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Corruption, the Dutch disease and the Extractive Industries Transparency Initiative

Corruption, the Dutch disease and the Extractive Industries Transparency Initiative
Published 11 Dec 2013   Follow @philippabarr_

On 31 October British Prime Minister David Cameron announced at the Open Government Partnership Summit in London that a register of who owns and controls companies in the UK will be made publicly available to its citizens. This move follows a statement in May that the UK and France would implement the Extractive Industries Transparency Initiative (EITI) Standard by fully disclosing taxes, royalties and other fees their governments derive from oil, gas and mining.

EITI was launched by Tony Blair in 2002 to promote improved governance and accountability in resource-rich countries through the publication and verification of company payments and government revenues from oil, gas and mining. Its objective is to limit corruption and promote marketplace efficiency by revealing how resources are being managed.

The establishment of EITI was prompted by a proliferation of literature on the 'resource curse': the corruption, conflict and poor management of revenue in many resource-rich economies, and the use of commodity sales to finance violence and conflict. Transparency through information disclosure was seen as a way to improve governance and private-sector efficiency, as corrupt economies generate social instability and dissuade foreign investment.

While this sounds ideal, Virginia Haufler argues that 'transparency' has become a universal solution to the problems of developing economies, a kind of cheap foreign policy. For information disclosure to affect governance, other accountability and civil society structures must function to analyse the information and act on it.[fold]

EITI has become a strong platform for international collaboration between governments, NGOs and mining companies. Twenty-five countries are EITI compliant, including Timor Leste. A further 16 countries are EITI candidates, including Indonesia, the Philippines, and the Solomon Islands. The initiative is not only relevant to developing countries but to any country deriving significant income from the resource sector, such as Norway, France, the UK and Australia.

The Australian government began supporting EITI in 2007 through annual AusAID funding. In 2011 it introduced a domestic pilot for the initiative, and in May 2013 hosted the 6th Extractive Industries Transparency Initiative Global Conference in Sydney.

The implementation of EITI has led to some positive outcomes in the machinery of governance, revealing public revenues, expenditures and the awarding of contracts. EITI reports in Ghana revealed that tax and regulatory agencies that collect mining payments did not effectively collaborate, in Nigeria an extreme inaccuracy in accounting was discovered, and in Azerbaijan EITI noted incomplete reporting by companies and discrepancies in inflows.

Yet as Ivar Kolstad and Arne Wiig argue, transparency has no direct impact on corruption. Several factors mitigate the effectiveness of EITI:

  • It only reveals how revenue is collected (and the quantity of that revenue), not how it is spent.
  • There is the question of what to do with all the data and whether that data is reliable (governments and private institutions are now working on the development of data interpretation algorithms).
  • Transparency can be a problem where there is an inequality of access to information channels. If the government controls information, it may levy allegations of corruption against opponents.
  • Membership of EITI is voluntary and there are no sanctions for a failure to report income from the resource sector.

The EITI is a platform for communication between government authorities, the extraction industry, service firms and civil society. But in order to be effective, other accountability mechanisms must be in place alongside it.

Using transparency to reduce corruption and improve the efficiency of the resource industry requires comprehensive and accessible reports, valid analysis and discussion, as well as civic engagement from NGOs, unions and journalists.

Without transparency it is difficult to reveal mistakes or provide incentives to honest trading. But it will not achieve accountability or efficiency in itself; the EITI is effective only in those countries whose citizens are empowered by the new information to challenge the use and misuse of resources. 

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