Transparency

Extractives transparency in emerging economies: Are the BRICS willing to Open Up?

Mar 27th, 2013 7:28 PM UTC
By Katherine Lay

This week, the presidents of the world’s leading emerging economies – Brazil, Russia, India, China and South Africa (known collectively as the BRICS) – are meeting in Durban for the annual BRICS summit.

The “Africanised Agenda” for this year’s summit, where the BRICS’ cooperation with Africa is under the spotlight, means that investment in extractive industries is a high priority on the agenda. And extraction of Africa’s oil, minerals and gas is where the national interests of each of the BRICS nations and those of African governments converge.

This is good news for the huge BRICS’ business delegations that have booked out Durban’s beachfront hotels. But it’s a source of concern for civil society coalitions, whose interaction with governments and the new BRICS business council has been limited by the worrying absence of any formal means of engagement.

Civil society’s concerns center on the veils of secrecy that still plague the extractives sectors of the BRICS – secrecy around corporate ownership, contracts and revenue flows. This secrecy is allowing phantom firms – anonymous “shell companies” created for the sole purpose of shifting profits across borders into low tax jurisdictions or havens – to rob citizens of the revenues to which they’re entitled. In addition, it’s a serious disincentive to foreign direct investment as few astute investors are willing to invest in opaque environments that offer no accurate accessible data with which to make decisions. And without information on what revenues governments are receiving from companies, how those revenues are invested, and what results they’re achieving, parliamentarians and citizens can’t hold government leaders accountable for the use of revenue that they’re managing on citizens’ behalf.

ONE is urging BRICS’ Finance Ministers to open up their extractive sectors. We’re calling on them to mandate all oil, gas and mining companies listed on the national stock exchanges of the BRICS countries to disclose their payments to governments in the countries in which they operate, and to publish the names of the people who ultimately own or control listed companies and their subsidiaries.

We’re calling on securities exchanges to put in place regulations to ensure that extractives companies submit country-by-country and project-by-project reports on their payments to governments in all operational jurisdictions, to align their reporting with open data standards, and to make this information publicly available online.

It makes good economic sense. Not only do disclosure regulations help improve investment climates, combat corruption and reduce tax evasion, their application by securities regulators can help improve the functioning and attractiveness of BRICS’ stock exchanges and draw more companies to list in these emerging financial centres. Harmonised rules and standards across the BRICS’ exchanges can help level the playing field, reduce corporate costs associated with following different practices in different jurisdictions, and lower reputational risks for companies should they be accused of bribery and fraud in host countries. Transparent reporting also strengthens companies’ social license to operate by making clear to host communities how much state and local level revenue companies are paying to extract resources.

And what responsible government would turn down the opportunity to improve collection of owed revenue and to better track the massive incoming and cross-border capital flows their countries’ resources are generating? It’s an essential step towards higher public savings and better domestic resource mobilisation for the BRICS and for all resource-rich countries. And it’s a golden key to securing the critical development finance needed to deliver public services to populations in need.

Listen to what the world is telling us

Mar 25th, 2013 9:58 PM UTC
By Edith Jibunoh

Edith Jibunoh, ONE’s director for multilateral institutions, is reporting from the UN High Level Panel on the Post-2015 Development Agenda in Bali, Indonesia, where she joined a team of ONE members in delivering your post-MDG petition signatures to world leaders. 

Almost 15 years ago, as a young(er) diasporan African, I started working on my first developing country assignment, Indonesia – a country much like my own, Nigeria.

I could draw many parallels between the two former military-ruled, resource-cursed, and poverty-stricken countries. As a freshly minted development professional, I had all the ideals of a young graduate newly empowered with all the solutions to the world’s problems that I had read in books, and I felt ready to rule the world.

Edith and Sipho present ONE’s YouChoose and Open for Development campaigns to two members of the UN High Level Panel

Within a couple of years, the UN Millennium Development Goals (MDGs), without any input from youth like me, were introduced to the world with little consideration for our sense of ownership for this new global development agenda.

Fast forward 15 years, and I have returned to Indonesia. A country that has since achieved measurable progress, and where civil society is active and engaged. My country is among many that have not followed this path, but the civil society, still finding its youthful voice, is joining the voices of thousands around the world to demand a seat at the table.

ONE is in Bali with some of the world’s foremost development thinkers, private and public sector officials, as well as vibrant members of this civil society, at the Fourth Meeting of the United Nations Secretary General’s High Level Panel on the Post-2015 Development Agenda. The panel members spent their first day listening to civil society lay out their desires for a new development framework that they hope will speak to all of their concerns.

The voices here are urgent, backed by hundreds of thousands more, aided in their journey to Bali by the innovation in technology that has birthed movements of voices from around the world seeking to define the new development agenda.

Members of the High Level Panel

Fifteen years ago, there was no such force defining the MDGs – and young people were certainly not a part of their design. But today, young people around the world are participating in efforts like My World and our complementary You Choose campaign, defining their dreams for a future that will deliver a global development agenda that works for them. It’s a BIG IDEA!

Technology today has allowed for hundreds of thousands of voices to be a part of this conversation.

Fifteen years ago, this “big idea” was still waiting to be born.

Earlier in the day, we presented two of ONE’s recent campaigns to members of the HLP. Our Open for Development petition collected 117,000 members’ names in support of an open development process, based on the outcomes of priorities defined through consultations. Our You Choose campaign, our effort to demonstrate the consultation process in practice, collected 144,000 answers from citizens in South Africa, Malawi and Zambia, defining what they want their development future to be premised on.

Read more about the YouChoose campaign here

The busy day at the HLP meetings wrapped up with our participation in Restless Development’s “Big Ideas” event, where ONE Africa Director Sipho Moyo presented findings from You Choose, which identified the priorities of jobs, education and transparency. Restless Development’s “Big Idea” would involve 3.5 billion people, the world’s youth, as the monitors of this new global development agenda. The audience at the “Big Ideas” event included Paul Polman, Chief Executive Officer of Unilever, and Justine Greening, Minister for International Development at the UK Department for International Development.

Both spoke of the power of data in the hands of young people who today utilize the information they gather with the help of technology in a way that previous generations were unable to, networking the information and bringing about change.

When we presented ONE’s campaigns to Paul Polman earlier in the day, he spoke of the collective action needed to achieve the MDGs while he recanted a story of a group of young people in the Netherlands who demanded he took a picture with them as they held a sign which said “We are a part of the solution, ARE YOU?”

Even if you’re no longer a part of the youth group, these big ideas are powerful and definitely worth supporting. Young people are leading the charge but we all need to be a part of the solution. All we have to do is listen to what the world is telling us.

The HLP continues their meetings over the next few days and we’ll be here, encouraging them to keep listening until their work is done.

Edith is tweeting from the High Level Panel. Follow her tweets at @didijibs.

Sisterly advice on oil – start with transparency

Mar 15th, 2013 6:45 PM UTC
By ONE

Lauren Pfeifer, ONE’s Transparency and Accountability Research Assistant, shares Ngozi Okonjo-Iweala’s call for transparency and accountability mechanisms in the oil industry of Ghana.

Renowned Nigerian economist and member of ONE’s Board of Directors Ngozi Okonjo-Iweala advised Ghana on the importance of building transparency and accountability mechanisms into the DNA of its fledgling oil industry. Speaking at the John A.Kufuor Global Development Series in Accra last Friday, Okonjo-Iweala said, “My sisterly advice is that you should be uncompromising on issues of transparency and accountability in the sector.” By building transparency and accountability mechanisms into the sector, Okonjo-Iweala hopes Ghana can avoid the pitfalls of a sudden influx of revenues from natural resources.

Ngozi Okonjo-Iweala at the John A.Kufuor Global Development Series in Accra. Photo credit: www.guardian.co.uk 

Currently serving her second term as Finance Minister of Nigeria, Okonjo-Iweala cautioned Ghanaians Friday to the subtle shifts that she witnessed after Nigeria began exporting oil. After the discovery of oil in Nigeria, its well-diversified economy shifted, non-oil sectors contracted, and an entrepreneurial spirit was sapped as energies were shifted to “chasing government contracts, rather than productive investment,” she said.

Ghana’s Petroleum Revenue Management Act has been widely praised because the legislation specifies how petroleum revenue should be collected and allocated. Okonjo-Iweala implored policymakers and leaders to strengthen it further by institutionalizing transparency in contract negotiations. She encouraged the Ghanaian government to prepare thoroughly before entering into negotiations with foreign oil companies and to invest the profits in public infrastructure.

Okonjo-Iweala also stressed the importance of regional cooperation, especially with regard to infrastructure and trade. She noted that several key building blocks for development – good economic policies, good governance, and investment in infrastructure and skills – are falling into place, making the time ripe for regional development. “With these building blocks in place,” she said, “we can create a platform for the private sector to grow.”

The discovery of Ghana’s oil reserves in 2007 – now known as the Jubilee Field – is estimated at between 800 million to 1.8 billion barrels, and is expected to generate over $1 billion yearly in export revenue over the next 20 years. The new oil wealth has the potential to provide Ghana with the revenue needed to drive development and reduce poverty.

Guinea’s mining contracts go public

Feb 18th, 2013 12:28 PM UTC
By Katherine Lay

Secret deals and confidential contracts have long characterized Africa’s mining industry. Its history is one of quiet hand shakes and signatures attached to the end of a series of legal provisions that only high-powered political and corporate leaders ever get to see.

This is starting to change, thanks to the efforts of the Extractive Industries Transparency Initiative (EITI), international finance institutions, and coalitions of civil society organizations working long and hard to break down barriers to public disclosure of contracts in the extractives sector.

Progress is also the result of the growing will of government leaders to improve and make transparent the terms for their countries’ mineral extraction and the management of their mining revenues. Acknowledging that mineral resources are the property of the nation and that citizens have a right to know how their governments are selling their resources, responsible leaders are making state-investor contracts available for public scrutiny.

These leaders are realizing that public disclosure results in more stable and durable contracts, both because they are less subject to citizens’ suspicions and because the incentives for governments and companies to negotiate better contracts are increased. They’re also showing commitment to deterring high-level corruption by providing an incentive for government officials and company representatives to operate within the bounds of the law and to avoid deviating from general contract forms and terms.

One such leader is Guinean President Alpha Condé. Having taken action to put his 2010 electoral promise of mining reform and better resource governance into practice by passing a new mining code in 2011 and announcing a review of all existing contracts, he has scaled up his commitment to the next level.  On February 15^th, the Guinean government launched a new online database containing all its existing mining contracts – 60 contract documents covering 18 mining projects.

The website was developed with the assistance of experts from the Revenue Watch Institute, the World Bank Institute and Columbia University, who have been supporting the Guinean government in its contract review. The online materials include a searchable summary of contract terms, allowing non-expert readers to find key sections and to understand the obligations for companies and the government.

This is a major step forward for Guinea. One of the first countries to join the EITI, its membership status was suspended in 2009 by the EITI Board when the political and security situation provoked by the military junta made EITI implementation impossible. Less than two years later the suspension was lifted and candidate status reinstated. But the country has continued to face huge challenges, not least a ranking of 154 out of 182 countries on the Transparency International Corruption Perceptions Index and a ranking of 178 out of 185 economies on the World Bank’s Doing Business Index.

However, the Guinean government is now showing genuine commitment to improving its governance record and to assuring investors that it’s taking action to build a stable environment for international business. Its new mining law has set a fiscal regime in place that will allow the state to generate substantial revenues from its mining sector. Through the launch of its online contract database, the government has signaled to the public that it has nothing to hide, that it honors citizens’ rights of access to contracts that may affect them for extensive periods, and that it respects citizens’ rights to influence how resources are used. As envisaged by the Africa Mining Vision, this is a precondition for the successful harnessing of mineral resources for the nation’s economic growth and human development.

In short, if all mineral-rich African countries were to follow Guinea’s example by routinely publishing their mining contracts, and if they were to commit to channeling revenues transparently through the public purse into quality public services, we might see the continent’s realization of the Africa Mining Vision far sooner than we thought possible.

Hard talking at the African Mining Indaba

Feb 12th, 2013 3:45 PM UTC
By Katherine Lay

The annual African Mining Indaba is the world’s largest gathering of mining professionals. This year it brought 7500 investors, corporates, government officials, advocates and academics to Cape Town’s International Convention Centre for four days of discussion about the state of Africa’s mining sector.

While the customary deal-making happened on the sidelines, the walls of the conference halls resounded with some hard truths.

In a keynote address to the Indaba, South African activist and business leader Dr Mamphela Ramphele, told delegates that the benefits of mineral resources are simply not reaching the majority of the continent’s citizens.

Instead, they’re watching mining revenues vanishing into their national treasuries and waiting for development outcomes that don’t materialize. In South Africa, their discontent is exploding in wildcat labor strikes across the platinum belt. The country’s current challenges are a microcosm of a broader continental crisis that is showing no sign of resolution.

The issues are complex, but there is a common thread running through them: a deep distrust between stakeholders involved in the extraction and management of mineral resources, the labor forces working the mines, communities living in the environs of these mines, and the broader population.

The secrecy entrenched throughout the minerals supply chain is breeding a level of suspicion amongst stakeholders that is destabilizing the mining sector.

We know well the negative socio-political impact that mineral reserves can present to a region. In Africa, mineral revenues have, in the past, financed cycles of civil wars and left collapsed states with populations living in extreme poverty. Millions of displaced people in refugee camps, child soldiers kept from classrooms and forced to kill as no child ever should, generations of women subjected to the worst sexual violence under the brutality of militias desperate to hold onto gold fields and diamond pans.

It’s the most extraordinary paradox. States sitting on massive riches and profits exchanged between a few powerful hands while surrounding communities are barely able to feed themselves.

Some are speculating that an African Spring is near. Citizen anger at corrupt and secretive resource governance could very well trigger it. It’s essential that every African government and every company operating within African borders recognize this and acknowledge that responsible and transparent mineral extraction and revenue management offer a genuinely feasible solution.

The costs involved in transforming opaque management and reporting practices are miniscule compared to the alternatives: escalating labor strikes, operational shut-downs, investment withdrawal and crashing share prices.

This solution demands public disclosure by governments and mining companies of their fiscal audits, contracts and licenses. It demands mandatory reporting regulations governing the world’s major stock exchanges through legal instruments that require listed multi-national companies to publish their payments to foreign governments on a country- and project-specific basis, and commitment by major financial centers to harmonize disclosure rules in a way that ensures a transparent and accountable global mining sector.

It’s a solution that helps stabilize investment environments and builds more efficient public-private partnerships that are able to maintain high profit margins while enabling citizens to perform a much-needed oversight function.

It’s also at the heart of the Africa Mining Vision. Endorsed by the African Union as a roadmap to harness the continent’s mineral revenues for more sustainable human development, this vision’s realization hinges on action to institutionalize open and accountable mineral revenue management in every AU member state.  Its success requires trust between governments, companies and civil society. This adds an even stronger urgency to Dr Ramphele’s message. The only antidote to the hostility and suspicion of actors with competing interests is more transparency in the way they seek to satisfy those interests.

ONE and Save the Children connect Liberian youth with MDG 2.0 movers and shakers

Feb 5th, 2013 6:47 PM UTC
By Edith Jibunoh

This week, ONE and Save the Children gathered close to 200 Liberians, including several Liberian ONE members, at a popular event in Monrovia, which included an exhibition and panel on transparency and accountability in the city’s iconic City Hall.

ONE members at the Liberia event

City Hall was packed all afternoon with the young and eager Liberians who gathered at our event, keen to join our efforts to focus attention on transparency and accountability and emphasize the recommendations, just released in a new report, for the UN High Level Panel (HLP) deliberations on the post-2015 Millennium Development Goals (or as we like to call it, MDG 2.0).

The event was attended by members of the HLP, including co-chair President Ellen Johnson-Sirleaf; Dr. Ngozi Okonjo-Iweala, Coordinating Minister of Finance and the Economy; Ms. Gunilla Carlsson, Swedish Development Minister; Ms. Betty Maina of Kenya; Mr. John Podesta, Chair of the Center for American Progress; Ms. Amina J. Mohammed, Special Adviser to the United Nations Secretary General on the Post-2015 Agenda; as well as members of the HLP secretariat and other Liberian dignitaries.

Involved in our exhibition were a variety of activists, including Ma Annie, who started the Liberian “Peace Huts” to mediate local conflict issues (land, marital and community unrest); Alfred Sirleaf, who started Daily Talk, a community blackboard which translates the news into vernacular and images in order to make news accessible to the illiterate; young Koola Fofana, who talked to mingling guests from her stand, and displayed her work on the President’s Vision 2030 committee, allowing her to channel youth voices into Liberia’s formal development planning. The exhibition also included the big draw for the many youth in attendance: Sweetz and David Mello – two Liberian music entertainers who worked on a song with young kids throughout the exhibition, encouraging them to express themselves and get involved in their country’s development through music.

Speakers at the event

Sweetz and David Mello talk to children about music

The exhibition was quickly followed by five lively breakout sessions, where Liberian citizens organized themselves and came up with a range of recommendations for various facets of the transparency and accountability agenda, including the consultation process of how to get better data.

The HLP members were really impressed by the effort that the Liberians put into coming up with concise yet constructive inputs for them to take into consideration and individually commended their work after spending some time going through the exhibitions on display.

President Johnson-Sirleaf reminded the youth that Liberia’s future lay in their hands, while Dr. Ngozi Okonjo-Iweala remarked on the alignment of the issues raised by the Liberians and the HLP members. Ms. Gunilla Carlsson congratulated Liberia on the progress made under the leadership of President Johnson-Sirleaf and noted that their recommendations showed the dedication of the citizens to making their country a better place.

Ms. Betty Maina emphasized the importance of holding the private sector accountable alongside the public sector,stating that they also had a responsibility in ensuring that development goals were met, and she encouraged Liberians to demand accountability from the private sector as well.

Mr. John Podesta recognized ONE and Save the Children for the remarkable work we do and spoke of the trip that ONE organized that brought him to Liberia for the first time, where he was able to see firsthand the dedication of Liberian people to their development.

The entire event, which spanned about 6 hours, left all of us involved inspired and struck by the dedication these citizens put into communicating their views on development. We are all so proud to have been a part of the process that gave them a platform to get their views across to those that needed to hear it the most.

What would make the biggest difference in your world? Vote for the issues that matter to you most here, and we’ll share them with the HLP.

ONE Member Meet Up: Monrovia

Feb 1st, 2013 5:00 PM UTC
By Nealon DeVore

Earlier this week, ONE met up with 30 of our Liberian members in Monrovia at a local watering hole called Tides, which overlooks the Atlantic Ocean. As I reported earlier, we have been in Monrovia the past week to engage the High Level Panel on the Post-2015 MDGs (HLP) during their meetings and consultations. We couldn’t pass up the opportunity to meet with some of our members and hear their views on the issues affecting development in Liberia.

My colleague Edith Jibunoh, from ONE’s Washington, D.C., office, and I led the meet up. I started off by giving a brief history of ONE and our work around the world to promote Africa’s development. In particular, I focused on our campaigns to engage our African members on issues around the continent and how we work to influence the policies of select African governments and institutions.

Edith then spoke about this week in Liberia and its importance in the greater scheme of development. The HLP would be using this week to listen to the voices of people through civil society organizations (CSOs) and the private sector on what the next set of development goals should include. ONE also used this week to launch a new report — Open for Development — that would make the case for some key recommendations to improve the post-2015 agenda. We launched this report in partnership with Save the Children with HLP members, which Liberian President Sirleaf joined!

All this talk from Edith and me created some palpable enthusiasm from our members – so they began sharing their thoughts on how governments and partners (like the United States or European governments) could support development.

For me, it was an incredible learning experience. Our members shared their particular sectoral concerns — clean water, HIV/AIDS treatment, environmental sustainability and education were mentioned, with clean water reiterated many times. More importantly though, our members shared how development should be made more accountable. They want the goals applied to everyone, rich and poor. We must speak in peoples’ vernacular languages (while Liberia’s official language is English, I can attest that the vernacular creole or “simple English” can be difficult to understand!) because illiteracy is so high in a country like Liberia.

We have to use radio and other more traditional forms of media to reach people, which I’m proud to say we are already doing here at ONE in our “You Choose” campaign in South Africa, Malawi and Zambia. There were even comments on the need to focus on better results and outcomes, which hits at the heart of our latest thinking here at ONE. You’d think these members were on ONE’s policy team!

Our ONE members in Liberia are incredibly astute. That was driven home to me when a member stood up and pointed out that amongst the 30 of us, they were the educated and relatively affluent in Liberia. The real voices ONE and the world need to hear are those not present and who carry the burden of these problems—and he pointed across the water to a beach where children were playing football in front of what appeared to be an endless see of tin-roofed shacks. My fellow ONE member couldn’t have said it better.

Resource Revenue Management 101

Jan 18th, 2013 11:28 AM UTC
By Katherine Lay

Say that your country is blessed with natural resources. Oil, gas, minerals – it has it all. The future looks good. But deep down you worry that the bonanza could turn into a bust – maybe you live in Africa and have seen how windfalls have been wasted before. How do you know that’s not going to happen now? Are there any tell-tale signs of sound management of “commodity wealth”?

Marcelo Giugale, the World Bank’s Director of Economic Policy and Poverty Reduction Programs for Africa, recently asked these questions and, in response, offers us a combination of measures that every government should have in place to help citizens get a good deal from their resources.

We’ve looked at four of these measures and how they’re playing out in Africa.

First Measure: Governments publish their extractives contracts

Extractive resources are public assets and decisions about their use should be subject to public oversight. But many African governments are keeping their oil, gas and mining contracts firmly under wraps. This is a problem because confidential contracts prevent citizens from holding political and corporate leaders to account for the deals they’ve struck. Closed contracts may contain unreasonable tax breaks, terms that contravene national legislation or clauses that allow companies to ignore changes in national law. By contrast open contracts help maximize gains for citizens, and are a deterrent to self-serving actions on the part of government leaders. They also increase investment stability for companies by securing balanced deals from the outset.

Contrary to warnings that contract disclosure turns investors away, the countries that have elected to go the transparency route have watched investor interest in their resources grow. After Liberia and Nigeria signed up to the Extractive Industries Transparency Initiative (EITI) – a voluntary global standard that promotes revenue transparency and open extractives governance – their credit ratings improved and foreign investment increased. Both countries have passed national EITI laws that make independently audited reporting of resource revenue payments and receipts legally binding. Sierra Leone, with its devastating history of mineral wars, is now publishing all its mining contracts online. Guinea’s new mining code mandates the same. Ghana has made its most important petroleum agreements publicly available and has established a Public Interest and Accountability Committee made up of government, corporate and civil society representatives to oversee oil revenue flows. It is also an EITI member, with a national EITI law in the legislative pipeline. Zambia’s parliament is set to enact its EITI law this year. In fact, the majority of member countries of the EITI are African (22 of 37 members), although some key extractives producers – notably South Africa – have yet to sign up.

Second Measure: Rent from the exploitation of extractive resources is saved for bad times and for future generations

Massive offshore oil and gas discoveries in East Africa, from Tanzania to Mozambique, are catapulting countries in the region into global energy players, and will bring in billions in windfall revenues that could transform entire economies. Planned investments exceed the current GDP of some host countries. Barely a month goes by without new discoveries of extractive resources across the continent. These provide unprecedented opportunities for countries to tackle poverty and to ensure more prosperous futures for their citizens. But for this to happen, a substantial share of revenues need to be invested in assets, with a sense of responsibility to future generations, rather than used for immediate consumption. Too many countries have made the mistake of depleting their resources, allowing revenues to disappear through unsustainable spending and consumption, and finding their coffers quickly exhausted.

Although there are mixed views on whether current African producers – even those with relatively strong governance records – are investing revenues adequately or distributing them equitably, there is no doubt that issues of rent beneficiation and the importance of long-term saving is now high on the African radar. Governments are recognizing that beating the resource curse requires prudent fiscal policies with long-term expenditure frameworks that prioritize investment in human capital and infrastructure.

Sovereign wealth funds can help countries smooth the volatility of resource-driven revenues by lowering the effect of boom and bust cycles resulting from fluctuating commodity prices. They can also help a country diversify its wealth. The continent is currently witnessing a scramble for sovereign funds, reflecting a healthy interest by African governments in saving for future generations and in buffering their economies against financial shocks. As long as these funds are transparently managed and well-structured, they can help keep a country’s economic trajectory firmly on the upswing. Botswana’s long-standing Pula Fund, financed for the most part by diamond revenues, has been a strong source of growth for a country that was one of Africa’s poorest in the 1970s and now finances the university education of over 90% of its students. As oil revenue starts to flow into Ghana’s coffers from newly discovered offshore reserves, the government is eager to reap the profits and pressure to spend is high. But the rapid development of the oil industry and the associated challenges for the government have made it critical to assure investors that a framework is in place to save oil money when energy prices are high. In response, Ghana launched its sovereign wealth fund last year. Africa now accounts for 14 sovereign wealth funds – Angola, Botswana, Nigeria, Libya and Algeria have them in place, and Tanzania will soon follow.

Third Measure: Governments pay off their debt

Debt dynamics have been driving global economic change over the last decade, not least in Africa. Overall, the benefits of debt relief and sustainable debt management are persisting. African governments are servicing their debt and borrowing responsibly. Debt stock ratios – which fell dramatically with debt relief – have risen only slightly since, and “debt-distress” risk ratings prepared by the World Bank and the IMF have improved markedly. The number of African countries rated as high-risk has halved since 2006 (from 18 to 9) and low-risk ratings are becoming the norm (from 5 to 13). Nigeria, South Africa, Namibia, Senegal, Cote d’Ivoire, Gabon, Ghana and Zambia are all issuing sovereign bonds on international markets and getting high levels of international investor interest as bond buyers seek higher yields than in the US and less default risk than in some Asian economies. Last year, Senegal issued its second sovereign bond, breaking new ground by successfully concluding a joint bond issue and exchange.

But risks remain high, especially for fragile states. Some emerging African economies have exceeded the globally acceptable benchmark of a no higher than 30% debt to GDP ratio, over which debt burdens become over-bearing. The IMF has warned that the build-up of public debt levels in South Africa since the global financial crisis is now a constraint on the government’s fiscal space as additional debt accumulation will likely raise funding costs. South Africa’s debt to GDP ratio for 2012-13 is 40%. Ghana’s ratio stands at 41%. Nigeria‘s ratio of 18% is relatively low, but, in contrast to South Africa and Ghana, a large portion of this debt has been used to plug holes in its budget rather than on capital projects. Kenya continues to be one of Africa’s debt success stories: in 2003, the debt ratio stood at 60%, declining to 40% by 2008 through prudent fiscal policies, economic reforms and sound budget management. Its debt currently stands at 45%, but is on track to return to 40% by 2014.

Fourth Measure: An audit of the government’s budget execution is done on time and made available to the public

The budget audit closes the accountability loop by giving an authoritative account of whether the government’s reporting of how it raised taxes and spent public funds during the budget year is accurate and whether it has complied with financial management laws and regulations. Budget audits are a key deterrent to corruption as they provide a means for public scrutiny during budget evaluation phases and, when published, promote a sense of trust in elected representatives.

The Open Budget Survey rates South Africa one of the world’s top performers, both on audit reporting and broader budget transparency. The government gives citizens a full picture of its plans for taxing and spending, publishing all key budget documents and an understandable citizen-friendly version of the official budget. Budget audits are published on time and online. The country’s budget framework creates disincentives for misappropriation of public funds and formalizes the participation of citizens in the budgeting process, developing a sense of ownership of outcomes through collective decision-making and helping ensure that expenditures are better directed towards pro-poor programs.

Uganda and Ghana – East and West Africa’s top performers – are also producing and publishing comprehensive audit reports, although their timeliness is problematic. Liberia’s audit institutions have been exceptionally active in promoting budget accountability, publishing audit reports on time and issuing press releases to signal their submission to parliament. The audits are discussed with citizens in public hearings and open forums all over the country, and are made available in schools and public libraries. Liberia’s legislature has also enacted a Public Finance Management Law that lays down the budget system to be followed by the government, and approved a law that limits the amount of funds the executive can transfer from one administrative unit to another at its own discretion. But Liberia’s story is not common. An ongoing problem across the continent is the limited time given to parliaments to look over budget proposals and audits, and limited powers to amend or challenge them.

Conclusion

Strong accountability institutions – parliaments, audit institutions, civil society organizations and the media – are essential to maintaining a connection between citizens and the public purse, and to ensuring that resource revenues are invested in social sectors that help secure better development outcomes. A broken connection enables diversion of public revenue from the policies they’re intended to finance and the services they’re supposed to deliver. This diversion, whether through misappropriation, embezzlement or plain inefficiencies, thrives when transparency and accountability are weak.

On a positive note, we’re seeing an emerging trend in Africa toward the adoption of practices that make it easier for citizens to follow public money and track spending results. South Africa, Ghana, Liberia, Tanzania and Kenya are all members of the new Open Government Partnership – a multilateral global initiative to promote compliance with open governance standards – and they’re showing commitment to strengthening their systems and opening up their practices to public oversight. But many African governments are still resistant to this trend. Whether they can remain so, in the face of citizen pressure to reform and in the wake of mass protests against corruption and the persistent lack of economic opportunities, is the question. As owners of their countries’ extractive resources, citizens are demanding their rights to profit from them. Public information and government accountability for what resources are available, how they’re spent and what results they achieve are the best guarantee that a country’s resource wealth will translate into lasting benefits for its citizens.

Making transparency work for development in Nigeria

Jan 4th, 2013 11:59 AM UTC
By Katherine Lay

The Secretariat of the Nigeria Extractive Industries Transparency Initiative (NEITI) recently announced that it has recovered US$443 million of the $2.6 billion owed to the government as revenue by oil and gas companies.

Audits produced for the period 1999 to 2008 uncovered huge discrepancies in reported payments and receipts. This information spearheaded efforts by the NEITI Secretariat to recover revenue owed by companies to the government – funds that are critical for the country’s socio-economic development.

Nigeria’s leaders have long supported the Extractive Industries Transparency Initiative (EITI)’s transparency standards to promote open and efficient management of the extractive resources sector. Hailing the EITI as a vehicle for greater economic and political stability, former President Obasanjo signed up to the initiative in 2004. This provided a clear signal to investors and international finance institutions that the government is committed to more transparent governance.

The country’s current Finance Minister Ngozi Okonjo-Iweala affirmed that compliance with the EITI lifted Nigeria’s profile in the eyes of investors, and that its improved credit rating led to sizeable increases in foreign direct investment. Recognizing that transparency is beneficial for business in the extractive industries, where investments are capital intensive and dependent on long-term stability to generate returns, Minister Okonjo-Iweala noted that the EITI has helped to mitigate political and reputational risks for companies operating in Nigeria and has generated information necessary for accurate revenue collection by government.

As the first African country to make reporting of payments and receipts legally binding through the NEITI Act, Nigeria has set the “gold standard” for audits under EITI regulations. Its reports investigate the conduct of government and extractive industry practices in greater depth than any other EITI member country has attempted. These audits have assisted efforts to overcome the country’s institutionalized corruption. Before joining the EITI, Nigeria ranked at the bottom of Transparency International’s Corruption Perception Index (CPI). Every year from 1999 to 2004 – when Nigeria joined EITI – the country ranked last or second-to-last globally. By 2010, the CPI ranked Nigeria 134th out of 178 countries.

However, if the NEITI objectives are to translate into visible improvements in the lives of Nigerian citizens, government agencies must make concerted efforts to recover revenue, and to allocate it to areas that need it most. The NEITI Secretariat’s announcement of recovered funds indicates positive commitment to the first part of this process. The amounts are significant: $81 million for the audit period 1999 to 2004, $91 million for 2005, and $208 million for 2006 to 2008. They now need to be allocated efficiently.

In a country that has the second highest maternal mortality rate in the world, and where 52, 000 women die in childbirth each year owing to the absence of healthcare facilities, the recovered amount could fund the construction of 20 new health centers in each of Nigeria’s 774 Local Government Areas. It can provide insecticide-treated bed-nets to 44 300 000 more people, thereby helping to control Nigeria’s malaria pandemic. It can reduce the 42% youth unemployment rate by extending youth employment and social support operations to all states. And it can salvage roads that form key trade networks across the country, including the East-West Road and the Benin-Ore-Sagamu Highway, which are currently death traps.

In its vigilant monitoring of extractive revenue flows, Nigerian civil society has played its part in demanding this recovery of funds. NGOs represented in the NEITI National Stakeholders Working Group have proactively used the NEITI Act and the Freedom of Information Act to encourage more companies and government agencies to disclose information to NEITI auditors. The NEITI process has empowered civil society to ask informed questions and to hold the government to account for the extractives revenue that it manages on behalf of citizens.

An Extractives Transparency Milestone for Tanzania

Dec 15th, 2012 10:51 AM UTC
By Katherine Lay

3.5 billion people live in resource-rich countries but many are not profiting from these resources. Weak governance is leaving countries “cursed” by conflict and corruption. The Extractives Industry Transparency Initiative (EITI) was created to help change this. The EITI’s globally developed standard promotes extractives revenue transparency by calling for the full publication and verification of company payments and government revenues from oil, gas and mining.

Tanzania has just reached an extractives transparency milestone. On 12 December, the EITI declared Tanzania compliant with its standard. Tanzania joins 9 other African countries with EITI compliance status. The Tanzanian government is now obliged to produce annual EITI reports that disclose and reconcile all revenues from the extractives sector. Independent audits will indicate payments made to governments by companies and payments received by governments from companies.

A gold miner in Shinyanga, Tanzania

Regular monitoring of government and company performance will beam a spotlight on a sector that is traditionally opaque, opening its operations to the public and empowering citizens and oversight institutions with information about extractives financial flows that will enable them to hold governments and companies to account. Tanzanian citizens, journalists and parliamentarians will be able to play their part in monitoring government and company performance and preventing corruption, misuse of public resources and illicit capital flight. Compliance with the EITI is an essential step towards opening the entire extractives supply chain – from how access to those resources is granted, to monitoring operations, to collecting taxes, to sound macroeconomic management and distribution of revenues, and to spending resources effectively for sustainable growth and poverty reduction.

This milestone is timely. 79% of Tanzania’s population lives below the poverty line. The current commodity price boom represents a unique opportunity for the government to mobilize home-generated wealth from its natural resources to tackle the country’s socio-economic development challenges. Improved transparency in the management of revenue from these resources will be critical to Tanzania’s growth trajectory.

The EITI’s endorsement will also be sending a clear signal to investors that the Tanzanian government is committed to open management of its extractives sector and to making itself more accountable for the use of revenue that it manages on behalf of its citizens. The Tanzanian EITI multi-stakeholder working group of government, civil society and company representatives, which is overseeing the country’s EITI reporting, will continue to help build partnership and trust between different stakeholders, and to give civil society a critical voice in the extractives resource management process.

The EITI and Tanzania’s compliance with its standard is not a cure-all for the massive problems and leakages plaguing the extractives sector. It is, however, an important starting point for progress.