The military regime’s attempts to restrict imports and ration foreign currency have boosted illicit border trade at Myawaddy in Kayin State, putting its boasts of a trade surplus into question.
On a hot afternoon in July, a container truck arrives at border gate number 2 on the Thaung Yin River.
A team of workers descends on the container, unloading cases of Thai beer by hand onto a moored boat. When they complete the job, the small boat putters across the narrow waterway from Thailand to Myawaddy, the border town in Myanmar’s Kayin State. The beer is then unloaded into a warehouse, from where it will be distributed to markets across southeastern Myanmar and beyond.
Although conducted in broad daylight, this boat delivery is one small piece of a multi-billion-dollar smuggling economy.
The beer has passed through a Thai Customs gate, but on the Myanmar side there are only soldiers from the Kayin State Border Guard Force. The militia force is under the command of the Myanmar military; in exchange for its loyalty, the military allows it to run close to 30 smuggling gates along the Thaung Yin, known to Thais as the Moei, along with other illicit enterprises such as the Shwe Kokko “new city” upriver from Myawaddy.
After more than two years of disruption due to COVID-19, and short-lived attempts by the military and former civilian government to crack down on BGF enterprises, business is booming once again at the riverside trade gates run by the armed group.
Ko Nyein Chan, who oversees gate 2, said trade picked up gradually following the February 2021 military coup. Shortly after seizing power, the military, eager to ensure it kept the BGF onside, backpedalled on a demand that the group give up its business interests.
“Some boat terminals reopened shortly after the coup, but our gate fully reopened from December last year. Since then, the amount of cargo has gradually increased,” Nyein Chan told Frontier.
His gate mainly handles beer and other alcohol products, which are either illegal to import or subject to high customs duties. However, Nyein Chan said it also passes other kinds of goods, including those purchased on online shopping sites.
While he can’t put a dollar figure on the trade, he said that when the gate reopened it received about 20 to 25 trucks a day. That has since risen to about 40 trucks a day, and there is no sign of business slowing down. “The increase has mainly been since this year’s Thingyan festival in mid-April,” he said.
A widening disparity between Thai and Myanmar trade figures suggests that smuggling from Thailand has not only recovered to pre-coup levels but has reached what appears to be an all-time high. This boom puts the junta’s boasts of running a trade surplus into question. Moreover, it has been fuelled by the regime’s own heavy-handed attempts to control trade.
Popular opposition to Senior General Min Aung Hlaing’s February 2021 power grab has caused significant disruption and dramatically reshaped Myanmar’s economy.
Capital flight and a drop in foreign investment, aid and remittances have resulted in a foreign currency shortage. In an effort to control trade and balance the books, the regime has re-introduced import and export permits for many goods since late last year, reversing a decade of trade liberalisation.
In July, the World Bank’s Myanmar Economic Monitor noted that about 81 percent of tariff lines now require import licences, up from 35pc last year. New licence requirements have been imposed on consumer products, raw materials, intermediate goods and machinery.
Observing that “the capacity to administer these licences remains limited”, the report said “it reportedly takes longer now to obtain a licence for certain imports (such as processed food), and there is less clarity around the decision-making process, increasing the uncertainty faced by firms managing their supply chains”.
On April 3, the junta-controlled Central Bank announced strict capital controls that have required importers to seek approval not only from the Trade Department and line ministries for import permits, but also from the Foreign Exchange Supervisory Committee for permission to buy foreign currency at the official rate.
The increased bureaucracy has left many companies unable to import essential goods, including pharmaceuticals. Fuel and cooking oil have also been in short supply, with the regime approving fuel imports of just 253,000 tonnes in September, compared to normal demand of 500,000 to 600,000 tonnes.
Largely due to these restrictions, Min Aung Hlaing has been able to trumpet small trade surpluses in the fiscal year from October 2020 to September 2021 and the “mini-budget” from October 2021-March 2022. The latest figures from the Ministry of Commerce show that to September 16, international trade continues to remain in surplus, with US$7.84 billion of exports and $7.79 billion of imports since April 1.
But this data only captures formal trade – goods that pass through official ports or border posts and are processed by Myanmar customs officials. At Myawaddy, this means the two “friendship bridges” that span the Thaung Yin, but not the dozens of gates run by armed groups, primarily the Kayin State BGF. This is despite the fact that the goods handled by these gates were processed and counted as official exports by Thai customs authorities.
As a result, billions of dollars’ worth of trade is likely missing from the junta’s figures. Even prior to the coup, Thailand typically reported about $4 billion in exports to Myanmar a year, while Myanmar reported only around $2 billion in imports from Thailand.
Much of the disparity can be attributed to smuggling through the armed group-run gates in Myawaddy. Customs figures from Mae Sot, the city on the Thai side of the river, show that among the highest exports by value are diesel and petrol, phones and accessories, and non-alcoholic beverages, all of which commonly pass through BGF gates. Thailand’s national customs figures show that there has also been an increase in exports of other commonly smuggled products, such as liquor, beer and second-hand vehicles.
Since October last year, Mae Sot’s Customs House has recorded exports of just under 100 billion baht (around $2.9 billion), while over the same period Myanmar’s Customs Department reported imports of just $1.34 billion through Myawaddy – about $1.5 billion less than their Thai counterparts.
This means that while the junta is claiming a trade surplus, it’s missing possibly billions of dollars of imports each year that might push the trade balance into the red.
Yet closing the smuggling gates is hardly an option for the regime. Since the coup, the military has fought intense battles with the Karen National Union and allied resistance forces, in which it has relied heavily on the BGF’s 11 battalions of heavily armed troops. This alliance is built on an understanding that the BGF can pursue its business activities unencumbered, even when these activities undermine policies from Nay Pyi Taw.
The BGF’s business empire extends far beyond illicit trade gates. The group has also earned notoriety for leasing land along the border to ethnic Chinese investors, who have turned the area into a hotbed of criminal activity, including online scams, human trafficking, gambling and sex work.
A smuggling boom
Far from rebalancing trade, the regime’s onerous trade restrictions and capital controls have encouraged smuggling from Thailand through the informal trade gates at Myawaddy.
In the previous three fiscal years, Myanmar’s reported imports from Thailand remained steady at around 50pc of Thailand’s reported exports. But since late 2021, the gap between Thailand’s reported exports and Myanmar’s reported imports has widened.
In the six-month mini budget, from October 1 to March 31, Myanmar’s imports were just 45pc of Thailand’s exports. From April to the end of July, the figure fell further, to 42.7pc.
Thanks to the smuggling boom, Thailand’s exports to Myanmar are on track for a record year, making a mockery of the regime’s import restrictions. From January to August, Thailand exported more than 110 billion baht of goods to Myanmar; the next best year was 2018, when it exported 101 billion over the same period.
Much of the increase is due to higher exports through Mae Sot, where most of the smuggling occurs. Mae Sot Customs House figures show exports to Myawaddy are up a massive 45pc this financial year in baht terms, and are 33pc higher than the previous record year for Mae Sot, in 2016-17.
Sources on the border confirmed to Frontier that trade restrictions, a shortage of dollars and exchange rate instability have contributed to the increased use of informal trade gates.
Since the start of July, the kyat has fallen from K60 to the baht to K85, a decline of almost 45pc that makes Thai imports much more expensive. One Myanmar businessperson based in Myawaddy said that because the kyat had weakened so significantly, smaller traders had switched from using the official routes to save money.
“The recent economic instability and rising prices have resulted in more trade through the boat gates,” said the businessperson, who asked not to be named. “Only big companies can manage the exchange rate problem. For small traders, it’s no longer viable to trade legally.”
The smuggling boom has not just been limited to Myawaddy. Importers told Frontier they were using a range of smuggling routes to import goods from China and Thailand.
“There is demand in Myanmar for these goods that can no longer be imported legally – at least not easily – so businessmen have been trying to import them by buying dollars on the black market and smuggling them in,” said one importer, who imports non-perishable food from China.
“Because of the kyat depreciation, the price of these imported goods is skyrocketing ... the businessmen just pass on the higher import price to the consumer, and in the end the people suffer because of inflation,” the importer said.
Another Myawaddy-based businessperson told Frontier that the boat gates were mainly used by small traders, who could make a tidy profit by avoiding taxes and duties. But trade restrictions were also encouraging larger traders to avoid the official checkpoints. “The regime has made it harder to do business legally, so naturally more and more traders are using the boat gates,” the businessperson said.
She does not expect conditions to improve so long as the regime keeps trying to subject market forces to military discipline. “I’ve got no faith at all that the SAC can manage the foreign rate properly – you can’t just tell the Central Bank to fix [an exchange] rate. I think things are going to get much worse.”
This article was supported by UK aid from the UK government via the Cross-Border Conflict: Evidence, Policy and Trends programme. All views are those of Frontier.