Increasing Myanmar's FDI Still Faces Many Challenges

Following five decades of rule through socialist and military governments, to which the country became one of the least developed countries in the world, a new chapter of Myanmar’s engagement with the international community opened in March 2011. While the previous regime denied that lower income existed in Myanmar, the new federal government acknowledged the problem and made addressing it a key economic policy priority. A range of political, financial and social reforms under President U Thein Sein’s management prioritised rapid legal transformation across sectors to make Myanmar a considerably more attractive investment destination. Changes and openness have meant accelerated economic activity and an inflow of foreign capital trying to exploit natural resources.

Foreign immediate investment (FDI) in Myanmar is heavily dependent on natural resource-based industries, particularly the hydropower, natural gas and exploration sectors. Mining is the third largest recipient of foreign direct investment in Myanmar. The industry exported approximately US$1.5 billion in the 2013–Fourteen financial year; bringing in substantial revenue to the government. Within 2014, legal jade and gemstones sales at the annual Myanmar ‘Jewel Emporium’ market were valued at US$3.Five billion. But the estimated complete jade sales — including via unofficial channels and particularly from Kachin Condition to China — were US$8 million in 2011 alone.

Myanmar simultaneously faces three distinct types of challenges in mining project areas — conflict over land, violent opposition to resource exploitation as well as environmental problems. In The year 2013, the Revenue Watch Institute in its resource governance index ranked Myanmar as the lowest from 58 countries. While the government has committed to a range of reforms, these challenges will remain for that new government after the political election in November 2015.

The most significant conflict over land is the Letpadung copper mineral mining project in Sagaing Area, which is a joint venture between China’s Wanbao Mining Company and the Marriage of Myanmar Economic Holding Organization. While the former is a subsidiary of a Chinese state-owned arms manufacturing company, the latter owned by the actual Myanmar military. Faced with the confiscation in excess of 7000 acres of farmland, the actual forced relocation of 66 villages, inadequate compensation and adverse environmental effects, the affected communities have resorted to widespread protests.

In the face of continued opposition, the federal government appointed a committee brought by Daw Aung San Suu Kyi to look into the project, which controversially endorsed it, albeit with some changes. The report further exacerbated tensions and conflict between the authorities and local communities, and the protests continue.

Regulations that govern extractive industries have not been sufficient to protect Myanmar’s environment and rich bio-diversity. For example, the Environmental as well as Social Impact Assessment of the Letpadaung project, prepared by Australian working as a consultant firm Knight Piésold, says that acid and metals generation from waste rock and roll pose an extremely high environmental risk to surface- and ground-water which goes unmitigated.

Although Myanmar has accomplished some relatively easy reforms, it must now address some fundamental and much more difficult improvement challenges. The country ranks A hundred and fifty out of 187 on the United Nations Human Development Index. A quarter of their citizens live below the lower income line, child mortality is higher than in comparable adjoining countries in the region because of the lack of skilled health workers and one-fifth of children in poor people are not enrolled in primary education. According to the 2014 household census, the life span expectancy of Myanmar and the degree of access to clean water are the cheapest in Asia.

Controlling the removal of natural resources such as minerals, oil and gas is crucial for the future stability of Myanmar. As the country has the potential to receive increased revenue from extractive industries, it is important for that government to allocate advantages among states and regions methodically. Yet resource sharing throughout states and regions as well as between the central government as well as sub-national governments is one of Myanmar’s primary constitutional challenges.

In June 2012, the Myanmar government signed up to the Extractive Industries Transparency Initiative (EITI), a global anti-corruption scheme that requires member governments to reveal payments earned from essential oil, gas and mineral wealth. Under EITI, companies must submit payments made, while the government must disclose sums obtained and an independent administrator reconciles them. This should mean information about government revenues from natural resource extraction and licensing procedures will become more transparent later on.

Most importantly, having ethical partners in resource-based industries is crucial. Many of the mineral deposits are located in Kachin and Shan states where armed conflicts have displaced enormous numbers of ordinary people in recent years. Long-term stability in source rich states and regions ultimately relies on the introduction of more responsible management of extractive industries. Using the monitoring and support from the international community and municipal society organisations, large-scale projects within Myanmar could be less opaque and more accountable.

Myanmar’s mining investment and its discontents is republished with permission from East Asia Forum