Natural Resource Governance

Natural Resource Governance

The Challenge

Natural resources have the potential to bring wealth and stability to resource-rich developing countries. The oil, gas and mining sectors represent one of the biggest sources of revenue in Africa. Africa’s natural resources were worth $333 billion in exports in 2010. Better harnessing revenues from these sources can help increase support for heath and agriculture. Too often, corruption and mismanagement of natural resources leads to poverty and conflict. Improving natural resource governance, in particular by improving financial transparency in the extractive industries, is a crucial first step to ensuring citizens can hold their governments accountable for the oil and mineral wealth that belongs to their country, and to allowing citizens and governments to assess if they are receiving a fair deal for their resources.

One-third of the world’s poorest people live in resource-rich countries. In Africa, revenue flows are likely to increase as resource extraction increases. Combined with high commodity prices, revenues from natural resources will continue to dwarf other financial flows, and could and should play a key role in driving progress on poverty reduction and economic growth. Alongside telecommunications, revenue from the extractives sector has been a significant driver of the fourfold increase in domestic resource mobilization in Africa. These increases have fed into greater funding for essential social sectors, and have the potential to generate even bigger increases.

The Opportunity

Legally-binding transparency measures are necessary to help African governments, civil society and citizens make the most of their own resources. In July 2010, the United States passed the Dodd-Frank Financial Reform Act which includes as one of its provisions (the Cardin-Lugar Amendment) a requirement that all US-listed oil, gas and mining companies publish their payments to foreign governments on a project- and country-specific basis. To ensure that the spirit of this legislation comes to fruition, ONE is pushing the Securities and Exchange Commission (SEC) to enforce the measures passed in the Cardin-Lugar Amendment.

In October 2011, the European Commission (EC) published a similar legislative proposal that included the forestry sector. If passed, this legislation could unlock millions of dollars in domestic resources for development in resource-rich countries. ONE is working with partners such as the Revenue Watch Institute, the Publish What You Pay Coalition and Global Witness to encourage governments and regulatory authorities to pass legally binding natural resource revenue transparency rules, which require companies listed on country stock exchanges to publish their payments to governments. These pieces of legislation have tremendous potential to ensure that citizens benefit from their country’s natural resource revenues.

Countries dependent on oil extraction tend to be less transparent. The 24 countries deemed by the International Monetary Fund to be dependent on oil had an average Open Budget Index score of 26 out of 100, a very low average. Legislation to require that companies make their payments public will strengthen efforts such as the Extractives Industries Transparency Initiative (EITI), a voluntary multi-stakeholder coalition dedicated to publishing company payments and government revenues from oil, gas and mining, which has had success in highlighting where money has gone missing. However, this information must be available at an early stage in the process so that EITI can use it effectively to increase government accountability. Beyond having access to information about extractives revenues, civil society must have the capacity to analyze this information in order to hold governments and private companies to account for their actions. Organizations such as Publish What You Pay and the Revenue Watch Institute do a great job of helping to build the capacity of civil society to use information to hold governments to account. We encourage donors to provide greater support to such initiatives.

Botswana leads by example, illustrating how good natural resource governance can lead to strong development outcomes. Botswana is likely to achieve almost all of the Millennium Development Goals. Former President Festus Mogae repeatedly stressed the value of natural resource transparency to Botswana’s economic success. The Republic of Congo, Ghana, Liberia and Nigeria have made progress in increasing transparency in their oil sector. The Republic of Congo has required external audits of government payments by oil companies since 2003. In 2011, Ghana passed the Petroleum Revenue Management Act, which requires the government to publish quarterly information on receipts from petroleum companies, and has made public production sharing agreements, the audited statements of oil accounts and other information. In 2011, Liberia and Nigeria have made oil and mineral information available to the public after the passage of a comprehensive Access to Information (ATI) Act and a national Extractive Industries Transparency Initiative Act, respectively.

Uganda’s newfound oil resources will soon generate an estimated $2 billion per year in revenue. Transparency measures are necessary to ensure all Ugandans, including the 7 million living in extreme poverty, benefit from their country’s natural resources. Comprehensive transparency legislation would shed light on all payments made by companies to governments, ensuring African governments, civil society and citizens have the information that they need to make the most of their own resources.