Natural Resource Governance Still Faces Challenges

March 28, 2014

Whether natural resource wealth is transformed into prosperity is an issue that has made great strides in the past dozen years, but faces new challenges from China as well as citizens of countries on the verge of new resource discoveries, according to panelists including CEU Founder and Honorary Chairman George Soros, speaking at CEU March 26. The event, Transformative Resources, Transforming Economies, was hosted by SPP's Professional Development program.

“Getting China on board is one of the most important ways of moving forward from here,” in order to maintain the momentum initiated by the 2002 launch of the Extractive Industries Transparency Initiative (EITI), Soros said. The discussion was part of SPP’s two-week executive education course entitled Reversing the Resource Curse.

Discovery of natural resources within a country’s borders can become a long-term economic boon for the many, or fill the pockets of a corrupt few. Accountability and transparency is necessary at every level, from exploration contracts to environmental management decisions to government policy decisions on spending to proceeds. That is the goal of the EITI, a coalition of governments and civil society that maintains standards for full disclosure of payments and now counts 44 countries as members.

While the EITI has made great strides, like many international organizations, it does not force compliance, and China is unlikely to become a member, panelists said. Soros went so far as to say EITI “may have outlived its usefulness,” since the European Union has enacted anti-corruption legislation that will make the so-called “publish what you pay” principle obligatory, and other countries are soon to follow.

“There’s actually a very healthy interaction between voluntarism and compulsion,” said Paul Collier, professor of economics and director of the Centre for the Study of African Economies at Oxford University and a visiting professor at SPP. “Some are optimistic enough to say EITI can and should be improved.”

One positive development that could help “maintain the dynamism,” according to Soros, is the merger of the Revenue Watch Institute and the Natural Resource Charter, headed by Daniel Kaufmann, who moderated the March 26 panel. The issue of transparency has become a core issue of international governance in the G20 thanks to Collier, Soros added.

“The new battle is citizen understanding,” according to Collier. “There’s a danger in which foolish citizens, having achieved accountability, drive governments into foolish policies.”

For example, after Nigeria discovered oil, and a huge hike in oil prices occurred in 1974, the country had the opportunity to become a rich country virtually overnight. The very next year, the country raised public sector wages by 75 percent. This created a “massive increase in expectations on the part of ordinary people, and the government conceded to that, saying “You’re all rich.”,” Collier said.

In Botswana, by contrast, the president developed a “narrative of patience,” Collier said, by carrying a message around the country that “we are poor and therefore we must carry a heavy load.” Botswana then used its diamonds to build the country into one with the highest per capita income in sub-Saharan Africa, and a standard of living on par with Mexico and Turkey.  

Converting natural wealth into sustained productive wealth is a long-term process, achieved through investment, and the public must understand this.

“At the end of the day, the questions are very simple - who gets the money and when?” said Bob Conrad of Duke University, a tax policy specialist who has advised governments and private entities on natural resource policy for over 30 years. “The public has got to be involved in very tough decisions on how to raise and spend the money.”

The rules of justice must be established before resources are discovered, however, according to Collier, which is not an easy task. In Tanzania, the cabinet assured Collier that there would be no regional issues with ownership of natural resources. After an offshore oil discovery, the region erupted into violence, claiming rights to the revenues, leaving four people dead.

“There is an irreducible need for courage,” Collier said, speaking to the 50 participants in the Reversing the Resource Curse program who were among those who filled the CEU auditorium in Budapest for the event. “A lot of you are from countries that need courage for change. Brave people make a difference.” 

Watch a recording of the panel discussion here.