Openness Can Help Lift the Curse of Resources

The following originally appeared in the Financial Times.

The natural resources sector has the potential to generate billions of dollars in revenues that can be used for poverty reduction and sound investment. For decades, however, management secrecy has allowed corruption to thrive in countries such as Angola, Cambodia and Guinea. According to Nigeria’s own corruption agency, up to $400bn of oil money has been stolen or wasted over the past 50 years. And in Libya, in particular, we now see a population rising against rulers whose control has been financed by the immense revenues they manage, and mismanage, in secret.

Ending this problem and letting new democracies flourish will, of course, not be easy. The resource curse undermines the investment climate, raises costs for companies, threatens energy and mineral security, and consigns millions of citizens in resource-rich countries to poverty. But evidence suggests that transparency in extractive industries can play an important role.

In 2002, I helped to launch the Publish What You Pay coalition, a global network of civil society organizations that has advocated for better management of oil, gas, and mining revenues, and worked to ensure monies received are invested in schools, hospitals, and poverty reduction. The coalition recruits oil companies, which then pledge to reveal what they pay to the governments and leaders of the states in which they operate, allowing them to be held accountable. In Liberia, this approach has seen moves towards new transparency standards, including openness on payments and contract terms—amazing progress in a country better known for former president Charles Taylor’s macabre violence and blood diamonds.

There are further positive signs from the Extractive Industries Transparency Initiative, an alliance to improve standards of transparency on a voluntary basis. Azerbaijan’s credit rating improved in part because it played a constructive role in the initiative. This week, after the first democratically held elections in its history, Guinea rejoined the initiative too, because its leaders know that with EITI membership comes a better investment climate.

Now, governments that regulate stock markets are going one necessary and long-awaited step further in establishing mandatory listing rules. In July 2010, the U.S. passed the Dodd-Frank Act, which requires all oil, mining, and gas companies registered in the U.S. to report payments to foreign governments, both by country and by project. Companies as diverse as PetroChina, BHP Billiton, and BP will have to comply. Similarly, Hong Kong recently improved the disclosure of its companies’ payments as a condition of listing on its exchange.

The French and UK governments have also indicated support for new European oil and mining rules. EU revenue transparency legislation could build on U.S. plans to move towards a new global transparency standard. The London Stock Exchange is one of the world’s most important financial markets, hosting more than £1,000bn worth of oil, gas, and mining capital. It should follow others’ lead and change its rules too.

All of these measures hold great promise. Africa is the new frontier for investors in the natural resources sector, holding a 10th of the world’s oil reserves, 40 percent of its gold, and significant reserves of other minerals vital for modern industrial economies. The Middle East, meanwhile, could soon develop a string of prosperous democracies. Those promoting greater transparency in the natural resources industries are helping to reinforce powerful historical forces, which will unlock transformational sums of money to improve the lives of millions of people in some of the most fragile countries in the world.

4 Comments

Openness is just a placebo when fighting a real resource-curse.

Whenever a government receives in net resource revenues more than 5% of GDP, 15% of its exports, or 25% of all tax revenues received from the citizens, the balance of power has been so fundamentally altered that real democracy does not stand a chance. In these cases the transparency of which George Soros will, in the best of cases, act as placebos and, in the worst, be feeding on those illusions of a better tomorrow and which help to maintain the petrocrats and the oiligarchs in power. In fact transparency, in such circumstances, amount to little more than allowing the tortured seeing the pliers that are to be used to extract his fingernails.

The Extractive Industries Transparency Initiative, EITI, and of which Soros speaks so highly of, is without any doubt well-intentioned, but they have no idea of what the real oil-curse is all about. Anyone who knows would not, as EITI does, proclaim the principle: “We affirm that management of natural resource wealth for the benefit of a country’s citizens is in the domain of sovereign governments to be exercised in the interests of their national development.”

That principle supports keeping on concentrating oil-wealth in hands like Gaddafi’s, while the only means of breaking an oil-curse of that size is handing over the oil revenues directly to the citizens. But what would a George Soros or an EITI know about that? … at the end of the day they are not really the oil-cursed citizens.

Agree with Per Kurowski.
The Natural Resources of a country belong to it's citizens and any profits from mining or drilling should go to the citizens of that country. Furthermore, the entire business of mining and drilling has taken an absurd priority over the well-being of natural people and wildlife who need more than anything clean water and good soil to live. The poverty that exists in the world today is due to the exploitation of natural resources to sustain a lifestyle of excess for a few, at the expense of the slaughter and destruction of all that is truly needed for the survival of the majority of the living creatures on this earth.
If mining for whatever minerals and/or drilling for oil and gas were done with careful consideration of the repercussions and consequences to the water and soil, evaluated by independent honest geologists and agroecologists, and a responsible set of procedures was followed to ensure the co-existence of sustainable means for long term subsistance while development of a well rounded society progressed, which allowed all existing life on a territoty or country to continue to flourish, healthy and strong, with a fair distribution of the proceeds of the mining or drilling re-invested in that same society, then I would say do it. But we all know that none of that exists today.

Perhaps you could sketch your vision of an alternative to EITI? And a real-life example or a plausible sketch of what "handing over ... revenues directly to the citizens" means? It's easy to rant.

Might I refer you to this website. here you can view a new economic model. Presentations are offered to interested persons in order that this new interlect can be challenged. A complete programme of reform is offered to anybody prepared to listen. It appears politicians are not in the slightest bit interested.

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