Transparency and accountability can remove the resource curse

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.