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Singapore’s Shopee changes the game in Brazil’s e-commerce sector

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A signage of Shopee, the e-commerce arm of Sea Ltd, is pictured at its office in Singapore, March 5, 2021. REUTERS/Edgar Su

Aug 30 (Reuters) – Sea Ltd’s (SE.N) Shopee took just two years to become Brazil’s most-downloaded shopping app, winning users to its low-cost marketplace with its game-changing approach to e-commerce: in-app mini-games offering coupons to winning users.

The Singapore-based company has combined online shopping with the gaming nous of its separate mobile game arm Garena – creator of “Free Fire”, Brazil’s most-downloaded title for eight consecutive quarters – to generate sales analysts estimated at almost a third of local champion Magazine Luiza SA (MGLU3.SA).

Back home, Shopee only needed five years to become Southeast Asia’s most-visited e-commerce website, overtaking the likes of Lazada, backed by China’s Alibaba Group Holding Ltd (9988.HK), and Tokopedia, backed by Japan’s SoftBank Group Corp (9984.T). read more

“Shopee has a track record in Southeast Asia of coming into the market late, looking at how others have solved existing problems and then building a system to leapfrog those issues,” said analyst Jianggan Li at advisory firm Momentum Works.

Shopee’s early surge highlights the space left for foreign entrants to grow in a sector once dominated by regional firms like Magazine Luiza and Argentina’s MercadoLibre Inc (MELI.O).

To be sure, the startup’s timing was fortuitous, launching in Brazil just as the COVID-19 pandemic drove consumers away from physical stores, pushing up 2020 e-commerce sales by 44% to $42 billion, showed data from Brazilian payments company EBANX.

Shopee – akin to Alibaba’s AliExpress, carrying Chinese-made knick-knacks – emerged as Brazil’s top app by downloads and time spent in use, showed data from analytics platform App Annie.

Yet, in pursuit of growth, Shopee is still losing money, propped up by Sea’s profitable gaming division. In the second quarter of this year, Garena posted an adjusted earnings before interest, tax, depreciation and amortization (EBITDA) of $740.9 million even as the e-commerce arm lost $579.8 million.

“Money being generated by one side of the business, which is a cash cow, is being reinvested aggressively in Brazilian e-commerce – with success,” said Itau BBA analyst Thiago Macruz.

GLOBAL AMBITION

Sea’s Brazil foray is just one element of its global ambition. Investment arm Sea Capital is also considering putting money into startups in Latin America and beyond, said a person with knowledge of the matter, who was not authorized to speak with media and so declined to be identified.

The firm has also taken Shopee to Chile, Colombia and Mexico where, unlike Brazil, it has no locally based staff and so has partnered social media influencers to increase brand awareness, said two people familiar with the matter.

Sea, whose shareholders include Chinese gaming leader Tencent Holdings Ltd (0700.HK), declined to comment.

The firm has disclosed little data about Shopee Brazil, but Itau BBA analysts estimated the value of goods and services sold on the platform last year hit 12 billion reais ($2.27 billion).

The average price on its marketplace is 40 reais, other estimates showed, less than a third that of e-commerce leader MercadoLibre, which often carries higher-value branded products.

Sea’s biggest challenge for Shopee Brazil is delivery in such a vast country. It reduced its reliance on the local postal system this year in favor of private carriers, but is still competing against rivals with proprietary delivery services.

Shopee aims to have one main logistics partner per country in the region, a company source told Reuters.

The company itself expects e-commerce growth in the region to spawn more delivery partnerships, as happened in Southeast Asia, Sea executives told analysts on a call this month.

On the same call, Group Chief Corporate Officer Yanjun Wang called Brazil “a good market for continued investment.”

LOCAL SELLERS

Competition in Latin America’s largest economy stepped up this month when Shopee’s nearest rival in terms of product offering, AliExpress, opened up its marketplace to domestic sellers charging single-digit commission. AliExpress had been in Brazil for 11 years; Shopee did similarly after its first year.

Small-business owner Luciana Carvalho began selling plastic packaging products on Shopee in February, attracted by the free shipping and 6% commission – compared with MercadoLibre’s 17%.

“It’s easy to sign up, calculate your commission, get your delivery tags, your receipts. It makes us invest more in the platform,” she said.

In a move toward profitability, Shopee has since raised commission to 18% – as much as twice marketplaces can charge in some Southeast Asian countries, indicating Latin America’s potential profit margins. Carvalho continues to use Shopee, though she prefers MercadoLibre for its “unbeatable” delivery.

To further improve profitability, Goldman Sachs analysts said Shopee could start selling higher-ticket items, as it has in Southeast Asia. Momentum Works’ Li expects Shopee to add financial services to its Brazil app as it has in Indonesia.

“I wouldn’t be surprised,” if they reached number one, said Li, “Given what they have done in Singapore, Indonesia and Malaysia, Thailand.”

($1 = 5.2948 reais)

Reporting by Jimin Kang; Additional reporting by Fanny Potkin; Editing by Christian Plumb and Christopher Cushing

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The electric vehicle boom is pay-dirt for factory machinery makers

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DETROIT, Aug 20 (Reuters) – The investment surge by both new and established automakers in the electric vehicle market is a bonanza for factory equipment manufacturers that supply the highly automated picks and shovels for the prospectors in the EV gold rush.

The good times for the makers of robots and other factory equipment reflect the broader recovery in U.S. manufacturing. After falling post-COVID to $361.8 million in April 2020, new orders surged to almost $506 million in June, according to the U.S. Census Bureau.

Reuters Graphics

Here’s a graphic on U.S. manufacturing new orders: https://tmsnrt.rs/3lVyhlM

New electric vehicle factories, funded by investors who have snapped up newly public shares in companies such as EV start-up Lucid Group Inc (LCID.O) are boosting demand. “I’m not sure it’s reached its climax yet. There’s still more to go,” Andrew Lloyd, electromobility segment leader at Stellantis-owned (STLA.MI) supplier Comau, said in an interview. “Over the next 18 to 24 months, there’s going to be a significant demand coming our way.”

Growth in the EV sector, propelled by the success of Tesla Inc (TSLA.O), comes on top of the normal work manufacturing equipment makers do to support production of gasoline-powered vehicles.

Automakers will invest over $37 billion in North American plants from 2019 to 2025, with 15 of 17 new plants in the United States, according to LMC Automotive. Over 77% of that spending will be directed at SUV or EV projects.

Equipment providers are in no rush to add to their nearly full capacity.

“There’s a natural point where we will say ‘No'” to new business, said Comau’s Lloyd. For just one area of a factory, like a paint shop or a body shop, an automaker can easily spend $200 million to $300 million, industry officials said.

‘WILD, WILD WEST’ “This industry is the Wild, Wild West right now,” John Kacsur, vice president of the automotive and tire segment for Rockwell Automation(ROK.N), told Reuters. “There is a mad race to get these new EV variants to market.” Automakers have signed agreements for suppliers to build equipment for 37 EVs between this year and 2023 in North America, according to industry consultant Laurie Harbour. That excludes all the work being done for gasoline-powered vehicles.

“There’s still a pipeline with projects from new EV manufacturers,” said Mathias Christen, a spokesman for Durr AG (DUEG.DE), which specializes in paint shop equipment and saw its EV business surge about 65% last year. “This is why we don’t see the peak yet.”

Orders received by Kuka AG, a manufacturing automation company owned by China’s Midea Group (000333.SZ), rose 52% in the first half of 2021 to just under 1.9 billion euros ($2.23 billion) – the second-highest level for a 6-month period in the company’s history, due to strong demand in North America and Asia.

“We ran out of capacity for any additional work about a year and a half ago,” said Mike LaRose, CEO of Kuka’s (KU2G.DE) auto group in the Americas. “Everyone’s so busy, there’s no floor space.”

Kuka is building electric vans for General Motors Co (GM.N) at its plant in Michigan to help meet early demand before the No. 1 U.S. automaker replaces equipment in its Ingersoll, Ontario, plant next year to handle the regular work. Automakers and battery firms need to order many of the robots and other equipment they need 18 months in advance, although Neil Dueweke, vice president of automotive at Fanuc Corp’s (6954.T) American operations, said customers want their equipment sooner. He calls that the “Amazon effect” in the industry.

“We built a facility and have like 5,000 robots on shelves stacked 200 feet high, almost as far as the eye can see,” said Dueweke, who noted Fanuc America set sales and market share records last year.

COVID has also caused issues and delays for some automakers trying to tool up.

R.J. Scaringe, CEO of EV startup Rivian, said in a letter to customers last month that “everything from facility construction, to equipment installation, to vehicle component supply (especially semiconductors) has been impacted by the pandemic.”

However, established, long-time customers like GM and parts supplier and contract manufacturer Magna International (MG.TO) said they have not experienced delays in receiving equipment.

Another limiting factor for capacity has been the continuing shortage of labor, industry officials said. To avoid the stress, startups like Fisker Inc (FSR.N) have turned to contract manufacturers like Magna and Foxconn(2354.TW), whose buying power enables them to avoid shortages more easily, CEO Henrik Fisker said. Growing demand, however, does not mean these equipment makers are rushing to expand capacity. Having lived through downturns in which they were forced to make cuts, equipment suppliers want to make do with what they have, or in Comau’s case, just add short-term capacity, according to Lloyd. “Everybody’s afraid they’re going to get hammered,” said Mike Tracy, a principal at consulting firm the Agile Group. “They just don’t have the reserve capacity they used to have.”

Reporting by Ben Klayman in Detroit; additional reporting by Joseph White; Editing by Dan Grebler

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Business

For bank regulators, tech giants are now too big to fail

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  • Britain, France, United States and EU scrutinising sector
  • Bank cloud tech spending to surge to $85bn by 2025 – IDC
  • Bank regulators want more oversight of cloud risks

LONDON, Aug 20 (Reuters) – More than a decade on from the financial crisis, regulators are spooked once again that some companies at the heart of the financial system are too big to fail. But they’re not banks.

This time it’s the tech giants including Google (GOOGL.O), Amazon (AMZN.O) and Microsoft (MSFT.O) that host a growing mass of bank, insurance and market operations on their vast cloud internet platforms that are keeping watchdogs awake at night.

Central bank sources told Reuters the speed and scale at which financial institutions are moving critical operations such as payment systems and online banking to the cloud constituted a step change in potential risks.

“We are only at the beginning of the paradigm shift, therefore we need to make sure we have a fit-for-purpose solution,” said a financial regulator from a Group of Seven country, who declined to be named.

It is the latest sign of how financial regulators are joining their data and competition counterparts in scrutinising the global clout of Big Tech more closely.

Banks and technology companies say greater use of cloud computing is a win-win as it results in faster and cheaper services that are more resilient to hackers and outages.

But regulatory sources say they fear a glitch at one cloud company could bring down key services across multiple banks and countries, leaving customers unable to make payments or access services, and undermine confidence in the financial system.

The U.S. Treasury, European Union, Bank of England and Bank of France are among those stepping up their scrutiny of cloud technology to mitigate the risks of banks relying on a small group of tech firms and companies being “locked in”, or excessively dependent, on one cloud provider.

“We’re very alert to the fact that things will fail,” said Simon McNamara, chief administrative officer at British bank NatWest (NWG.L). “If 10 organisations aren’t prepared and are connected into one provider that disappears, then we’ll all have a problem.”

RAPID PACE

The EU proposed in September that “critical” external services for the financial industry such as the cloud should be regulated to strengthen existing recommendations on outsourcing from the bloc’s banking authority that date back to 2017.

The Bank of England’s Financial Policy Committee (FPC) meanwhile wants greater insight into agreements between banks and cloud operators and the Bank of France told lenders last month they must have a written contract that clearly defines controls over outsourced activities.

“The FPC is of the view that additional policy measures to mitigate financial stability risks in this area are needed,” it said in July. read more

The European Central Bank, which regulates the biggest lenders in the euro zone, said on Wednesday that bank spending on cloud computing rose by more than 50% in 2019 from 2018.

And that’s just the start. Spending on cloud services by banks globally is forecast to more than double to $85 billion in 2025 from $32.1 billion in 2020, according to data from technology research firm IDC shared with Reuters.

An IDC survey of 50 major banks globally identified just six primary providers of cloud services: IBM (IBM.N), Microsoft, Google, Amazon, Alibaba (9988.HK) and Oracle (ORCL.N).

Amazon Web Services (AWS) – the largest cloud provider according to Synergy Group – posted sales of $28.3 billion in the six months to June, up 35% on the prior year and higher than its annual revenue of $25.7 billion as recently as 2018.

While all industries have ramped up cloud spending, analysts told Reuters that financial services firms had moved faster since the pandemic after an explosion in demand for online banking and emergency lending schemes.

“Banks are still very diligent but they have gained a higher level of comfort with the model and are moving at a fairly rapid pace,” said Jason Malo, director analyst at consultants Gartner.

Reuters Graphics Reuters Graphics

NO MORE SECRECY

Regulators worry that cloud failures would cause banking systems to fall over and stop people accessing their money, but say they have little visibility over cloud providers.

Last month, the Bank of England said big tech companies could dictate terms and conditions to financial firms and were not always providing enough information for their clients to monitor risks – and that “secrecy” had to end.

There is also concern that banks may not be spreading their risk enough among cloud providers.

Google told Reuters that less than a fifth of financial firms were using multiple clouds in case one failed, according to a recent survey, although 88% of those that did not spread their risk yet planned to do so within a year. read more

Central bank sources said part of the solution may be some form of mechanism that offers reassurance on resilience from cloud providers to banks to mitigate the sector’s aggregate exposure to one cloud service – with the banking regulator having the overall vantage point.

“Regardless of the division of control responsibilities between the cloud service provider and the bank, the bank is ultimately responsible for the effectiveness of the control environment,” the U.S. Federal Reserve said in draft guidance issued to lenders last month.

FINRA, which regulates Wall Street brokers, published a report on Monday ahead of potential rule changes to ensure that using the cloud does not harm the market or investors.

Being able to switch cloud providers easily when needed is, however, a task that is more easily said than done and could introduce disruptions to business, the FINRA report said.

‘THE BUCK STOPS WITH US’

Banks and tech firms contest the suggestion that greater adoption of the cloud is making the financial system’s infrastructure inherently riskier.

Adrian Poole, director for financial services in the United Kingdom and Ireland for Google Cloud, said the cloud can be more effective in bolstering a bank’s security capabilities than by building it in-house.

British digital lender Zopa said it had moved 80% of its transactions to the cloud and was working to mitigate risks. Zopa Chief Executive Jaidev Janardana said the company was also deliberately leaning on tech firms’ expertise.

“Cloud providers invest a lot of resources in security at a scale that few individual companies could manage,” he said.

Google’s Poole said the company was open to working more closely with financial regulators.

“We may one day see regulators pulling data on demand from regulated banks with cloud-enabled application programming interfaces (APIs), instead of waiting for banks to periodically push data at them,” he said.

NatWest’s McNamara said the bank was collaborating closely with tech firms and regulators to mitigate risks, and had put alternative services in place in case things went wrong.

“The buck stops with us,” McNamara said. “We don’t put all our eggs in one basket.”

One problem, though, is that not all banks have a full understanding of the risks to resiliency that could come with a wholesale shift to the cloud, said Jost Hoppermann, principal analyst at Forrester, particularly the smaller lenders.

“Some banks do not have the necessary know-how,” he said. “They think doing this will vanish all their problems, and certainly that isn’t true.”

Reporting by Iain Withers and Huw Jones; Additional reporting by Michelle Price in Washington and Francesco Canepa in Frankfurt; Editing by Rachel Armstrong and David Clarke

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How Sweden became the Silicon Valley of Europe

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STOCKHOLM, Aug 11 (Reuters) – As Klarna’s billionaire founder Sebastian Siemiatkowski prepares to stage one of the biggest-ever European fintech company listings, a feast of capitalism, he credits an unlikely backer for his runaway success: the Swedish welfare state.

In particular, the 39-year-old pinpoints a late-1990s government policy to put a computer in every home.

“Computers were inaccessible for low-income families such as mine, but when the reform came into play, my mother bought us a computer the very next day,” he told Reuters.

Siemiatkowski began coding on that computer when he was 16. Fast-forward more than two decades, and his payments firm Klarna is valued at $46 billion and plans to go public. It hasn’t given details, though many bankers predict it will list in New York early next year.

Sweden’s home computer drive, and concurrent early investment in internet connectivity, help explain why its capital Stockholm has become such rich soil for startups, birthing and incubating the likes of Spotify, Skype and Klarna, even though it has some of the highest tax rates in the world.

That’s the view of Siemiatkowski and several tech CEOs and venture capitalists interviewed by Reuters.

In the three years the scheme ran, 1998-2001, 850,000 home computers were purchased through it, reaching almost a quarter of the country’s then-four million households, who didn’t have to pay for the machines and thus included many people who were otherwise unable to afford them.

In 2005, when Klarna was founded, there were 28 broadband subscriptions per 100 people in Sweden, compared with 17 in the United States – where dial-up was still far more common – and a global average of 3.7, according to data from the World Bank.

Spotify allowed users to stream music when Apple’s (AAPL.O) iTunes was still download-based, which gave the Swedish company the upper-hand when streaming became the norm around the world.

“That could only happen in a country where broadband was the standard much earlier, while in other markets the connection was too slow,” Siemiatkowski said.

“That allowed our society to be a couple of years ahead.”

Some executives and campaigners say the Scandinavian nation demonstrates that a deep social safety net, often viewed as counter to entrepreneurial spirit, can foster innovation. It’s an outcome that might not have been envisaged by the architects of Sweden’s welfare state in the 1950s.

Childcare is, for the most part, free. A range of income insurance funds can protect you if your business fails or you lose your job, guaranteeing up to 80% of your previous salary for the first 300 days of unemployment.

“The social safety net we have in Sweden allows us to be less vulnerable to taking risks,” said Gohar Avagyan, the 31-year-old co-founder of Vaam, a video messaging service used for sales pitches and customer communication.

STARTUP RATE VS SILICON VALLEY

Although overall investments are larger in the bigger European economies of Britain and France and their longstanding finance hubs, Sweden punches above its weight in some regards.

It has the third highest startup rate in the world, behind Turkey and Spain, with 20 startups per 1000 employees and the highest three year survival rate for startups anywhere, at 74%, according to a 2018 study by OECD economists.

Stockholm is second only to Silicon Valley in terms of unicorns – startups valued at above $1 billion – per capita, at around 0.8 per 100,000 inhabitants, according to Sarah Guemouri at venture capital firm Atomico.

Silicon Valley – San Francisco and the Bay Area – boasts 1.4 unicorns per 100,000, said Guemouri, co-author of a 2020 report on European tech companies.

No one can say for sure if the boom will last, though, in a country where capital gains are taxed at 30 percent and income tax can be as high as 60 percent.

In 2016, Spotify said it was considering moving its headquarters out of the country, arguing high taxes made it difficult to attract overseas talent, though it hasn’t done so.

Yusuf Ozdalga, partner at venture capital firm QED Investors, said access to funding and administrative or legal tasks connected with founding a company could also prove tough to navigate for non-Swedish speakers.

He contrasted that to Amsterdam, capital of the Netherlands, where the government adopted English as an official language in April to make life easier for international companies.

‘INTERESTING DILEMMA’ FOR VC

Jeppe Zink, partner at London-based venture capital firm Northzone, said a third of all the exit value from fintech companies in Europe – the amount received by investors when they cash out – came from Sweden alone.

Government policy had contributed to this trend, he added.

“Its an interesting dilemma for us venture capitalists as we’re not used to regulation creating markets, in fact we are inherently nervous about regulation.”

Sweden’s digital minister Anders Ygeman said that social regulation could make it “possible to fail” and then “be up and running again” for innovators.

Peter Carlsson, CEO of startup Northvolt, which makes Lithium-ion batteries for electric vehicles and is valued at $11.75 billion, said that ultimately success bred success.

“You’re really creating ripple effects when you’re seeing the success of somebody else and I think that’s perhaps the most important thing in order to create local ecosystems.”

Reporting by Supantha Mukherjee and Colm Fulton in Stockholm; Editing by Pravin Char

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World

EXCLUSIVE New Saudi airline plan takes aim at Emirates, Qatar Airways

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DUBAI, July 2 (Reuters) – Saudi Arabia plans to target international transit passenger traffic with its new national airline, going head-to-head with Gulf giants Emirates and Qatar Airways and opening up a new front in simmering regional competition.

Crown Prince Mohammed bin Salman, who is pushing economic diversification to wean Saudi Arabia off oil revenues and create jobs, announced a transportation and logistics drive on Tuesday aimed at making the kingdom the fifth-biggest air transit hub.

Two people familiar with the matter said the new airline would boost international routes and echo existing Gulf carriers by carrying people from one country to another via connections in the kingdom, known in the industry as sixth-freedom traffic.

The transport ministry, which has not released details of the plans, did not respond to a Reuters request for comment.

The strategy marks a shift for Saudi Arabia whose other airlines, like state-owned Saudia and its low cost subsidiary flyadeal, mostly operate domestic services and point-to-point flights to and from the country of 35 million people.

The Saudi expansion threatens to sharpen a battle for passengers at a time when travel has been hit by the coronavirus pandemic. Long-haul flights like those operated by Emirates and Qatar Airways are forecast to take the longest to recover.

Riyadh has already moved to compete with the UAE, the region’s business, trade and tourism hub. The Saudi government has said that from 2024 it would stop giving contracts to firms that do not set up regional headquarters in the kingdom.

“Commercial competition in the aviation industry has always been fierce, and regional competition is heating up. Some turbulence in regional relations is on the horizon,” said Robert Mogielnicki, resident scholar at the Arab Gulf States Institute.

Dubai, the world’s largest international air travel hub, has announced a five-year plan to grow air and shipping routes by 50% and double tourism capacity over the next two decades.

Riyadh has already moved to compete with the UAE, the region’s business, trade and tourism hub. The Saudi government has said that starting 2024 it would stop giving contracts to firms that do not set up regional headquarters in the kingdom.

Saudi Crown Prince Mohammed bin Salman attends a session of the Shura Council in Riyadh, Saudi Arabia, November 20, 2019. Bandar Algaloud/Courtesy of Saudi Royal Court/Handout via REUTERS

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Prince Mohammed is trying to lure foreign capital to create new industries including tourism, with ambitions to increase overall visitors to 100 million by 2030 from 40 million in 2019.

“Saudi Arabia has the ability to push forward with its aviation and tourism strategy when others will be retreating and retracting,” aviation consultant Brendan Sobie said.

“It is a risky strategy, but also sensible given its position and overall diversification objective.”

TOURISM PUSH

However, any airline requires substantial start-up capital and experts warn that if Saudi Arabia’s ambition is to compete on transit flights it may have to contend with years of losses.

Saudi Arabia’s large population generates direct traffic that could cushion losses as a new airline targets international transit traffic, aviation consultant John Strickland said.

Emirates reported a record $5.5 billion annual loss last month with the pandemic forcing Dubai to step in with $3.1 billion in state support.

Etihad Airways has scaled back its ambitions after it spent billions of dollars to ultimately unsuccessfully compete in building a major hub in United Arab Emirates capital Abu Dhabi.

People familiar with the matter said the new airline could be based in the capital Riyadh, and that sovereign wealth fund PIF is helping set it up.

PIF did not respond to a request for comment.

Saudi Arabia is developing non-religious tourism with mega projects backed by PIF. It has launched social reforms to open up the country, the birthplace of Islam, including allowing public entertainment.

Reporting by Alexander Cornwell; Editing by Tim Hepher and Alexander Smith

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World

Military coup puts Telenor’s future in Myanmar on the line

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Since Myanmar’s military ordered telecoms operators to shut their networks in an effort to end protests against its February coup, Telenor’s business there has been in limbo.

As one of the few Western companies to bet on the South East Asian country after it emerged from military dictatorship a decade ago, the return to army rule led to a $783 million write-off this week for Norway’s Telenor (TEL.OL).

The Norwegian state-controlled firm, one of the biggest foreign investors in Myanmar, must now decide whether to ride out the turmoil, or withdraw from a market which last year contributed 7% of its earnings.

“We are facing many dilemmas,” Telenor Chief Executive Sigve Brekke told Reuters this week, highlighting the stark problems facing international firms under increased scrutiny over their exposure in Myanmar, where hundreds have been killed in protests against the Feb. 1 coup.

While Telenor plans to stay for now, the future is uncertain, Brekke said in a video interview.

Although Telenor had won praise for supporting what at the time was a fledgling democracy, activist groups have long voiced concerns about business ties to the military, which have intensified since the army retook control of the country.

Chris Sidoti, a United Nations expert on Myanmar, said Telenor should avoid payments such as taxes or licence fees that could fund the military directly or indirectly, and that if it cannot be independently determined that Telenor is “doing more good than harm” in Myanmar, then it should withdraw.

However, Espen Barth Eide, who was Norway’s foreign minister at the time Telenor gained a licence in Myanmar in 2013, told Reuters that Telenor should stay and use its position as a well-established foreign firm to be a vocal critic of the military.

A spokeswoman for Norway’s Ministry of Trade, Industry and Fisheries, which represents the Norwegian government as a shareholder, said on Thursday that “under the current circumstances Telenor faces several dilemmas in Myanmar”.

“From a corporate governance perspective the investment in Myanmar is a responsibility of the company’s Board and Management. Within this framework the Ministry as a shareholder keep a good dialogue with Telenor regarding the situation,” the spokeswoman added in an emailed response to Reuters.

The Myanmar junta, which has said it seized power because its repeated complaints of fraud in last year’s election were ignored by the election commission, has blamed protesters and the former ruling party for instigating violence.

And it said on March 23 that it had no plans to lift network restrictions. It has not commented on the curbs since and did not answer Reuters calls on Thursday.

NEW MARKET

Telenor is no stranger to operating under military rule in both Pakistan and Thailand, where it challenged the Thai junta over what it said was an order to block social media access.

At around the same time, Telenor was signing up its first customers in Myanmar.

Its then-CEO, Jon Fredrik Baksaas, told Reuters that Telenor had thought “a lot” about the risk that Myanmar’s experiment with democracy might not last.

“But we argued at that time that, when we get in a western company that delivers telecommunication in a country, we stand also with some responsibility, and a bit of a guarantee that things are done correctly,” Baksaas said.

Its position had support internationally at the time after Barack Obama became the first U.S. President to visit Myanmar in 2012, the year after a military junta was officially dissolved and a quasi-civilian government installed.

For its part, the Norwegian government, which owns a majority of Telenor, had long supported democracy in Myanmar, hosting radio and TV stations reporting on it under military rule.

And in 1991, the Norwegian Nobel Committee gave the Nobel Peace Prize to Aung San Suu Kyi, who spent 15 years under house arrest in Myanmar before leading a civilian government which retained power in last year’s election.

Suu Kyi was detained after the coup and charged with offences that her lawyers say are trumped up.

While Norway was supportive of Telenor’s Myanmar venture, the government also warned of the risks, Barth Eide, Norway’s foreign minister at the time, said.

“We told them that it’s a complicated country which had a harsh military dictatorship. Telenor was very much aware of it … It’s not like they were novices,” he added.

Telenor was one of two foreign operators granted licences in 2013, alongside Qatar’s Ooredoo (ORDS.QA). The other operators in Myanmar are state-backed MPT and Mytel, which is part-owned by a military-linked company.

About 95% of Telenor’s 187 million customers worldwide are in Asia and it has around 18 million customers in Myanmar, serving a third of its 54 million population.

‘NO DIRECT LINKS’

For Telenor, doing business in Myanmar had its challenges, including trying to avoid commercial ties to the military.

Former CEO Baksaas said for the first couple of weeks after it began operations in Myanmar, staff had to sit on the office floor because Telenor refused to pay bribes to customs officials for furniture which it had imported.

He also said they had to navigate corruption risks when acquiring land to build mobile towers.

Then there was dealing with the military, whose economic interests range from land to firms involved in mining and banking. The military has faced allegations of human rights abuses including persecuting minorities and violently suppressing protests going back decades. It has repeatedly denied such allegations.

Activist group Justice for Myanmar said in a 2020 report that Telenor had shown “an alarming failure” in its human rights due diligence over a deal struck in 2015 to build mobile towers that involved a military contractor.

Another report by the United Nations in 2019 said Telenor was renting offices in a building built on military-owned land.

The report said firms in Myanmar should end all ties with the military due to human rights abuses.

A Telenor spokesperson said in an email on April 9 responding to Reuters questions that it had addressed the matter of the 2015 deal, without elaborating, and that its choice of office was “the only viable option” given factors like safety.

“Telenor Myanmar has been focused on having minimal exposure to the military and have no direct links to military-controlled entities,” the spokesperson said.

Since the coup, Telenor has cut ties with three suppliers after finding links to the military, the spokesperson added.

BALANCING ACT

On the day of the coup, the military ordered Telenor and other operators to shut down networks. Telenor criticised the move but complied. Services were allowed to resume but there have been intermittent requests to close since, and the mobile internet has been shut since March 15.

Ooredoo has also said it “regretfully complied” with directives to restrict mobile and wireless broadband in Myanmar, which hit its first quarter earnings. It declined further comment on the outlook for its Myanmar business.

Like other operators, Telenor paid license fees to the now military-controlled government in March, which critics argue may help it finance repression of public protest.

Telenor said in the emailed response to Reuters that it made the payment “under strong protest against recent developments”.

One of its major shareholders, Norway’s KLP, said it had been in a dialogue with Telenor after the coup to ensure it was identifying the human rights risks.

“It is a challenging situation because Telenor cannot choose what it can and can’t do. They get their directives from the authorities,” said Kiran Aziz, senior analyst for responsible investments at KLP. “It is difficult to assess how positive Telenor’s contribution can be in this context.”

Weighing up human rights is just one of the dilemmas Telenor now faces, said CEO Brekke, alongside safely serving its customers and maintaining network access for them.

“We work on that balance every single day,” he said.

And although that balance, for now, is tilted to Telenor staying in the country, it is not a given.

“We make a difference like we have done since we arrived. But with the situation being this unpredictable, it is impossible in many ways to speculate about the future and how this will develop,” Brekke added.

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