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Farley Sweatman

Bankrolling Tyranny: The Tatmadaw’s Military-Run Business Empire

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by Farley Sweatman

Tatmadaw propaganda sign outside Mandalay Palace
Source: Adam Jones/CC Search

In the early morning of February 1, 2021, the Tatmadaw (the official name for the armed forces of Myanmar) staged a coup to reclaim its status as the sole source of political power in the country by arresting dozens of key civilian politicians, including de facto head of state Aung San Suu Kyi. The Tatmadaw declared a year-long state of emergency and transferred power to its commander-in-chief, Min Aung Hlaing, effectively ending the country’s decade-old experiment with democracy. Pro-democracy protests have sprung up across the country, prompting harsh countermeasures that have led to thousands of arrests and over 700 civilian deaths. In pursing this risky course, the Tatmadaw must now contend with international condemnation alongside growing protest movements that have paralysed the economy and endangered Chinese business interests.

The military takeover took place following a general election in which the Tatmadaw-backed opposition were soundly defeated by Aung San Suu Kyi’s ruling National League for Democracy (NLD) party. Claims of widespread voter fraud and a demand for a rerun of the election have been cited by the military as the official reasoning behind the coup. As negotiated under the 2008 constitution during Myanmar’s democratic transition, the military is guaranteed control over three government ministries (including defence) and 25 percent of seats in parliament (enough to theoretically block NLD lawmakers from amending the constitution to restrict the military’s power in the future). The NLD’s electoral victory would have solidified further civilian control over the political arena and thus threatened the military’s guaranteed hold.

There are, however, deeper motives behind the Tatmadaw’s actions. Its military leadership has long nurtured a form of “crony capitalism,” an economic system in which individuals and firms with political connections and influence are given unfair advantages. In Myanmar, senior generals and officers, operating through two giant military-run conglomerates – Myanmar Economic Corporation (MEC) and Myanmar Economic Holdings Limited (MEHL) – have been able to leverage the military’s coercive power to secure preferential access to key sectors of the economy, such as the lucrative jade mining industry. This vast network of commercial interests and holdings is essentially a mechanism to project military influence across the economy and reward members for their loyalty. In 2019, these military-connected entities came under threat when the NLD secured control over the general administrative department and began to introduce laws regulating the jade and gemstone industry. The elaborate patron-client system used by the regime to maintain power hinges upon the ability to accumulate and protect sources of wealth. This is the Tatmadaw’s bottom-line.

Stationary banditry

The military’s involvement in business first began after the socialist coup of 1962 as General Ne Win moved to nationalise the economy. During this time, Tatmadaw forces were required to be self-sufficient by developing interests in local enterprises to fund their operations. This practice was gradually phased out as the Tatmadaw abandoned the planned economy – only to be replaced with military-run, “crony capitalism” as the ruling junta began privatising state industries in the early 1990s.

MEHL was established by the Ministry of Defense in 1990. In its declared objectives, the stated aims are to provide economic welfare to military personnel, war veterans, and the general public. However, in reality, most of these profits are siphoned off to secure control and generate profit for the Tatmadaw’s senior leadership and allies. According to a leaked report by activist groups Justice for Burma and Amnesty International, MEHL paid its shareholders – all of whom are active or former Tatmadaw personnel – USD 16.6 billion worth of dividends between 1990 and 2011. Similar to its counterpart, MEC was established in 1997 with the declared objectives of contributing to Myanmar’s economy, reducing defence spending, and ensuring the welfare of military personnel. Today, both MEHL and MEC operate as holding companies with business in important sectors of the national economy, including mining, banking, manufacturing, and telecommunications, tourism, and transport.

Information on the revenues of MEHL and MEC is scarce and obscure. Neither company has made its financial reports available to the public, although both were exempt from income and commercial tax between 1998 and 2011. Much of MEHL and MEC revenue bypasses formal government channels, with billions of USD unaccounted for in the mining, forestry, and oil and gas industries. In the jade sector, for instance, investigations have determined that only a small fraction of jade is officially sold through the government-run Myanmar Gems Emporium – the rest, worth tens of billions of USD, being smuggled into China each year. Tatmadaw-owned resource companies and government revenue collecting agencies also publicly disagree on the tax figures paid by MEHL and MEC and their subsidiaries. This lack of transparency suggests that much of the revenue generated by military businesses in Myanmar is not captured by the State, and instead is funneled to subsidise military operations and enrich senior Tatmadaw officials.

Follow the money

The Tatmadaw’s commercial interests were present during the country’s democratic reforms. As Myanmar transitioned towards democracy and began to open its economy in 2011, the military junta quietly began the largest sell-off of state assets in the country’s history. The assets being sold included government buildings, port facilities, mines, factories, farmland, fuel import and distribution networks, and a large share in the national airline. The vast majority of these assets fell into the hands of senior generals and their families or businessmen allied with the Tatmadaw, cementing the position of a military-oligarchic ruling class in a supposedly progressive Myanmar.

Their arrangement with the newly installed civilian government proved ideal at first. Free rein over its business empire insulated the Tatmadaw from the accountability and oversight that would normally arise from civilian control over military defense budgets. At the same time, the Tatmadaw were content to let Aung San Suu Kyi and her civilian government, as the official head of state, take international criticism for the military’s human rights abuses against ethnic minorities like the Karen and Rohingya.

In 2019, this relationship changed when the NLD gained control of the general administrative department that oversees key bureaucratic appointments. The civilian government introduced a law intended to regulate the multi-billion-dollar gemstone and jade industry, which would directly affect hidden Chinese business interests and the country’s military-linked elite. They suspended the issuing of new or extension of existing gemstone licences pending a governance review designed to tackle corruption in the sector.

In doing so, the NLD crossed a line. Civilian oversight in the jade and gemstone sector would not, on its own, have broken the military’s web of commercial interests, but would have perhaps signalled a new wave of reforms targeting the military’s wealth. Forced to relinquish control over some of its lucrative businesses, the military would have struggled to maintain its system of patronage and retain its grip over the government administration. Thus, it comes as no surprise that the Tatmadaw decided to pursue the perilous course of staging a coup against a popular elected government. The NLD’s landslide victory over the opposition likely spooked many in upper echelons of the military, including Senior General Min Aung Hlaing. It appears that, to the Tatmadaw, it is worth putting its entire fortune on the line in order to protect its sources of wealth from potential reforms by the government.

Tatmadaw coup leader General Min Aung Hlaing (front) in 2015
Source: Prachatai/CC Search

A clash of ethics and money

Revenue generated by the MEHL and MEC serves to strengthen the Tatmadaw’s autonomy from elected civilian oversight, while providing financial support that sustains Tatmadaw operations. Weakening the Tatmadaw’s grip on Myanmar’s economy has so far entailed the following approach typically employed by Western governments: economic isolation by way of sanctions against Tatmadaw entities and individuals. However, this strategy proves challenging given the expansive Chinese and Russian business interests in the country. As the Tatmadaw’s two largest arms suppliers, China and Russia have a vested interest in maintaining the status quo in Myanmar and have consequently rebuffed efforts to condemn the Tatmadaw by other members on the UN Security Council.

A new approach is needed, one that espouses disengagement from Tatmadaw associated companies. Firms in Japan, Singapore, South Korea, and other countries still maintain commercial partnerships with MEHL and MEC. These links need to be targeted and severed by their respective governments through expanded sanctions. Moreover, Western governments must promote economic ties and engagement with non-Tatmadaw companies and businesses in order to strengthen the non-Tatmadaw sector of the economy.

As the current crisis deepens in Myanmar, uncertainties remain. Effective policy against the Tatmadaw may be difficult to implement in the short term so long as martial law continues across the country. If the military does indeed pull back and release the civilian government, this may embolden ethnic rebel groups on the periphery to rise up, thereby threatening the territorial integrity of the country and its status as a union.

Ethnic Federalism in Decline: Implications of Ethiopia’s Tigray Crisis

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by Farley Sweatman

40th Anniversary of the Tigrayan People’s Liberation Front (TPLF) in 2015
Source: Paul Kagame

Armed clashes continue across Ethiopia’s Tigray region as Ethiopian National Defense Forces (ENDF) battle fighters loyal to the Tigray People Liberation Front (TPLF). Despite taking effective control of Mekelle, Tigray’s regional capital, in the initial offensive, ENDF troops now face the possibility of a protracted insurgency, with TPLF leaders vowing to fight on in the region’s mountainous interior. More concerning still is that the conflict has taken on an ethnically driven dimension with reports of ethnic profiling by Ethiopia’s federal government against the Tigrayan population. Unless quickly resolved, the crisis threatens to reverse any recent gains made by Prime Minister Abiy Ahmed’s administration towards promoting a shared sense of unity and identity (or Ethiopiawinet) that transcends ethnic lines.

The ramifications of this conflict are two-fold. Internally, the sectarian aspect risks spreading ethnic tensions to other parts of Ethiopia, thereby unravelling the thin blanket of ethno-federalism that has held the country together. Externally, regional rivals Egypt and Sudan may exploit this unrest to derail the contentious Grand Ethiopian Renaissance Dam (GERD), which could escalate the violence and prompt an international crisis.

Ethiopiawinet and the beginnings of a renaissance

Ethiopia is rife with potential. While landlocked, Ethiopia has one of the largest freshwater reserves in Africa with over a dozen major rivers flowing out of its highlands. Control of these crucial water basins grants Ethiopia strategic leverage over all of its riparian neighbours. Ethiopia is also Africa’s second most populous country and is the fastest growing economy in the region, experiencing high, broad-based economic growth that has averaged 9.8 per cent annually over the last decade.

Despite these advantages, Ethiopia faces longstanding issues relating to its delicate ethnic framework. The mosaic of ethnicities comprising the Ethiopian space is a serious obstacle for any centralization effort by the central government. After the collapse of the unitary Derg regime in 1991, the victorious Ethiopian People Revolutionary Democratic Front (EPRDF) established the current ethno-federalist system, which divided the country into several regions along ethno-linguistic lines. Each of these regions has its own local government, and more importantly, its own security forces.

This new system was defined by widespread corruption, through which the TPLF held disproportionate military and political influence over the other parties in the EPRDF. The ascension of Abiy Ahmed to power in 2018 marked a drastic shift from this trend. Half Oromo and half Amhara (Ethiopia’s two largest ethnic groups), Abiy is a serious reformer who freed thousands of political prisoners, cracked down on corruption, and reached an historical agreement with Eritrea to formally end their long border conflict. Abiy also merged the disparate parties of the EPRDF into a single Prosperity Party (PP). These efforts at replacing the ethno-federalist system with a unitary state are backed by inclusive rhetoric alluding to the concept of Ethiopiawinet or “Ethiopianness” that supersedes ethnic divisions.

Sectarian undertones

The discrepancies between this promised unitary vision and its actual implementation serves as the focal point for the current Tigray conflict. Backed by a predominately Amhara political elite, Abi’s centralising reforms work to marginalise Tigray influence – politically and culturally. The ethnic asymmetry of this supposedly inclusive unitary narrative is illustrated in Abiy’s nuanced messages to the Oromos and Tigrayans. Abiy declared that the “Oromo struggle is the Ethiopian struggle,” while in Tigray he contended that “ethnic differences should be recognized and respected, however, we should not allow them to be hardened to the extent of destroying our common national story.”

Ethno-regional division of Ethiopia
Source: Peter Fitzgerald

These ethnic differences permeate the current conflict. Abiy enjoys popular Amhara support with thousands of Amhara militiamen fighting alongside federal forces in Tigray. Meanwhile, scores of Amhara civilians were massacred in Mai Kadra in western Tigray, possibly in response by the TPLF. Abiy’s offensive is largely directed against the TPLF political-military establishment, but increasingly, allegations of ethnic profiling against the Tigrayan population surface – both in Tigray and elsewhere in the country. Tigrayans in the national capital, Addis Ababa, have been harassed and those working in security or civil serves been told not to come to work.

This sectarianism has serious implications which threaten the territorial integrity of Ethiopia. If the conflict is directed against the general Tigrayan population as opposed to a defined political-military entity, there can be no immediate resolution. Failing to quickly resolve this crisis struggle may reinvigorate latent secessionist movements elsewhere in Ethiopia. The Southern Nations region of Ethiopia, for instance, is teeming with nationalist factions. Also, Tigrayan unrest may trigger ethnic Somali irridentist claims in the Ogaden region. If these groups reject Abiy’s centralization efforts, bloodshed may follow.

Regional destabiliser

There is growing concern that the conflict may destabilize the entire Horn of Africa. Thousands of Ethiopian soldiers fighting Islamist insurgencies in Somalia have reportedly been withdrawn to join to the Tigray offensive. This redeployment could create a power vacuum in Somalia to be filled by Islamist groups like al-Shabaab or the Islamic State. The violence in Tigray has already spilled into neighbouring Eritrea, which harbours a longstanding animosity towards the TPLF over its leading role in Eritrean-Ethiopian border conflict. Eritrean troops are reported to have crossed into the Tigray region following TPLF rocket strikes on the Eritrean capital of Asmara.

Eritrean involvement could potentially result in intervention from other foreign powers. Abiy is currently engaged in a public standoff with Egypt and Sudan over the GERD project which, when completed, will grant Ethiopia control of the Nile water supply. If Egypt and Sudan were to side with the TPLF, derailing the GERD, this could result in more actors becoming involved in the crisis. For example, Turkey, with its history of intervening in post-Arab Spring conflicts in Syria and Libya, may move in to balance its regional rival Egypt by supporting Ethiopia. With Turkey involved, it would potentially not be long before the Gulf states, who have vested interests in the Horn, would get dragged into the conflict.

Walking a fine line

With these internal and external variables at play, it is in the interest of Abiy and his government to seek an immediate end to the Tigray conflict – either through swift military means or international mediation. The latter seems preferable for producing a more robust and enduring peace agreement, with the eventual reintegration of Tigrayan politicians into Ethiopian politics. Abiy, however, must be careful not to make too many concessions, lest he alienate his support base and incentivise other secessionist movements in the country.

To secure its future, Ethiopia must move beyond ethnic-based politics. Lessons from Yugoslavia in 1990s have demonstrated the innate and deadly fallacies of ethnic federalism. Ethiopia’s ethnic federalist system serves to empower the dominant ethno-regional group, thereby marginalizing ethnic minorities at the local level. In creating a unitary state, Abiy must reject the populist demands of the Amhara or Oromo while working toward peaceful coexistence with the TPFL. Inclusion into the PP might prove a stretch but Abiy should at least strive for a working relationship with the TPLF that offers them political protections in a new Ethiopia.

Farley Sweatman is a Master of Global Affairs (MGA ’21) Candidate at the Munk School of Global Affairs and Public Policy, University of Toronto. He has interned at the American Chamber Commerce in Morocco and is currently specializing in global capital markets and global security at the Munk School. Farley is also an active member of the Global Conversations media organization as Associate Editor and former Feature Contributor for Middle East and North African (MENA) Affairs.