Wednesday, October 10, 2012

Tough Anti-Corruption Laws Help Making Resources Work for People

3.5 billion people live in resource rich countries. Many don’t see any results from the extraction of their natural resources. This phenomenon is known as the “Paradox of Plenty” or the “resource curse”. It refers to the paradox that resource rich countries tend to have less economic growth and worse development outcomes than countries with fewer resources. Resource wealth is most often concentrated in the hands of corrupt elites, politicians and industry insiders, meaning for the rest of the population the resources are a curse rather than a blessing. Global Witness estimates that since the starting of the oil boom in the 60ies in Nigeria, the country has lost about $400 billion to corruption. This is a vast figure for a country where large parts of the population live under $1 a day. In 2010, Africa’s oil, gas and mineral exports were worth roughly seven times the value of international aid to the continent ($333 billion vs $48 billion) ( ). Therefore developing countries need to maximize revenue from the finite resources and make sure that revenues go into building schools, infrastructure and hospitals.

The stakeholder network of resource extraction in resource rich but poor countries is pretty sophisticated. Let me name the stakeholders that I think are the most important ones: the extractive companies; the investors; the companies’ host and home governments (including all important offices); the citizens in the host countries; international, national and regional non-governmental organizations; governmental organizations and last but not least international donors.

A global movement of anti-corruption (Global Witness, Publish What You Pay, Transparency International etc.) and human-rights organizations (Amnesty International, Human Rights Watch etc.) has been trying to change the disastrous situation by pushing for transparency measures. A special role has the Extractive Industry Transparency Initiative (EITI). As the EITI is a coalition of governments, companies, civil society groups, investors and international organizations, it is a multisectoral stakeholder network that involves all important stakeholders. EITI increases transparency over payments by oil and mining companies to governments and government-linked entities, as well as transparency over revenues by the host countries’ governments.

But in this August with U.S. regulators setting demanding rules for U.S.-listed firms ( ) these “soft law initiatives” got important support by “hard law”. In September the European Parliamentary committee has also voted for a draft anti-corruption law. Although the final text of the proposal is yet to be published, they agreed on a detailed project reporting to regulatory authorities starting from a minimum threshold of 80’000 Euros ( ). The project reporting will enable citizens to follow the money from natural resource deals. As oil majors and other resource firms have already signed up to international guidelines enshrined in the EITI, they believe in transparency and appreciate the new regulations.

If an effective EU directive is established it would enhance the global comparability as well as transparency and would be good for industry and citizens alike. Multisectoral stakeholder groups wouldn’t be jobless: they could try to extend reporting beyond the legal core.
This example shows how important multisectoral stakeholder networks can be to raise awareness and the development of hard law. Let’s hope these new regulations will make resources work for people.

Sabrina Stucki

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