking pandemic restrictions during campaigning (basically, arrested for not wearing a mask) and Suu Kyi was charged for illegally importing six intercom devices for her security team (yeah, really!) and remanded to two-weeks’ custody.

A little bit of history is in order. Myanmar declared independence from Britain in 1948. From then till much of 1990, military ruled the country. By 1990, Suu Kyi, the daughter of Aung San (the country’s modern founder) had become a pro-democracy voice. The military was under the illusion that it enjoyed popularity and allowed free elections in 1990, but Suu Kyi’s party swept them. The military refused to cede power and put her under house arrest.

Another 22 years passed and the military, having drafted a new constitution in 2008, developed the roadmap to hold free elections again by 2015. Here is the fun part–two unique conditions are put under this constitution: (a) the military will retain 25% of seats of the combined house (lower and upper); and (b) a person married to a foreign citizen cannot become the president of Myanmar (thereby disqualifying Suu Kyi automatically; hence, her obscure title in the government).

Suu Kyi’s party still swept the 2015 election, winning 370 of the 476 seats. This is where things start to go awry. In the run-up to the 2020 election, media reported that if successful in 2020, the NLD would eventually cut down the seats reserved for military to just 5% over the next 10 years (1). Come 2020, the NLD wins 396 seats (higher than 2015). The military, citing irregularity in the election (that was certified by the Union Election Commission), orchestrates a coup. The political system in some countries appears as mean reverting as the global commodity markets these days!

Had the story ended here, I arguably, wouldn’t have been writing about it. But this seemingly less-often talked, far-off country, has decent implications on India’s economic growth, especially in the East and North East regions. To recover from the loss of a strategic partner, the USSR, India’s then Prime Minister P V Narasimha Rao launched the ‘Look East Policy’ in 1992. With this, India initially started working with ASEAN and other regional forums, and started to tilt towards the United States.

When the new government took office in 2014, India introduced version 2.0 to that policy ‘Act East’ with higher focus on culture, commerce, connectivity and capacity building. The emphasis was on reaching out to the North East in a better fashion. Currently, it is connected only through a very narrow Siliguri corridor (often called the Chicken’s Neck). We tried asking Bangladesh for a transit pass multiple times, but they haven’t obliged so far. So, we decided to take the go-around sometime in 2013.

As part of that, the Sittwe port is being constructed on the western side of Myanmar, which will connect Bengal ports via the Bay of Bengal. Plus, building a road under the Kaladan Multi-Modal Transit Transport (KMTT) project will link Mizoram to Myanmar. The endgame–reduce transit travel from 1,880km via Siliguri to 950km, with the option to expand volumes over the next decade. A master stroke!

Why is this important, one might wonder. States within the coastal region in India account for roughly 40% of population, but 50% of Gross State Domestic Product (GSDP). On the other hand, states that the KMTT project influences constitute 11% of population, but account for only 8% of GSDP (2). With better access to coastal transportation, these states alone can result in a 5-6% growth in India’s GDP (assuming similar multiplier effect as coastal regions) over the next few years.

But this story has a few interesting takeaways regarding investments as well. First, as Anthony Bolton says, “people don’t change.” Suu Kyi would have done better to read him. When markets are hot, investors too, tend to forget this and start investing in companies where promoters have recorded history of fleecing minority shareholders. That is unlikely to end well!

Second, structural change is hard. For a society used to military rule (and more importantly, a military that is used to power), the transition to democracy is hard. This makes the Indian government’s change in stance towards privatization, admiration for wealth creators and the generic bold shift in fiscal budget, that much more interesting.

Lastly, consolidation of power takes a long time, especially if you are not the incumbent (as Suu Kyi government finds out the hard way). Attempt to alter the status quo after just one election was probably too soon, and the same goes for industries and businesses. It’s akin to people arguing that new entrants can disrupt the leader easily (happened in case of toothpaste in late 1990s and is happening in case of the paints industry now).

To end, let’s take a moment to reflect on how easy it is to fall for the ‘fish taking water for granted’ syndrome. In India, we have a swift and democratic change of power at the Center and states. We are afforded a reasonable freedom of expression, the opportunity for education, social upbringing and for capitalism to thrive. It certainly makes the democracy in India something to celebrate, every now and again!

Notes:
(1) India’s option in Myanmar post-military takeover: Primacy of strategic interests (indiatimes.com)
(2) statewisedata.pdf (esopb.gov.in)

Disclaimers:
Information in this letter is not intended to be, nor should it be construed as investment, tax or legal advice, or an offer to sell, or a solicitation of any offer to make investments with Buoyant Capital. Prospective investors should rely solely on Disclosure Document filed with SEBI. Any description involving investment examples, statistical analysis or investment strategies are provided for illustration purposes only – and will not apply in all situations and may be changed at the discretion of principal officer. Certain information has been provided and/or based on third-party sources and although believed to be reliable, has not been independently verified; the investment managers make no express warranty as to its completeness or accuracy, nor can it accept responsibility for errors appearing herein.

One thought on “Join the dots!

Sivaram2 weeks ago,

Very well written and democracy is a big advantage as people decide every 4 years and it also takes time in a democracy to implement changes but how myanmar can affect the dream of 5 Trillion because of strong costal economy is interesting to read

Great input and which are not known to me

Thanks

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