Resource-rich
Myanmar’s transition to democracy has much to do with resolving tensions
between regions and ethnic groups and the central government, and the South East Asian country’s
new mining laws acknowledge the importance of decentralisation of management of the natural resources sectors. Andrew Bauer examines options for the incoming National League for Democracy government’s proposal to build a fair
federal resource revenue system.
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Young children of freelance miners gaze out at Myanmar's expansive Letpadaung
copper mine in Sagaing region. Photo by Lauren DeCicca for NRGI |
MYANMAR’S NATIONAL GOVERNMENT collects much of
the billions of dollars generated by
oil,
gas,
gemstones and
other minerals each year,
primarily through its
state-owned
economic enterprises (SEEs). In the face of such centralized control over revenue,
many ethnic groups have long asserted their right to make decisions over resource
management in their states.
These
appeals are only expected to get louder as the National League for Democracy (NLD) forms a new government.
In its
election manifesto, the party promised to “work to ensure a fair distribution across the country of the
profits from natural resource extraction, in accordance with the principles of
a federal union.”
This statement implies at least two
things: First, that the party intends to transform Myanmar into a federation,
where
states and regions have true sovereignty over some
government responsibilities; and second, that it intends to enact a natural
resource revenue sharing system.
A resource revenue sharing system will undoubtedly be on the
table in the upcoming discussion on federalism. However, as we have seen in
other countries, these systems come with considerable risks. In the most
extreme cases,
such as Peru, they can
actually exacerbate conflict, encouraging local leaders to use violence to compel
greater transfers from the central government or gain control over mine sites.
While these experiences are atypical, natural resource revenue
sharing often leads to financial waste, local inflation, boom-bust cycles and
poor public investment decisions.
Myanmar is particularly susceptible to these risks as overall
resource revenues officially recorded in the budget remain small—due to
smuggling, under-reporting, weak tax collection, and revenue retention by SEEs,
among other causes.
This means that there are limits to how much revenue sharing can
help affected communities without the government first putting effort into
capturing a bigger share of profits for the state.
How much
money is at stake today?
According to conservative estimates from
Myanmar’s first Extractive Industries Transparency Initiative (EITI) report, the
government collected nearly USD 2.7 billion in oil and gas tax and non-tax
revenue and another USD 460 million in mining revenues in fiscal year 2013/14. Together,
oil, gas and mineral revenues made up 47.5 percent of government revenues (excluding
the significant sums that SEEs retain for themselves) in the same year.
However official revenue figures vastly underestimate the true
size of non-renewable resource sector. EITI figures only cover a portion of
jade sales. And Illegal mining and smuggling of minerals, especially jade, has
been well documented. Some
independent estimates put
the true size of the mineral sector at more than 10 times official figures.
Currently, the 42 percent of resource revenues that are not
retained by SEEs in their own so-called “Other Accounts” are pooled with other
fiscal revenues in the Union budget. Some are then distributed directly to
state and regional governments, which are responsible for financing local
infrastructure, agriculture and some cultural institutions.
As part of the government’s effort to decentralize fiscal
responsibilities, the amount of the overall budget allocated to all states and regions
has increased in recent years, from 3.4 percent in 2013/14 to 7.6 percent in
2014/15 to 8.7 percent in 2015/16. The government now says that it is using
population, poverty and regional GDP indicators to determine how much it gives each
state or region from this pool of money.
Our research indicates that, in practice, the Union sends more
money per capita to regions and states that have greater development needs, are
conflict-affected, and whose politicians are more assertive. This year, for
instance, Chin, Kayah, Tanintharyi and Kachin received the highest per capita
allocations, while Ayeyawady, Bago, Mandalay, and Yangon received the lowest.
But just because more money is going to states and regions does
not mean that there is more accountability or that social services and
infrastructure are improved relative to other parts of the country. Nor does
this fiscal decentralisation address local demands for greater autonomy over
natural resource revenues.
Most state and regional officials still report to Union
authorities in Naypyitaw. Furthermore, state and regional governments still
have low capacity to develop and implement budgets effectively. This means that
state and regional spending is not necessarily efficient or linked to a
coherent economic development plan.
Building a
fair federal resource revenue system
While true federalism—partial sovereignty for states and
regions—would require constitutional reform, there are three steps the new government
can take now to “ensure a fair distribution across the country of the profits
from natural resource extraction.”
First, the government can start building national consensus on a
natural resource revenue sharing formula. This way, all parties would have
clarity on the issues and feel a sense of ownership over natural resource
governance. This is the principle means through which resource revenue sharing
can help stop violent conflicts. Indonesia spent nearly two years negotiating a
resource revenue sharing deal with
conflict-affected Aceh
before coming to agreement. The ongoing
Union Peace
Dialogue could be one forum for discussion
of how a revenue sharing system could be administered. This discussion would
not be a substitute for formal parliamentary and public discussions, but could
support government efforts to build peace.
Second, the government could further decentralizeby making state and regional politicians and officials
accountable to local residents. It could also delegate resource management and
expenditure responsibilities to these officials slowly, so they have time to
learn how to perform these new roles. This can be done even without
constitutional change. The Colombian and South African experiences offer some lessons
for how decentralisation can be achieved in unitary states (though neither case
is an unmitigated success).
Third, the government could improve the transparency and
oversight of natural resource revenues by cracking down on smuggling and
illegal mining and publishing project-level information on all extractive
projects. Without this information, state and regional governments cannot
verify the value of minerals being extracted on their land and therefore cannot
trust that they would receive their due under any revenue sharing formula. Myanmar
could look to
Bolivia and
Mongolia, which lead
the way when it comes to extractive sector transparency. For instance, the Bolivian
government publishes, in a clear and understandable format, online data on
transfers to and between subnational authorities and on hydrocarbon production
by province, field and company.
Natural resource revenue sharing can be a key component of
peace-building and decentralization in Myanmar.
Mineral-rich Kachin, Mandalay, Sagaing and Shan, and onshore oil-rich Magway and Bago would undoubtedly benefit. Governments
in other states and regions with pipelines that transport offshore gas may also
profit.
But unless done properly, resource revenue sharing can help
perpetuate conflicts that have gone on for far too long.