For foreign investors, the Land of rubies unfortunately prohibits the extraction of rubies, and other precious and semi-precious gemstones. However, Myanmar possesses large reserves of mineral ore – many yet to be thoroughly explored. According to the Department of Geological Survey and Mineral Exploration (DGSE), the country boasts - in addition to gemstones, oil shale, and natural gas – iron and metals for steel alloys (iron, manganese, chromium, nickel, molybdenum); base and non-ferrous minerals (lead, zinc, copper, tin, tungsten, antimony); chemical and fertilizer minerals (barite, fluorite, gypsum, rock salt); ceramic and refractory minerals (clay, limestone, dolomite, feldspar, quartz, glass sand); construction and building minerals (decorative stones, limestone for cement); and fuel minerals such as coal.
While foreign investment in the sector has been slow, local investors have been quick to pursue opportunities at home. Figures from the Ministry of Mines revealed that as of March 31, 2012, around 1,355 mining permits had been granted to citizens. Among them, exploration accounted for 551 of the permits, small scale mining for 520, large scale mining for 129, small processing projects for 135, and subsistence mining for 20. The projects were mainly for copper, gold, coal, iron, tin-tungsten, antimony, limestone, marbles, granite, manganese dioxide, and various industrial minerals.
Even with relatively low levels of foreign investment compared to other sectors, the mining sector together with energy is estimated to have contributed US$ 8 billion to national GDP and employed around 90,000 people in 2010, according to a McKinsey Report published in June 2013. The report estimates that by 2030, mining and energy will contribute US$ 21.7 billion to GDP and employ around 250,000 people. Of the US$ 21.7 billion, mining will account for 40 percent or US$ 8.68 billion – not such a modest sum for a developing country.
Recent figures from DICA reveal that while foreign investment in mining is still relatively slow compared to other sectors, it has indeed increased from a 1 percent share inflowing FDI in the fiscal year 2012-2013 to 6.48 percent of total FDI pledged as of end of August 2013. The 6.48 percent comprises 67 enterprises with a total of US$ 2,829.69 million in investments approved. Of the currently existing foreign investment projects, however, there are only 9 enterprises engaged in mining with a total of US$ 2,304.5 million invested, giving mining a share of 6.85 percent in currently existing foreign investment.
The lack of opportunity is certainly not what is preventing foreign investment from pouring in. Foreign investors may be prohibited from extracting precious gemstones but they can partner with locals for large scale mining projects in minerals and even enter into joint-ventures with the government for rare earths, strategic, and radioactive minerals. In fact, one of the main reasons why the mining sector is not attracting as much FDI as it should is the presence of red-tape and the absence of clearly defined rules, especially in production sharing contracts by which all foreign investment in mining must be carried out.
According to the Ministry of Mines, there are several steps required for initiating foreign investment in mining. The foreign investor must first send a letter of request for a courtesy call with the Union Minister of Mines. This is done through the respective embassy of the foreign investor in Myanmar, which will send the letter to the Ministry of Foreign Affairs, which will then officially forward it to the Ministry of Mines. A meeting will be arranged between the investor and the Union Minister of Mines or responsible personnel from the Ministry. Discussions will include opportunities for investment, minerals of interest, and possible locations for prospecting, exploration, feasibility study, and production. If the investor wishes to pursue an investment opportunity, a field visit request can be made by submitting the required documents. After the field visit, the investor who has decided to conduct prospecting, exploration, or a feasibility study must submit a proposal with accompanying documents to the Ministry of Mines, with a copy sent to the Department of Geological Survey and Mineral Exploration (DGSE). Once approved, the investor and DGSE will negotiate on an Agreement Draft including the technical and financial details. The DGSE will forward the Draft to relevant authorities for approval. Concurrently, the investor must seek approval from relevant state or regional governments and township level departments for administrative, environmental, and land matters. After all required documents have been obtained, the proposal and the Agreement Draft will be sent to the MIC.
In accordance with its procedures, the MIC will seek approval from the Union Cabinet and once approved, will issue an Investment Permit. During this time, the investor should already have undertaken the company registration process with DICA. In the final step, the Ministry will issue the respective prospecting, exploration, feasibility study, or integrated (combination of more than one of the aforementioned) permit. For further steps towards production, the investor and the local partner must contact and negotiate with the relevant Mining Enterprise – there are six – under the Ministry of Mines.
In addition to outdated legislation and bureaucratic red-tape, one of the main reasons why foreign investors have not invested quickly enough in mining is the lack of – or at least perceived lack of – transparency. Since foreign investment projects are conducted through Production Sharing Contracts, and royalty fees are paid to the government, investors from developed countries bound by international legal norms of conducting business, want every stage of their projects to be transparent. The Myanmar government has realized the need for transparency and is making preparations toward implementing the Extractive Industries Transparency Initiative (EITI). Under the EITI standard, mining companies are required to disclose what they pay and the government what they receive in an EITI report. Oversight of the process is managed by a multi-stakeholder group which includes the government, private sector, and civil society. Myanmar’s government has already completed two of four requirements for EITI sign-up – issued a public statement of its intention to implement the EITI and appointed a senior government official (Union Minister U Soe Thein) to lead the implementation. The two remaining requirements are to form the multi-stakeholder group to oversee EITI implementation and for the group to strictly adhere to deadlines for reporting and validation (to determine whether implementation is consistent with the EITI Standard). If Myanmar successfully signs up and is capable of complying with further EITI requirements, it will join the ranks of 23 EITI compliant countries which in the first half of 2013 alone disclosed a total of US$ 1 trillion in revenues.
Moving in tandem with Myanmar’s EITI application is the drafting of a new mining law. Indeed, a draft from the Ministry of Mines has already been submitted to Parliament and is expected to be enacted by March of 2014. Some reports indicate that the new law could include tax holidays and permit full ownership by foreign investors for certain mining projects, allow leases of up to 50 years for foreigners, and let joint-venture stake ratios be decided without government interference.
With the EITI application on track and the new mining law drafted, there is reason to remain hopeful about Myanmar’s mining sector. After all, the McKinsey projected US$ 8.68 billion in revenues can add a lot to the state coffers and if managed and re-invested prudently, can raise incomes, living standards, and consequently reduce misappropriation of public funds.