Myanmar unrest a risk to capital flow from Singapore to young startups there

Singapore

THE military coup in Myanmar has fanned fears that the country's nascent startup ecosystem could see its recent progress undone, industry players told The Business Times (BT). They added that South-east Asian venture investors, many of whom are based in Singapore, may take a pause in investing in the country's budding startups.

Singapore and other foreign tech firms operating there are also taking a cautious approach, as restrictions on Internet and social media access threaten the entire digital economy.

According to data from private markets platform Preqin, Myanmar attracted US$101.7 million worth of venture capital deals in 2020. While the aggregate figure is small compared to other South-east Asian economies, it marks an exponential growth from back in 2015, when only US$7.2 million worth of venture capital deals were recorded (see table).

Myanmar's fintech players, in particular, had attracted attention. In May last year, Ant Group invested US$73.5 million investment into Digital Money Myanmar, which operates e-wallet service Wave Money and was tipped to be the country's first potential unicorn. Singapore-listed Yoma Strategic later announced a US$76.5 million deal to acquire a controlling stake in Wave Money.

Other Singapore investors have also shown growing interest in the market. Oway, a Myanmar online travel portal, had attracted investments from Singapore-based venture firms Openspace Ventures, Beenext and Qualgro Capital.

Likewise, Singapore-based early-stage investor Cocoon Capital has backed Karzo, an online logistics platform connecting truck fleet owners with businesses in Myanmar.

Michael Blakey, managing partner of Cocoon Capital, reckons that the military coup is a "second body blow" to Myanmar's startup ecosystem, the first being the Covid-19 pandemic.

"There is not as much local (venture) money within the Myanmar ecosystem; a lot of the money within the region is held in Singapore. Before Covid-19, startups in Myanmar such as Karzo had actually been getting more interest from around the region," he said.

However, with Covid-19 travel restrictions, Singapore-based investors were unable to head to the country for due diligence, leading to a slowdown in funding. Now, with the political uncertainty, the hit to the digital economy is even deeper.

Mr Blakey said: "With Covid-19, as soon as things went back to normal, investors would have started to look at Myanmar again. But with the coup, there's political uncertainty and no one knows how it will go. VCs outside of Myanmar might turn to safer and more stable countries to invest into in the meantime."

Jeffrey Seah, partner at Quest Ventures, had been looking for deals in Myanmar, but has put this on hold now because of the uncertainty.

"There's a lot of conversation about what Myanmar is going to be, and everyone is very concerned whether this is going to be a temporary setback or not... It came as a shock. Those of us who were active there are now taking a pause," he said.

Christopher Quek, managing partner of venture firm Trive, notes that the impact could extend into the country's up-and-coming IT offshoring sector as well.

"It is in its infancy stages, competing against Vietnam, India and the Philippines, but the recent political situation will likely deter international clients from engaging remote tech teams there," he said.

Singapore and Myanmar share close economic ties. Overall, Singapore was Myanmar's top investor in 2019 and 2020. The city-state's cumulative investment in Myanmar was US$24.1 billion in December 2020, a spokesperson for the Ministry of Trade and Industry (MTI) told BT.

Both countries recently inked the Singapore-Myanmar Bilateral Investment Treaty, which entered into force on October 9, 2020.

Under the treaty, Singapore companies operating in Myanmar will enjoy protection for their investments, and have recourse to international arbitration in the event of investment disputes, among other benefits.

"We remain deeply concerned about the latest developments in Myanmar and are closely monitoring the situation," the MTI spokesperson said in a statement, in response to BT's queries on the impact on Singapore companies operating in Myanmar, and whether the Myanmar military has indicated that it will honour the bilateral treaty.

Singapore-based investors like Mr Blakey and Mr Seah say that they had been drawn to the Myanmar market because of attractive fundamentals: a highly skilled workforce, growing affluence and the potential for the country to be a stepping stone to other untapped markets such as Cambodia.

However, if Myanmar becomes disconnected from the rest of Asean, this could diminish the potential for startups to launch out of the country, Mr Seah said.

Mr Blakey similarly echoed concerns about internet connectivity: "With fluctuating access and restrictions on the Internet, it will be difficult for tech companies like fintechs to operate. Restrictions on social media is another issue, as many were building micro businesses on Facebook and using it to communicate with customers."

Social media giants Facebook and Twitter both told BT that they are concerned about the restrictions on social media access. A Twitter spokesperson said the Internet blockade "undermines the public conversation and the rights of people".

Rafael Frankel, Facebook's director of public policy for Asia-Pacific emerging countries, urged authorities to immediately unblock social media services.

In the longer term, there is also the concern of a tech brain drain from Myanmar. Said Mr Quek of Trive: "This is a pity as Myanmar's startup ecosystem is already far behind its regional peers and it will likely fall behind in building up entrepreneurs."

There could also be an impact on foreign tech firms' willingness to enter Myanmar. For now, tech firms with operations in Myanmar are taking a cautious approach.

Singapore-based logistics startup Ninja Van has a presence in Myanmar via a business partnership with another firm, City Holdings, which manages the operations.

A Ninja Van spokesperson said: "We understand from our Burmese partner that operations are ongoing as and when conditions are made viable. The team is closely monitoring the situation on ground."

Likewise, foodpanda previously told BT on Feb 4 that the firm still has plans to bring its cloud grocery stores to Myanmar, where it already has a food delivery business. The company had then said that it is closely monitoring the situation.

• Garage is BT's startup vertical. Read more news, analyses and opinions at bt.sg/garage