Transparency

Transparency gives people in developing countries the information they need to hold their governments accountable and improve their lives.

The Challenge

Over the last decade, Africa has experienced spectacular levels of economic growth and marked increases in financial flows. However, developing countries can only achieve equitable and inclusive growth, provide good public services, and help lift their citizens out of poverty if they are able to make the most of their resources.

This includes mobilising domestic resources, primarily tax revenues from citizens and private companies including natural resource revenues in many developing countries, as well as maximising the impact of aid from donor governments and other organisations. Yet in most developing countries there is far too little information available about these revenue streams, about how governments spend their resources, and about what results they achieve. In many cases it’s impossible to ‘follow the money’ – limiting people’s ability to hold governments and companies to account for their actions, to keep corruption in check, and to fight poverty.

Budgets: One of the first steps to following the money is ensuring that government budgets are available for scrutiny so that citizens and civil society organisations can hold leaders to account for the effective use of public funds. According to the International Budget Partnership’s 2012 Open Budget Index, in sub-Saharan Africa, only two countries – South Africa and Uganda – publish sufficient budget information to allow citizens to effectively monitor government spending, and 11 sub-Saharan African countries provide little or no budget data at all.

Natural Resources: Natural resources such as minerals, oil, gas and timber represent a source of vast potential wealth for poor countries. Twenty countries in sub-Saharan Africa are dependent on natural resources, but due to a lack of transparency, it is extremely difficult for citizens to know if they are getting a fair deal for the use of their country’s natural resources. Only 11 countries worldwide have satisfactory transparency standards in oil, gas and mining, and none of those are in Africa. While developing country governments hold the primary responsibility in ensuring that domestic revenues are used for development, all countries can help provide key information to make revenue streams more transparent. For example, if other countries followed the lead of the United States, the European Union and Canada and committed to requiring companies to make public the payments they make to governments, this information could then be used by citizens to hold their governments accountable for the effective use of those funds.

Retaining Resources: To help countries retain their resources to use for development, more needs to be done to stop the illegal flow of funds out of developing countries. Sub-Saharan Africa lost $52 billion in illicit financial flows in 2011. Phantom firms – the anonymous shell companies used to cover up the identity of the person who really benefits from the company, allowing them to mask illegal activities and hide stolen money – and tax havens both play a major role in diverting countries’ resources, bypassing tax authorities and robbing governments of much-needed revenue. A study by the World Bank on more than 200 major corruption cases found that over 70% involved phantom firms. In five deals made between 2010 and 2012, the Democratic Republic of Congo lost at least $1.36 billion in revenues from the under-pricing of mining assets that were sold to phantom firms. This amount is comparable to nearly double the country’s health and education budgets combined in 2012.

Aid: Developing countries, as well as taxpayers in donor countries, need reliable and comprehensive information about aid flows. In many cases, the governments of poor countries are not even given information about how much money is being spent by donors on different sectors (such as health and education) or in different regions in their own countries. In 2005, a group of donors, developing countries and multilateral institutions came together in Paris and agreed on a set of aid effectiveness targets (which include aid transparency) to be achieved by 2010. Only one of the 13 targets was achieved, with much progress to be made on making aid transparent.

 

The Opportunity

Improved transparency of revenue streams will shine a light on what resources are available for investing in development, how they are spent, and the results that are achieved, to help ensure resources are invested effectively for development – in better health services, more productive agriculture, higher quality education, and improved infrastructure.

Budgets: African governments can increase budget transparency substantially by publishing four basic budget documents: 1) the executive budget proposal, 2) the budget enacted by the legislature, 3) the year-end report on budget outcomes that includes off-budget revenues and expenditures, and 4) a comprehensive audit report, enabling citizens to ensure that government expenditures reflect development priorities. Donor governments can help by providing targeted technical assistance to strengthen capacity at relevant government institutions and oversight agencies, by encouraging and supporting African country efforts to make budget processes more transparent, and by opening their own contracting processes with developing countries.

Natural Resources: By making public the payments that corporations make to governments, citizens can better track the resources that are due to them for the export of their oil, gas and mineral wealth. Natural resource exports from Africa were worth $382 billion in 2011. Many African countries are now members of the Extractives Industries Transparency Initiative (EITI), a global standard that compares the receipts of companies and governments to increase transparency in natural resource revenues. In Nigeria, EITI helped the government recover approximately $442 million of the $2.6 billion owed to the government by oil and gas companies operating in Nigeria between 1999 and 2008. The United States and European Union have agreed to mandatory reporting requirements that will ensure citizens have access to information about the payments their governments receive from oil, gas, and mining companies. Canada has announced that it intends to do the same.

Retaining Resources: To ensure that developing countries are able to retain and invest more of their own resources, countries should put an end to phantom firms by requiring public disclosure of who owns and controls companies and trusts and implementing automatic exchange of tax information agreements. It is in the interest of all countries to support mutual exchange of tax information, so that revenue authorities have the data they need to collect taxes and to curb tax evasion and other illegal outflows.

Aid: For information on aid flows to be useful, it needs to be published regularly in a standardised and comparable format. The International Aid Transparency Initiative (IATI) has created a common international standard for publishing information about aid spending. The list of signatories to IATI is growing (more than 60% of aid is reported by IATI’s standard) and recently, all G8 leaders promised to implement IATI by 2015, but progress on making all aid transparent must continue.

Boosting transparency across all these areas will make a major contribution to African citizens’ efforts to follow the money, enabling rapidly growing domestic resources to be retained on the continent, and giving citizens the information they need to ensure those resources are used by governments to meet the needs of citizens. In this way, the region can begin to deliver transformative opportunities for all citizens and ensure that we see the virtual end of extreme poverty within the next generation.