Despite being endowed with vast deposits of jade and gemstones, a fragmented value chain, persistent smuggling and weak oversight have long hindered revenue collection for the state in Myanmar. To remedy this, the country’s first democratic government is determined to formalise trade and remove conflicts of interest across a sector that has immense potential to fuel economic growth.
In an effort to wrestle the supply of precious stones, particularly jade, from the hands of smugglers while improving safety standards, the governing National League for Democracy (NLD) announced in late 2016 that permit renewals and future mining licences for both gems and jade would be suspended until new legislation is in place to better regulate the industry. It is hoped that this decision will help attract investment into the gemstone sector.
The Mogok Region, which is home to the world’s most concentrated gemstone mines, has historically been an important provider of income for local families, but resource-rich Kachin State, which is responsible for 90% of the world’s jade production, has long been exploited, endangering the lives of those who work to unearth the famous green jewel.
Permit Moratorium
While state counsellor Daw Aung San Suu Kyi, the leader of the NLD, has encountered growing criticism recently over numerous issues, the decision to impose a jade permit moratorium and better regulate the gem industry has been seen by both local communities and international civil groups as an important step forward.
Considering the nation’s substantial wealth in precious stones, the blocking of smuggling routes along with the adoption of international best practices through formalised trade would allow Myanmar to expand its mineral revenue stream and thus accelerate economic development.
Achieving this, however, is a complex task. Fortunately for the NLD government, the Natural Resource Governance Institute (NRGI), a non-profit organisation which offers policy advice and advocacy, has provided policymakers with a number of recommendations to improve the governance and overall performance of the gems industry. This was documented in the May 2017 report “Governing the Gemstone Sector: Lessons from Global Experience”, in which the state-owned gems regulator, Myanmar Gems Enterprise (MGE), a division of the Ministry of Natural Resources and Environmental Conservation (MNREC), is featured as a case study.
Precious stones are concentrated in two geographical areas. Gemstones, including some of the world’s most sought-after jewels such as “pigeon-blood” coloured rubies, can be found in Mogok, in the centre of Myanmar. Jade stones, which according to Chinese mythology ward off evil, are concentrated in Kachin State, in the north-east of the country, bordering China. Despite generating billions of dollars according to estimates, Myanmar’s jade industry has left the people of Kachin in a recurring trap of poverty and armed conflict, which is concentrated around the Hpakant jade mines.
Key Challenges
According to the NRGI’s findings, four key issues negatively affect the extraction of coloured gems globally: widespread illegal activity; low revenue collection; minimal value addition; and weak oversight, all of which are main characteristics of Myanmar’s gemstone market.
Likewise, as a result of a history of mismanaged investment, value chains are fragmented and in need of redevelopment, resulting in neighbouring countries such as China and Thailand pocketing around 90% of the retail price for jade and rubies. Furthermore, limited enforcement of environmental and safety standards endangers local communities. Aside from structural bottlenecks, the extraction and trade of gemstones is largely controlled by elites, military-backed companies and drug lords.
Role of the State
Established under the 1989 Myanmar State-Owned Economic Enterprises Law, MGE oversees all matters related to gem production. During the nationalisation era, MGE was the dominant local gem miner. Although it has since handed over the majority of mine operations to private or military-linked companies, it is still involved in a number of joint-venture mining enterprises and maintains its primary function of regulator.
As it stands, MGE’s leadership is mostly composed of former military personnel, some of whom hold substantial business interests in the gemstone industry. This has at times created conflicts of interest and inhibited sector growth.
While MGE’s role as gems regulator falls directly under the MNREC, its structure and supervisory responsibilities are not endorsed in law, creating a vague scope of responsibility. Under current regulations MGE oversees the licensing process, geological data and environmental management of the lucrative gems market. According to the NRGI report, most of these duties have been poorly executed due to limited funding and a lack of technical expertise. Consequently, Myanmar’s precious stones industry has been unable to live up to its potential.
The Gemstone Law of 1995 was passed by Parliament to cement the regulation of the industry. As it stands, the 1995 law still has this role, although amended legislation has been approved by the upper house of Myanmar’s Parliament and is awaiting endorsement from the lower house.
In late 2017 Mogok residents were seeking amendments to Section 10 (a) of the law, which stipulates that local communities are the third priority when it comes to granting permission for operating small and medium-sized mining blocks.
Fall in Revenues
While the sale of coloured stones has long been an important export earner for Myanmar, a gradual slowdown in demand from China, the largest importer of the country’s jade, has seen revenues decline over recent years.
In August 2017 MGE announced that precious stone sales at the 54th Myanmar Gems Emporium event, which took place August 2-11, amounted to $612.4m, with 5092 of the 6561 lots of jade on offer sold for a total of $608.8m. The sale of gems amounted to $3.6m, with 105 lots sold from a total of 326 exhibited. This represented a 3% decrease from 2016 figures of $628.7m. According to official reports, jade sales totalled $986.6m in FY 2014/15 and $1.01bn in FY 2013/14.
While MGE controls the official trade of gems via annual emporiums, illegal activity outweighs revenue generated through formal channels. According to research conducted by Global Witness, a non-governmental organisation that focuses on corruption and environmental concerns, Myanmar’s jade industry was valued at $31bn in 2014, with the majority of revenue leaking through informal channels.
Production
Sporadic conflict between the Kachin Independence Army and military forces has translated into inconsistent production figures over the years, with a decline in more recent times.
According to a report published by Reuters, total jade production stood at 16,700 tonnes in FY 2014/15, compared to 43,200 tonnes during FY 2011/12 and 46,800 tonnes in FY 2010/11.
Recommendations
According to the NRGI case study, there are a number of specific areas where policymakers can focus their attention to bolster Myanmar’s valuable gem industry.
According to the NRGI, the top consideration for government is to identify areas of comparative advantage. From a mineral perspective this is a straightforward task, as Myanmar is highly regarded for its valuable rubies and jade. The government has already identified the extraction of precious stones as a key area for development. This is evident from its decision to amend existing laws and build upon the previous regime’s decision to join the Extractive Industries Transparency Initiative.
A second recommendation made by the report was to support skill development and technology transfer, such as via the establishment of gem laboratories and training centres, which will assist in the development of the value chain, thereby generating more jobs and greater revenues.
Potential
The US decision to lift sanctions on Myanmar’s jade and rubies in late 2016 has given the world’s largest producer of rubies and jade access to the world’s biggest gems market.
Myanmar has a major comparative advantage in precious stone deposits. For the most part, the NLD’s ability to enforce new regulations and establish a modern value chain will be the key measure of future success. However, the future role of regulator needs careful attention. Former and present military personnel still hold substantial interests in Myanmar’s gem industry. Satisfying their demands, while balancing reconciliation efforts will be no easy task.
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