Myanmar’s hidden story of corruption, war and drugs

The failure to effectively regulate the extraction of a country’s natural resources is a policy problem which has ignited and fueled numerous conflicts throughout history. To this day, failure of effective governance remains a major source of human rights abuses and environmental degradation. From Sierra Leone’s blood diamonds to Libya’s oil, Peru’s coca or Papua New Guinea’s gold, violent competition over the extraction of natural resources affects all corners of the world and is set to become increasingly relevant as rapid world development requires continuous access to these resources. In the not-so-distant future, new wars will most certainly emerge over drinkable water or rare earth elements.

Many academics have attempted to draw a causal link between resource-rich countries and conflicts, and have elaborated the theory of the “resource curse,” whereby countries with a wealth of resources experience higher rates of political and military instability. However, we would refrain from speaking in such essentialist terms as evidence is scarce and many countries – such as Norway, Canada, Botswana or Chile – seem to deviate from this general rule.

Not caused by the mere existence of resources, conflicts in resource-rich countries are sustained by national governments’ failure to fairly and efficiently regulate the sector and distribute its revenues. National elites and international companies often take advantage of governmental mismanagement – which they are often to blame for – to enrich themselves at the expense of local populations. The same holds true in a conflict, but natural resources become the locus of competition between the belligerents and are transformed into conflict resources, “whose systematic exploitation and trade […] contribute to, benefit from or result in the commission of serious violations of human rights, violations of international humanitarian law.”

Myanmar probably constitutes the best illustration of such policy problem. For more than 60 years, the country was ruled by a military junta and has long been considered to be one of the most undemocratic in the world: in 2014, the International Institute for Strategic Studies ranked Myanmar 13th in the list of countries with the most active military troops, and the Economist ranked it 114th in its 2015 Democracy Index. Although the majority of the population is of Buddhist Barman origin, over 135 ethnic groups from 10 different religions live on the territory and often seek greater autonomy from the central government. Tensions between central and regional powers have led to violence, persecutions, and massacres on both sides.

Because Myanmar is rich in natural resources, such as oil, gas, rubies and gold, the central government does not wish to commit to decentralization and has instead engaged in a predatory rent-seeking strategy aimed at systematically extracting and appropriating natural resources’ revenues. A sector of particular interest to the government is the jade industry, notably because the revenue obtained from its exploitation far exceeds its cost: one ton of jade costs less than US$500 to produce while its official sale price is of US$126,000.

A groundbreaking report from Global Witness reveals that the trade revenue from the jade industry amounts to US$31 billion or 48% of Myanmar’s official GDP. This revenue is largely hidden as the sector is riddled with corruption and most transactions are made through the black market. The NGO considers this plundering to be “the biggest natural resource heist in modern history.”

Most mines are located in the Hpakant township in the northernmost state of Kachin, which is the home to the Kachin Christian ethnic minority engaged in a protracted war with the central government since 1961. As such, numerous former military and political leaders, from both the central government and the Kachin Independence Army and Organization (KIA/KIO), have a stake in the industry. This includes former dictator, Than Shwe, KIO Vice-Chairman, Nban La, but also several former generals and ministers. The military itself – the Tatmadaw – owns two companies with direct investments in the industry and their official combined revenue (discounting any black market trade) was estimated at US$180 million in 2014. It was also revealed that large foreign firms, such as Coca-Cola Company or Caterpillar Inc., maintain relationships with local partners linked to the jade industry.

Lack of governance has severe impacts on human rights in the region. Local NGOs estimate that up to 80% of younger miners have become drug-addicts and risk to be exposed to AIDS. The intensive extraction of mines has also created dangerous working conditions for miners as several landslides have killed over a hundred people in the past year. Even more damning, is the link between the sector and the perpetuation of the civil conflict. The families and companies that own the mines have a financial interest – and possibly the political clout – to prolong the conflict until the central government fully controls the region; jade is the main source of revenue for the KIA/KIO; and the Tatmadaw has an interest in maintaining the conflict because it has to justify its presence in the mine regions so it can continue to extract profit from it. The May 2016 escalation of the conflict illustrates this last point as the Tatmadaw has consistently used times of increased pressure in the region as a pretext to attack the KIA bases closest to the mines.

Although jade is not the sole reason behind the Kachin conflict, it seems unlikely that any peace agreement will last if it does not address the lack of transparency and redistribution in the jade sector. Yet, encouraging steps have recently been taken. The country’s first civilian and democratic government since 1962 and led by Aung San Suu Kyi was elected in November 2015. Although she has faced criticism over her mishandling of the Rohingya crisis, her government has announced a moratorium on jade permits and has sacked two government officials for the illegal import of heavy machinery into jade mining sites.

A potential solution to this problem would combine top-down and bottom-up approaches and would aim at strengthening transparency and achieving a revenue-sharing process between federal and regional levels.

At the top-down level, the solution could be two-pronged and based on the Extractive Industries Transparency Initiative (EITI) and sanctions. EITI is a global standard promoting “open and accountable management of oil, gas and mineral resources.” Myanmar has recently applied to become a member, and in order to do so, it will have to engage in far-reaching transparency reforms and provide mine-ownership information, detailed revenue data, levels of government taxation and precise taxation redistribution information. Important companies, such as tycoon Tay Za’s Htoo Group or Ruby Dragon Group, have encouragingly taken the initiative to publish their records and balance sheets.

Sanctions would be an alternative in terms of top-bottom solutions. Both the government and the international community must implement financial sanctions and visa bans against individuals engaged in this illegal trade. The United States recently repealed all sanctions against the government losing an important leverage tool to encourage reform. Nevertheless, visa bans against former junta officials remain in place. Other countries should enact sanctions and make their lifting and financial donations conditional on delivery of the above reforms.

At the bottom-up level, the KIA/KIO and the Kachin civil society should push for structural changes and put forward a revenue-sharing plan as part of a comprehensive peace agreement. The successful examples of Bolivia and Norway could provide appropriate models for such a plan. They will need to agree with the central government on revenue-sharing objectives (i.e. prevent conflict, compensation…); decide on both vertical (between state and region) and horizontal (between regions) distribution of revenue based on an indicator-based principle, taking into account population, needs, regional GDP, and revenue-origin. And implement incentive for redistribution spending with tax revenue earmarked for specific expenditures such as health or education.

However, because of smuggling, underreporting and weak tax collection official jade revenues are small and a revenue-sharing plan would thus only generate marginal benefits for both parties (jade taxes only represent 10 percent of total jade sales revenue). There is thus a need to eradicate the black market so that the government is able to capture a greater share of the total jade revenue and redistribute more at lower levels. Actors who currently benefit from the current system could be incentivized to change the status quo as it could lead to greater revenue but it would also prevent the country and the Kachin region from becoming vulnerable to its larger neighbors like China or Thailand.

Human Rights
Guillaume Biganzoli

Guillaume is a French-American dual Master candidate with Sciences Po Paris and the London School of Economics studying International Relations and Security. Currently based in Paris, he has also gained professional experience in the United States and Belgium. Guillaume specializes in the Middle East and North Africa region and has previously written for The Caravel, Georgetown University's international newspaper, and the LSE Middle East Centre Blog. He is passionate about the Arabic language and cinema, Model UN and human rights issue.
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