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    Southeast Asia
     Oct 23, '13

Minerals, militants and Myanmar peace
By Elliot Brennan

A recent spate of bombings in Myanmar was attributed by police to local mining businessmen intent on stopping foreign investment. These rogue commercial elements were seemingly worried of the impact on their business interests.

The shadowy assaults, including a bomb that detonated in a room occupied by an American in the Traders Hotel, demonstrates just how complex the climate for investors is in Myanmar. It also reveals how opaque mining interests could derail the peace process underway between the government and armed rebels and jeopardize the country's democratic transition.

Hype persists over Myanmar's resource wealth, with the country gearing up for new waves of investment and new mining laws

predicted to shortly come into effect. A recent Asian Development Bank study noted that Myanmar could become Asia's next "rising star" if it can leverage its rich resource potential. However, regardless of much optimism, difficulties remain and if not addressed could unsettle the peace process.

The most important issue for investors, but also populations living near resources, is the reform of legal and regulatory frameworks. The current uncertainty in these frameworks has undermined the investment climate. Similarly, land tenure must be defined and a sustainable agreement reached with armed ethnic groups for their greater inclusion into the democratic process. Greater transparency is also needed to boost confidence in local actors that remain entangled with military powerbrokers. If such a prudent approach is not achieved, resources could become more of a burden than a boon in the country's transformation.

Myanmar is rich in minerals, including nickel, gold, bauxite, copper, coal, and gemstones. After the energy sector, mining is likely the second biggest sector for potential foreign direct investment. Unlike the energy sector, which is largely controlled by the majority Burman ethnic group, high-value minerals are found across the entire country, including in areas controlled by other ethnic minority groups.

Despite the potential stored in mineral wealth in Myanmar, the population is still tied to the agricultural sector. Around 70% of the country's labor force is engaged in agriculture, while only 7% is engaged in industry. Making the shift to engage a greater share of the population in the mining industry could, at least in the short-term, provide valuable sources of income to rural communities.

Most importantly, mining in remote rural and ethnic areas could pay for key infrastructure - including electricity, transport, water, and wastewater facilities - in hitherto neglected areas of the country. Yet Myanmar, with numerous simmering conflicts between the central government and armed ethnic groups must walk a perilous path to avoid falling deeper into an already palpable "resource curse."

Resources in Myanmar are spread over many ethnic regions, many of which have limited central government control. The country is split, according to government data, into eight major ethnic races which comprise 135 distinct ethnic groups. According to survey maps from the Ministry of Mines (MoM), the energy belts of hydrocarbons (oil, gas, and coal) are centered in Burman ethnic areas, the majority and governing ethnic group.

Lead, zinc, silver and cooper belts are found in the center and northeast of the country - much of it in ethnic-controlled areas, including by Shan, Mon, and Wa peoples, according to the MoM's maps. The Kachin control or contest much of the northeastern mineral belts of gold, cooper, iron, as well as lead, zinc, silver and copper.

Mineral belts of precious stones can also be found in the northeast Kachin and north-central Shan regions. While the mountainous central-western regions, home to the least developed infrastructure in Myanmar and dominated by the ethnic Chin, hold belts of hydrocarbons and minerals such as nickel, chromite, copper, platinum, and gold.

Unsurprisingly, government-controlled and often ethnically Burman areas continue to hold the majority of investments in the mining sector. Non-Burman Divisions, where significant mining projects are underway, are notably fewer, but include Kachin State, Kayah State, and Shan State.

The uneven weight of commercial mining ventures between Burman and non-Burman Divisions is not surprising. Until recent ceasefire agreements were signed, Myanmar was a hotbed of ethnic conflicts with dozens of armed ethnic groups operating across the country, making ethnic areas "no-go zones" for investment.

Additionally, the policy of ethnic assimilation - "one race, one language, one religion" - pursued by U Nu, Myanmar's first prime minister following independence in 1948 - remained under successive ruling military juntas who sought to keep ethnic minorities marginalized and poor so they would yield to the Burman-run government.

The policy significantly reduced the economic development of ethnic areas. While this policy has now officially changed, deep-seated resentments remain. Development of mineral resources in Myanmar's ethnic areas will thus also be challenged by a need to change discriminatory mindsets.

Commercial peace
As official negotiations with armed ethnic groups are ongoing, other expeditious movements are also occurring, led by private sector individuals. In contested areas, where resources are rich, there has emerged a growing peace economy.

According to a 2012 International Crisis Group report, Dawei Princess Company, which holds mining and logging concessions in Karen National Union (KNU)-controlled areas, funded peace talks and facilitated contacts for ceasefire discussions in Karen State. A similar case was seen in Kachin State where Yup Zaw Hkawng, a prominent businessman in the trade of precious stones, facilitated dialogue between the government and the Kachin Independence Organization. Such examples of the emergence of a peace economy continue.

Companies see commercial benefits in brokering peace from which they can later command dividends from their involvement, thereby monetizing the peace process. Access to logging activities offer the most immediately accessible of such dividends, and were reportedly used as a bargaining tool by Karenni groups in ceasefire talks. Such a peace economy, if the approach is transparent, can have a positive effect on incentivizing the peace process and allowing a win-win outcome for conflicting parties. However, as this becomes more entrenched, it will be harder to dislodge these business interests from further negotiations.

Armed ethnic groups, such as the Kachin Independence Army (KIA), know that they are sitting atop precious resources that could foster significant wealth creation. Currently the extraction of such minerals is based primarily on manual labor, which apart from being wildly uneconomical also includes unethical practices of child labor.

The modernization and industrialization of the mining sector could drastically increase the profitability of extraction, remove illegal practices, and improve infrastructure and services to remote areas. Indeed, building infrastructure that allows for greater interaction with ethnic groups, and that provides greater access for ethnic groups to bring their goods to market, should lead to a greater inclusiveness in the overall development of the country.

However, in order for armed ethnic groups in Myanmar to allow such developments - as infrastructure would almost certainly diminish their control by diluting their monopoly in access and power in their respective territories - they must see some greater benefit and a significant degree of trust between government, local populations and business actors will need to be fostered. Despite the difficulties, resource profit-sharing offers one option for cooperation and trust building, if done right.

Yet this remains the problem. Fundamental questions in the peace process remain and must be resolved before any resource profit-sharing can occur. Indeed, answering such questions may in fact be the sine qua non to sustainable development in Myanmar. The core issues, by no means exhaustive, are: Who are the legitimate actors in negotiations and legitimate recipients of profits? Will representatives of ethnic organizations agree to partnership deals that would guarantee local trickle down of revenues? Or should integration into the political process be a precondition before such investments take place? These questions will need to be negotiated with individual interest groups.

Indeed it would not be surprising to see the re-emergence of a debate on a federal system, once put forth by independence hero Aung San in the Panglong Agreement in 1947, to place a governance framework on the management of resource riches. However, the issue remains sensitive for Naypyidaw, particularly for much of the old guard of the previous ruling junta and the Union Solidarity and Development Party who see federation as ceding central power and harming solidarity within the Union.

While the establishment of a federal system would not be a panacea to all Myanmar's ills, it would allow for greater engagement of Naypyidaw with ethnic groups at a political level rather than at a military-to-military level. States could then be held accountable for their development and the management of their resources. In the country's complicated peace process, there are numerous "hard questions" that remain unanswered.

However, some reforms in the mining sector are relatively straight forward and may pave a smoother road for other more complicated issues. In the short-term, improvements to legal and regulatory frameworks should be prioritized, as should the joining of the Global Extractive Industries Transparency Initiative; the privatization of state-owned enterprises should be persistent but gradual to ensure stable growth; resource-sharing agreements between ethnic groups and government or private companies should be arrived at as transparently as possible; and, foreign investors should be sensitive to underlying tensions and the potential for political violence.

Despite other progress that may be achieved, investment in the mining sector will remain fraught with problems until the peace process is further ensured. Yet if reform is persistent and patience prevails, the windfall can be shared by all.

Elliot Brennan is a Research Fellow at the Institute for Security and Development Policy (Sweden) and a Non-Resident Fellow at the Pacific Forum-Center for Strategic and International Studies (USA). His research focuses on conflict management and resource security in Asia.

This article is a revised version of an Asia Focus paper published by ISDP. The unedited version can be found here.

(Copyright 2013 Elliot Brennan)

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