Across the globe money that should be funding development is being misappropriated by corrupt elites. In Angola a quarter of the state’s annual oil income goes missing. In many resources rich countries, mining and energy companies facilitate off-the-books payments as part of anti-competitive, under-the-table methods of winning business. Such massive revenue embezzlement scandals could be prevented if multinational companies were required to disclose what they pay to gain access to natural resources.

A report from Global Witness charts the vast scale corruption surrounding natural resources. Arguing that revenue transparency is fundamental for poverty reduction and democratisation, the report argues that governments and companies should be forced to reveal the precise financial arrangements surrounding their deals on natural resource extraction. Many governments do not provide even basic information about their revenues. Nor do oil, mining and gas companies disclose payments made to governments. Corrupt elites get away with extracting ‘facilitation payments’ from firms. If individual companies try to take a principled stand they face retaliatory threats to their operations – as BP discovered to its cost in Angola.

Oil, mining and gas are important sources of revenue in sixty countries which are also home to two-thirds of the world’s poorest people. Far from proving a blessing to impoverished populations, oil often worsens their lives by entrenching authoritarian leaders. Twelve of the world’s 25 most mineral-dependent states and six of the world’s most oil-dependent states are classified by the World Bank as Highly Indebted Poor Countries.

Global Witness shows how:

• In Kazakhstan President Nursultan Nazarbayev received kickbacks from major oil companies through a middleman and has channeled money that rightfully belongs to the country to several offshore bank accounts.
• In Congo Brazzaville the state oil company pays nothing into state coffers - the legacy of the relationship between the French state oil company and colonial Congo.
• In Angola one child in four dies in infancy and a million displaced people depend on international food aid. Meanwhile the business elites who siphoned off oil revenues during Angola’s civil war and are now profiteering from reconstruction.
• Living standards of the common people in oil-rich Equatorial Guinea are worsened by the day, as President Obiang Nguema makes no distinction between state revenues and his family’s finances.
• The Pacific island of Nauru that was once the world’s richest nation (per capita) is now a bankrupt and environmentally ravaged wasteland, after all the phosphate wealth was squandered away.

The international community recognises the need to ensure accountability of natural resource revenues. In 2003 the UK established the Extractive Industries Transparency Initiative (EITI) to promote action by governments and companies. The EITI has identified revenue streams and shown how to improve data collection, but is poorly resourced and relies on voluntary reporting by companies and governments.

Publish What You Pay – a global coalition of non-governmental organisations – argues that if ordinary citizens are to be empowered to call their governments to account over the management of their revenues it is essential that:

• Export credit agencies, bilateral and multilateral bodies and banks should make all their lending and insurance conditional on governments publishing their receipts from resource extraction.
• International stock markets should require oil, mining and gas companies to disclose their payments.
• The World Bank and IMF should mainstream revenue transparency by making it a condition of all aid and loans and national poverty reduction strategy consultations.

It is time for government and companies to come clean on revenues generated by natural resource exploitation. Public disclosure of natural resource revenues by companies and governments in resource-dependent countries will not stop all corruption overnight. But without transparency, efforts to ensure that resource revenues are well spent are likely to fail, with the effect of deepening poverty, instability, conflict and state failure.

Source(s):
‘Time for transparency: coming clean on oil, mining and gas revenues’ by Global Witness, March 2004 Full document.

Funded by: :

id21 Research Highlight: 22 April 2004

Further Information:
Global Witness
P.O. Box 6042
London N19 5WP
UK

Tel: 44 (0)20 7272 6731
Fax: 44 (0)20 7272 9425
Contact the contributor: oil@globalwitness.org

Global Witness

Henry Parham
Publish What You Pay
c/o Open Society Foundation
5th Floor
Cambridge House
100 Cambridge Grove
London W6 0LE
UK

Tel: 44 (0)20 7031 0204
Fax: +44 (0)20 7031 0201
Contact the contributor: coordinator@publishwhatyoupay.org

Publish What You Pay

Other related links:
The Extractive Industries Transparency Initiative Discussion Paper

'Making Petroleum Revenue Work for the Poor - Transparency and good governance dominate discussion on petroleum revenue management' - World Bank

'World Bank Staff Backs More Disclosure by Extractive Industries'

'Africa: Oil and Transparency'

'International Initiatives to Promote Transparency'

'Lifting the Resource Curse - Extractive industry, children and governance'