Steeped in poverty, Myanmar targets natural resources

Source: Thomson Reuters Foundation - Thu, 30 Aug 2012 13:53 GMT
Author: A TrustLaw correspondent
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BANGKOK (TrustLaw) - Only two countries had public sectors more corrupt than Myanmar's in 2011, according to Transparency International: economic basket case North Korea and war-torn Somalia.   

Bribery is common in Myanmar, whether you're getting a birth certificate, setting up a company or bidding for a government contract. There is little independent oversight of the nation’s revenues or spending, and activists say a majority of government earnings from selling natural resources are difficult, if not impossible, to trace.

“Extremely opaque” is how Megan MacInnes, a senior campaigner for the London-based advocacy group Global Witness described Myanmar's management of its immense reserves of gas, oil, gemstones and timber. It is this type of environment where kleptocracies thrive. Leaders cream off wealth to line their own bank accounts, leaving the rest of the country in poverty. Despite its natural riches, Myanmar is south-east Asia's poorest country. About one-third of its 60 million people live on less than $1.25 a day and the true dimensions of its ample wealth are held secret.  

“There is no information available publicly on who has got the rights to what resources in what areas, what the terms and conditions are, and where the revenues are going.” said MacInnes.

That might soon change. Myanmar’s reformist President Thein Sein, who took power in March 2011 after half a century of hard-line military rule, vowed in July to join the Extractive Industries Transparency Initiative (EITI), a global standard for governments and companies to voluntarily report how much is paid for extracting natural resources. 

Pulling back the veil on Myanmar’s resources comes none too soon.  Almost three out of four Burmese live in darkness while its oil and gas resources are exported to keep the lights on in large swathes of Thailand and China.  Land has been seized from ethnic groups, causing decades of conflicts, while pipelines stretch through the country without bringing much benefit to the people they bypass.

The initiative on extractive industries is a first step for Myanmar, part of a worldwide movement to reveal how much governments earn from natural resources as a means to hold kleptocracies accountable for the corruption, poverty and violence often found in resource-rich countries. Shut off from most of the world for decades, the impoverished nation ranks 37th in the world for natural gas resources, has ample hydro-electric power, virgin timber forests and rare gemstones. (SEE FACTBOX) 

Much is at stake in opening up the books.  Myanmar could increase its revenues significantly by getting competitive bids from companies to exploit these resources. Its tax-collection-to-gross domestic product (GDP) ratios is lower than even Afghanistan, the Asian Development Bank (ADB) said. And transparency could help in building peace with ethnic groups. Joining EITI could also generate international and domestic goodwill ahead of the next general election in 2015.

However, transparency is only one of a broader set of reforms the country needs to tackle.

RIGHTS ABUSES RIFE

The military and extractive industries systematically underestimated revenues by using the old fixed exchange rate of 6 kyats to a dollar rather than the market rate, which went as high as 1,200 kyats to a dollar in the past. In an Aug 13 speech, the president acknowledged bribery is entrenched, called it “immoral and unethical” and vowed "serious actions” to stop it. He has also asked his top officials to report their private assets.

The military and company elite also have a history of abuses, human rights groups say.

Thousands of farmers and fishermen living along the Shwe Gas Project, which lies off the country’s western shores and includes twin pipelines to China, have lost their livelihoods, received inadequate compensation and are displaced, said Wong Aung, a spokesperson for Shwe Gas Movement, an activist group monitoring the project.

“The project is worth billions of dollars but local residents have yet to seen any benefits,” he told TrustLaw.

When the 2,800-km of twin pipelines start operating in 2013, they will carry natural gas from Myanmar and oil from Africa and the Middle East, slicing through areas of Myanmar that have little access to basic infrastructure - roads, electricity, water –  heading to China's southwestern region to help in its development.  China National Petroleum Corporation (CNPC) and state-owned Myanmar Oil and Gas Enterprise (MOGE) are involved in the Shwe project.

“What’s certain is that our natural resources are (being used). for the energy security of millions of people in neighbouring countries. The cronies hold the reigns of these projects and the locals are ignored,” Wong Aung said, adding he hope joining EITI won’t be “window dressing” by the Myanmar government and powerful figures.

“Burma's really a prime example of how natural resource wealth and unaccountable government combine to lead to human rights abuses, corruption, mismanagement and leaving people poor and repressed when they actually should be benefitting from this wealth,” said Lisa Misol, senior researcher at Human Rights Watch, calling the country by its former name.

“Burma has a whole history of throwing money to build a new capital and build bridges when there's no basic sanitation,” she added.

BACKBONE OF ECONOMY

It could be different. Extractive industries have been bringing in billions of dollars annually for years, enriching cronies and companies connected to Myanmar's still powerful army.  The government earned $3.5 billion in 2011-12 from the export of natural gas alone, according to official figures.

Of almost $20 billion in foreign direct investment (FDI) for 2010-2011, all but 1 percent was for oil and gas, mining and power sectors, said Jared Bissinger, a PhD student at Australia’s Macquarie University, in a recent paper. These inflows strengthened Myanmar’s currency, the kyat, making it harder for labour-intensive industries such as manufacturing, tourism and services to set up and compete internationally.

As Myanmar opens up, investment in manufacturing, agriculture and hotel and tourism are expected to increase. But observers say extractive industries would still attract the bulk of investment, and government actions don’t suggest otherwise.  In January, the government awarded 10 onshore oil and gas blocks to mostly Asian companies. Industry sources say another round is expected to around the time of a major oil, gas and power summit in September, before the country gets anywhere near joining the EITI.  

Currently, EITI has 35 members, including Indonesia, Mongolia and Ghana. Countries who join have 18 months to publish their first report and a year to validate it before becoming “EITI Compliant.” Sam Bartlett, EITI regional director for Asia and part of a July EITI delegation to Myanmar, said key players such as the industry minister want to move quickly, but he would be surprised if it would happen this year.

While transparency and accountability standards are important, EITI isn't " the only game in town” for achieving development,  said Ajay Chhibber, United Nations Assistant Secretary-General and Regional Director for U.N. Development agency UNDP in Asia Pacific. "The whole issue of land management, which is partly connected to extractive industries… and how it's being allocated becomes very important in the anti-corruption initiatives that are needed,” he told TrustLaw (click here for Q&A with Chhibber; and for Land story).

Better laws on the environment and land use, as well as greater freedom of association to allow civil society to monitor use of resources, and participate in transparency and accountability measures, also are needed, Chhibber said.

It is unclear how committed the government is to such wider reforms, despite Thein Sein's vow to open up.  

CHALLENGES AHEAD 

Under its rules, EITI requires government and industry to officially engage with non-government organisations, which would pose new challenges in a country just emerging from military rule where many NGOs faced hostility. 

Macquarie’s Bissinger said implementation of EITI also would be difficult in sectors with small companies instead of big, established multinationals. “What about all the informal investments, the informal mines and logging projects that are so common all over the country? Can you apply common standards to that? Is there a bureaucratic mechanism within the ministries to actually make this happen?” 

Another concern is that EITI mainly covers oil, gas and mining and would allow Myanmar to do the bare minimum. Additionally, EITI only covers revenue transparency and not where the money goes and how it's used, and the government would not be held accountable until late in the process.

Transforming corruption-plagued Myanmar into a transparent country sounds like a tall order, but UNDP’s Chhibber said it’s not impossible.  After a dizzying year of political and economic reforms that led to the suspension of most foreign sanctions, its government has shown itself "quite capable of a 180-degree turnaround. They have done it in other areas,” he said.