The extractive industries are one of the biggest sources of foreign direct investment for many emerging economies — often accounting for over half of total government revenues. However, all too often, the money does not end up in the right hands.
Indeed, the recent social and political upheaval in the Middle East and North Africa has highlighted how the proceeds of oil and gas production can end up being siphoned out by corrupt leaders who then use the money to suppress human rights as opposed to investing it for the good of the broader economy.
A recently released WikiLeaks cable showed that Saif as-Islam Gaddafi, son of the troubled Libyan leader Col. Muammar Gaddafi siphoned a portion of the output of an oilfield run by France’s Total to finance his own personal “activities”.
So how can this sort of thing be stopped? Well, the Extractive Industries Transparency Initiative, an Oslo-based organization, believes it may have found the silver bullet.
EITI, founded in 2002, aims to pressure international oil, gas and mining companies to be more transparent about payments they make to governments and officialdom; and for governments to be more transparent about what they receive. The aim is to furnish “civil society” with the information it needs to hold political leaders and corporations to account.
The EITI is making some headway. It recently said six more countries have met its criteria and are joining the initiative. These are Central African Republic, Kyrgyzstan, Niger, Nigeria, Norway, and Yemen. Investors generally welcome the initiative. At EITI’s conference in Paris earlier this month, George Soros, the US investor and founder of the Open Society Foundations, said: “This comes at a moment in history where the importance of transparency in the use of natural resources is becoming very, very clear indeed.”
Keith Skeoch, chief executive of Edinburgh-based Standard Life Investments, suggested two ways of enhancing EITI’s effectiveness: “First, all stakeholders should endorse the principle that the EITI rules and criteria must be applied objectively and consistently. Second, all stakeholders should endorse good governance principles and processes within the EITI.”
Critics of EITI at the Paris event said the organization was too obsessed with ‘quantitative’ results — counting the number of countries and companies that have joined in the initiative — and insufficiently focused on ‘qualitative results’ — such as determining whether real changes (such as poverty eradication or moves towards better governance) are occurring.
TrustLaw, published by Thomson Reuters, produced a comprehensive collection of articles from the 2-3 March Paris gathering. In one article, Katherine Baldwin reported that EITI’s critics claimed that reporting investment and revenue flows is just the first stage in what should be a more ambitious project targeting real impacts on the ground.
Baldwin quoted Armando Guebuza, president of Mozambique, as saying: “The promotion of good governance and transparency in the payment of receipts in extractive industries will significantly contribute to the discouragement of corrupt practices. But transparency is not an end in itself but a means to make poverty history”.
World Bank managing director Sri Mulyani Indrawati told the conference that compliance with EITI’s reporting standards should be seen as the first step in a more profound process: “What is needed are bold steps in countries to build institutions and tackle the barriers – from political economy factors to vested interests to corruption – which prevent continued reform and better governance.”
In a separate paper on the EITI published in January 2010, Mary Ella Keblusek, international director of the Niger Delta Professionals for Development, said EITI must become more alert to political realities on the ground.
She said that its secretariat needs to become more aware that the EITI ‘process’ is frequently more of a political challenge than a technical challenge and that greater resources need to be devoted on the back of that understanding. “The real challenge to creating substantive change is convincing the political elite in extractive industries countries to embrace a process of transparency that will very likely reduce their ability to receive rents from that industry…”The EITI does have an important role to play, but this will only be fully realized if the EITI International Board and Secretariat make significant changes to their engagement strategy.”
(It’s also worth noting that EITI has embraced social media with gusto — with an active presence on Twitter and Facebook.)
This article was published on Qfinance under the headline ‘Reducing corruption and the kleptomania of autocrats the EITI way’ on 15 March 2011