Myanmar is experiencing a big influx of foreign investment and is now pursuing reforms that will boost transparency and track more openly where it is going and how it is spent.
The country recently released its first public report under the Extractive Industries Transparency Initiative, a voluntary global standard that asks countries to publicly report the revenues that extractive industry companies such as oil and mining firms pay to their national governments.
Countries that choose to adopt the standard form a multistakeholder group comprised of government, business and civil society officials who oversee the public reporting process.
Myanmar’s first report was published earlier this year and it creates a set of benchmarks that show what’s needed to better track and utilize resources. To date, the EITI report offers the most comprehensive publicly available data on the country’s extractive revenues. The insights revealed about Myanmar’s natural resource revenues come as much from the data that was reported as the information that was left out.
Here are three key takeaways from Myanmar’s inaugural EITI report.
A positive first step
A number of transparency advocacy groups consider the fact that the report was published a success in itself. A report of its kind would have been virtually impossible just five years ago under the military-ruled government. But the country’s swift compliance with EITI’s standard reporting protocol went off largely without a hitch. Myanmar became an EITI candidate country in 2014, just two years after political reforms began to open up the country to international commerce. Eighteen months later it had produced its first EITI report.
The Extractive Industries Transparency Initiative is the premier global standard for accountability in natural resource governance. But surprisingly few Latin American countries have come on board.
EITI is designed to be an inclusive process that engages representatives from business, government and civil society. Despite having minimal prior experience in organized civil society advocacy, in the short window before its inaugural report, more than 500 civil society groups managed to coalesce into a single entity, the Myanmar Alliance for Transparency and Accountability, which served as its representative body for the EITI reporting process.
“The relationships formed and the ability to get into the issues and talk face-to-face is by no means a perfect process, but is certainly an achievement,” said Paul Shortell, Myanmar analyst with the Natural Resource Governance Institute, a nongovernmental organization that promotes extractive industry transparency.
The EITI report confirmed the dominant role that the oil, gas and mining industries play in Myanmar’s economy. It reported $3.14 billion in revenues from those sectors from 2013 to 2014, which amounted to 23.6 percent of total government revenues, or roughly 6 percent of the gross domestic product.
Oil and gas made up the majority of resource revenues over that time period at around 85 percent. The remainder came from gemstones and other minerals.
But with many shortcomings
Despite the successful coalition building among civil society groups that worked with government and industry over a short span, the report itself is riddled with shortfalls, transparency groups say.
“The report offers very little on the question of who really owns the companies and what the terms of companies’ contracts are,” wrote Global Witness, a transparency watchdog in its response to the EITI publication.
“Beneficial ownership” — identifying the individual owners of financial accounts — has been a buzzword in transparency circles ever since the “Panama Papers” scandal broke last month. Myanmar’s EITI report does little to stem the suspicion of secrecy. Instead, the report makes common reference to the prevalent use of “other accounts” by state-owned enterprises to manage natural resource revenues.
“‘Other accounts’ used are essentially accounts held by ministries and state economic enterprises in the Myanmar Economic Bank for management of their own-source revenues,” the EITI report reads.
Global Witness estimates that these “other accounts” are used to collect roughly 85 percent of all revenues from extractive industries. Only about half of the public money from oil, gas and mining makes its way into the official state budget. The rest is stored in these “other account” vehicles.
“The government should provide the public with an explanation as to exactly what and where these “other accounts” are, in whose name they are and what the money is being used for,” wrote Global Witness.
The global EITI standard encourages countries to provide detailed accounting of contract reporting to promote transparency and competition among extractive industry firms. But Myanmar’s report fails to disclose the specific contract terms of oil and mining licenses and the procedures for allocating the licenses.
Another conspicuous absence is detailed reporting on the country’s jade industry. The extraction of the precious stone is one of Myanmar’s most lucrative industries, but also one of its most mysterious. By law, international companies are barred from investing in Myanmar’s jade industry. Production is dominated by domestic mining companies, many of which are believed to have close ties to the government. The prevalent use of “other accounts” by government would therefore likely cloud the exact flow of revenues within the industry.
Groups such as Global Witness and the NRGI say that the revenues published in the EITI report grossly undervalue the size of the jade business. For example, the report reveals approximately $380 million in gemstone revenues, but independent estimates from watchdog groups value the jade industry alone between $8 billion and $32 billion annually.
Much reporting on jade and gemstone companies may have been left out due to the way the EITI multistakeholder group determined who should publicly disclose their payments to the government. The group established that only those jade companies that pay more than 10 billion kyat ($7.5 million) in taxes should be covered in the report. By contrast, all oil and gas companies operating in the country were included in the EITI report.
“This materiality threshold set for gems companies to report is extremely high and covers only some of the companies which are significant players in the jade sector,” Global Witness wrote in its response.
Another crack at it
For all of its shortcomings, it is important to consider that Myanmar’s EITI reporting process occurred during a time of government transition. A new government that won historic general elections in November 2015 was sworn in at the end of March, which overlapped with the latter stages of the EITI reporting window.
Per EITI standards, Myanmar is expected to release a follow-up report by early 2017 as a next step in its EITI candidacy.
The next report and the multistakeholder group that writes it will involve the participation of the newly inaugurated government whose platform and policies are more oriented towards transparency and democratic reform than its predecessor.
The next report is expected to address the shortfalls of the first report and provide stronger levels of disclosures, particularly regarding beneficial ownership and jade industry operations. The degree to which the second report does so will go a long way in determining whether Myanmar is granted fully compliant EITI status, civil society groups say.
Advocacy groups are recommending that the reporting thresholds for jade be dramatically lowered to include a wider mix of gemstone companies. They also suggest that specific contract terms for natural resource concessions are made public.
NRGI is planning a series of trainings for business and governments leaders around beneficial ownership and how to implement more accountable standards around it.
“It’s not even clear that Myanmar’s government has a strong sense of what beneficial ownership is,” Shortell said.
In many ways the omissions from the inaugural EITI report provide important starting points to improve upon in public disclosures.
“They have a second bite at the cherry,” Juman Kubba, an advocacy manager at Global Witness, told Devex. “Let’s make it better.”
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