A window of opportunity in Burma

Times are changing in Burma. Once it was risky to even say her name, now you can buy an Aung Sun Suu Kyi t-shirt on the streets of Yangon. Suu Kyi has long been a symbol of hope for Burmese people; David Cameron described her as a “shining example for people who yearn for freedom, for democracy, for progress” in his recent visit to the country. The landslide victory for Suu Kyi’s National League for Democracy (NLD) party in April’s by-election has certainly given Burmese people real hope. Whilst parliament remains dominated by the ruling Union Solidarity and Development Party (USDP) and its allies, the prospect of open political debate is for the first time in decades starting to look realistic.

There is talk of a palpable yet tentative sense that political change is afoot. The end of 2010 marked Burma’s first election in 20 years and the long-entrenched military junta began to transfer its powers to a civilian government. Critics described the move as a proxy for continued military rule and say the vote was neither free nor fair. Yet perhaps to the surprise of many, the government has enacted a wave of reforms, freed some political prisoners, opened up a direct dialogue with the NLD party, and has halted the construction of the widely criticised Myitsone Dam – suggesting that they might finally be more willing to listen to both Burmese and international opinion.

Whilst momentum for political change slowly builds, the Burmese economy is roaring to life:

“Myanmar’s new government faces a historic opportunity to jump-start development and lift living standards. Myanmar could become the next economic frontier in Asia if, with appropriate reforms, it can turn its rich natural resources, young labor force, and proximity to some of the most dynamic economies, to its advantage.”

This was the resounding conclusion of the IMF’s May 2012 report. Strong medium term growth is predicated on a substantial increase in natural gas export revenues in the coming 5 years with the expected completion of Shwe and Zawtika offshore gas projects.

The IMF’s figures put into perspective the growing importance of natural resource revenues to the economy of Burma. Although there are uncertainties over the extent that informal payments have funded the government in the past, natural gas exports are expected to contribute between 17%-20% to government revenues over the next five years. This year natural gas exports alone will officially contribute $2 billion to government revenue, and this figure will grow up towards $3 billion per year by 2018. By the standards of the world’s oil and gas big hitters an extra $2 billion is a mere blip on the accounts. But for a low income country with a government revenue of only $5.5 billion last year – it really is a significant amount. Add onto that the revenues due to come in from oil (expected to be pumped at up to 240,000 bpd by CNPC), gold, copper, nickel, forestry activities and the Burmese economy will become increasingly reliant on natural resources. [By the way, no prizes for spotting the theme in the 5 links above]

The most important factor here is that the extractive industries are becoming ever more crucial to the political economy of change in Burma. Military cronies have for decades benefitted from the informal flows of money from natural resources. As a whole range of Wikileaks cables reveal, the USDP has always had a firm grip on the extractive industries. Not only do they make profits on exports, but they benefit from payments by the international companies exploring and extracting their natural resources. Whether it’s a $7.5 million compulsory signatory bonus, or $5 million for cancellation fee, these are direct flows into government coffers, no questions asked.

Whilst this stranglehold on Burma’s most lucrative sector continues, citizens remain in the dark as to how the great wealth that accrues from their natural resources is spent. Politics may be slowly changing in Burma. But so long as it controls the economic engine of the extractive industries, the government – not the Burmese people – will continue to decide Burma’s future.

The IMF hint at the need for reform, placing a caveat on their growth predictions: Burma’s GDP is forecast to grow at 6% next year “if it pursues necessary reforms to take advantage of its rich natural resources”, said Meral Karasulu, IMF mission chief for Myanmar.

But I don’t think it’s enough for the IMF to recommend reforms that simply ‘take advantage’ of natural resources. As Burma steps tentatively towards a new chapter in its history, it must put the extractive industries at the centre of governance reforms. Aung San Suu Kyi emphasised the importance of transparency and accountability following the 2010 elections, and highlighted the crucial role it plays in fostering good governance of Burma’s natural resources (at 5:50 mins): “It is because the public does not know what is happening to the revenues that we can’t do anything about using them more effectively… what we’ve always said is that there should be transparency and accountability to make sure that whatever deals there are, that they are to be to the profit, the benefit of the people”.

There are growing calls for the EITI to be introduced in Burma, and this would surely be a sensible step. Leading economist Joseph Stiglitz made clear his support for the EITI in Burma during a recent visit, arguing that the process would ensure that the “revenues that belong to the people, go to the people.” Hanna Hindstrom from Democratic Voice of Burma put forward the case for EITI in Burma forcibly on the eve of the April 2012 elections: “If Burma truly hopes to embrace democracy, let alone become the ‘next economic frontier of Asia,’ transparency must be placed at the heart of its agenda. The EITI both can, and must, form part of that process.”

Following her visit to Burma at the end of 2011, EITI Policy Advisor Dyyeke Rogan said that in a small step towards change, ministers are starting to discuss the prospect of accounting for natural resource revenues. “We have to account for the money, particularly the revenue from sale of gas”, said U Win Tun, Minister for Environmental Conservation and Forestry.

The political landscape of Burma is changing, and economic momentum is generating hope that Burma’s dark days are over. But for as long as the government’s grip on the extractive industries continues, the chances of revenues from natural resources being used in an equitable fashion remain slim. The time is right for the IMF, international community and Burmese civil society to push the idea of extractive industry transparency and provide thought leadership on how we might achieve this in the context of Burma.

 

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