The Quest for Greater Transparency in Extractive Industries in Africa Posted By : Wolassa L. Kumo
Introduction Africa is endowed with rich and diverse natural resources ranging from oil and gas to various minerals including diamond, gold, uranium, copper, zinc, cobalt and so on. At the end of 2010, 17 of the 53 African countries produced and exported oil with Libya and Nigeria holding the world's 8th and 10th biggest oil reserves respectively. Ghana became the latest African country to join the club of world oil producers in December 2010 when it pumped crude oil from an offshore field in the Gulf of Guinea for the first time. Other major oil producers include Angola, Equatorial Guinea, Egypt, Gabon, Chad, Sudan, Cameroon, the Central African Republic, and etcetera. Africa currently holds over 10% of the world's oil reserves and supplies over 12% to the global market. Countries rich in mineral resources in Africa include South Africa, Democratic Republic of the Congo (DRC), Botswana, Namibia, Mozambique, Niger, Zambia, Mali, Sierra Leone, Mauritania, Liberia and etcetera. Oil, gas and minerals contribute up to 95% of the foreign exchange earnings in some of these resource rich African economies.
Nevertheless, the benefits from the abundant natural wealth have not adequately trickled down to the majority of the African population. As a result, about 40% of the continent's 1 billion people still live below the poverty line, i.e. US$1.25 a day. For instance, in Nigeria, Africa's second top oil producer, over 70% of the population lived below the poverty line according to the 2007 estimates. In Equatorial Guinea, another major oil producer in Africa, and the richest country in the continent in terms of per capita income, over 77% of the population lived below the poverty line according to the 2006 estimate. Almost all resource rich African economies are ravaged by high level of poverty and unemployment.
Globally, 3.5 billion people live in countries rich in oil, gas and minerals. However, many of them still suffer from poverty, corruption and conflict emanating from weak governance [1].
The correlation among the natural resource endowment, economic growth and poverty has been contentious for decades. Among the vast empirical and theoretical literature on the impact of natural resource endowments on economic development, two contrasting views dominate the debate. The first view emphasizes that the development performance in mineral and oil rich and dependent economies has remained worse compared to the economies less endowed with and less dependent on such resources and that natural resource endowment is a curse rather than a blessing. This view is dubbed by economists as The Natural Resources Curse Hypothesis. Another view considers natural resources as endowments that can potentially spur economic growth and development in these countries. This, however, hinges on four fundamental factors: (1) conducive policy, legal and regulatory framework for extraction and use of oil and mineral resources; (2) promoting linkages between the extractive industries and the other sectors of the economy; (3) full involvement of communities in the decision making processes pertaining to exploration, exploitation and use of incomes from extractive industries; and (4) institutional capability, good governance and management of the natural resource revenues. While all factors are fundamental to ensuring oil and mineral wealth makes a dent in poverty in resource rich economies, good governance, accountability and transparency remain the cornerstone. The following section scrutinizes the global efforts towards promoting transparency and accountability in extractive industries in developing economies.
Global Extractive Industries Transparency Initiatives
In 2000 the World Bank commissioned a review on extractive industries (oil, gas and minerals), headed by Dr. Emil Salim (former Indonesian State Minster for population and Environment), which involved an independent stakeholder consultation process. The World Bank agreed with the recommendations of the review and endorsed its main message that extractive industries can contribute to sustainable development when there is strong governance and transparency; the benefits from industry reach the poor; and the rights of people affected by extractive industry investments are protected, among other things [2].
Following the results of the World Bank review of extractive industries, the Extractive Industries Transparency Initiative (EITI) was launched in Britain in June 2003. The United States endorsed the initiative in June 2004. The EITI is governed by board members drawn from implementing countries, supporting countries, civil society organizations and industry and investment companies.
The main objective of the EITI is to increase transparency in financial transactions between governments and companies within the extractive industries so that revenue from natural resources are directed to government spending on health, education and other development priorities [1]. This would be achieved through a voluntary disclosure of revenue flows and payments by the government of and companies operating in implementing resource rich countries. Implementation of EITI must be consistent with the following criteria [1]:
a) Regular publication of all material oil, gas and mining payments by companies to governments ("payments") and all material revenues received by governments from oil, gas and mining companies ("revenues") to a wide audience in a publicly accessible, comprehensive and comprehensible manner.
b) Where such audits do not already exist, payments and revenues are the subject of a credible, independent audit, applying international auditing standards.
c) Payments and revenues are reconciled by a credible, independent administrator, applying international auditing standards and with publication of the administrator's opinion regarding that reconciliation including discrepancies, should any be identified.
d) This approach is extended to all companies including state-owned enterprises.
e) Civil society is actively engaged as a participant in the design, monitoring and evaluation of this process and contributes towards public debate.
f) A public, financially sustainable work plan for all the above is developed by the host government, with assistance from the international financial institutions where required, including measurable targets, a timetable for implementation, and an assessment of potential capacity constraints.
There are two categories of EITI implementing countries: Candidate countries and compliant countries. To become a candidate country, a resource rich nation must sign up to implement EITI and meet the following four indicators: committing to implement the EITI; committing to work with civil society and private sector; appointing an individual to lead the implementation and producing a Work Plan that has been agreed with stakeholders. When countries fully implement the EITI they become compliant countries [1].
At present, globally, 35 countries have signed up to implement the EITI. Of these, 11 countries have fully complied with the EITI rules. These countries include: The Central African Republic, The Kyrgyz Republic, Niger, Nigeria, Norway, Yemen, Ghana, Liberia, Mongolia, Timor-Leste, and Azerbaijan.
Extractive Industry Transparency in Africa
Transparency in extractive industries has improved in Africa. Africa accounts for 5 of the 11 countries in the world that have fully complied with the rules of the EITI as of 2011. However, given the sheer size of natural resource endowments and the number of African countries holding these resources, the continent has a long way to go to achieve full transparency in the exploitation and use of these resources.
Outside of Nigeria, Niger, the Central African Republic, Ghana and Liberia which have fully complied with the EITI transparency requirements, 16 other African countries have signed up to implement the EITI initiative. These include: Burkina Faso, Cameroon, Chad, Cote d'Ivoire, DRC, Gabon, Guinea, Madagascar, Mali, Mauritania, Mozambique, Republic of the Congo, Sierra Leone, Tanzania, Togo, and Zambia.
Countries rich in mineral resources in Southern Africa such as South Africa, Botswana, and Namibia have not signed up for EITI. Nor have any of the oil and gas rich northern African countries such as Libya, Algeria and Egypt and the central African country of Equatorial Guinea. Although mineral and oil wealth have contributed to rapid economic progress in these economies during the past decades, high levels of poverty and unemployment still remain the biggest challenge. Ambitious and non-pragmatic new growth trajectories aimed at accelerated job creation being proposed in these economies may require more transparency and accountability in the exploitation and use of natural endowments than what the traditional practices entail.
This has become more evident since the onset of the Arab North Africa revolution that has toppled two regimes and is threatening to topple the third one. Post revolution and current evidences in these countries have demonstrated that in spite of some progresses in economic development, incomes from natural resources have been largely squandered by the political elites while 40-50% of the population languished below poverty line.
A 26 year old and unemployed young man, Mohammed Bouazizi, who sparked the revolution in Tunisia and the Arab world by setting himself on fire following the confiscation of unlicensed vegetable cart and its goods he used to sell for living in the streets by a policewoman, echoed the plight of not only Tunisian youth but millions of young college and high school graduates allover Africa and the Middle East. Mohammed Bouazizi has since become a legend in the Arab World and of course in the rest of freedom loving world. The Bouazizi Revolution is just only the beginning! Dictators who cling on to power and embezzle incomes from natural resources that belong to all citizens of a country will pay dearly sooner or later. The waves of democratic revolutions in the Arab world and its resounding successes within a relatively short period of time have exhilarated the quest for freedom, democracy, the rule of law and good governance in the rest of the Africa continent, the Middle East and the world at large.
Concluding Remarks
The sad reality about Africa is that it is so rich and yet it is so poor. This remains the most perturbing paradox of our time. The continent holds the world's largest reserves of diamond and gold, and large reserves of copper, platinum, manganese, oil and gas, and millions of acres of fertile agricultural land, and yet its people remain the poorest in the world. Africa, a "Treasure Island" in the words of a world renowned Kenyan academic, Professor Ali Mazrui, remains an island of abject poverty, hunger, malnutrition, HIV/AIDS pandemic, civil unrest, corruption, nepotism, cronyism, and despotism.
As long as Africa's fates continue to be decided by capricious whims of individual despots, its people will continue to languish under poverty for decades to come. Transparency, accountability and good governance are unlikely to be achieved without well functioning and independent institutions that are able to hold any individual including the leaders accountable for their actions.
While many African countries are moving in the right direction in this regard, some are regressing backwards. Political, religious, ethnic and racial intolerances are on the rise in several countries in the continent. Economic recovery from a sudden global shock caused by unfettered western capitalism hinges on political and social stability in the continent while inclusive economic development requires greater transparency and good governance. Where the continent's despots make such transformation impossible, it is incumbent on the people of Africa to rise in unison and emulate the great people of Egypt, Tunisia, and Libya.
References:
[1] Extractive Industries Transparency Initiative website: http://eiti.org/
[2] World Bank. World Bank Group Management Response to the Extractive Industries Review, September 17, 2004.
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