What I hope to do in my lecture this evening is to remind us, if we need any reminding, that anger at corruption, lack of justice and dignity was the major driver of the Arab Spring . I wish also to suggest that it is not It is only recently that OECD countries have done anything to restrain corruption. We are deeply implicated in the problems of corruption in resource-rich countries. unlikely that such forces will produce a similar reaction across wider parts of Africa, as they have at different times in different parts of the world. Secondly, I want to remind us that it was only recently that the OECD countries have done anything to restrain corruption; and that we are deeply implicated in the problems of corruption in resource-rich countries, which is causing such anger today. In the Arab world in particular, western countries have colluded in propping up corrupt dictatorships, which they have seen as crucial to their self-interest because of their need for access to oil. I will then go on to underline the fact that it was only in the 1990s that the “resource curse” was recognised, i.e. the paradox that countries with rich oil, gas and mineral resources are likely to be more corrupt, poorer and less stable than similar countries without such resources. I will then examine the example of the EITI since its launch ten years ago as a case-study in how far international initiatives focused on transparency can lead to a reduction of corruption and an improvement in accountability.
Donald Kaberuka, a much respected President of the Africa Development Bank, speaking at the Annual Meeting of the Bank in Lisbon in July 2011 described the uprisings in North Africa and later in Sub Saharan Africa as the consequence of:
[A] volatile mix of youth unemployment, social and economic exclusion, lack of genuine democracy, in short governance deficits. In the world we live in, the world of the Internet, Twitter and Facebook, the people, especially the young, are all too aware of opportunities closed, of freedoms denied, and aspirations thwarted by elites that are tempted to promote their own interests over the general good….. like Eastern Europe in 1989, the people are against political systems that leave limited legitimate avenues for expressing discontent [ and therefore] take grievances onto the streets…Put it another way: If the lack of economic opportunity provided the explosive material, it is failures in political governance that provided the trigger…
He reminded his audience that:
[Growth] on its own is not enough. Evidence worldwide, from rich OECD countries to the BRICs, to the emerging economic powers, is overwhelming: economic growth that is not equitable, that is not broad based, that does not create sustainable jobs, that creates few opportunities for women and the young, has no resilience.
This is not to underestimate the good progress that has been made in the last 30 years, on gender equality, on access to basic education, often under challenging conditions. But we must admit inequalities have worsened. Research by Bank staff shows that Africa remains the second most unequal region in the world, after Latin America.
And where that hurts, is especially among the young, the young graduates. With more than two thirds of its population under 25, Africa is the youngest region of the world. And the youth bulge is growing. Youth unemployment in many parts of Africa is as high as 35%. The situation for young women is particularly difficult. A quarter of the young are barely literate and thereby excluded from the labour market.
The rate of migration to urban areas has increased dramatically compounding the problems of unemployment, at a time when traditional family or community support is eroded. Yet, it is this young population to which we look for as a source of energy and creativity for Africa. So how do we tap this resource, provide our young people with entry points into the formal economy, and thereby with the dignity and self reliance that come from gainful employment.
Sub-Saharan Africa is now producing around 5 million new university graduates a year. The numbers are much higher in North Africa. But the gap between the expectations created through education, and the economic opportunities it actually delivers, is dangerously high. Unemployment among University graduates is three times higher, than among those with lower levels of education. And compounding the problem is the approach to tertiary education. [1]
These are wise and powerful words. My own conclusion is that the combination of growing urbanisation and a large, increasingly educated youth population, will drive major change. I believe that we have not yet seen the half of it yet; but as in Europe and North America, and China currently, in eras of urbanisation, enormous growth in wealth alongside gross inequality, the consequences will be turbulent and they will most probably lead to major reform and greater social justice.
More recently, Africa Confidential in its analysis of the year ahead said the following:
Stronger economies, better education and technology are driving more political change and unrest. .Expect turbulence… There are no signs that the pace of political and economic change on the continent will slacken
There are few direct causal links between the revolutions that have transformed North Africa in the past year, but there are plenty of important indirect effects. The biggest of these is the demonstration effect: the overthrow of leaders such as Hosni Mubarak, Zine el Abidine Ben Ali and Moammar el Gadaffi has reinforced the determination of Africans to oust autocratic and incompetent regimes. That means more youthful activism: 70% of Africans are under 30 years of age and are far less tolerant of rampant inequality and state abuse of power than their parents were. They are quicker to join up events and mobilise: Egyptians and Libyans were inspired by the courage of the Tunisian revolutionaries. Tahrir Square has come to signify dissent across Africa. Even the United States-launched ‘Occupy’ movement has prompted solidarity demonstrations in Lagos and Johannesburg…
Accountability has moved from being a buzzword in World Bank reports to a demand on the streets. People want to know what governments are doing with the increasing revenues they are collecting from state employees and consumers, as well as the higher royalties secured from oil and mining companies. As countries such as Ghana and Zambia are redesignated as lower-middle income countries and foreign aid declines sharply, their governments will depend increasingly on internal revenues. That will reinforce the link between taxation and representation.
So at a Conference that wishes to focus on the Arab Spring but also consider the example of the EITI, this is my starting-point. The old order is crumbling and people, youth in particular, empowered by education and urbanisation, and frustrated by corruption, inequality and the lack of opportunity, are demanding changes in government systems to create greater justice and opportunity for all. Clearly, the demand for reform is not confined to resource-rich countries, as the “Occupy” movement so clearly demonstrates; but it is particularly enraging to witness massive elite enrichment and company profits from natural resources, alongside great poverty and lack of opportunity.
Before coming on to the reasons for the launch Accountability has moved from being a buzzword in World Bank reports to a demand on the streets. People want to know what governments are doing with the increasing revenues they are collecting from state employees and consumers, as well as the higher royalties secured from oil and mining companies. of the EITI, I wish to remind us how recent it is the corruption has been targeted and transparency advocated. Transparency International was not founded until 1993. It was in 1996 that Jim Wolfensohn, when he became President of the World Bank, was the first ever Bank spokesperson to raise the issue of corruption. Prior to this, before the end of the Cold War, the issue of corruption was seen as being too political and therefore breaching the World Bank mandate, which requires it to focus on the economic development, and not to interfere in the political affairs of any country. My point is to remind us all that, until as recently as 1997 for the World Bank and other development agencies, corruption was seen as a political issue that could not be raised. It was also of course the case that many of the countries represented on the World Bank Board were engaged in supporting corrupt behaviour by national companies. So, it was not just a question of not interfering in the internal affairs of developing countries, it was also a question of support for national companies. The simple fact that underlines this reality most clearly, is that it was not until as recently as 1996 that the OECD Council recommended that bribes to foreign officials should cease to be tax deductible. We should note, they did not recommend, at this stage, that such bribes should be illegal, but merely that they should cease to be tax-deductible.
The OECD Convention on Combating Bribery of Foreign Public Officials in international business transactions was signed as recently as December 1997 and entered into force on 15 February 1999. The US is entitled to take great pride in this. They impose strict rules on their own companies, and then quite rightly worked to impose them equitably throughout the OECD. The Convention requires countries that are members of the OECD to adopt national legislation to make it a crime to bribe foreign public officials. In the UK, weak legislation to implement this commitment was passed in 2001. The embarrassment of the revelations over the British Aerospace deal to sell an obsolete military air traffic control system to Tanzania, that led eventually to a requirement imposed by the US courts that BAE Systems should repay £30 million to Tanzania, alongside the scandal of the corrupt Saudi/ UK arms deals, that had implicated successive governments from Harold Wilson to Tony Blair; and sharp criticism from the OECD, led to a strengthened 2010 Bribery Act. And thus the UK was brought kicking and screaming into compliance with the OECD Convention eleven years after it came into force. Any review of press coverage as the Act was about to take effect is a strong reminder of the reluctance of much of UK business to be held to international standards.
I take this opportunity to remind us of this recent history because so much of the discussion of corruption focuses on deficiencies in government systems of the South. Transparency International’s Corruption Perception Index finds countries of the South consistently at the bottom level of the Index, although TI explicitly recognises that the North is partly responsible for the corruption of the South as a bribe payer.
When we come to questions of grand corruption and the resource curse, again, we must recognise that it is only in the last 10 years that concern has been expressed about resource-wealth feeding corruption and conflict, and the failure of vast oil and mineral resources to lead to sustainable development and the reduction of poverty. In the Cold War years, Western governments’ major concern was security of supply and companies shared that concern together with an anxiety to secure their profits and avoid nationalisation.
Research evidence has been available since the founding of OPEC in the 1970s that, paradoxically, the discovery of oil and other natural resources, tended to undermine and not improve poverty reduction and economic development. But for a long time explanation focused on currency appreciation and fluctuation in revenues, i.e. economic management questions. As early as 1975 the Venezuelan oil minister, who was a co-founder of OPEC said, “I call petroleum the Devil’s excrement, it brings trouble waste, corruption public services falling apart. And debt, debt we shall have for many years.” It was again, only from the mid-90s onwards that the perverse outcome of oil extraction in developing countries came into the spotlight. This was because research now identified bad governance as the driver behind very dismal development in resource-rich countries. The research suggested that oil- and mineral-rich states in the developing world were more likely to suffer from lack of provision of basic public goods, corruption, and civil war than comparable non-resource rich countries, and also more likely to be poorer.
It is clear that poor development outcomes were caused by the link between international and domestic factors, i.e. the interaction between multinational companies and their shareholders and investors, host governments and greedy elites. Campaigners like Global Witness, Transparency International and the Open Society Institute, and some government officials in countries such as Norway and the UK, started to try to address the issue. The Publish What You Pay coalition of NGOs was formed in 2002. The shared diagnosis was that opacity was the problem and transparency the solution. This led to the creation of EITI, floated as an idea by Tony Blair at the Johannesburg Summit on Sustainable Development in 2002. The idea is clear and simple: build a coalition of companies, governments and civil society, at international and national level, and require companies to report what they paid to governments, and governments what they receive; then publish the figures so that the public can hold governments to account. It took a little time to recruit an international board with representatives of each sector, to establish a secretariat, to draw up rules and procedures and establish a trust fund in the World Bank to provide technical support. This was all done by 2006 and from then on the organisation grew quickly. There are now 35 countries Historically, poor development outcomes were caused by the link between international and domestic factors: the interaction between multinational companies and their shareholders and investors, host governments and greedy elites. implementing the EITI. 900 million people live in these countries which range from Mongolia to Indonesia with two thirds of the members in Africa. In recent months Australia has announced that it will undertake a pilot EITI process and the USA has declared that it will sign up. The EITI reports contain useful information, for example we learn that in 2008 Nigerian government received $400 on behalf of each citizen from the production of oil and gas. The figure was $15,000 per citizen in Norway, $2,500 in East Timor, $200 in Mongolia, and $30 in Niger.
There is no doubt that the EITI has got off to a good start with declarations of support from the G8, the G20 and the United Nations General Assembly amongst others. But a recent Evaluation has underlined a criticism of EITI that has been growing in the academic literature. A simple report, supervised by a local multi-stakeholder group that records revenues paid by companies and received by governments, does not necessarily produce an improvement in accountability. There is no doubt that the EITI movement has led to a growing focus on the problems of corruption and misuse of resources; and the establishment of multi-stakeholder groups has opened a space, particularly in the most oppressive countries, where civil society can ask questions about how the money is being spent. But 10 years after the idea was first mooted; and 5 years after it became fully operational, it is time for a serious review of strengths and weaknesses and the way forward.
For this reason the EITI has set up a Strategy Working Group to consider the next phase of our work. The Evaluation recommended that we move from a simple pass/ fail on reporting of revenues received and multi-stakeholder-group functioning, to a scoring system that encourages and recognises continuing reform. And so, 10 years on, we have reached a critical point in the history of the EITI. And given that the EITI is perhaps, the most effective international initiative based on the belief that a commitment to bring all stakeholders together around a focus on transparency will lead to better governance, improved accountability and therefore proper use of resources, this is an important point in the history the transparency movement.
To build on the base that has been created by EITI up to now, we need to think about what people in resource-rich countries want and need to know in order to achieve real accountability; and then ask what EITI can provide, and whether it can co ordinate with other initiatives to help to ensure that this objective can be achieved. In order to hold all stakeholders to account people need access to the following information:
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Transparency on contracts and taxation arrangements so that they know what should be paid. Some countries are requiring contract transparency but many companies strongly resist. At the least people need to understand the taxation arrangements so that they know what should be paid.
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International comparability in the published figures so that countries can ensure that they are being treated fairly compared with others.
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Transparency over production levels so that people can check that reported revenues are what they should be accountability on revenues requires that EITI reporting must be linked to government financial management and accountability systems so that people can scrutinise how the money is spent. When EITI reports are drawn to the attention of local communities, they often say that one big figure tells them little. They wish to discuss how the government budget is being allocated and spent. Clearly this cannot be an issue for EITI reporting alone, but we must note that reporting of natural resource revenues in isolation does not give local communities the information they require.
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Beyond questions of financial accountability, there are important questions of environmental impact and the restitution of environmental damage after mining or oil and gas extraction. These cannot be a question for EITI but they are crucial to the needs and interests of local communities affected by oil and gas extraction and again effort should be made to link systems of accountability.
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Even more challenging are questions raised by the Natural Resource Charter, how big are the nation’s total resources, how quickly should they be extracted, when will they run out? And these questions lead directly to the big question of how the proceeds are being invested so the countries can thrive after natural resources are exhausted.
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How best to deal with ‘Dutch Disease’, i.e. the fact that currencies in resource-rich countries tend to rise and this tends to undermine other sectors of the economythere is also a major problem in commodity markets of great fluctuation of revenues. For example Nigerian revenue from crude exports peaked at a little less than $25 billion in 1980; slumped to less than $7 billion per annum in 1986 to 1990 and in 2007 exceeded $52 billion. .Because gas, oil and mining prices tend to fluctuate in exaggerated cycles of boom and bust, this creates very serious problems for financial management.
Clearly the EITI cannot possibly provide answers to all these questions, but the claims of its rhetoric and which are elaborated in its Principles, that transparency will lead to greater accountability, and this will mean that the riches from natural resources will be spent to reduce poverty, do require answers to all these questions.
The challenge now is to examine whether the move to a scoring system that encourages and rewards continuing reform, better integration with other efforts focused on improved financial management and accountability, and the refinement of the minimum reporting requirements of the EITI, can produce more effective results. And the big question that lies behind this is whether the companies and countries that do not appear to be strongly committed to a reform agenda will cooperate or will attempt to block this reform effort. The beauty of the proposed scoring system is that it can impose a minimum requirement that must be reached in order to become a member of the EITI movement, and can therefore draw in all countries and companies with some commitment to reform whatever their starting-point, but it can also incentivise those who are at a higher standard, to go further. In addition the existence of an international transparency movement, with increased internationally comparable reporting should help to encourage a greater reform movement worldwide.
I conclude, and I should stress that I am speaking only for myself and not for the EITI Board or the Secretariat, this is the point the EITI has reached 10 years after the proposal was first floated. The next year or so will demonstrate whether we will be able to hold the existing coalition together and build the foundations that have been laid. It will be an important and challenging journey and will need support and help from all who share these aspirations. Time will tell whether would we can achieve the reform which is needed.
But I end where I began. There is growing impatience amongst the increasingly educated youth of resource-rich, corrupt and oppressive countries. They have been inspired by the Arab Spring and are stirring. These movements will challenge the status quo and particularly those that are benefiting from gross corruption and inequality. These movements could be pragmatic and reformist or if unsatisfied could become violent and angry. But change will come and an enhanced EITI could become part of the reform agenda or an irrelevance that is swept aside. Only time will tell.
References
[1] Dr. Kaberuka’s comments are developed in greater depth in: Kaberuka, D. 2011. Africa and the Brave New World. Society for International Development Conference. [Online]. [Accessed: 15 August 2016].
