REVENUE TRANSPARENCY

Two thirds of the world's poorest people live in countries rich in natural resources. In most countries, sub-soil minerals belong to the state. But in many countries, there is an inverse relationship between this public resource and public welfare. The links between resource wealth, poverty, conflict and corruption–the so called "resource curse"–are well documented. Studies have also shown that with effective and responsible governance, natural resources can generate revenues that foster economic growth and reduce poverty. Public information and public accountability are the best guarantee that a country's resource wealth will translate into lasting benefits for its citizens.

Oil, gas and mining companies make payments directly to governments in the form of royalties, bonus payments and taxes, providing the state with an autonomous flow of funds that is independent of its citizens. These windfalls reduce the need for taxation and thereby eliminate a key motivator for citizens' scrutiny of public finances. Extractive income gives governments ample resources to buy political support through patronage, and legislatures often have little or no budget oversight. Thus the connection between citizens and the public purse is weakest in resource-rich countries where the need for well-informed, vocal and active public oversight of government funds is greatest.

Citizens often have little or no access to information about these payments, because resource contracts customarily are shrouded in mutual Òconfidentiality clausesÓ forbidding either party from disclosing information without permission of the other. . In the absence of public awareness or participation in government processes for revenue collection and distribution, corruption and mismanagement of public finances are free to thrive. World Bank and IMF studies have concluded that the extractive sector is a major determinant of corruption in the economies of resource-rich countries, and this partly explains the poor development outcomes.

Today, the global community can see a coalescing movement to promote transparency and accountability in the oil, gas and mining industries. Worldwide public awareness of these industries' impact on governance, human development, the economy and the environment has never been higher, and leaders and communities now understand that progress is possible if the extractive sector can be opened to public scrutiny. Perhaps most remarkably, petroleum and mining companies, civil society groups, and governments are beginning to work together toward the goals of improved governance and responsible resource revenue management.

Civil society organizations from rich and poor countries have joined forces in the Publish What You Pay campaign (PWYP), a global coalition of more than 300 NGOs helping citizens to hold their governments accountable for the management of revenues from the oil, gas and mining industries. In response to the PWYP movement, the international community (led initially by the British Government) has come together to create the Extractive Industries Transparency Initiative, an emerging global reporting standard for revenue payments and receipts in resource rich countries.

The EITI standard hinges on the equal contribution and participation of governments, industry and civil society. Some resource-rich countries are beginning to build policies out of these principles. Nigeria has created an EITI law and has expanded its EITI program to incorporate licensing and bidding processes, which to date have been plagued by cronyism and corruption. Similarly, Ghana has expanded its EITI program beyond revenue receipts to include sub-national revenue distribution, the expenditure of these funds at the district assembly level, and the voluntary contributions of extractive companies.

Increasingly, participants in the EITI and PWYP movement argue that eliminating the resource curse demands transparency and accountability across the value-transaction chain of natural resources, from licensing concessions and contracting all the way through to revenue management and expenditure at the national and local level. This level of information and accountability would arguably increase the likelihood that companies will pay what they ought to and that governments will manage and spend revenues as they should.

A growing number of international organizations including the World Bank/IFC, the International Monetary Fund, the EBRD, the ADB and AfDB are adopting transparency rules for their extractive industry activities and policy advice. The International Accounting Standards Board is also considering the creation of a special reporting standard for the extractive industries. Revenue transparency is only one step in the process of maximizing the development benefits of natural resource wealth, but an essential step.

RWI is a co-founder, donor, trainer and active member of the PWYP Campaign, and one of the EITI's earliest and strongest civil society supporters. We are leading a global advocacy campaign to mainstream revenue transparency in producing countries, extractive companies, financial markets and international institutions. As the only organization dedicated exclusively to helping countries address the special challenges of natural resource wealth, RWI plays a unique role through advocacy, direct assistance to activist groups and, increasingly, to governments in resource-dependent countries.