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Reducing corruption and the kleptomania of autocrats the EITI way

EITI | Reducing corruption and the kleptomania of autocrats the EITI way Ian Fraser

The extractive industries are one of the biggest sources of foreign direct investment for many emerging economies - often accounting for over half of total government revenues - but frequently the money does not end up in the right hands.

Indeed, the recent social and political upheaval in the Middle East and North Africa has highlighted how the proceeds of oil and gas production can end up being siphoned out by corrupt leaders to suppress human rights rather then being invested for the good of the broader economy.

A recently released WikiLeaks cable suggested that Saif as-Islam Gaddafi, son of the Libyan leader, siphoned a portion of the output of an oil field run by France's Total to finance his own personal "activities".

So how can this sort of thing be halted? Well, the Extractive Industries Transparency Initiative, an Oslo-based organization, believes it has found the silver bullet.

EITI, founded in 2002, aims to pressure international oil, gas and mining companies to be more transparent about the payments they make to governments and officialdom; and for governments to be more transparent about what they receive. The aim is to furnish “civil society” with the information it needs to hold political leaders and corporations to account.

The EITI is making some headway. It recently said that six more countries have met its criteria and are joining the initiative - the Central African Republic, Kyrgyzstan, Niger, Nigeria, Norway, and Yemen.

Four of these are not noted for the integrity of their public officials and governments, so any progress there could make a big difference. The arrival of the six newcomers brings the total number of countries designated as “EITI Compliant” to eleven.

Other EITI compliant countries are Azerbaijan, Ghana, Liberia, Mongolia and Timor-Leste. In addition, Guatemala and Trinidad and Tobago became candidate countries, bringing that list to 35. The organization’s outgoing chairman, Peter Eiger, said, “In doubling the number of EITI Compliant countries, the standard has passed a significant milestone. These countries have made an enormous stride in good management of their natural resources.”

EITI also named Clare Short, a former member of Tony Blair's cabinet, as Eiger's successor. Short said her biggest priority in the role will be “to ensure that the EITI standard really delivers improvements to the lives of the people of resource-rich countries.”

Investors generally welcome the initiative. At its conference in Paris held earlier this month, George Soros, the high-profile US investor and founder of the Open Society Foundations, said, “This comes at a moment in history where the importance of transparency in the use of natural resources is becoming very, very clear indeed.”

Keith Skeoch, chief executive of Edinburgh-based Standard Life Investments, suggested two ways of enhancing EITI's effectiveness:

"First, all stakeholders should endorse the principle that the EITI rules and criteria must be applied objectively and consistently. Second, all stakeholders should endorse good governance principles and processes within the EITI.”

Critics of EITI at the Paris event criticized the organization for being too obsessed with 'quantitative' results - counting the number of countries and companies that have joined in the initiative - and insufficiently focused on 'qualitative results' - including determining whether real changes (such as poverty eradication or moves towards better governance) are occurring.

TrustLaw, published by Thomson Reuters, produced a comprehensive collection of articles from the March 2-3 Paris conference. In one article, Katherine Baldwin reported that EITI's critics claimed that reporting investment and revenue flows is just the first stage in what should be a more ambitious project targeting real impacts on the ground.

Baldwin quotes Armando Guebuza, president of Mozambique, as saying:

“The promotion of good governance and transparency in the payment of receipts in extractive industries will significantly contribute to the discouragement of corrupt practices. But transparency is not an end in itself but a means to make poverty history”.

World Bank managing director Sri Mulyani Indrawati told the conference that compliance with EITI's reporting standards should be seen as the first step in a more profound process:

“What is needed are bold steps in countries to build institutions and tackle the barriers – from political economy factors to vested interests to corruption – which prevent continued reform and better governance.”

In a separate paper on the EITI published in January 2010, Mary Ella Keblusek, international director of the Niger Delta Professionals for Development, said that EITI has to become more alert to political realities on the ground.

She said that its secretariat needs to become more aware that the EITI 'process' is frequently more of a political challenge than a technical challenge and that greater resources need to be devoted on the back of that understanding.

“The real challenge to creating substantive change is convincing the political elite in extractive industries countries to embrace a process of transparency that will very likely reduce their ability to receive rents from that industry...

"The EITI does have an important role to play, but this will only be fully realized if the EITI International Board and Secretariat make significant changes to their engagement strategy.”

(It’s also worth noting that EITI has embraced social media with gusto - with an active presence on Twitter and Facebook.)

Further reading on foreign direct investment, transparency and country risk:

Tags: corruption , FDI , mining , oil and gas , transparency
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