Openness Can Help Lift the Curse of Resources
By George Soros
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.
George Soros is founder and chair of the Open Society Foundations.