Transparency and accountability can remove the resource curse

George Soros, Project Syndicate

Countries that are rich in natural resources are often poor, because exploiting those resources has taken precedence over good government. Competing oil and mining companies, backed by their governments, are often willing to deal with anyone who can assure them of a concession. This has bred corrupt and repressive governments and armed conflict. In Africa, resource-rich countries like Congo, Angola, and Sudan have been devastated by civil wars. In the Middle East, democratic development has been lagging.

Curing this "resource curse" could make a major contribution to alleviating poverty and misery in the world, and there is an international movement afoot to do just that. The first step is transparency; the second is accountability.

The movement started a few years ago with the Publish What You Pay campaign, which urged oil and mining companies to disclose payments to governments. In response, the British government launched the Extractive Industries Transparency Initiative (EITI). Yesterday, three years into the process, the UK convened an important EITI conference in London attended by representatives of governments, business, and civil society.

Much has already been accomplished. On the business side, the major international extractive companies have started to acknowledge the value and necessity of greater transparency. British Petroleum has undertaken to disclose disaggregated payment information on its operations in Azerbaijan, and Royal Dutch Shell is doing the same in Nigeria. ChevronTexaco recently negotiated an agreement with Nigeria and Sao Tome that includes a transparency clause requiring publication of company payments in the joint production zone.

Most encouraging is that producing countries themselves are beginning to seize the initiative. Nigeria is reorganizing its state oil company, introducing transparency legislation, and launching sweeping audits of the oil and gas sector. It plans to begin publishing details of company payments to the state this summer.

The Kyrgyz Republic became the first country to report under EITI, for a large gold- mining project. Azerbaijan will report oil revenues later this month. Ghana and Trinidad and Tobago have also signed on. Peru, Sao Tome and Principe, and East Timor are currently in negotiations to implement the initiative.

Equally important, local activists in many of these countries are starting to use EITI as an opening to demand greater public accountability for government spending. My own foundation, the Open Society Institute, has established Revenue Watch programs in producing countries such as Azerbaijan, Kazakhstan, the Kyrgyz Republic, Mongolia and Iraq.

But there is a lot more to be done. Two-thirds of the world's most impoverished people live in about 60 developing or transition countries that depend on oil, mining, or gas revenues. The recently published transparency index from Save the Children UK shows that transparency is the exception, not the rule. Many important producing countries have yet to make even a gesture toward disclosure. There is no reason the major Middle Eastern producers should not be part of this transparency push, and Indonesia should join its neighbor Timor in embracing the EITI. It is also critical that state-owned companies, which account for the bulk of global oil and gas production, be subject to full disclosure.

Other governments need to follow the UK's lead and become involved politically and financially in expanding the EITI. France appears to have done little to encourage countries within its sphere of influence, much less to ensure that its own companies begin disclosing. The Bush Administration's recent decision to initiate a parallel anti-corruption process through the G-8 leaves the United States outside the premier international forum for addressing transparency in resource revenues while unnecessarily reinventing the wheel in the process.

Nor have the U.S. and Britain used their power in Iraq to promote transparency in the oil sector. Let us hope that the new Iraqi government does better. It is difficult to see how democracy can take root if the country's most important source of income remains as veiled in secrecy as it was under Saddam.

The EITI still has a long way to go, but it is one of the most effective vehicles available for achieving a global standard of disclosure and accountability. This week's summit is an opportunity to assess progress and to define more precisely what it means to implement the EITI by establishing some basic minimum requirements on host countries.

Those committed to seeing the wealth generated by energy and mining finally result in better lives for ordinary people would do well to invest in the initiative during this critical stage. The EITI may not be a catchy acronym, but in concert with civil society efforts such as Publish What You Pay, it promises to do a lot more good in the world than most.

George Soros is President of Soros Fund Management and Chairman of the Open Society Institute.