Can investment help Burma emerge from economic strife and oppression?

Investors shouldn't ignore human rights abuses in Burma, but nor should they stay away – change will come from within

It is hard to reconcile the urgent flurry of foreign investment in Burma with the pictures of blood-stained roads and burning schools that attest to the sectarian and religious violence against its Muslim population.

The country's great economic promise and the strident political reforms of the last two years contrast sharply with the continuing human rights violations of its government. The McKinsey Global Institute estimates that the likes of Unilever, Coca-Cola, Citibank and Ford will pour $100bn of foreign investment into Burma before 2030.

Many believe that until the military government is held to account, global corporates should stay away. But the victims of these abuses will be better served by foreign investors entering the domestic market than ignoring it on moral grounds. The challenge for those companies clamouring for a foothold in this frontier market is investing that money in a responsible way that not only generates profit but enhances the rights and wealth of Burma's people.

The reward for enduring the regulatory maze and reputational risk of doing business in Burma is a slice of an economy with undoubted growth potential. Sandwiched between India and China, Burma is richly endowed with water, arable land, timber, gemstones, and a working-age population of 46 million that is urbanising and currently 70% less productive than the Association of Southeast Asian Nations average. All of that adds up to a projected 6.5% annual GDP growth rate.

Nonetheless, it is surprising that large global brands are falling over themselves to set up in a country currently playing host to what Human Rights Watch calls genocide. The Burmese government refuses to accept Rohingya Muslims as citizens, despite their having inhabited Rakhine state in northwest Burma for many generations, and is attempting to forcibly remove them from the country. In the past two years, an estimated 250 Rohingya have been killed and 100,000 displaced by sectarian violence, with video evidence suggesting the military and police are loathe to intervene.

Undoubtedly great progress has been made; just a few years ago there were thousands of political prisoners in jail, no democratic elections and no freedom of speech. But the plight of the Rohingya aside, human rights violations seem likely to change in character rather than disappear as the country opens up further. The UN special rapporteur suggests a shift towards different types of abuses in a changing economy, including land confiscations, development-induced displacement and other violations of economic, social and cultural rights.

There is also a reputational risk for corporates associating themselves with past abuses. The extent to which the government is entwined in current commercial structures means that doing business in Burma relies on opaque local connections and relationships with government on some level, many of whom can be linked to violations prior to the end of the military regime (President Thein Sein himself was referred to in US dispatches for "cracking down" on the 1988 pro-democracy uprising, as a commander in army).

Fortunately there are mechanisms in place to help companies meet the challenge of investing responsibly in Burma.

In July, America's Burma Responsible Investment Reporting Requirements came into force. They oblige US companies spending more than $500,000 to publicly report on workers' rights, corruption and contact with government. This approach to the repeal of sanctions is new and may prove to be a model for other nations in encouraging continued political reform and promoting transparency of CSR obligations.

In July, the EU readmitted Burma to a scheme allowing it to benefit from lower duties on exports, having been satisfied by the International Labour Organisation of improvement in forced labour conditions.

The UK has an entrenched interest in Burma, one of its former colonies. The Department for International Development recently spent £600,000 setting up a Responsible Investment Resource Centre in Yangon. Foreign Office minister Hugo Swire has consistently allied the humanitarian agenda to trade negotiations.

There is momentum from within Burma too – the new Foreign Investment Laws have now been pored over by international law firms and are ready to be tested. The government has also let the currency trade freely, allowed trademarks to be registered and acceded to the New York Convention on international arbitration.

It is right to restrict those investors who would willfully ignore sectarian violence, engage corrupt officials or employ unjustly cheap labour. But it is wrong to suggest that any investment in Burma implicitly endorses a unethical regime and that foreign investors should stay away altogether until things improve. It is through the engagement of the international business and diplomatic community that Burma will emerge from the economic pallor and political oppression that has hampered its development over the past 50 years.

Coca-Cola has set up a bottling plant outside Yangon that will employ 2,000 local people, pay them well, engage local manufacturers and distributors and vest an interest in improving the infrastructure of their supply routes. It will share knowledge and best practice with its local partner Pinya Manufacturing, test the Responsible Investment Reporting Requirement mechanism, use and scrutinise local legislation, develop new finance structures with local partners and press the government to give it the transparent information it require to satisfy its own disclosure obligations as a New York-listed company.

Some may see Coca-Cola's programme to help Burma women gain access to business skills and financial services as a PR stunt, but at least their CSR responsibilities are leading the marketing agenda rather than catchy taglines.

There will undoubtedly be challenges, but the process of dealing with such challenges will make the nascent systems and controls more robust and the government developing them more accountable for its actions as it comes to embrace the advances that the process engenders.

There are many incremental steps required to take Burma from a nation of great promise fettered by human rights violations and poverty to a vibrant democracy with a socially and economically empowered workforce. Leveraging the capital and expertise of global companies by offering them a viable platform from which to do business in Burma will make those steps easier. Were we to deny the use of that platform because the government currently abuses human rights, we would risk plunging the country back into the darkness that allows those abuses to thrive. Foreign investors in Burma should tread carefully but boldly, and effect reform from within the arena.

Dominic Hammond is Global Manager at St Bride's Managers and specialises in alternative investments.